To get an intense look into the events leading up to the 2007/08 “Credit Crunch”, we will need to rewind all the way back to the 1970s and ’80s. At this time, a first time buyer in Hull would usually go through a building society if they were wanting to take out a mortgage to purchase a home.
Around then, it was standard to make an appointment with the building society manager to see whether or not you qualified for a mortgage. Banks didn’t always do mortgages! The process would entail the customer taking out a savings account with the building society and the building society would then use that money to lend to other customers. In order for the building society to make a profit, the interest rates would be greater to borrowers than the rate they were paying to savers.
They shifted away from the older model when the banks got involved in mortgage lending. This new method meant that lenders would ‘buy’ the money from markets. This way would speed up the process of lending out to customers.
The mid 2000s opened the market for new specialist lenders, with a vast majority of them coming from North America.
The lenders would sell their book of mortgage customers to raise new money and lend again, this was known as ‘securitisation’. Normally, the books were bought by investors from bigger financial institutions like pension funds and high street banks.
The increase in money made from the market resulted in new lenders introducing more relaxed and lenient lending criteria. Poor credit history and self-certify mortgages weren’t a problem. This eventually became just that; an issue.
The relaxed lending criteria that were introduced resulted in these mortgage, evidently, went into default. This impacted the confidence major banks initially had with the uncertainty making banks not trusting one another as they were becoming exposed in the fast unrevelling sub-prime mortgage market.
Quickly, the banks’ share prices plummeted. A small portion of them survived by the UK Government (specifically, the taxpayer) to reduce the risk of them going bust. This, unfortunately, wasn’t the case for all and they ended up going under.
Due to ‘The Great Recession’, up to 80 different banks, building societies, and lenders across 20 different countries filed for bankruptcy or were acquired. When this happened, lending dried up quickly.
The market took nearly a decade to recover safely. Property prices massively dropped and everyone felt uncertainty within the UK economy.
An event like this was one we didn’t want to through ever again. To action this, the UK government looked into what went wrong. Their findings helped towards creating the ‘Mortgage Market Review 2014’.
Self certify mortgages were banned and the affordability of mortgages was now for the role of the lender.
There were intense investigations into customers’ incomes and outgoings with more detailed lending criteria. Lenders were looking into expenditures including credit commitments, childcare and other outgoings. This provided a financial picture to lenders and would be able to see whether a customer would consistently afford their mortgage repayments.
These days. obtaining a mortgage can be a lot more difficult. Customer need to show to lenders that they are in a series position for a mortgage. The aftermath of the Credit Crunch has has provided a lesson to the industry and hopefully this has been shown by taking the best steps for this to never happen again.
As a mortgage broker in Hull, we are here to provide a helping hand with the mortgage process. Each lender has their own criteria to follow which is something our team have rick knowledge in. Our job is to present yourself to a lender in a serious and mortgage ready light to increase your chances of a successful application. As well as this, we will find you a mortgage deal that is appropriate for your situation and needs.
Whether you are looking at Moving Home in Hull or it’s your first time on the property ladder and you are looking to speak to an expert mortgage advisor in Hull, book online for a free mortgage appointment or get in touch with our team today!
Date Last Edited: 09/28/2023