Articles > The Credit Crunch

Much ado has been made about recent events in the UK mortgage market. Notably, the nationalisation of Northern Rock. But how does this affect someone trying to get a mortgage?

A little background is perhaps appropriate. Northern Rock was running, what now is evidently, an unsustanable business model. 

Lenders generally have two sources of finace when it comes to client lending. They can either use deposits that their high-street clients have with their banches or they can raise the funds from the money markets. Most lendes use a combination, but Northern Rock was particularly reliant on the markets.

As investment in mortgage debt has dried up over recent months, lenders such as Northern Rock, who have been particularly reliant on this source of funding, have found themselves unable to find the funds necessary to lend to their mortgage clients. As we all know now, this has lead to the demise of the bank.

While there are many mortgage lenders out there who are still in good shape, they almost all rely on the markets for raising finance to a certain extent. Simple supply and demand. People still want martgages, but there isn't enough money to go around.

As a result, even though the Bank of England has dropped their base rate twice since December, the interest rates that lenders are offering to their mortgage clients have at best remained stagnant. In some cases, they have gone up.

Where do you stand? Well, the markets are expected to cool in the next six months or so. While it may be possible to find better rates at that time, there is of course no guarantee. If you are remortgaging, you could wait, but at the expense of being put on your current lender's Standard Variable Rate in the mean time, which is likely to have risen since you took out the mortgage. If buying, you need to weigh up the pros and cons of waiting versus not passing up the property of your dreams. If you found this article interesting or useful please share it with others!