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Credit crunch hits smaller lenders

Over the last few weeks we have seen more changes in the mortgage market time than ever before.

It seems that there is no stopping it. Over the last two weeks, mortgage lenders have been even more ruthless in withdrawing mortgage products from the market and/or tightening their criteria. Over the last month alone we have seen the number of mortgage products available across residential and buy-to-let plunge from 7726 to 5700, a staggering drop of 2026 products.

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Until a couple of weeks ago it seemed that smaller building societies had escaped the worst. By funding their mortgage lending through deposits, they appeared to be immune from the problems facing the money markets. The last two weeks, however, have shown a very different story. 

Instead of increasing mortgage rates or tightening criteria, the smaller building societies such as Bath BS and Tipton and Coseley BS have either been withdrawing their mortgage products from the market completely or restricting their mortgage lending to direct business or local areas.

Due to larger institutions increasing mortgage rates and becoming more reluctant to appear competitive, smaller mortgage lenders have seen an increase in demand; something they neither want nor can cope with.

Traditionally, local building societies have attracted the majority of their business from the local area. In order to maintain presence and competitiveness in that area, they are having to close their doors to those from outside the region who are unable to secure a mortgage from the larger lenders.

Not only is this withdrawal of mortgage products shocking in itself, the speed at which the mortgage products are coming off the shelves has also been surprising. In one day we heard from 19 mortgage lenders that have made the decision to withdraw mortgage products or restrict criteria. Who knows what tomorrows news will bring?

These changes show that no one has escaped the effects of the credit crunch this time. Whether you are a prospective first time buyer or an existing mortgage borrower coming off a deal, there will certainly be less choice out there, especially from the smaller building societies.

Related links:

• compare mortgage rates
• mortgage calculator