Northern Rock branchToday marks five years since Northern Rock confirmed it had gone to the Bank of England for emergency funding and queues of worried customers started forming outside its branches. It was the first run on a British bank for the best part of 150 years.

The images of those queues are cemented in my head when I think of the crisis that unfolded over the next week.


At the time Northern Rock was the UK's fifth-largest mortgage lender with a 7% market share. Since then, things have changed dramatically in the homebuying market.

The credit crunch


In September 2007 there were 22,457 mortgage products on offer. Now there are just 2,502, according to Moneysupermarket.

House sales are also down, having fallen from 96,351 in May 2007 to 50,083 this year, according to the Land Registry. At the same time average house prices have risen from £61,191 to £161,531.

Sue Anderson, spokesperson for the Council of Mortgage Lenders (CML), describes the past five years as a pendulum swing from an over-supplied market to an under-supplied one.

In 2007 it was easier for lenders to fund mortgages, which led to lots of cheap and generous deals on offer. Lenders could package up loan books and sell them as securitisations.Today, many lenders have to rely on savers' deposits to fund their lending, which makes things tougher for them.

Lending criteria

Because of this funding shortage, lending criteria has become much tighter.

Along with market conditions, there are lots of things that may count against you when applying for a mortgage today such as not having any credit history or not being on the electoral roll.

Before you begin the application process read our article on the seven reasons you may be turned down.

The base rate

One positive which has come out of the crisis is that the Bank of England has kept the base rate at 0.5% for a record 42 months in an attempt to alleviate the pressure facing borrowers. This is good news for homeowners on variable-rate mortgages because they have experienced much lower monthly repayments.

Mortgage rates

Over the past five years mortgages rates have fallen dramatically.

The average three-year fixed mortgage rate has gone from 6.25% in 2007 to 3.68% today while two-year fixed rates have gone from 5.67% to 3.01%. When looking at a mortgage of £150,000 this works out at a saving in monthly payments of £224.01 and £224.32 respectively.

Recently, some impressive rates have been launched such as the lowest ever five-year rate from HSBC, but these typically require a hefty deposit and therefore aren't available for FTBs.

First-time buyers

Of all groups affected by the housing market crash, first-time buyers have come out worst. This is mainly due to how much stricter lenders now are when approving mortgages and also because of the higher deposits needed.

In 2007 the average number of mortgage products which were available to first-time buyers was 13,644. Now that figure lies at just 1,314.

Not only are first-time buyers unable to get a decent mortgage, but thanks to rising house prices, high inflation and soaring rents, it's becoming even harder to save for a deposit.

There are now 45 lenders offering mortgages of 90% LTV while in 2007 this was 83. And there are no lenders offering 100% mortgages, whereas in 2007 there was 31.

However, it's not all bad news as recently some mortgages specifically designed at first-time buyers have been launched. I've got my fingers crossed other lenders will follow suit.

Interest-only mortgages

Since the crash, interest-only mortgages have been severely restricted with some lenders only allowing them for up to 50% of a property.

This is becoming an extremely niche area and even those able to get interest-only mortgages on a larger amount of the property can only do so on very tight repayment plans.

As lenders are now much more risk-adverse, they're less likely to offer these kinds of mortgages and several providers have pulled out of this market altogether.

Self-employed

Another loser of the fallout from Northern Rock are the self-employed, who have found it far tougher to get their hands on a mortgage.

Self-certified mortgages - which have since been tagged 'liar loans' - have long since disappeared from the market. If you are self-employed and trying to get on the property ladder it's now standard practice to have to give evidence of your bank accounts for at least two
years before being approved.

So what next?

While the past five years has been a real struggle for the economy, looking forward it's likely market conditions will ease again. However, the regulatory environment has changed forever so we're never going to return to the easy-lending conditions before the crisis.