It sounds like an unpleasant exercise routine. But instead, it’s this move by some major British lenders, which sets new limits on mortgage borrowing in response to the crunch the banks themselves are facing:
Borrowers with little or no equity in their homes face big increases in repayments when their existing deals end after Lloyds TSB and the Royal Bank of Scotland (RBS) pulled their mortgages for those with deposits of less than 10% last week.
Banks and building societies are raising their rates for new borrowers. Halifax, the largest mortgage lender, is increasing the interest rate on its mortgages on Tuesday, adding up to £600 a year to the cost of an average loan.
The article estimates that 150,000 people borrowed more than 90% of the purchase price of their property last year.
Prices are already declining in Britain, down by 0.5% in February, the fourth month of price drops in a row. Annual growth is still positive, but if the trend continues, there could be no or negative annual growth in prices within months. In some overheated markets, that scenario could already be unfolding.
If 150,000 fewer people are able to take out mortgages because purchase prices are out of line with the amount of deposit money people are able to save on their salaries, the decline in house prices should gather speed as the market adjusts to the new conditions.
– Back on this side of the Atlantic, today’s Star article on the Toronto real estate market is the gloomiest piece I’ve seen so far. A “real estate apocalypse”? Even I’m not that bearish. And what about those Iranians?