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Why is the UK mortgage market so uncompetitive?

As the newspapers and analysts continue to talk about recovery in the UK property market there is still concern as to why the UK mortgage market is still very uncompetitive in real terms. While we see the headlines of rock bottom mortgage rates, there are very few people able to obtain these deals because of the requirement for such a high level of deposit. There is a general consensus that first-time buyers in the UK have effectively been shut out of the market in the short to medium term, even though they are often seen as the lifeblood of the UK property sector.

It is very strange to see the UK banks at odds with buyers who believe that the UK economy has turned the corner and is in fact moving into a growth phase. While there is a feeling among some analysts that the UK property sector could experience a double dip in 2010 there is a suspicion that UK banks are unwilling to take any extra risk at this moment in time, hence the uncompetitive nature of the UK mortgage market.

However the UK government is pushing UK banks to increase liquidity as well as reducing their risk - do these two issues really go together?

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