The news of an impending summit between the government and the Council of UK Mortgage Lenders is rumoured to be taking place this week, but what will they decide? Will it make a difference to the person in the street?

At the same time as Chancellor Alistair Darling was dishing out words of wisdom to the mortgage industry which he has very much helped to destroy of late, it was announced that State owned Northern Rock were not even following the governments lead. Northern Rock have yet to decide whether their variable mortgage interest rate will be changed after last weeks base rate reduction, in direct to contrast to Darling’s call. So is this a case of do as I say, not as I do?

While the government will argue that this truly reflects the independent nature of the Northern Rock, which is supposed to be run at arms length from the authorities, how can they then criticise the rest of the industry?

The mortgage industry in the UK is literally on its knees with increased funding costs, a falling housing market and a government which seem keen to squeeze them as hard as they can in order to curry favour with the public. It is difficult to argue with some of the points which the government have made, but does this latest outburst not deflect the attention from the Treasury at a time when public spending is under pressure, government debt is rising and the economy is stalling?

It will be interesting to see if the minutes of the summit are released, showing the arguments from both sides, because from an outsider’s point of view it would be interesting to see what was said and any changes agreed for the future. However, is it not ironic that all talk of a one off banking sector tax charge (suggested when they were all doing well) has now been replaced by an atmosphere of “let us work together”.

The bottom line is that while the mortgage companies of the UK could no doubt reduce their rates a little further, there is still massive pressure on funding. Many have been critical of the Bank of England who have injected just a fraction of the liquidity which their US and European counterparts have, despite the obvious deterioration in the financial sector. But is this the fault of the Bank of England, the consumer or even the government?

Let is not forget that this is a government who have bragged about the increasingly bright economic future of the UK for some time, the fact that the boom and bust scenario had gone for good and kept wage inflation in the public sector to a minimal. Now the economy is failing quickly, the bust scenario is returning and we are seeing more and more strike action in the public sector, and all in just a couple of years.

Will Gordon Brown get the chance to breathe new life into the economy, will the mortgage lenders play ball or has the Prime Minister lost his iron tight grip on the UK economy?

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.

While the signs are that the UK housing market is under pressure, house prices have not yet shown the marked fall which many experts had been predicting, so what can we expect in the short to medium term?

The situation we are seeing in the UK property market is very much similar to that in the early days of the credit crunch, whereby many so called experts are breathing a sigh of relief that we have not seen a collapse. However, as we all know now the credit crunch has come back to haunt the worldwide economy with a substantial slowdown in worldwide industry expected in the short to medium term. The situation with the UK housing market will be similar because of a number of factors which include :-

Lack Of Funding

Many banks and other financial institutions have been forced to curtail the agreement of new mortgages after experiencing funding difficulties in the wake of the credit crunch. There is no short term solution to the problem because central to the problem is the fall in the value of core investments held by many institutions, which historically they had used as collateral for extended finance.

Economic Slowdown

As corporate UK continues to struggle from the slowdown in the worldwide economy, more and more companies will be looking to reduce their costs as profit expectations are slashed for the short to medium term. At some stage cost savings will mean job cuts which will mean less money in the pocket of consumers, which will again filter through into the economy and depress corporate profits yet further.

Inflation

While the Bank of England has full control over the future direction of bank interest rates there is great concern over the recent rise in inflation. The government’s upper band will be breached over the next 12 months with many expecting inflation to rise to more than 3%, which seriously undermines the ability of the Bank of England to slash interest rates as they have done in the US.

Consumer Confidence

Even though historically the UK consumer has been fairly upbeat we are starting to see signs of concern as the taxation policy of the current UK government starts to bite and people are actually beginning to feel the pinch. The impact of higher petrol prices has also had a knock on the affect to the UK economy where extra transport costs have been passed onto the consumer through the higher price of goods, eating away at the income of the UK consumer even more.

Unfortunately for the UK consumer there is no quick fix solution to the problems which we are experiencing now and set to encounter in the short to medium term because a sharp reduction in interest rates has the potential to push inflation higher, thereby affecting the long term performance of the economy. This lack of consumer financial strength will see less demand for houses and more home owners experiencing financial difficulties. Cut price sales will appear in time which will further reduce the strength of the overall market with the potential to see a serious sell off in due course. Buyers who have or can arrange funding are most certainly in a position of great strength, but probably in no rush to buy!

In recent years, arranging a loan has become very popular in UK as it has now become easier to borrow money. Consumer finance has become very popular, aided by variety of loans available with low interest rates. Secured loans are widely accepted as they suit the needs of the people who own property. Secured finance provides excellent value for the money and also affordability by all classes of people. A variety of lenders offer secured loans to consumers providing wide choice in selecting secure loans and applying for them.

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Compared to unsecured loans, secured loans have high borrowing levels though the amount to be borrowed depends on equity. Thousand of pounds or even much larger amount of finance can be borrowed with the help of secured loans to meet any purpose or need. Under the secured loan the repayment period is very lengthy as compared to unsecured loans, resulting in low monthly repayments.

Secured loans are easily accessible even for the people with bad or poor credit unlike unsecured standard loan. Lenders face less risk with secured loans as the loans are arranged against a security or asset. Lenders do not mind bad credit for sanctioning finance. People with even tarnished credit history can still manage to enjoy lower rate of repayment as bad credit loans are easily available at reasonable rates.

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All the major lending companies provide secure loans easily available through online. Just by booking through the internet and browsing the loan information a best deal can be clinched at competitive and affordable rates of interest. It is always wise to read the terms and conditions as well as interest rates by comparing between various available loan deals in the market to get a cheap and best deal of secured loan and an affordable rate of interest.

Secured loans make the life more comfortable by making available finance for funding or purchasing or to consolidate loans and credit. The loan repayments are on the lower side with reduce rate of interest. By harnessing the internet power it is very easy to find, compare and apply secured loans in a simple and straight forward manner, speedily at total ease and convenience. Competitive deals of loans are possible over internet giving better choice for greater value of borrowed finance.

While the US housing market was flying high and everybody was making money, the banks, builders and home owners alike there were no clouds in the sky and everybody was happy.  Since the onset of the sub-prime mortgage collapse we have seen US house prices fall and millions of US citizens put at real risk of being evicted from their homes after falling behind on their mortgage payments.  But why is there no solution yet?

As often happens in America the problem seems to be the ideals of each of the main political parties, with one favouring regulation and the other demanding a solution from the private sector.  While the politicians engage in cheap points scoring and fighting in Congress, literally millions of Americans are looking to pack their bags very soon and move home – only they have no where to go!

Each day that the politician cannot reach agreement sees more people moved out of their homes, more homes going on the market at sub-market prices and more pressure on the economy.  The situation has the potential to push the US into a very steep recession if no help is forth coming very very soon.  The banks know this and the politicians know this but they seem unable to put a package together – even though they have had up to 12 months notice that the situation was getting worse and worse.

Could this happen in the UK?

While you can never say never, the US financial industry has been guilty of pushing high risk loans to those who could ill afford the payments.  Even while the US housing market was flying high, behind the scenes in the sub-prime market, more and more home owners were falling behind with their payments – but was this headline news when the market was rising and rising?

It will be interesting to see how the authorities finally decide to resolve the situation, especially with the presidential election next year.  Who will be brave enough to make the big decisions? How long can they afford to sit on their hands? How will George Bush’s final months be remembered?

Even though the experts expect the UK housing market to fall back over the next 12 months, when you consider that the average house in the UK costs around £200,000 it is nearly impossible for first time buyers to get onto the housing ladder, without over stretching themselves.  So what can you do?

While the authorities have made much noise about helping first time buyers, there is very little that they can do.  If they offer financial assistance then they open themselves up to criticism for favouring a particular group of society, but if they do nothing they will further feed the frenzy for housing associations, which have pushed prices further and further ahead.  The bottom line is that you can’t have a free market and then complain when it does not go the way of the government.  Will prices ever come back down to more realistic levels?

Highly unlikely.  While prices have flown over the last few years there seems little chance of them falling back too far because :-

• There is still a firm demand behind the scenes.
• The authorities could not manipulate lower prices, because this would place many people in deep financial debt.
• There are still too few homes being built in the UK to cover demand.

The situation really is dire for first time buyers going forward, and even in the event of a property crash could we realistically expect prices to fall by 50%? If that were the case unemployment would be up and even fewer people would be able to afford a home.  This really is a nightmare scenario for the first time buyer, and there is little likelihood of prices and wages falling into line in the short or even medium term.

The recent rise in the housing market has seen many home owners sitting on potentially large paper profits, although some people still seem to be up to their eyes in debt.  It seems crazy that many people are being penalised by large debt repayments, or credit card balances which are running away from them, so what can they do?

It obviously depends upon the position you are in with regard to your mortgage, the value of your home and the amount of debt your need to address.  However, there are a number of options open to you including:-

Remortgaging your home to raise instant capital.  The main risk with this option is the potential to miss payments and run short of money, but if you are able to cover the payments at current levels you should be ok as interest rates should come down – or at worst, they are highly unlikely to move higher over the next 12 months.

Part remortgage.  For many people a part remortgage may well be the best solution, but again it depends on how much money you owe, and the amount of equity in your home.  You also need to ensure that you can actually afford the repayments.

Down grade your housing.  This is probably the worst case scenario for anyone who is deeply in debt, taking a profit on their home, paying off their debts and down grading to a cheaper house.  If you are in this much trouble then you probably need to take professional advice.

The idea behind releasing some or all of the equity from your home relates to the difference in interest rates.  While you may be paying in the region of 6% for a mortgage, you may be charged over 10% for your credit card debt.  In this situation it would seem a sensible idea to swap one debt for another, but at a substantially lower rate.

Do not rush into this type of decision as it may have a long term impact upon your life and financial situation – make sure you get it right!

As if to rubber stamp what some people were already thinking, a report out today has forecast that house prices in the UK are set to fall by as much as 6% in 2008.  While the forecast fall in prices will probably vary wildly between different areas of the country, the trend seems to be down.  Is 6% a large fall? Will it cause panic?

As many people are already seeing a tightening of their fiscal belts, a fall in property prices might not be such a bad thing in the long run.  It will serve to take some of the froth out of the market, and possible shake-out the short term investors who can often cause havoc with supply and demand.  While the credit crunch seems to have been forgotten by many investors, there is no doubt that at best it will be a drag on the property market for the next few months, although a property crash does not seem to be imminent.

How will the Bank of England respond?

In truth there is probably very little that the Bank of England can do, indeed they may even be relieved to see a possible reduction of the froth from the property market.  Their long term aim is, and always has been, to control the rate of inflation in the UK and unlike many central banks around the world, they have never lost sight of this.

A soft landing for the property market is probably one of the better scenarios that could happen, but things can change so quickly in the finance industry and you never know what is around the corner.

It has been confirmed today that according to Treasury figures, the UK housing market is heading for a slowdown rather than a crash as many had feared.  This will be much appreciated news to the stock market, as the housing market can often lead the economy in either direction.  So what is happening?

While the signs in the housing market are mixed at the moment, the general trend is one of reduced demand and softening prices. Probably caused by both the recent credit crunch and ongoing concerns about the future of the UK economy, it seems that some house buyers are holding off for the moment.

The trend at the moment has rubber stamped the Bank of England approach which has been criticised by many economists.  It seems that retaining interest rates at current levels has served to squeeze the mortgage market, and the credit crunch recently added to the pressure (with some mortgage rates being pushed higher). Not for the first time it seems that the Bank of England have been proved correct in their focused approach to the long term situation, and have avoided short term policy changes which may come back to haunt some Central banks around the world.

It will be interesting to see if this steady reduction in house prices continues, and at what point (if any) those with substantial paper profits will look to crystallise their positions.  If the property market does not fall back too far, then there is every chance that the UK economy will avoid a marked slowdown, and we may just experience a period of consolidation - which will hopefully take out much of the “froth” in the market.

After the events of recent days we have seen mortgage rates increase, without interest rate rises from the Bank of England - purely because of the credit crunch and the increase in the cost of borrowing.  So how will this effect the housing market and what assistance can the Bank of England give home owners?

We are in a fairly surreal situation at the moment, with the Bank of England keen to reduce interest rates, although their scope is limited due to the potential for inflation to move ahead again.  We have interest rates steady, but mortgage rates increasing across the board, with a high probability of more rises to come in the short term.  Confidence in the financial sector is draining quickly, although the homeowner is seeing no real deterioration as yet. So what really is going on?

The housing market is bound to be effected by recent events, not just because some banks and financial institutions are  unable to offer mortgage deals at the moment, but because their cost is rising. This confusion in the mortgage market is going to take some time to filter through the system, and there will be many mortgage applications put on ice or even refused.  When you consider that the housing market is purely based on supply and demand, the demand will start to slacken yet the supply is still increasing - a recipe for disaster?

There is no doubt that while the Bank of England will be doing what they can to see some of the struggling companies through the worst, we will need to endure a little more pain before the situation resolves itself.  Delays and increased borrowing costs will hit the housing market, effect the economy and generally depress the mood of the consumer.  What can we do?

At this moment in time there is very little that we can do, except hope that the situation does not deteriorate any more than it already has done.  Once we see confidence picking up again, then we will no doubt see lenders returning to the market and supply increasing again.  This may be some little time off at the moment, so brace yourself for a rocky ride!