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Mortgage Caution - 20/03/2008
The media has been full of horror stories about the sub-prime market and its effect on the banking sector and the economy in general - both in the UK and overseas, particularly relevant this week with the situation at Bear Stearns in the USA.
The problem was initially caused by banks in the USA lending high risk loans to people who had either very small deposits or little chance of repaying their loan, especially if interest rates were to rise, which indeed they did. This affects us in the UK because many of those loans were then "sold" on to investors, many of whom were British institutions. When the US homeowners defaulted it was those investors who felt the pinch and withdrew their backing from that type of venture.
There have been fears that the same could, to a lesser extent happen here, although the figures are not as extreme. Nevertheless, the short-term future of mortgage lending looks likely to revolve around lower risk. The effect of this is that slightly fewer mortgages are likely to be granted, sadly removing a percentage of prospective buyers from the property ladder. Most of these will be at the bottom of the chain - which can have implications further up-line where there are linked transactions.
At Matthew Limb Estate Agents, we are passionate about holding chains together, being acutely aware that a chain is only ever as strong as its weakest link. We therefore always aim to qualify buyers properly, so we are fully aware of their position from the outset. A well-positioned purchaser is one who has a relatively high deposit (say 25%+), a relatively low loan/earnings ratio (say no more than three and a half times annual earnings), and who is not dependent on a linked sale.
In this market more than ever, you'll find that we have all the information to hand when we submit an offer to you, so that you can consider the offer in its fullest context.
