Bail out 'should save mortgage market'

The government's £500 billion bailout package should help the mortgage market recover stability.

However, the market will be entering a new era which may not see it return to its recent highs, explained Ray Boulger of mortgage broker John Charcol.

"It's a new game in the mortgage market for a long time, over the next ten to 20 years at least," he said.

However, he explained Swap rates – which dictate the level at which fixed-rate mortgages come at – are now falling again after steadily rising since Lehman Brothers went to the wall.

He even predicted a return of 100 per cent mortgages as falls in the property market end in 2009.

"Arguments against 100 per cent loans are really arguments against any unsecured lending," he said.

"The important factor is affordability. With interest rates falling and property prices down, affordability will improve and the market will stabilise."

He added the fast moving nature of the current market could bring an early end to the property crash.

However, he warned mortgage borrowers with small deposits or little equity behind them were likely to find mortgage rates remain higher than for those with an equity cushion behind them.

Also as swap rates fall, lenders may well increase their margins and not pass on the full rate cuts to consumers.

Katie Tucker, at broker Mortgageforce, was also optimistic about the future of the UK mortgage market.

“A three-pronged attack of this rate cut, the share-buying and extension to the liquidity scheme, plus the coordinated international banks’ actions, could be enough to remobilise inter-bank lending, and make mortgages affordable again," she said.

"What’s crucial here is that the actions have been taken together.

"An additional benefit of the coordinated action for mortgage borrowers is that the lenders supported by the estimated £50 billion share buying scheme will be perceived to be protected from losses ongoing, this improves their credit rating which brings down their own borrowing costs, allowing them to start offering low mortgage interest rates again, and lend to other banks."

However, Chris Cummings, director general of the Association of Mortgage Intermediaries (AMI), was less enthusiastic, stating it could too little too late.

"If the market carries on as it has, consumers will continue to suffer as the availability of suitable products will dry up and the mortgage industry will continue to shed jobs at an increasing rate," he said.

"The greatest impact will always be with consumers who may find themselves restricted in the mortgages on offer, forced to deal with just the few largest players, being offered less competitive mortgages, and finding that advice is far harder to come by. We hope this is not too little too late as far as consumers are concerned."