King warns on future of mortgages

Mervyn King, the governor of the Bank of England, has issued stark warnings over the mortgage market in the UK, stating that the nation may find that easy and affordable mortgages will never return. He added that the return of the days of mega-mortgages, such as the 125% mortgages that consumers could take out until they were recently withdrawn from the market, was both unlikely and undesirable. He added that returning to days when such huge mortgages were on offer would be a ’serious mistake’.

King said that the impact and impression that the ongoing credit crisis had left on the money markets would be remember for many years to come, and would make lenders think twice about dishing out finance without careful consideration. He said: ‘Even in five to ten years time, financial markets will remember this episode only too well.’

The cost of borrowing in the mortgage markets has gone up for both consumers and for lenders themselves. Lenders are now far more reluctant to lend to one another, and the cost of inter-bank lending has soared. Whilst the government’s recently announced rescue plan could help to increase confidence and inter-bank lending levels, thus driving down the cost of mortgages to some degree, King said that the benefits of any price falls in mortgage loans could be quickly counteracted by rising inflation, which meant that many households could find that they are no better off. He said: ‘The impact of higher food and energy prices are depressing living standards across Britain.’

The newly launched rescue plan will allow lenders to swap mortgage assets for government bonds, which King hopes will help to restore confidence amongst lenders, which could then have a positive knock on effect for borrowers.

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