Archive for the ‘Mortgages’ Category

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Mortgage interest rates increasing

July 14th, 2009

Many people take out fixed rate mortgages to help manage costs and avoid monthly changes in interest rates, those that get the timing right can also lock into low fixed-rate deals over a number of years.  But evidence now shows that the average fixed rate mortgages are increasing at a time when the cost of money has fallen, the banks are in effect increasing their profit margins on mortgages.

Taking a look at the actual numbers, the average fixed rate as of 13 July 2009 was 5.16 pc.  This compares to a fall in 2 year “swap rates” (effectively the cost to banks for borrowing over a 2 year period)  from their recent peak of 2.51 pc to 2.05 pc as of 13 July 2009.  Clearly the banks are increasing their margins on mortgages.

The bottom line is that borrowers need to think carefully when taking out a fixed rate mortgage, maybe now is not the best time.  Clearly the bank base rates will increase from their low of 0.5%, but the markets are reflecting their views on the future cost of money by the falling 2 year swap rates.

Please note, this blog does not provide financial advice, it only publishes views on what it sees happening in the market.  Before deciding on a mortgage speak to a financial or mortgage advisor.

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Mortgage fraud rising

July 13th, 2009

The CML (Council of Mortgage Lenders) has published a report highlighting an increase in the number of fraudulent applications, mainly from buy-to-let property investors.

Prior to the credit crunch it was relatively easy for someone on no income to obtain a 100% mortgage for buy-to-let simply by stating what they expected their future income to be.  Now times have changed, anyone wanting a mortgage for buy-to-let needs at least 25% deposit and they have to have an income.

But, some investors seem to be making false statements on applications, either by “forgetting” to mention an outstanding loan or credit card balance, or incorrectly stating their self-employed income.

Many mortgage lenders are now investigating applications and carrying out more detailed checks to prevent the fraud.  In some cases the lenders will even employ third party companies to analyse the application and check against credit files for any discrepancies.

Overall this is good news in that it will reduce the number of risky mortgages, however there needs to be a balance.  Whilst credit needs to be carefully reviewed before approving an application, if lenders look for “any excuse” not to lend then it will depress house prices as there will be less buyers.  Another factor to consider is rental remand, as the UK population grows there will be an increased rental demand, if there are insufficient buy-to-let properties this will increase the cost of renting.

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Posted in Buy-to-Let, Mortgages

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125% mortgages are back!

July 9th, 2009

Nationwide has announced that it will provide mortgages at 125% of a property’s value – although there are restrictions.

The 125% mortgage will only be provided to those who are “existing customers” of Nationwide that are in “negative equity” and want to move house.  Nationwide also added that not all of their customers in negative equity would qualify, it would be restricted subject to individual circumstances.

It is also interesting to note that the FSA (Financial Services Authority) is considering future regulation to limit mortgages to 100% of a property’s value.  This makes sense, otherwise the amount of mortgage in excess of the property’s value is really an “unsecured loan” and not a mortgage secured against a property.

Until the FSA mortgage regulation is implemented lenders can still provide mortgages over 100%.  To some it may seem reckless of he Nationwide to provide a 125% mortgage, but is it?  The Nationwide’s view seems to be that as their customer already has negative equity in their current home, they are simply allowing them to carry that negative equity to their new home, so overall they still have the same amount of mortgage risk e.g. if there was £30,000 of negative equity on the original house, then there will still be £30,000 of negative equity on the new house.

Overall a positive move by Nationwide, it helps to get some movement in the housing market and of course they charge a higher interest rate, so they are not losing out!

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Mortgage debt is reducing

July 3rd, 2009

Two years ago equity withdrawal from re-mortgaging property was running at around £14 billion a quarter, a rate of over £55 billion per year.  But now the tide has turned, and by a massive amount.

In the first quarter of this year it was a net mortgage repayment, not withdrawal, we actually repaid over £8 billion in mortgage debt, at this rate it equates to over £36 billion per year “repaid”.  These are truly astonishing figures.

It is not difficult to see the effect this has on the UK economy, a swing from £55 billion potential spending (from mortgage withdrawal) to £36 billion cut-back in spending as mortgage debts are repaid.  No wonder our high street retailers report such declines in sales.

But perhaps more interestingly, with such large amounts of mortgage debt being repaid, why aren’t banks doing more to lend to people to buy their own home?  Surely the net repayment of mortgage debt would enable the banks to do more for those trying to buy their own home?  It would seem that the tax-payer-backed banks are having their cake and eating whilst we struggle to pick up a few crumbs.

Come on banks, help us property buyers!

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Posted in Mortgages, Property Buyers, UK Economy

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House prices rise again in June?

July 3rd, 2009

The Nationwide monthly update on house prices recorded a 0.9% rise in June, lower than their 1.2% figure for May, but it is still an increase for the third month in a row.

Should we (home owners)  get excited?  Well in short, not yet, but this is good news.  Some analysts are saying that the lack of properties for sale was creating the effect of increasing prices, the actual number of buyers is still well below normal levels for this time of the year.

From my perspective buying demand for houses is based on three factors:

1. Affordability – the property must be affordable, at the starter home end of the market it is a simple comparison largely based on the cost to rent versus the cost to buy.  If it is cheaper to buy than rent then there will be high demand from buyers.

2. Finance – there needs to be readily available mortgage finance so that buyers can buy.  Its not a question of whether you can afford the mortgage finance, currently it is often a case of whether you meet the lender’s criteria for a mortgage.

3. Confidence – as buyers we have to feel confident about house prices, it is a major purchase and we thus need to feel confident that prices are not going to drop off the cliff in a year or two from now.

So where are we on these 3 key factors?  Well, based on what I am reading from the many reports published:

Affordability – in many parts of the country it is still cheaper to rent than buy when you consider future expected mortgage rates (e.g. 5.5% to 6.5%) and the various ownership costs from insurance through to maintenance.

Finance – this is starting to improve, but we still have some way to go for first time buyers as the LTV (Loan to Valuation) often requires a very large deposit.  Credit ratings is still quite an issue for many would-be borrowers.

Confidence – this is starting to return with each positive report on house price increases, but for many there is still the uncertainty over increasing unemployment.

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Posted in Mortgages, UK House Prices

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Getting a mortgage

June 24th, 2009

Doing some research today on mortgages.  Overall there are some signs of improvement however the common theme amongst most lenders is that the lowest interest rates were for mortgages with low LTVs (loan to valuation).  For example the Woolwich at time of writing was offering a mortgage at just 3.24% but the LTV was 60%, in other words you need to find a 40% deposit to buy your house. 

Of course this is not of much help if your equity in a property has fallen to say 20% or so and you want to re-mortgage, in fact in the current market for many this is not an option.  Worse still for those in arrears who are either trying to re-mortgage (today its almost impossible) or taking a desperate action for a quick house sale rather than wait for repossession.

Overall it appears that with the shortage of credit the banks are building loan books (mortgages to the likes of you and me) with very low risk ratings, e.g. with a 60% LTV it is very very unlikely the bank will ever lose money should the property get repossessed.  This helps the banks improve their own risk ratings, and in the longer term it will help them improve overall availability of mortgages and place these within the reach of first time buyers.  Time will tell.

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