Credit crash wipes out 40% of lenders

The crash in the demand for credit has wiped out nearly 40% of mortgage lenders, with virtually the entire non-standard mortgage market having disappeared.

And that, say mortgage brokers, is making it very hard for borrowers, especially the self-employed or those with even minor blemishes on their credit records, to find a loan at any price.

The number of mortgage lenders publishing their rates to the rates-watching website has fallen from 82 in July 2006, before the bubble burst, to just 52 now, with many of those still lending dramatically tightening their criteria. That's a 36% drop in the number of lenders, though the table should not be seen as a complete snapshot of the market, as some lenders choose to keep their loans below the line.

John Bolton, of mortgage broker Squirrel, said the sharp reduction, which continued this month with non-standard lender Number 8 Mortgages pulling its rates from the website as it winds back its business, was becoming increasingly hard to find loans for non-standard would-be borrowers.

The self-employed were among those finding it hardest as lenders expect to see two years of financial earnings statements, he said, and the past two years had seen some self-employed incomes fall dramatically. "The last couple of years have been very bad and their reported incomes have been lower," said Bolton.

Those with even relatively minor blips in the credit history were also finding it tough to get loans, said Bolton. He gave the example of one couple he is trying to help to get a 85% loan, where the woman has a couple of missed mortgage payments.

Even though the missed payments were rectified within a couple of days, the mainstream lenders just aren't interested.

"I'm sitting here scratching my head asking what do I do now," Bolton said. They'd be OK if the sum sought was 80% or less, where there was the equity to calm the banks' jitters, but 85%, which would have been no barrier to a prime loan from the big banks, is now beyond the pale.

Where loans can be sourced, the dearth of competition means the price can be horrendous. "I could go and get them a 10% mortgage, but is that really what they want?"

The reduction in mortgage lenders has come from a number of factors, including the merger of some building societies, but it is largely the result of the collapse of the finance companies that used to have a foot in the market, and the willingness of those with money to lend to risk it on mortgages that do not fit bank criteria. There's also been a decline in the number of reverse equity mortgages (older borrowers effectively converting part of the equity in their homes into income) with Avon (a subsidiary of Property Finance Securities) going out of business, and Bluestone and Dorchester ceasing to offer.

That exodus leaves Sentinel and SBS as the only organisations still offering reverse equity products on any scale. The dwindling is also a result of a number of mortgage trusts having run into trouble, and the lenders who operated them, such as Axa, Perpetual Trust, and Guardian Trust, no longer actively lending. Others still listed, like Public Trust, have scaled back their lending.

Bolton does not think there are any signs yet of new lenders moving in to fill the gap, though that will happen, he said.

"There's a fantastic market there. Capitalism does its job. At some point, you will see some people with lots of money behind them go into that market."

Sunday Star Times