October 1, 2008 / 10:56 AM / 11 years ago

Bank turmoil sees many UK mortgage products vanish

LONDON, Oct 1 (Reuters) - The number of British mortgage products on sale has slumped 12.4 percent so far this week after lender Bradford & Bingley BB.L exited the market and as the property sector buckles under global market turmoil.

The total number of mortgage products declined to 3,427 from 3,914 on Monday, according to Moneyfacts.co.uk.

In the buy-to-let sector, 195 products have been dropped leaving 467 products available mainly because Bradford & Bingley’s entire mortgage book was nationalised after being taken under government administration on Monday.

The Treasury has said it will wind down B&B’s 41.3 billion pound mortgage portfolio.

The demise of the UK’s largest buy-to-let lender came amid signs that lending to the property market is rapidly drying up.

Mortgage lending rose by just 143 million pounds in August according to Bank of England data, just 2 percent of its level a year earlier and the weakest rate of growth since the series began in April 1993.

Alex Potter, banking analyst at Collins Stewart, said four out of the top six UK buy-to-let lenders had now disappeared or are cutting back lending, namely B&B, HBOS, Paragon and Lehman.

“(Bank of Ireland’s) Bristol & West unit is also likely to make it five, restricting credit,” Potter said in a research note, predicting the shrinking market for buy-to-let loans would lead to “material interest stress” for landlords.

Potter also said large numbers of buy-to-let properties in London and university cities meant risk had been concentrated and that falls in house prices would therefore be exacerbated.

But the National Landlords Association denied the buy-to-let as a sector is under threat, saying 30 percent of landlords at most use buy-to-let mortgages to finance property purchases.

MARKET TURMOIL

The landscape of the mortgage market as a whole is changing rapidly. The number of mortgage products on offer has now fallen by just over 12,000 since the peak of the property boom in July 2007, according to Moneyfacts.co.uk.

Moneyfacts.co.uk analyst Michelle Slade said impending consolidation among British banks would deliver a further blow to borrowers because competition is needed to drive down interest rates.

A proposed tie-up between HBOS and Lloyds could see the combined bank take a market share of 28 percent in the UK mortgage market.

Even those lenders still offering relatively low rates have become more risk averse, withdrawing competitive products as soon as volumes become unmanageable or imposing tough lending criteria.

Nationwide’s UCB Home Loans and The Mortgage Works temporarily withdrew mortgages on Monday due to unprecedented volumes.

Lenders have also upped the costs of fixed-rate mortgages in response to mounting market turmoil that has seen the interest rates banks charge for lending to each other surge in recent weeks following the collapse of big names in global banking.

HSBC (HSBA.L), Barclays (BARC.L), Bank of Scotland HBOS.L, Lloyds TSB (LLOY.L), Northern Rock and Yorkshire Building Society have all increased the costs of fixed-rate mortgages in the past 9 days.

Abbey (SAN.MC) withdrew its range of two-year mortgages altogether on Friday.

Rates still remain below the peak of 7.08 percent reached in July, however, with the average rate of fixed rate mortgages now standing at 6.28 percent over a two-year period.

Editing by Paul Hoskins

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