According to the Bank of England (BoE) lenders are planning to cut back on the number of mortgages they will give out in the coming weeks.
Banks are trying to conserve cash as they find it difficult to get funding due to the economic climate.
The Telegraph reports that a combination of concerns over government debt and central bank stimulus withdrawal will mean that lending for home loans will drop off over the next few months.
Adam Posen, a member of the BoE Monetary Policy Committee that sets interest rates and Quantitative Easing levels, recently said that he thought the UK economy could be at a ‘tipping point’. He said that he had experienced some sleepless nights worrying about the economy and that we could be slipping from a very weak recovery into a ‘severe recession if not outright deflation’.
After a recent easing in credit conditions with rates dropping slightly it looks like things are tightening up again.
But according to the Guardian the situation will be worsening from an already very low level of mortgage loans. The number of mortgages issued in May for example was just under 50,000, less than the last six month average and 16% down on last November’s 59,338. On top of this only about 26,000 home owners bothered to re-mortgage as their standard variable rates are a better deal at the moment.
The banks may also very soon start to withdraw the recently introduced higher loan to value deals in an effort to ration out what little they have to the more securely placed customers.
It is hard to see how much more stagnant the housing market can get before it shudders to a total standstill.