Bank bailouts won’t mean quick fix for mortgage seekers

Recovery in global property markets is likely to be slow as no one is predicting any fast movement in the bank lending systems despite unprecedented government bailouts.

The real cost of the finance crisis is slowly emerging today as banks in Europe reveal just how much they need to avoid going bust and concern grows about the state of countries close to Russia who are facing severe difficulties.

At least £37 billion is needed in the UK to shore up the country's struggling banks including Royal Bank of Scotland and Lloyds TSB, it has been announced.

The French government is making €40 billion available and in Germany a staggering €400 billion in guarantees for banks is being considered.

Japanese Finance Minister Shoichi Nakagawa, meanwhile, said his country would consider guaranteeing all bank deposits if necessary.

Australia and New Zealand have guaranteed all bank deposits and Indonesia upped its guarantee to 2 billion rupiah ($203,000) while India pledged more liquidity to help financial markets. Qatar launched a $5.3 billion plan to purchase shares of its listed banks.

Once all the deals are done the real test will be whether banks will start lending again. Various governments have made it clear that banks will have to start lending again especially to businesses and those seeking mortgages.

That will depend on confidence. Banks are unlikely to suddenly become less cautious. The terms of the UK package, for example, insist that banks must offer mortgages but they will not want high-risk customers on their books – those without substantial deposits or those without a 100% credit rating.

'Only 3,281 mortgage products are available, the lowest number we have witnessed since the onslaught of the credit crunch,' said Darren Cook, of Moneyfacts.co.uk.

He added that lenders remained worried about falling house prices and were hedging themselves by offering more mortgages that require bigger deposits of 40% of the value of the property.

New borrowers or those looking to remortgage in the near future won't have much to cheer about. The crux of the problem is that Libor – the rate that banks lend to each other – is still much higher than base rate. This means that the rates they will offer to new borrowers will be substantially higher than the Bank of England base rate.

Melanie Bien, a director of the independent mortgage broker Savills Private Finance, said: 'First-time buyers and those with blips on their credit records are likely to continue to struggle to find funding – or at least will have to pay a significant premium for it.'