Rough ride warning for home owners as ‘credit crunch’ bites

Mar 18 2008 by Laura Wright, South Wales Echo

HOME owners and first-time buyers across South Wales are being warned to expect a rough ride as the “credit crunch” bites.

Restrictions on lending are increasing and many banks are withdrawing their best mortgage deals while business experts predict that the crisis will get worse before they get better.

Brian Morgan, professor of entrepreneurship at the University of Wales Institute Cardiff, said: “The restrictions on lending are getting more and more. It’s hitting big financial institutions and is trickling down to everybody else.

“There are some severe problems ahead this year for people trying to re-mortgage.

“Banks are out there borrowing money and re-lending it. But now they are having great difficulty finding the money to support their lending and they’re having to withdraw a lot of their current products because they can’t support that sort of business anymore.

“This means that a lot of people who got into two-year fixed mortgages and anticipated re-mortgaging before an interest rate rise are now going to find it very difficult to re-mortgage somewhere else.”

There has been a surge in the number of people seeking advice after getting into trouble with their mortgage repayments, the Citizen’s Advice Bureau (CAB) said today.

James Buchanan, 29, of Cardiff Bay, said: “We had a good rate of interest on our fixed-term mortgage but it runs out this summer. We’re worried we’re going to be hit badly by this credit crisis and we’ll struggle to pay our mortgage each month if the repayments shoot up like we expect them to.”

Prof Morgan urged people not to panic but to adapt to the changing mortgage market.

“There’s no need to panic as long as people understand the costs and availability of credit is becoming dearer,” he said.

“The idea you can borrow 100 per cent of the value of a house is out the window. The most you can get now is 75 per cent because the value of property is on an unsteady footing as well. People will find it more restrictive in terms of getting a mortgage and it will particularly affect first-time buyers.”

Today, the credit crunch’s biggest UK victim Northern Rock announced that it was proposing to reduce staff by around a third by 2011. It has not been confirmed how many jobs will go in South Wales.

Wales’ biggest building society The Principality today reassured customers that it was built on far firmer foundations, but said that borrowers needed to be realistic about the debt they could take on.

Graeme Yorston, chief operating officer at Principality Building Society, said: “Supply tends to get limited by banks and building societies asking borrowers to find larger deposits to get the best rates. Borrowing could be more difficult if you have even the slightest blemish on your credit history.

“There would appear to be some shift occurring where potential borrowers have to make sure that they have savings available to increase their ‘stake’ in their property. A difficult thing, particularly for first-time buyers, struggling to get on to the housing market.

“Over 80 per cent of our mortgage book is funded by retail savings deposits from members and the strength of our balance sheet, coupled with the good quality of Principality’s mortgage assets means we are able to satisfy our relatively modest wholesale funding requirements,” he added.

laura.wright@mediawales.co.uk