Why Are There Lots Of Mortgages With Defaults In The UK?
There is a huge problem right now with mortgage supply. People, including people who have mortgages with defaults, need mortgages but the mortgage lenders will not lend them. It is because to create a mortgage, lenders need money borrowed from other banks – they borrow from a bank, lend it to you and pay the bank back with the proceeds. But because of the credit crunch no bank trusts any other bank well enough to lend, so there is no money for mortgages. So those with mortgages with defaults are stuck on their old mortgage deals.
And because people are stuck, they are unable to survive with mortgages with defaults. Lots of people over the last five years were offered mortgages when they had little or no equity. This meant they needed mortgages worth 95%, 100% and even up to 120% of the property’s worth. This was fine while house prices were on the rise, but now they are falling and people have negative equity, which means they owe more than their house’s worth. And mortgage lenders will not lend to those people who have no equity and mortgages with defaults.
Also, as well as lending high loan to value mortgages, many lenders lent mortgages to people who maybe could not afford them. Income multiples for mortgages were up to six or seven times, which meant someone’s mortgages was worth six or seven times as much as they earn. But it was easy to pay back as rates were low, but now rates have shot up people cannot meet the mortgages and they become mortgages with defaults.
So this country has seen a triple disaster – house prices have dropped by more than 10% in 9 months**, mortgage lenders cannot find the credit to lend out more mortgages and rates have shot up considerably. This means there are lots of mortgages with defaults out there, people cannot afford their rates, their house price is falling and their mortgage lender is just saying no. There seems to be no way to avoid mortgages with defaults.
But there is – if you have mortgages with defaults, talk to a mortgage adviser. They may be the key to finding a mortgage lender who does want to lend. They may also be the key to finding better rates and organising your finances so you are not a holder of mortgages with defaults.
* The Council of Mortgage Lenders, 2008
** Nationwide, Halifax House Price Index, September 2008