Credit availability is crumbling. Not only are banks pushing up interest rates on high loan to value products, they are also removing the number of loan products available to customers.
The most recent Bank of England inflation report pointed out that since the credit crunch began, the number of credit impaired mortgage products has fallen by 75 percent. The number of self-certification mortgage products has also taken a dive, falling by two thirds between February and April this year. The infamous 100 percent LTV loan products have disappeared completely.
Declining credit availability will have a devastating effect on the housing market. Last year, around 30 percent of new lending was to individuals with LTV ratios greater than 90 percent. Another 20 percent of lending went to customers with LTV ratios of between 80-90 percent. These high-risk borrowers are now finding it almost impossible to find banks willing to lend.
Easy credit drove this market into an unsustainable bubble; declining credit availability will destroy it.