As a Mortgage Broker in the UK it has been extremely frustrating that as a result of the bad lending to American borrowers the UK has been greatly effected.
I currently have clients which have slight adverse credit which previously could get mortgages at 95% ltv at 6.4% APR and now the best rate possible for them is over 9% on 90%ltv. I think the fact that UK banks and lenders cannot obtain funding from the wholesale market will have a major impact on the UK housing market if the interest base rate remains as they are. A sensible move would be to reduce rates until confidence in the market is returned. We have seen this week Northern Rock obtaining an unlimited funding line from the Bank of England which in real terms is a sensible thing to do as they rely heavily on borrowing money from the wholesale market. Mortgages are their main form of income, so the inability to lend means in effect their profits will be effected. The bank is 100% solvent but confidence by the consumer has been heavily dented. On one day alone customers took out one billion pounds from their current and saving account. Northern Rock are not the only bank in this position, how many more will contact the Lender of last resort. During the next few weeks I expect a lot more applications to the Bank of England. As a result of the current market I can see more repossessions and less people being able to get on the property ladder as lenders tighten their criteriers. Customers coming out of their fixed rates with a few late or missed payments will have no option but to stay on their lenders standard variable rate as no low fixed rate options will be available to them. I do not seeing this problem lasting too long, I expect things to settle down in the next 3-6 months time.
If only I had crystal ball. Do not panic as the banking system is critical to the economy and the government will do everything to instill confidence to the public.
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