Posts Tagged ‘Mortgages’

Mortgage rates falling – HSBC and others

September 3rd, 2009

Great news for property buyers, mortgage rates are falling. 

Just as we were all starting to criticise the banks for their taking excessive profits by increasing their margins on mortgage interest rates we now see a surprise move by HSBC who announced a 1.99% mortgage offer.

But you have to read the detail that goes with this…..

  • There is an arrangement fee of £1,199
  • You need a massive 40% deposit. 
  • The rate tracks HSBC variable rate with a discount of 1.95%, so as rates go up in the next year or two then so will the 1.99% mortgage rate.
  • The discount of 1.95% is offered for 2 years, after that the rate reverts to HSBC’s variable rate (currently 3.94%). 

Overall though this is still a great deal from HSBC, and one that will certainly shake up the market. Already a number of other lenders have improved their mortgage offers, these include:

Woolwich (part of Barclays) trimmed their 2 year fixed product by 0.2% to 4.09%.  You need 30% deposit and there is a £999 arrangement fee.

Cheltenham & Gloucester trimmed their 2 and 3 year fixed products by 0.2% to 4.19%.  You need a 40% deposit.

Apart from the HSBC offer the reductions are still quite small compared with the falls in the cost of wholesale money (e.g. 2 year swap rates and LIBOR), but it is a move in the right direction.

Please note – we are not mortgage advisors, we simply publish what we find for your information, please speak to a regulated mortgage broker for advice.

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Is a cap on bankers’ bonuses the right solution for our economy?

September 1st, 2009

There are alternatives ….

There seems to be an increasing number of politicians calling for a cap on bankers’ bonuses, is this because they believe it will ensure a more effective banking system for the British economy, or is this considered a popular statement to get votes?

Clearly it is in the UK’s interests for the banks to operate in a way that we do not have a repeat of the credit crunch, but a cap on bonuses is not the solution.  Bonuses must be based on performance, if a banker performs well they should be rewarded appropriately, simply applying a cap on bonuses will put a cap on performance.

Whilst some degree of regulation could help to ensure that bonuses reflect longer term (sustainable) performance an alternative approach is to make the consequences of bank failure high, very high.  

Right now we have a clear example.  The UK has invested huge amounts of taxpayer revenues into the banks.  What would hurt the banks is if the shares are sold back at the maximum profit the UK tax payer can make. Most banks are going to recover and will increasingly start to report large profits again, as a result their share prices will start to rise.  If the UK Government sells back those shares at only a small premium to what was paid for them then the banks have effectively been given a low interest loan! (which is a bit ironic in that they are not providing cheap mortgages). Alternatively if the UK Government holds onto those shares to benefit from selling at a significantly higher share price, then the cost to the banks will be much higher.

Another example.  Regulation could be established such that any bank deemed to have fallen into a category where there is a high risk of failure then penalties can be applied by selling part of the bank’s shares to the Government at a massively reduced price e.g. 10% of value. The cash received would restore the bank to a safe operating level, but the penalty paid by shareholders would be high, and the risk to shareholders would drive much safer bank operating practices.

Cleary the examples above are simplistic, but the underlying strategy is compelling, make the price of failure for banks high enough such that they will avoid failure. We must avoid a solution that caps banks performance to create middle of the road businesses that do not help to grow the UK economy.

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Posted in UK Economy

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Cost of Mortgages Increasing

August 13th, 2009

According to the Bank of England the cost of fixed-rate mortgages increased in July 2009 to an average of 5.7% which compares with an average rate of 5.54% in June 2009.  The result is that fixed-rate mortgages are at their highest since October 2008.

These changes to fixed rates are key indicators as to the health of our banking system.  Despite efforts by the Government and the Bank of England to apply pressure on banks to lend at more reasonable rates we are seeing an increase in fixed-rates.  This would suggest that the banks are paying a higher cost for fixed-rate funds in the markets – it is not just LIBOR to be considered here, each bank will have its own “credit rating” and thus the cost at which it borrows will be affected by its perceived risk rating in the markets.

There was an article a few months ago where a large corporate company actually had a better credit rating than the bank from which it used to borrow funds.  The result was the company bypassed the bank as they could source funds at a lower rate than the bank.  This is a classic example of where the bank’s credit rating is a key factor in the cost at which it borrows money and in turn the cost that they charge “us” for a mortgage.

But it is not just interest rates that are being affected.  In the last month there has been a trend to lower LTV (Loan To Valuation) in the buy-to-let market.  For example in June 2009 it was relatively easy to get a mortgage loan based on 75% LTV. By the end of July it was difficult to find banks who would lend at 75% LTV with most now offering 70% LTV maximum. 

Overall it seems that the banking system and its ability to lend is still far from where it needs to be with no sign of a change in the near future. Until the banks can lend more freely we are going to see more pain in the property market.  Right now it is still a tough market for the property buyer.

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Bank Bad Debt Write Off

July 29th, 2009

Bad news today = good news tomorrow?

On Tuesday 28 July the Deutsche Bank made provisions for bad debt of €1bn, the write-off being against loans including homeowner mortgages.  Now the focus is on the UK high street banks; Barclays, Lloyds, HSNC, etc to see what their write down for loans will be.

It is interesting to stand back and see what is happening here.  The banks are effectively “clearing their books” of “potential” bad debt, whilst this hits short term profits it significantly improves the bank’s remaining loan book, in effect improving the bank’s risk rating. 

This is of particular significance when taken together with the UK banks’ approach of only taking on very low risk loans, e.g. where a mortgage is given agaisnt a property at a LTV (loan to value ratio) of 70% (buy-to-let) or a maximum of 85% to 90% (homeowner).  The overall effect, in combination with the write downs of riskier loans, creates a very robust loan book for the banks.

Overall this is good news for the economy in the longer-term as once the banks have more robust loan books their risk rating as perceived in the money markets will be much improved.  The improved risk rating will allows banks to obtain finance at a more competitive interest rate, which in turn (hopefully) will be passed onto the property buyers and business through their mortgage and loan applications.

So, maybe this is good news for “tomorrow”.

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Posted in UK Economy

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Mortgages direct from lender

July 28th, 2009

The credit crunch has taken its toll on the number of mortgage products (in particular for buy-to-let) and naturally on the number of mortgage brokers. We have found out first hand the advantages of approaching a bank directly … read on.

In 2007/2008 there were 1000+ mortgage products, buy-to-let landlords and home buyers could obtain mortgages with ease using a self-certification income. Today the number of mortgage products has dropped significantly, and some banks are now offering products direct, not via a mortgage broker. The upshot is that many mortgage brokers will not be able to get you the best deal, you now need to do some more research yourself.

Whilst we believe mortgage brokers are a key resource for property buyers you should not rely on them exclusively, here is our case study:

  • Buy-to-let property mortgaged with the same bank for 10 years. An equity release was required to build up a fund to buy other properties.
  • A reputable mortgage broker was appointed to find a product. The offer was a tracker at BBR + 3% for 2 years, then revert to the lender’s SVR. There were admin fees and a 3% arrangement fee to pay. After 4 weeks the mortgage failed to complete due to a small technicality about the property freehold – banks often look for excuses not to lend.
  • Next approach was to the existing mortgage lender (should have done this first). They offered the same SVR interest rate for a remortgage equity release, and best of all only £255 in admin and legal fees. Note that this bank was no longer offering products through mortgage brokers, the advantage we had was the existing bank relationship and a known low-risk profile.

 Clearly this example does not apply to everyone, however it does support the view that approaching an existing bank with whom you have a proven history of mortgage borrowing could save you time and a lot of money in fees!

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Posted in Mortgages

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Why UK banks struggle to lend money

July 27th, 2009

We recently blogged about overseas banks such as Leumi of Israel and the Bank of China entering the UK market to undercut the traditional UK banks.  Today Alistair Darling, the Chancellor of the Exchequer is to meet the main UK banks to discuss their inability to lend. But maybe the Chancellor really knows why the banks are not lending, or at least he should know!

At a meeting with a senior manager of Lloyds we were told that they were struggling to lend because of the criteria placed on them by the UK Government.  The main issue was that Lloyds, as with other UK banks, had to increase its cash reserve.  This had a knock-on effect, subsequently we were informed that HSBC was to call in £1billion of commercial lending in the UK during 2009. it very much appeared that that our UK banks were all taking a similar action, that was to increase their cash reserves to meet Government regulation.

So, going back to Alistair Darling’s meeting with the banks today, maybe what is needed is to relax the criteria (to a degree) allowing banks to operate under less strict cash reserves.  Such action will allow the banks to increase lending.  It is all about balance of risk here, allow the banks to reduce cash reserves too far and they could risk failure, but placing too higher (short term) target to increase cash reserves could change what is a substantial recession into a depression. 

The overall conjecture here is that if overseas banks are entering the UK market and undercutting the UK banks then there must be a market for profitable and relatively secure lending.  So there has to be a reason other than market forces which prevents the UK banks from lending at more attractive rates.  And that reason must lay with the UK’s tripartite regulation; Bank of England, FSA and UK Government, reviewing the regulation could have a positive impact on lending within the UK economy.

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Posted in UK Economy

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Handelsbanken and Leumi Mortgages

July 26th, 2009

More foreign banks are joining the influx of banks to provide mortgages on UK residential property.  Yesterday we reported the Bank of China had entered the UK market, now we have learnt that Handelsbanken of Sweden and Leumi Bank of Israel are also now providing mortgages in the UK.

This is fantastic news for anyone seeking to buy UK property, especially for buy-to-let investors who are currently getting very poor deals from the British banks.  Here are some examples of what we understand is available from the non-UK banks:

Buy-to-let 3% over base rate tracker mortgages with 25% deposit

Lower arrangement fees, typically from £995

Buy-to-let mortgages based on 100% rental cover (most UK banks require 125% cover)

Leumi bank we understand is offering a tracker mortgage at just 1.625% above 3-month LIBOR, that is a current rate of around 2.56%.  This compares with the best UK bank rate of 2.95% from HSBC.

The fact that foreign banks are entering the UK market suggests that they now see it as very profitable to lend here, and maybe they see that property prices are at or nearing the bottom of the market – so for them, their loans are secure.

As to getting access to these loans you need to find an approved broker.  So far we have found the following can access the Bank of China mortgages:

  • Savills – 0870 900 7762
  • Legal & General Mortgage Club – 01226 230504
  • LargeMortgageLoansUK – 020 7519 4900

Maybe the tide has finally turned and we will soon see the big name banks on the UK high street offering mortgages at more reasonable rates.

Buy-to-Let investor looking for BMV Properties at discounts to todays valuation? << click here

Do you want to check tenant backround for financial risk? << click here

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Posted in Buy-to-Let, Mortgages

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Bank of China Mortgage

July 25th, 2009

We’ve been used to the proliferation of Chinese restaurants, now almost on every high street, then Chinese imports as their economy flourishes.  Now Bank of China Mortgages are here, maybe they see the UK as a great opportunity?

There has been much publicity regarding UK banks and the higher mortgages costs, lack of availability, etc, and we have blogged about them here.  but maybe, just maybe, the Bank of China could start to change the banking market for the better by introducing much needed competition and more cash.

The Bank of China will offer mortgages to both Buy-To-Let investors and homeowners, with mortgages starting at around 2.5% over BBR (which is an effective rate of 3% as at July 2009).  As yet we do not have details on the all-important loan-to-value (LTV) they will be offering, but it cannot be any worse then the UK banks are currently offering, and hopefully much better.

But dint think it is just a simple process of going to your current mortgage broker as they may not be able to access the Bank of China, it is understood that the mortgages will initially be brokered through Savills, and the Legal & General Mortgage Club.  Other brokers are expected to be appointed by the Bank, but it seems not all brokers will have access. 

Lets hope this move the the Chinese Bank will provide a much-needed shake up of the UK banking system and kick-start the mortgage lending to help with the recovery of our battered property market.

Here are some contact details of brokers providing access to mortgages with non-UK banks….

  • Savills – 0870 900 7762
  • Legal & General Mortgage Club – 01226 230504
  • LargeMortgageLoansUK – 020 7519 4900

Looking for buy-to-let properties?  BMV Properties at discounts to todays valuation? << click here

Before letting don’t forget to check tenant backround for financial risk? << click here

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Posted in Fast House Sales, Mortgages

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More mortgages for property buyers?

July 23rd, 2009

Today it was announced by the British Bankers’ Association (BBA) that there was an increase in mortgages approved for property buyers, apparently the highest number of mortgages approved for over 12 months. But, is this just some PR on behalf of the banks to “improve their reputation”?

The fact is that there is normally an increase in buying activity as we move into the summer months, so it would be expected to see an increase in the number of mortgages approved.  So the totals of 35,235 mortgages approved in June versus 31,919 in May is normal, to be expected. 

The real test is how much is being lent versus the typical year prior to the credit crunch.  The BBA do not seem to publish this information as it will almost certainly show the mortgage lending to property buyers is still at a very low level.  You only have to look at the difficulties people are STILL experiencing in obtaining a mortgage with unrealistically high levels of deposit.  Why do banks need 15% to 25% deposits when based on the assumption property prices do not have much further to fall mortgages with just 10% deposit (which are hard to get approved) can be considered secure.

The bottom line is that although the banks are finding the market difficult for raising funds they are still not doing enough to improve mortgage borrowing, despite what the BBA may publish.

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Posted in Property Buyers

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