The Credit Crunch
The global financial and banking crisis had a direct and immediate impact on the UK housing market.
In what became known as the credit crunch banks became much less willing to lend money, including lending for mortgages. They tightened their lending criteria, became more selective regarding borrowers’ financial circumstances and reduced their maximum LTVs, often to less than 80%. The UK government later introduced rules requiring banks to take a more prudent approach to mortgage lending.
Faced with a situation where potential house buyers could only borrow less money, or could even not borrow at all, house prices declined resulting what has been described as a housing market crash. Some property owners found their properties were worth less than they had paid for them, ie. they were in negative equity.
The wider global economic recession, encompassing other factors such as a rise in oil prices, compounded the situation. As did the resultant ‘feel bad factor’ which made prospective house buyers reluctant to buy in case the bottom of the market had yet to come.