Introduction

The UK mortgage market is highly competitive, this began when in the 1980s when new regulations allowed more lenders to enter the market. At the same time, borrowers became more informed and started comparing deals and prices. As a result, there are now many different mortgage products available from a wide range of financial institutions.

The credit crisis of 2007- 2008 began in the United States and quickly spread worldwide, severely affecting the financial services sector and the global economy.

In the early 2000s, property prices rose sharply, supported by low interest rates and easy credit. Many lenders relaxed their criteria, offering sub-prime mortgages to borrowers with weak credit histories. These high-risk loans were bundled into mortgage-backed securities and sold to investor through a process called securitisation. When interest rates increased. many borrowers defaulted, leading to falling returns and rising financial instability.

Credit crunch:

When banks cut back on lending because they see higher risks. This makes it harder for people and businesses to get loans and can result slowing down the economy.

Securitisation:

When a mortgage lender sells its mortgage loans to another party for cash. This removes the loans from the lender’s books and gives them more money to invest. The buyer then receives all future payments from the mortgage and takes on the risk.

Recession:

A period when a country’s economy shrinks, usually measured by a fall in GDP (the total value of goods and services produced) for 2 quarters in a row about 6 months.

1. Economic recession
   The UK fell into recession during the financial crisis of 2007-2008. Confidence was low, job losses increased, and many companies froze pay or reduced working hours.
   
   

2. Buyer and seller uncertainty
   Many homeowners chose not to sell until the market improved, while potential buyers were hesitant to purchase in case prices fell further.
   
   

3. Tight lending between banks
   Banks were cautious about lending to each other and to homebuyers, focusing instead on building their cash reserves. In 2012, the government launched a short-term scheme allowing the Bank of England to lend money to financial institutions at low rates. This helped lower mortgage interest rates temporarily. in 2013, the scheme was changed to support small businesses only.
   
   

4. Stricter lending rules
   Lenders became more cautious, demanding larger deposits and closely checking borrowers’ ability to repay. People with small deposits, low disposable income, or poor credit were often refused. This stricter approach, was reinforced after the Mortgage Market Review in April 2014, which introduced tougher checks and responsible lending rules.