Well it’s not entirely all doom and gloom this week, despite the worsening state of the economy and the predictions that we will not be getting a drop in interest rates next month after all.

The increasing cost of oil and food is making it difficult for the Governor of the Bank of England to do what all homeowners want- which is to announce that the base rate will be cut to 4.75 per cent.

The good news is that the Halifax have reduced their 3 and 5 year Product Transfer fixed rates by 0.1 or 0.2% and their 3 year tracker rate by 0.2%. In addition they are increasing the maximum loan size on the tracker up to 75% LTV from £500,000 to £2m.

These Product Transfer rates are only available to existing customers coming to the end of a deal but there will be many of them because two years ago they were offering very competitive rates of - 4.69% for purchases and 4.79% for remortgages. To me this seems to indicate that not only do the Halifax want to keep their customers, but we could be seeing an increasing number of lenders battling to increase their market share.

If this is the case watch out for similar cuts from other lenders.

The Bank of England was criticised by economists and the housing industry yesterday after leaving the base rate on hold. But really what did they expect? Back to back rate cuts were never on the cards.

The Bank's Monetary Policy Committee voted to leave borrowing costs unchanged at 5per cent, despite many experts' fears that this tactic could endanger the wider economy.
Howard Archer of Global Insight said: "The recent stream of weaker data and survey evidence relating to consumer confidence, retail sales, the housing market, the services sector and manufacturing activity suggest that the UK economic downturn is deepening."
I can’t speak for the latter two sectors, but I can certainly vouch for the fact that the housing market is on its knees. Estate agents are disappearing by the hundreds each week. According to the MD of a prominent chain in the Midlands the situation is worse than the early 90s, because then at least then you had lenders who wanted to lend. Today, he said, you’re hard pressed to get a mortgage irrespective of whether you are a first time buyer or someone who wants to remortgage, because the arrangement fees are ridiculously high.

With LIBOR at 5.78 per cent and still well above base, the banks yesterday made a desperate dash for cash offered by the Bank of England. This is a sure sign that things are still far from normal and why we will get a rate cut of 0.25% next month.

Will this make things any easier for homeowners and first time buyers? I would love to think so, but I don’t see much improvement for at lease another six months.

According to the Bank of England’s latest Financial Stability Report the worst of the credit crunch could now be over. The Bank believes that the scale of losses resulting from the crisis may be overstated and that if financial institutions continue to talk pessimistically about their plight it may well turn into a self fulfilling prophecy.

That’s the good news. The bad news for homeowners and the housing industry in general is that this announcement will have no impact whatsoever on lenders, their mortgage rates, or on the number of mortgage products available.

The reason is the same now as it has been for many months. The banks would love to be able to lend, but there is simply not enough money around to do so. The banks which would often raise money in America can’t do so because the people that provided the billions of pounds that they then lent in the form of mortgages have lost their appetite for anything to do with property. The collapse of the US housing market has seen to that.

Money is available in the EU, but it pales into insignificance compared to monies previously available from the States. The £50billion that the Bank of England recently made available to our lenders is a start, but it is only that. Many more billions will have to be made available before new products are launched and rates begin to come down.

Over to you Governor.

With the number of mortgage approvals falling by nearly 50% last month to its lowest level in more than a decade and with more brokers and lenders falling by the wayside each week it’s very difficult to find anything positive to say about our industry at the moment.

I don’t think anyone has ever witnessed anything like the situation we are now facing thanks to the greed and the disastrous overseas investment decisions made by the banking community.

The only piece of good news I can think of is that the Bank of England will have to continue to cut interest rates, but even then this is tainted by the fact that the decisions of the Bank of England’s Monetary Policy Committee now bear little relation to the actual mortgage rates being charged.

Despite having cut the official rate three times in the past five months, the mortgage rates faced by homeowners have actually risen by around 1.25 per cent. The Bank's emergency £50 billion plan to unfreeze the credit markets may eventually help to solve the problem in the short term – with further cash injections a certainty - but not for some time, perhaps a year.

So what should the Bank do? It should cut rates sharply if we are to avoid a US-style recession. Unfortunately I suspect that Mr King will continue to make gradual cuts with the lenders reluctantly passing on a fraction of the decrease.

So house prices will continue to fall and brokers will continue to go to the wall as lenders cut our commission in order to try and boost their profits.

The Government decision to pump £50bn into the banking system to enable the banks to start lending again and restore confidence in the system, as well as the economy is welcome news. I only wish they would have taken this course of action sooner. If they had a lot of pain could have been avoided and a lot of people in the UK housing market would still be in a job.

The unprecedented plan, which is supposedly the brainchild of the Governor of the Bank of England, involves the swapping of government bonds for the mortgages on the books of the banks.

Chancellor Alistair Darling said that it wasn’t a bail out for the banks. Rather it was a loan that had to be repaid. “What it will do” he said is effectively lend banks money to unfreeze the situation we have got at the moment”.

The money markets have been frozen since the American housing crisis impacted the UK market last August. It made banks extremely reluctant to lend to each other let alone would be homeowners and existing borrowers looking to remortgage.

It will certainly help to ease the credit crunch, but my concern is that it’s not enough. I suspect we will see a further injection within six months and the Bank will have to continue to cut interest rates in order to keep the economy and the housing market moving. Potentially this is all good news for homeowners.

However, it will count for nothing if the banks continue to refuse to pass on these cuts. The Government must therefore play hardball with the lenders. They should force them to pass on these cuts in their entirety and to get first time buyers back into the market they should adopt the Tories plan of removing their stamp duty altogether.

What better way for Mr Brown to easily restore some of his lost popularity?

Amidst all the doom and gloom we read and hear about everyday, I thought it might be useful to provide some insight on the current state of play in the mortgage market.

Where are we now?

The mortgage market is undeniably in turmoil. It’s doubtful if anyone in the industry has ever witnessed anything like it. From an intensely competitive market on all fronts-products, margins, price and criteria- we’ve moved to a situation where almost every lender is too scared to do anything. They are frightened to introduce new products in case they get swamped from a demand they cannot possibly meet. They are desperately trying to recoup their losses from the crisis in the American sub-prime market and consequently they are all pricing their products upwards and will probably continue to do so even if we get the anticipated 0.25 per cent cut in interest rates today.

What’s the cause of this?

There are three reasons.

First, there is not much money around to fund new mortgage lending. Many banks used to use their deposits i.e. money in savings accounts- to fund their mortgage lending. Recently, however it has become fashionable to use the money markets instead, i.e. borrowing from other banks, or from the sale of packages of mortgages known as mortgage-backed securities or “MBS”.

The American market used “MBS” to fund their sub-prime mortgage lending which equated to about 20% of all their lending - in the UK, sub -prime lending, which is much better regulated, has never accounted for more than 8%. When the housing market in the US collapsed, most sub-prime borrowers fell into arrears causing lenders both in the US and over here to lose millions and in some cases billions.

Consequently banks are now desperate to recoup their losses. They are reluctant to use the money markets anymore for mortgage lending, preferring to rely once again on their deposits. They are wary of lending to each othe, because they are uncertain of their exposure to the US market. As a result LIBOR, the rate at which banks lend to each other is currently over 1% higher than the Bank of England base rate.

The second reason is a lack of confidence in the banking community itself. No-one is certain what will happen to the housing market, or to the economy if America goes into recession which could happen.

The third reason is a lack of capacity amongstlenders to handle large volumes of business. With fewer lenders around- some having gone to the wall and others “temporarily withdrawing from the market”- borrowers and mortgage brokers have less options to place their business, causing backlogs in those lenders who still want to lend. Faced with this problem the banks are trying to put borrowers off by a combination of higher rates, higher arrangement fees and a tightening of loan to value criteria.

When will we return to normal?

Probably in 2009, but we will not return to the “normality” of the last few years. The days of cheap money, as I’ve said before are long gone and so are many of the specialist sub-prime lenders who offered such competitive rates.

Are there any reasons to be cheerful?

Yes. Interest rates are falling. They could be as low as 4% by next year, so LIBOR will fall as well, making it easier for banks to start lending to each other and cheaper for homeowners to start borrowing again.

The Bank of England is trying to improve market liquidity by pumping money into the system and the Chancellor has just appointed a new committee- groan- to address this very problem. Actually it’s being chaired by the ex boss of HBOS, so hopefully they will know what they are doing and will come up with something that works.

Finally nd I hate this term but it’s so easy to use, the fundamentals of the UK housing market are strong. Employment and immigration are at record levels and we still do not have enough houses to match the demand.

Banks will have to start lending soon if they are to make money, but they will ration the availability of mortgages and they will be much choosier to whom they will lend.

If you are looking for a mortgage you should apply for it as quickly as you can as yesterday the Bank of England warned that their availability is likely to deteriorate over the next three months.

The credit crunch has meant that mortgage lenders have been far less likely to lend to each other, leading to a cut in the number of mortgages available.
Yesterday, First Direct, the Co-op Bank, Southern Pacific and Preferred Mortgages all announced they were suspending some mortgage offers. They claimed they were being swamped with demand after maintaining competitive rates for as long as they could. Most lenders have increased their rates recently by 0.2 per cent, despite the Bank of England's cuts in the base rate.

The number of mortgage products actually on offer has fallen by 20% over the past week, which means that people having to remortgage will need the advice of an independent mortgage broker now more than ever in order to find the best deal.

The situation is particularly tough for first-time buyers even although, paradoxically, the cost of homes has started to fall slightly in the past couple of months. Even so they will have to find larger deposits, perhaps as much as 15% as lenders have restricted their loan to value criteria.

If the Bank cuts interest rates by another 0.25 per cent next week, in the current climate, it is unlikely to be reflected in your mortgage repayments.