Money Magic

Figures released from the Bank of England at the end of April confirm that the slowdown in the UK mortgage market continues unabated.

As the effects of the credit crunch continue to bite into the economy, mortgage approvals for house purchasers in March fell to the lowest level since recent records began in January 1999, with only 64,000 approvals, around 8,000 down from the previous month and only 44% of the comparative figure for the same month in 2007.

Commenting on the sharp drop in approvals, Simon Rubinsohn, chief economist at the Royal Institute of Chartered Surveyors (Rics), said that it was hardly surprising given that lenders had been aggressively scaling back in providing finance to homebuyers.

The figures also showed a steep rise in credit card and other forms of lending from the beginning of the year, with a substantial dip in property prices throughout 2008.

The Bank of England further reported that approved remortgaging loans also dropped by 11,000 in March, compared to a cumulative total of 98,000 for the previous month.

There was also a sharp reduction in loans arranged for other purposes, including buy-to-let loans reduced by 6,000 from the previous month’s total to just 57,000.

The total net lending secured against homes was £6.9bn, a figure that contributed greatly to a successive fall in the growth rate, reduced from 9.4% to 9.1% in February.

In a move designed to arrest the current downward trend, leading bankers the Royal Bank of Scotland (RBS), which includes NatWest, has pledged to cut its fixed and tracker rate mortgages by between 0.1% and 0.3% for existing customers in the process of switching deals and for new customers in what appears to be an aggressive attempt to increase its present share of the mortgage market.

The continuing credit crunch – an appellation used to describe the financial state of affairs created by banks becoming less willing or able to lend money, both to each other, as well as to consumers, has obviously precipitated a huge demand for further unsecured and homeowner loans, but appears also to have created a steep learning curve for both lenders and borrowers alike.

There are very strong indicators that lenders will be far more wary of assessing risks when offering new unsecured and homeowner loans, and will not repeat the exercise of casually providing 70% of unsecured loans without even taking proof of income, as the uSwitch financial comparison site reported had indeed been the case in the previous year.

Borrowers, now faced with the current meagre market for unsecured loans, are also becoming more astute, with increasing numbers of consumers researching the terms and conditions of loan companies much more thoroughly, and at least 20% of potential customers now checking their personal credit report before applying for any type of loan, according to figures recently published by the credit report company Experian.

Similarly in the home and car insurance sector, also deeply affected by the current financial climate, consumers appear to be heeding advice to check the validity of all current insurance policies and to cancel those that no longer afford real value. More and more motorists are also shopping around for better value insurance policies and are keenly comparing prices, with 4.9million car and van owners actually switching insurance providers during the previous six months, according to figures from the independent price Monitoring Index published by MoneyExpert.com.

There has also, understandably, been a surge in the demand for debt services, particularly for Individual Voluntary Arrangements (IVAs) and Debt Management Programmes (DMPs), as the effects of the credit crunch continue to eat into consumer’s expenditure.

However the UK Insolvency Helpline, a National debt advisory service for debt advice and debt management, has recently voiced concern at the number of, what it calls, “IVA factories”, that have begun operating in recent years.

The Insolvency Helpline’s social policy team are warning that in some cases consumers are being ‘mis-sold’ IVAs, and that they are currently dealing with around 100 calls a day from members of the public who are being encouraged to take up IVAs by debt management firms, when clearly these arrangements may be entirely unsuitable.