Government Plans for Mortgage Industry May Help House Prices

Not only Northern Rock sold off its mortgages to international financiers as securities backed by assets, but nearly all UK banks have used the global marketplace to locate cheap funding. Approximately 25% of all UK mortgages were financed with the sale of mortgage backed bonds.

Approximately 200 billion worth of UK mortgaged-backed bonds are currently trading. It is fairly likely that your mortgage is actually owned by an American pension fund or an Australian hedge fund. While you were under the impression that you had a mortgage from your local building society.

Last summer saw the end of asset-backed securities, causing problems for many mortgage lenders, not just the well-publicised Northern Rock situation. These securities were the source of funds for millions of cheap loans of all kinds, not just mortgages. The inevitable result is an increase in mortgage rates and the scarcity of new mortgage funds.

This shortage has taken the wind out of the sails of a housing market. Basic mortgage backed bonds have led to a few problems; the real trouble has come from other collateralised debt problems related to the US sub-prime mortgage meltdown. These funds have caused a ripple effect of serious problems throughout the regular mortgage backed bonds, market. Firstly, there has been depreciation in the reputation of all securities that are backed by mortgaged properties.

In addition, these collateralised debt organisations with the main buyers of British mortgage-backed securities. However, they are no longer in the market for this kind of wholesale debt purchase. International investors view the British housing market as having some similar problems to those that caused the US mortgage meltdown. Namely, that the British housing market way overpriced and can only go down in the immediate future.

These investors believe that there may be a downturn in the housing market in Britain of as much as 10% over the next 12 months. If these investors do not come back to the UK it could cause serious problems for regular British borrowers in finding loan at a decent interest rate. Recent indications from the Chancellor of the Exchequer, Alistair Darling, that a new kite mark, dedication for mortgage lenders will come into place. This should help to bolster the wholesale purchase of mortgage assets, giving British lenders the much needed cash to fund new loans.

Once in place, this new system would allow European investment houses to purchase job lots of mortgages from high Street, building societies and banks in the UK. This boost would not only be financial. It would also be a psychological boost for the housing market that may well stabilise it, and possibly bring about healthy upswing in new mortgages and house purchase.

Is essential the government’s plans to keep the mortgage market buoyant, it has been well publicised over the last year that there is a massive shortfall in the number of houses available, especially for first-time buyers. Therefore, the government is very keen to keep the money flowing keep the new housing estates, blossoming across the country. There is a feeling in the mortgage world of white at the end of the tunnel getting closer, and after budget may soon kick start a new house buying boom.



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