Mortgages - Outlook for 2008

With the country in the grip of a credit crunch, homeowners face a tense time as the housing market faces an uncertain future.

As the housing market continues to stutter, and with the introduction of Home Information Packs (HIPS) brings more uncertainty upon the market.

The credit crunch which began in the US caused a ripple effect in the world markets, affecting economies around the world.

But what effects could the current crisis have on your mortgage in 2008?

The main worry is that if mortgage customers find it hard to get approved for loans, houses will become more difficult to sell, which could lead to a fall in prices.

Poor lending decisions in the US, coupled with above-average defaults, have meant that banks that have bought loans in packages â " a process known as securitisation â " have become nervous about lending due to uncertainty over the quality of the loans they purchased.

As a result, the supply of money for advancing home loans to individual customers is drying up, with the whole credit system threatening to grind to a halt â " with banks facing a funding shortfall of around  30 billion.

The Bank of England and other central banks around the world have poured billions into the money markets in an attempt to help ease the credit crisis. But it remains to be seen if the injection of money into the system will help get the system working again, and bring security to world economies.

Lenders will be anxious to preserve margins, and if lending amongst companies remains tight, savers could face higher interest rates and more expensive mortgages as lenders try to balance their books.

According to a major UK building society, house prices fell at their fastest pace in 12 years, which could mean good news for potential buyers â " provided they can get funding â " but bad news for sellers. A recent survey carried out by a leading property website revealed that asking prices have fallen by around 3.2% since November.

New borrowers who have less than perfect credit scores may find it impossible to borrow at all, next year is predicted to be a bumpy ride for potential house-buyers.

Cut-price two-year fixed-rate home loans could be phased out, meaning mortgage borrowers who canâ t find cheaper deals elsewhere face being forced onto more expensive standard variable rate mortgage plans.

As lenders are tightening criteria on mortgages, some experts believe fixed rates may fall in the New Year.

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