As we have previously highlighted, the current market conditions have made it increasingly difficult for some sectors of the population to access finance, particularly those who have experienced credit problems (so called sub-prime customers) and self-employed applicants. This has been attributed to the "credit crunch" which has resulted in a reduction in funds available to lenders; as a result many lenders are tightening their criteria and in some cases exiting the market to reduce their expose to potential risks.
As short term fixed rate mortgage deals draw to a close in 2007 and 2008, it is predicted that many more people will feel the impact of this and will begin to struggle financially.
This has led to a reduction in mortgage lending for house purchase, as more people are choosing to stay put and look to make home improvements, as highlighted in our don’t move improve article.
These factors and slower than predicted economic growth in the third quarter have led to increasing calls for the Monetary Policy Committee to decrease rates in 2008.
Many financial experts are predicting a decrease in rates in 2008, The Council of Mortgage Lenders (CML) predict a decrease to 5% by the end of 2008, which is three quarters of a percent, and takes rates to the same level they were at the end of 2006.
A decrease in interest rates should improve the situation for many sub-prime borrowers who may find that they are now able to access sums of money through secured loans. Tom Nelson, Head of Secured Lending at Zen Finance says that this is one avenue which consumers could use to repair their credit rating. "By taking out credit and ensuring all the repayments are made on time each month until the end of the term, demonstrates that you are a responsible borrower who repays on time which is a positive factor on your credit report." In addition to this there are other steps which can be taken, including setting up direct debits so you do not miss any repayments, appearing on the electoral roll, setting up a long term relationship with your bank/building society etc.