The mortgage market is living on the edge

With the recent rate change many consumers have suggested that things could be on the up.

The thinking goes that lenders are going to bring out better deals, start looking for reasons to lend again and stop nitpicking their way through mortgage applications. To borrow a phrase from Eliza Doolittle, wouldn’t that be loverly?

Of course, brokers know different. What we are seeing is brinkmanship on the part of lenders that have held back on passing on rate reductions for as long as they can without Prime Minister Gordon Brown hitting them with a big stick.

They have held back from launching new product ranges until they have had a good look at what their competitors are doing. brinkmanship from buyers, who are making outrageously low offers. For example, I saw a client the other day who has a number of friends working as analysts in the City, including for lenders.

He was looking to buy but had taken the advice of said friends, who say that property prices will fall 25% by next spring. On this basis he was only prepared to make an offer on the house he wanted of £240,000 to £250,000 rather than the asking price of £320,000.

Naturally the vendor rejected it but this sort of punt is not uncommon and some will probably get lucky.

We are also seeing remortgage brinkmanship. Clients who have reached the end of their deals are opting for SVRs in the hope that the recent massive rate cut won’t be the last.

I was talking to a BDM last week who advised me that the word on the street is that the base rate will fall by another 1.5%. With this sort of opinion being touted, the SVR option makes sense.

The brinkmanship then concerns rates bottoming out and clients switching from SVRs to fixed rates in the hope that there will be sexy new deals around by that stage.

Every day I’m rushing around with many enquiries, most of which would have been easy to source 18 months ago but are now in limbo. I suppose we are playing a form of brinkmanship too.

Underwriting needed to be tightened up but we’ve now gone so far down the opposite path that the market has strangled itself. All we can do is wait on the brink, hoping we’ll soon have something good to offer consumers who need advice.