UK mortgage market freezing
A new report suggests that the mortgage market will freeze in the forseeable future.
Banks will need to refinance £250bn worth of mortgage loans, which have been set in wholesale. If the housing market decides to freeze, the Bank of England or a government agency will have to lend £60bn to £80bn to all banks.
A vast majority of banks will be limited in their ability to release new mortgages. Due to this matter, it could lead to steeper declines in house prices.
The Bank of England may keep money market rates in line with its personal targets and could be inflationary. Mr Miles suggests that up to one-quarter of all current loans might be contracted under too-generous conditions or without sufficient checks.
UK economic growth could drop to 0.5% by 2008, and the government's resources could double to £68bn.
Mr Miles suggested that homeowners should try switching to a long-term fixed rate mortgage deal. So far in the UK there has been a slight appetite for long-term fixed mortgages, homeowners are choosing this safe option simply so they can budget their outgoings.
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