The steady increase of the Bank of England base rate over the past twelve to eighteen months has gently eased the rampant property market. Buy-to-let investing has begun to fall out of favour with novice investors and potential first-time-buyers have had to put their plans on hold as the cost of borrowing becomes too much to bear.

While the steady increase in interest rates has cooled the jets of the UK mortgage market to some degree, it is the events of the US sub-prime mortgage industry that has finally caused mild panic across the pond.

It is safe to say that the sub-prime issue has not thrown the UK mortgage market into complete chaos, however it has, for the first time in many years, cast some doubt as to the future fortunes of the industry. For the first time in many years is has become difficult to predict the future of financing residential property in the UK.

Some analysts are predicting it will be harder to get a mortgage in the UK over the next few years. This is because at least one major lender and several smaller ones have already fallen afoul of the industry regulator and have either had to be bailed out by the Government or have closed their doors permanently. The theory is that with fewer mortgage lenders in the market, fewer products will be available to UK home owners.

The problem with this theory is that the analysts are assuming the UK mortgage market is supply driven. In other words, if there are fewer mortgage products to choose from then fewer people will apply for one. It follows then that the mortgage market will experience a slow down in the UK. It may not be the case, however, that the UK mortgage market operates this way.

People still need somewhere to live and most UK residents dream of owning their own home. This has led other analysts to the theory that the causalities of the relatively minor fallout from the US sub-prime mortgage problem will simply be replaced by their competitors. In other words, the demand for UK mortgage products will remain fairly stable and the supply of mortgage products will be replaced by other lenders.

It is likely that applications from first-time-buyers will decrease, however, as lenders pull products from the market that are tailored to this particular type of borrower. This is because they represent a risky investment for lenders so it is likely they will be one group of borrowers to experience a reduction in supply.

Other types of borrowers shouldn’t feel the pinch as much. The market for remortgages and buy-to-let mortgages should remain relatively strong despite the turmoil in the US mortgage market. While it is difficult to predict exactly what path the UK mortgage market will take in the short to medium term, it is safe to say that there will be more uncertainty to come.

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