The 2020 Mortgage Collapse - Why YOU Should Be Concerned! Today, we’re going to be investigating the rumours around the apparent ‘upcoming mortgage collapse’ where many experts are claiming that you simply won’t be able to get a mortgage very soon with banks and mortgage lenders going bankrupt! So firstly, let's start with what we do know: a large amount of mortgages and home loans have been frozen across many Countries…
Many mortgage companies have huge delays on processing mortgages, with some lenders backed up for months.
But on the flip side, many house sales with valuations are going through at rapid speeds for 2 reasons: even though people suspect that prices might drop, they’re even more afraid of not being able to get a mortgage.
Because they know they might lose their job, they’re taking the lesser of two evils by locking in a low interest rate and getting a house now rather than later, even knowing it may drop in value
Lenders are being stricter about who they give a loan to due to the risk of unemployment, because they have no idea whether that person will lose their job in the next few months
Lenders know that as unemployment is going up daily, your risk of default increases daily too. Many people therefore, aren’t able to get a loan.
And if they get furloughed or their salary decreases, then their affordability for their next house will most likely decrease too. Which in a worse case scenario, could result in decrease in house prices City, County, State or Country wide.
Moving forward, we’re already seeing tighter lending policies. Especially if millions of people are going to be living off 80% of their previous earnings.
If interest rates have been reduced to 0.1% by the central bank, then why are mortgage providers charging higher interest rates… ? Shouldn’t the banks have passed on these reduced rates to you the consumer?
Not surprisingly, mortgage lenders have actually increased their interest rates due to the high demand, but they should, I’m not saying they will, but they should trickle back now as lenders catch up with the demand, but just remember, the banks are not your friends, they exist to make profit and that's it.
It's a simple case of supply and demand, so many people want to get their mortgage right now for fear of losing their job and the banks know that so they are increasing their interest rates.
Instead, some banks have actually increased their interest rates! which you may think is strange but the reason they've done this is because they won't be able to get rid of the loans if they don't. They're also taking advantage of the fear that people have and preying on them.
If credit becomes harder to get or interest rates become more expensive, then house prices will have to fall in price too in order to meet the affordability of buyers
So it’s either going to go 1 of 2 ways - and no one knows the answer to this challenge, but let me give you my thoughts on this: and remember this is just for entertainment purposes only - I'm not a mortgage broker so this is just my opinion from being in the Real Estate industry for the last 15 years:
1. Lending will ease up and the availability of credit will become easier again. The demand for mortgages will reduce so much that the mortgage interest rates will come down as a result of competition with other lenders. OR
2. Lending will tighten and interest rates will increase, causing a housing crash - of this I’m almost certain (and the Fed knows this too, hence why they haven’t been raising interest rates since the last recession, because they didn’t want to cause another housing crash…)
So how do I think this is going to affect you?
Well if you’ve currently got a mortgage on a fixed rate then nothing's really going to change for you during the term.
But if you're in the market for a new home, a new mortgage or you want to refinance, then you may find things a lot more difficult. For example you may have to pay a higher interest rate in the short term and put more down as a deposit, because the bank wants a higher loan to value ratio to protect themselves against a possible downturn in the market. Especially as there's huge demand right now for cheap money.
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