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Looser mortgage standards won’t keep the party going

In contrast to the mid-2000s, there seems little chance of a significant loosening in mortgage lending standards in response to higher interest rates today. Traditional banks have not forgotten the financial crisis and, after a 37% rise in house prices in just two years, they are understandably being cautious. Non-banks have a larger incentive to compete standards lower, but with the private label securitisation market still small they are limited to selling to the Government Sponsored Enterprises, who have strict eligibility standards. Accordingly, the surge in mortgage rates will not be offset by an easing in lending standards, and that means housing market activity has further to fall. Real Estate Drop-In (6th July, 2022): Join our US Commercial Property team for this 20-minute briefing on why we think this is the market top – and how far we expect returns to fall. Register now.

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