Cover of MoneyWeek magazine issue no 542

Out of puff

17 June 2011 / Issue 542

The problems facing China


  • Do we really need banks?
  • A cheap play on the next energy revolution
  • The millionaire yogi taking on India's government


A real alternative to banks

You might think it is getting easier to get a mortgage in Britain. After all, there are more 90% and 95% mortgages on the market than there have been for many years; tracker and shorter-term fixed rates are still knocking around record lows (1.99% at First Direct); and lenders appear to be tripping over themselves to advertise their top deals to desperate first-time buyers.

But look at the numbers on lending and you’ll see something odd. Despite all these great-sounding deals, not very many mortgages are actually being given to anyone. Levels of unsold stock are rising across the country (from 13 months’ worth of sales in April to 14.6 in May) and mortgage approvals are still coming in at around 45,000 a month. Back at the peak of the bubble that number was usually well over 100,000 a month.

At the same time the mortgages that are being given out don’t always come with the same terms as the ones you see on the billboards. Instead, says Paul Diggle of Capital Economics, they tend to come out rather higher. That suggests lenders are “restricting the number of such loans they actually make, perhaps by setting the credit-scoring criteria on these products at a very high level”.

Research this week from L&G showed that 55% of those looking to remortgage in the next two months fear they will have trouble finding a new deal. They’re right to worry. All the signs are that they will have problems. But amid all the worry about the failure of our mega banks to lend us all the money we want, there are interesting signs that there might be an alternative.

• Read the full editor’s letter here: A real alternative to banks