The mortgage market is going through a process of significant perhaps even historical change and lenders have resorted to tightening lending criteria, while many others are unavoidably pulling products from the market at the last minute. We are now witnessing the making of a new mortgage market, one which is restricted by supply rather than demand.

We have recently seen an end to a number of high LTV loans, putting an increased strain on the position of first time buyers as they are forced to seek larger deposits and save instead of borrow. According to the latest data from Connells Survey & Valuation, mortgage approvals fell 3.5% in February, indicating tighter lending from both mortgage providers and reduced borrowing from consumers.

Neil Hoare, the Associate Director, Marketing and IT from Pink Home loans commented on the changing face of the UK mortgage market, ‘The change in attitude of lenders to the current market is understandable given the fact that the recovery that many predicted is still some way off.’

“Risk now rules the strategic roost rather than demand for market share. Whilst it is sad that the 125% and 100% deals are no longer available in the market, it is no surprise with house prices remaining stagnant at best and the poor PR that Northern Rock has created around these products.”

“Responsible lending is the new catch phrase especially with the trend in repossessions upwards.  First time buyers will be affected but you can see them calling on their parents to provide more of the deposit than before the credit crunch.  But is this the cause of falling house mover transactions? Probably not, as people higher up the chain are probably suffering just as much pain securing their own funding as available LTV values are reducing quickly.”

Market analyst say that in addition to embracing a new wave of responsible lenders, the industry’s changing market is also encouraging a new breed of responsible borrowers. Lenders should remain optimistic that the aftermath of the current economic storm will be a healthier and secure place in which to undertake future business.

Neil Hoare, Pink Home Loans continued: “So in the end, is the current tightening of criteria and reduction in LTVs good news?  Well for those consumers about to enter the housing market and over stretch themselves probably yes, as it will prove harder to get on the housing market.  Those already with high LTVs  needing to refinance after coming off a fixed rate or consolidating, then no, as there appears to be few opportunities to find a financial solution. We look forward to the time when a competitive edge returns to create a more buoyant and more balanced mortgage market.”

At the same time, the market is experiencing funding shortages raising even more fears as high street banks which have been battered by the credit crunch, are asking shareholders for extra cash to plug the gaps caused by losses they suffered as a result of the American sub-prime crisis. Lenders such as the Royal Bank of Scotland, HBOS, Bradford & Bingley and Barclays are all set to offer shareholders added stakes in return for extra cash.

The cost of two-year fixed year mortgages has also hit its highest level for a decade, as more and more lenders raise rates in a bid to protect profit margins.