While we continue to see a stream of mortgage offers withdrawn from the market, with HSBC the latest to pull some of their mortgage deals, there are real concerns that the UK property sector could very well go into meltdown over the next 12 months. As more and more mortgage lenders rush for the exit doors we are seeing a number of things happening in the market place such as :-

Increased Rates

While base rates in the UK continue to come under downwards pressure we are seeing mortgage rates actually rise, something which many of the UK population seem to be missing. The banks claim that due to a lack of available credit they are seeing increased funding expenses and increased risk, hence the rise in rates. It should also be noted that this widening of the gap between the cost of mortgage finance and mortgage rates being charged to the public has given the banks more “profit margin” on their mortgage agreements.

Lack Of Competition In The Market

As we see mortgage providers looking to pull more short term deals, competition in the sector is decreasing, something which is allowing many mortgage providers to increase their rates. One factor which has gone largely unnoticed is the Northern Rock affair and the fact that they are actively encouraging mortgage customers to remortgage with other financial institutions, thereby reducing their own mortgage book and releasing funds to repay some of the debt due to the government.

Demand Falling

While the markets have been expecting some kind of fall back in the housing market, after a relentless rise over the last few years, few would have forecast exactly what would cause this retreat. Even though demand has not yet fallen substantially we are starting to see the wave of sellers building, with more and more people desperate to reduce their exposure and scale down their property assets. Historically property owners have reacted very much with the herd mentality and this time is likely to be no different. There will come a breaking point when the sellers grow in number and the buyers retreat knowing that a property they like today will likely be cheaper to tomorrow, so why rush?

Employment

Even though there has been no real mention about the employment situation of late, there is no doubt that as the economy slows we will see more and more redundancies. Those who lose their jobs will then be under more and more pressure to cover their mortgages, with repossessions likely to rise substantially over the next year. This rise in repossessions will also put further pressure on the housing market, with prices falling further and further. Indeed there has been a report today which suggests that over 3 million UK home owners will enter a negative equity situation over the next 12 months.

The mortgage market is literally dying on its feet and even those who are brave enough to buy will struggle to find affordable mortgages at the moment. Over 40% of mortgage providers have recently indicated that they will be pulling some of their mortgage offers from the market over the next few weeks and months, meaning the cost of borrowing will go higher and higher. Unfortunately, we are nowhere near the end game as far as the credit crunch is concerned.