Jane Croft, a Retail Banking Correspondent has a great article in the FT about the UK liquidity issues in the Home Loan sector.

A growing number of mortgage lenders are restricting home loans to customers outside certain geographic areas or are capping the maximum amounts homeowners can borrow at £350,000 as the credit squeeze intensifies.

Nationwide, one of the UK’s biggest lenders, has said that it will stop lending to first-time buyers who want to take out selfcertified mortgages where proof of income is not required. It is also stopping lending to all first-time buy-to-let landlords.

In addition Nationwide, which lends to these specialist segments through its two divisions Mortgage Works and UCB, is capping the maximum it will lend to any borrower taking out selfcertified mortgages to £350,000.

FT.com / Companies / Financial services - Borrowers face caps on loans

Judith Heywood at the TimesOnline recently dissected the Bear Stearns credit crisis and how it will/could affect our UK Home Prices.

Why is the outlook suddenly more gloomy?

The sudden demise of Bear Stearns has revealed that the credit crunch crisis is deeper and more damaging than was previously thought. The emergency takeover of this US bank has caused UK banks to grow even more nervous than before. For the past six months they have been withdrawing mortgage deals. But now they are becoming even less willing to lend. Estate agents report that creditworthy potential homebuyers are being excluded from those loans still on offer. The latest worries have ruled out an early end to this troubling scenario.

Are all borrowers affected?

Securing a home loan is now much harder and more costly for all buyers - even those who have had no problems in the past. The supply of credit has dried up most quickly for first-time buyers, with lenders now channelling their funds into remortgages. So if you have substantial equity in your home, you might have better luck securing a good deal.

After years of good deals on home loans, David Miles, an economist at Morgan Stanley, says that lenders are charging according to what it costs them to borrow - not the base rate. Do not rely on any savings being passed on to you if the Bank of England cuts rates.

What about buy-to-let investors?

Loans for amateur investors are in short supply but more experienced landlords who have built up strong portfolios can more easily get loans to snap up a property. Their enthusiasm is bolstered by rising rents - up 9 per cent last year, according to Hometrack - as more potential buyers wait. Michael Coogan, the director-general of the CML, predicts that buy-to-let could outperform the owner-occupier market. Fionnuala Earley, of Nationwide, counsels against expecting a sell-out in the sector - more bad news for buyers hoping for bargains.
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March 11 (Bloomberg) — U.K. banks raised the cost of borrowing for homebuyers with the smallest deposits to a seven- year high, declining to pass on two interest-rate cuts by the Bank of England.

The average rate offered by lenders on loans for 95 percent of the price of a property, fixed for 24 months, rose to 6.55 percent, the highest since September 2000, the central bank said today on its Web site. The cost fell for mortgages worth 75 percent of the value of a home.

Banks have been reassessing the credit risk of their loan books after reporting losses and writedowns totaling almost $190 billion stemming from the collapse of the U.S. subprime mortgage market. Today’s data suggest that lenders are making it harder for consumers buying their first property, who typically have smaller savings to invest, to afford a home.

“Banks are clearly now engaged in more active risk- pricing,” George Buckley, chief U.K. economist at Deutsche Bank AG in London, said in a note. “Riskier borrowers are failing to benefit from the fall in policy rate expectations.”

While the Bank of England cut the benchmark interest rate twice since December to 5.25 percent, banks have been reluctant to pass on the reductions in full. They have also curbed the number of loans on offer, with mortgage approvals in January staying close to the lowest in nine years.
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