Informed Landlords Opinion - Are Lenders Correct to Subdue the Market?

It has been revealed that lenders are investigating applications for mortgages with more scrutiny, and are now rejecting 30% of all applications compared with 20% this time last year.  House prices in May 2009 rose between 1.2 & 2.6% (depending on which Building Society you believe), and at 2.6%, this is the fastest rise in 7 years.

However, banks have been told by Government to both lend, and not to lend recklessly. Banks and building societies are now pulling deals and raising rates, denying many, the chance to get on the property market. One source said that the lenders ‘had to’ lend carefully, as no-one in this present economic downturn was a 100% safe mortgagee.

The lenders move to up rates came as banks had pledged to lend billions; however, these funds are merely ‘set aside’, allowing the banks to say they are ‘available’ to lend. This also means that the cash stays on the balance sheets, boosting their capital position.

Any recovery in the market will be hampered by lenders not lending, but conversely may also boost confidence by not allowing lending to become reckless again. Many commentators are now saying we are at or about the bottom of the market, and they are likely to bounce around over the next year.  By lending cautiously, perhaps the lenders will bring stability back to the market?