According to the BBC’s business editor Robert Peston, the man who seems to know what the Government is going to do before most ministers have found out, it’s because they don’t have enough money.
At first glance this seems a bit odd as most of the banks are still making good profits, the UK government has kicked in £37bn of taxpayer money to help them out (and may do more) and interest rates are falling rapidly.
But, apart from the money the banks get from the Bank of England, which they’re mostly hanging on to, they get their funds from other banks at what’s called the Libor rate which is usually a very small amount over prevailing bank rate.
It’s considerably more now though, as banks have lost the appetite to lend to each other so when you try to get a mortgage or a loan it will be based on this rather higher cost.
As far as mortgages specifically are concerned, as Pesto points out, the virtual absence from the market of Northern Rock, HBOS and Bradford & Bingley, who all came unstuck through their high mortgage lending and consequent need to access wholesale funds, means there are less than half the number of mortgages currently available than there were in 2007.
Will things ever improve?
At some stage they will because those banks that depend on a big UK presence will fear losing their market share as others inch into the market.
Earlier this year HSBC moved strongly into the re-mortgage market and just as rapidly moved out as borrowers bit its hands off. Then Abbey, owned by Spanish bank Santander, made a mortgage land-grab, accounting for over 25 per cent of new mortgages at one point.
But nobody else rose to the challenge and both banks filled their allocations in double quick time.
What it needs is for another bank to put a toe in the water and one or two more to follow it.
Lloyds/HBOS and, to a lesser extent, RBS can be expected to do so once the merger of the former and the recapitalisation of both entities is completed. The Government may tell Northern Rock, which is busily running down its mortgage book to pay the Government back (in the process repossessing houses left, right and centre) to ease off a bit and start lending again.
But it will be a painfully slow process and borrowers will have to wait until next spring at least for some relief.
[Image Attribution: SouthbankSteve]