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So what is the reasoning behind such a statement? Well, it seems inevitable that a period of rather irresponsible lending will take its toll this year, thanks to that thing we've been hearing so much about recently - the global credit crunch. The cost of borrowing has become higher, fewer mortgages are being approved and 1.4 million people are due to leave the safety of their fixed rate mortgages this year.

Repossession should be good news for some of us of course, particularly first time buyers scenting a bargain, but the Bank of England have shown that mortgage approvals are at their lowest ebb for a number of years, with just 73,000 new mortgages sanctioned in December. Compare this to 120,000 in January of 2007.

Over the last few years, with very low interest rates, there has been a lot of careless lending to people who really couldn't afford it; people with poor credit history, for example (so called sub-prime borrowers). These are the sort of homeowners who are expected to struggle as the cost of borrowing goes up and are most at risk of adding to the repossession prediction quoted above. Amongst the many homeowners coming off their fixed rate mortgages this year, not all will be able to renegotiate the loan, which will mean a sharp increase in household spending. 

So what do the lenders intend to do about this, you may ask, seeing as they have helped to create the situation? Well, there is some good news on this front; all lenders that have signed up to the Banking Code will be forced to adhere to some new rules which will force them to monitor borrowers more closely in the future. Under the current rules, it is the responsibility of the borrower to approach the lender if they feel they're likely to slip into arrears. From March, when the code is revised, the lender will be obliged to contact the borrower if there is evidence of financial difficulty. This evidence could include a greater use of overdraft facilities as well as late mortgage payments.

 

This legislation is obviously a step in the right direction but it does not go far enough, after all it was a lack of borrower scrutinization that is at the root of the problem. Although the credit crunch is forcing banks to adopt stricter lending criteria, it is rather incredulous that responsible lending was not deemed to be part of the banking code in the first place. 


Are you worried about your mortgage payments in the coming year? Are the banks to blame? Contact Us and have your say.