"Huge shake-up" needed for mortgage market

"Huge shake-up" needed for mortgage market

The mortgage market needs to contract rather than expand, according to one expert.

Paul Holmes, the chief executive of Firstrung, said that the market requires a "huge shake-up" and forecast that the pain from such a move will be "quite severe".

"Over 40 per cent of mortgage products, in total, have been stripped out of the marketplace," said Mr Holmes.

"That gives you an idea of where we're headed in terms of product innovation … there are still over 3,000, so we don't really need more mortgage products."

Mr Holmes also cautioned lenders against expecting that interest rates on mortgage offerings will fall significantly in 2008.

The Bank of England recently intimated that two cuts to the base rate may be needed by next summer in order to stabilise the economy - a claim that was greeted by some as good news for homebuyers.

However, the Firstrung chief believes the "dislocation" between mortgages and the base rate - the average mortgage is set at 7.75 per cent while the Bank's rate is 5.75 per cent - suggests profits are at the forefront of lenders' minds.

"The gap is huge between what the lenders do and what the Bank of England does," he claimed.

"These lenders have to reward the buyers of their bonds and shares."