Some people might be somewhat confused lately by the whole banking and lending situation, and I have to say I completely understand why. We have seen billions upon billions pumped into the banking system and for some reason we still have a situation where it appears lenders don't want to lend money so people can't buy property or develop what they have or even get extra borrowing to spend on the high street.
In addition we have seen drops in interest rates to levels we have basically never seen before. Yet all this effort into trying to get lenders lending and us the consumer borrowing and ultimately spending our money has failed, Why?
Well it is no great secret that banks are currently in what can only be described as a bit of a crisis at the moment. They have very little idea what their assets are and furthermore they have even less idea what their liabilities are.
This is due mainly to the fact that they are unsure which of their loans will turn bad and which will turn out to be good. The good loans will be assets and the bad ones will be a liability against the business. It is for this reason that they are in a bit of a hiatus and as a result unwilling to lend.
You might be forgiven for thinking that this is the sole reason we are in this situation, banks don't want to lend because they don't know what position they are actually in. Well this is only part of the story. Banks have, to put it bluntly, woken up. They have realised that the way they have lent in the past cannot continue. They have spent most of the last four or five years lending well in excess of 95% and to top that they have also been lending on a self certification basis to a lot of borrowers.
This essentially means that their lending book is full of very high risk business. So having realised this they are not predisposed to lending any more in this way. However the problem is they have lent so much money in this way to so many people it is quite difficult to find a client with a low loan to value mortgage and someone who is happy to provide full proof of income.
So banks may have the money to lend to you and I, interest rates may indeed be at such a favourable level for us to go out and "fill our boots" for want of a better expression. But can you actually find a lender willing to lend you 90% to 95% or 80% on a self cert basis? I have to be honest I don't think so.
What does this all mean? I personally think that it may be a good few years before the market for mortgages comes back and that is if it comes back at all. We might have seen an end to the way we used to mortgage our properties. No more self certification and no more high loan to values. The problem is house price inflation over the last five years or so has been fuelled by the ease of these mortgages. We probably should have been unable to get a large proportion of the mortgages we have. So the future could be about waiting till our wages and deposits get up to the levels that house prices actually are, or wait for the property to come down, now that is a scary thought indeed.