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Lenders enforce stricter loan terms

Anyone applying for a loan at the moment will be asked to fulfil some much stricter terms before they qualify for approval.

When the credit crunch kicked in well over a year ago, the real issue was a lack of liquidity. There were plenty of would-be borrowers and plenty of would-be lenders but the cash required to allow borrowers and lenders to strike an agreement was simply not there. Lending organisations had solved this dilemna previously by going to the wholesale credit markets but those sources have no dried up. The big catalust in all this was "risk".

Risk suddenly became the talk of the town, because after years of paying lip service to it, the risk factor had come round to bite back. So now banks are fearful of fulfilling the primary action that allows them to exist - lending money. The situation cannot continue for long though otherwise most of our banks will go out of business and our economy will slowly grind to a halt.

Recognising this banks have come round to the fact that they must start lending again and soon. So their approach is one of extreme caution when compared to their approach in the pre creditcrunch years. Rising house prices are no longer the safety net they once were and loans secured on people's homes are not the cast iron certainty they were. In fact because house prices are set to fall for at least another year, lenders are issuing loans based on a worst case scenario. They expect at least a further twenty per cent fall in property prices and are therefore only approving loans secured against assets that represent at the most 70 per cent of a home's value. That loan-to-value (LTV) criteria seems crazy when you consider that just two years again lenders would have been happy advancing a loan against 125 per cent of a property's value.

Other changes in loan acceptance criteria include the need for higher levels of disposable income, better job security and extreme care with the self-certification of income.

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