Mortgage Beaters

No Surprises.

2008-05-09T13:16:00.001+01:00

The Bank of England was criticised by economists and the housing industry yesterday after leaving the base rate on hold. But really what did they expect? Back to back rate cuts were never on the cards.

The Bank's Monetary Policy Committee voted to leave borrowing costs unchanged at 5per cent, despite many experts' fears that this tactic could endanger the wider economy.
Howard Archer of Global Insight said: "The recent stream of weaker data and survey evidence relating to consumer confidence, retail sales, the housing market, the services sector and manufacturing activity suggest that the UK economic downturn is deepening."
I can’t speak for the latter two sectors, but I can certainly vouch for the fact that the housing market is on its knees. Estate agents are disappearing by the hundreds each week. According to the MD of a prominent chain in the Midlands the situation is worse than the early 90s, because then at least then you had lenders who wanted to lend. Today, he said, you’re hard pressed to get a mortgage irrespective of whether you are a first time buyer or someone who wants to remortgage, because the arrangement fees are ridiculously high.

With LIBOR at 5.78 per cent and still well above base, the banks yesterday made a desperate dash for cash offered by the Bank of England. This is a sure sign that things are still far from normal and why we will get a rate cut of 0.25% next month.

Will this make things any easier for homeowners and first time buyers? I would love to think so, but I don’t see much improvement for at lease another six months.

Is The Worst Over?

2008-05-01T17:02:00.001+01:00

According to the Bank of England’s latest Financial Stability Report the worst of the credit crunch could now be over. The Bank believes that the scale of losses resulting from the crisis may be overstated and that if financial institutions continue to talk pessimistically about their plight it may well turn into a self fulfilling prophecy.

That’s the good news. The bad news for homeowners and the housing industry in general is that this announcement will have no impact whatsoever on lenders, their mortgage rates, or on the number of mortgage products available.

The reason is the same now as it has been for many months. The banks would love to be able to lend, but there is simply not enough money around to do so. The banks which would often raise money in America can’t do so because the people that provided the billions of pounds that they then lent in the form of mortgages have lost their appetite for anything to do with property. The collapse of the US housing market has seen to that.

Money is available in the EU, but it pales into insignificance compared to monies previously available from the States. The £50billion that the Bank of England recently made available to our lenders is a start, but it is only that. Many more billions will have to be made available before new products are launched and rates begin to come down.

Over to you Governor.

Is There Any Good News Out There?

2008-04-24T12:55:00.002+01:00

With the number of mortgage approvals falling by nearly 50% last month to its lowest level in more than a decade and with more brokers and lenders falling by the wayside each week it’s very difficult to find anything positive to say about our industry at the moment.

I don’t think anyone has ever witnessed anything like the situation we are now facing thanks to the greed and the disastrous overseas investment decisions made by the banking community.

The only piece of good news I can think of is that the Bank of England will have to continue to cut interest rates, but even then this is tainted by the fact that the decisions of the Bank of England’s Monetary Policy Committee now bear little relation to the actual mortgage rates being charged.

Despite having cut the official rate three times in the past five months, the mortgage rates faced by homeowners have actually risen by around 1.25 per cent. The Bank's emergency £50 billion plan to unfreeze the credit markets may eventually help to solve the problem in the short term – with further cash injections a certainty - but not for some time, perhaps a year.

So what should the Bank do? It should cut rates sharply if we are to avoid a US-style recession. Unfortunately I suspect that Mr King will continue to make gradual cuts with the lenders reluctantly passing on a fraction of the decrease.

So house prices will continue to fall and brokers will continue to go to the wall as lenders cut our commission in order to try and boost their profits.

Better Late Than Never

2008-04-21T10:36:00.001+01:00

The Government decision to pump £50bn into the banking system to enable the banks to start lending again and restore confidence in the system, as well as the economy is welcome news. I only wish they would have taken this course of action sooner. If they had a lot of pain could have been avoided and a lot of people in the UK housing market would still be in a job.

The unprecedented plan, which is supposedly the brainchild of the Governor of the Bank of England, involves the swapping of government bonds for the mortgages on the books of the banks.

Chancellor Alistair Darling said that it wasn’t a bail out for the banks. Rather it was a loan that had to be repaid. “What it will do” he said is effectively lend banks money to unfreeze the situation we have got at the moment”.

The money markets have been frozen since the American housing crisis impacted the UK market last August. It made banks extremely reluctant to lend to each other let alone would be homeowners and existing borrowers looking to remortgage.

It will certainly help to ease the credit crunch, but my concern is that it’s not enough. I suspect we will see a further injection within six months and the Bank will have to continue to cut interest rates in order to keep the economy and the housing market moving. Potentially this is all good news for homeowners.

However, it will count for nothing if the banks continue to refuse to pass on these cuts. The Government must therefore play hardball with the lenders. They should force them to pass on these cuts in their entirety and to get first time buyers back into the market they should adopt the Tories plan of removing their stamp duty altogether.

What better way for Mr Brown to easily restore some of his lost popularity?

The current market situation

2008-04-10T10:37:00.002+01:00

Amidst all the doom and gloom we read and hear about everyday, I thought it might be useful to provide some insight on the current state of play in the mortgage market.

Where are we now?

The mortgage market is undeniably in turmoil. It’s doubtful if anyone in the industry has ever witnessed anything like it. From an intensely competitive market on all fronts-products, margins, price and criteria- we’ve moved to a situation where almost every lender is too scared to do anything. They are frightened to introduce new products in case they get swamped from a demand they cannot possibly meet. They are desperately trying to recoup their losses from the crisis in the American sub-prime market and consequently they are all pricing their products upwards and will probably continue to do so even if we get the anticipated 0.25 per cent cut in interest rates today.

What’s the cause of this?

There are three reasons.

First, there is not much money around to fund new mortgage lending. Many banks used to use their deposits i.e. money in savings accounts- to fund their mortgage lending. Recently, however it has become fashionable to use the money markets instead, i.e. borrowing from other banks, or from the sale of packages of mortgages known as mortgage-backed securities or “MBS”.

The American market used “MBS” to fund their sub-prime mortgage lending which equated to about 20% of all their lending - in the UK, sub -prime lending, which is much better regulated, has never accounted for more than 8%. When the housing market in the US collapsed, most sub-prime borrowers fell into arrears causing lenders both in the US and over here to lose millions and in some cases billions.

Consequently banks are now desperate to recoup their losses. They are reluctant to use the money markets anymore for mortgage lending, preferring to rely once again on their deposits. They are wary of lending to each othe, because they are uncertain of their exposure to the US market. As a result LIBOR, the rate at which banks lend to each other is currently over 1% higher than the Bank of England base rate.

The second reason is a lack of confidence in the banking community itself. No-one is certain what will happen to the housing market, or to the economy if America goes into recession which could happen.

The third reason is a lack of capacity amongstlenders to handle large volumes of business. With fewer lenders around- some having gone to the wall and others “temporarily withdrawing from the market”- borrowers and mortgage brokers have less options to place their business, causing backlogs in those lenders who still want to lend. Faced with this problem the banks are trying to put borrowers off by a combination of higher rates, higher arrangement fees and a tightening of loan to value criteria.

When will we return to normal?

Probably in 2009, but we will not return to the “normality” of the last few years. The days of cheap money, as I’ve said before are long gone and so are many of the specialist sub-prime lenders who offered such competitive rates.

Are there any reasons to be cheerful?

Yes. Interest rates are falling. They could be as low as 4% by next year, so LIBOR will fall as well, making it easier for banks to start lending to each other and cheaper for homeowners to start borrowing again.

The Bank of England is trying to improve market liquidity by pumping money into the system and the Chancellor has just appointed a new committee- groan- to address this very problem. Actually it’s being chaired by the ex boss of HBOS, so hopefully they will know what they are doing and will come up with something that works.

Finally nd I hate this term but it’s so easy to use, the fundamentals of the UK housing market are strong. Employment and immigration are at record levels and we still do not have enough houses to match the demand.

Banks will have to start lending soon if they are to make money, but they will ration the availability of mortgages and they will be much choosier to whom they will lend.

Grab It While You Can

2008-04-03T12:30:00.002+01:00

If you are looking for a mortgage you should apply for it as quickly as you can as yesterday the Bank of England warned that their availability is likely to deteriorate over the next three months.

The credit crunch has meant that mortgage lenders have been far less likely to lend to each other, leading to a cut in the number of mortgages available.
Yesterday, First Direct, the Co-op Bank, Southern Pacific and Preferred Mortgages all announced they were suspending some mortgage offers. They claimed they were being swamped with demand after maintaining competitive rates for as long as they could. Most lenders have increased their rates recently by 0.2 per cent, despite the Bank of England's cuts in the base rate.

The number of mortgage products actually on offer has fallen by 20% over the past week, which means that people having to remortgage will need the advice of an independent mortgage broker now more than ever in order to find the best deal.

The situation is particularly tough for first-time buyers even although, paradoxically, the cost of homes has started to fall slightly in the past couple of months. Even so they will have to find larger deposits, perhaps as much as 15% as lenders have restricted their loan to value criteria.

If the Bank cuts interest rates by another 0.25 per cent next week, in the current climate, it is unlikely to be reflected in your mortgage repayments.

Let's move in together?

2008-03-27T10:57:00.001Z

“Let’s move in together” - It seems that these words are becoming ever more popular with marriages at an all time low according to today's newspapers. It is increasingly common for couples to live together before they marry and, sorry to be so unromantic, but it is also more common for unmarried couples to break up than their married counterparts.

So the prospect of breaking up needs to be considered particularly for unmarried couples as the law governing division of assets is more complicated than for married couples.

Contributions to outgoings, such as the mortgage and utility bills do not, surprisingly, necessarily bring an entitlement to a share in the property.
The couple must have advice when they buy about the way in which they will legally hold it. Joint Tenants means that they have equal shares which will obviously become relevant should they decide to sell their property, or separate, or both! On death, the survivor will automatically inherit the whole of the property irrespective of the terms of a will or otherwise.

The alternative is Tenants in Common. This allows the parties to specify their shares in the property. This is, understandably, important to agree from the outset and should be recorded in a declaration of property trust. As the share of the property forms part of the couples’ estate, an up to date will must be in place to ensure that it passes to the correct beneficiary. Otherwise, you could end up owning your home with your deceased partner’s parents!

Additionally, an unmarried couple should consider a Cohabitation Agreement. This sets down what they intend to contribute and to what they will each be entitled. It extends further to cover the impact of the arrival of children, whose surname the little ones will take and contributions to their financial maintenance.

So before setting aside time and a budget for the wallpaper for the garish feature wall, you need to do the same for some bespoke legal advice.

The Bank of England Pledge More Help

2008-03-26T13:18:00.002Z

The squeeze on liquidity is getting worse, rather than better, and yesterday's three-month Libor rate – the rate at which Banks lend to each other-of 6pc, has proved- if proof was needed- that the last cut in interest rates announced by the Bank of England has had little or no effect.

Homeowners are complaining that their variable mortgage rates are actually going up not down, blaming lenders of everything under the sun, but the simple fact is that if mortgage lenders themselves cannot borrow at less than 6pc (and often much more than this), they are hardly likely to lend money to anyone else for less.

Some of the smaller building societies cannot get funds at anything less than Libor plus 1.5 per cent (nearly 7.5pc), and it is this issue that will cause the greater long-term harm, in the view of many economists, rather than a short-lived hike in inflation.

Economies need confidence in order to grow and one of the pillars of confidence in the UK is the value of property. If the housing market grinds to a halt through lack of liquidity, then there would be only one direction for it to go - down!

In a market short of buyers' house prices will fall and with fewer people able to get a mortgage, unless The Bank of England pumps more money into the system then we could be heading towards this scenario.

Until now the Bank has given the impression that if it does nothing for long enough then, the problem will sort itself out. Well, the credit crunch hit last August and the problems are still with us. Fortunately yesterday Mr King
pledged to pump more cash into money markets to try and restore confidence in the UK's financial system amid the credit squeeze.

The promise comes after the Bank put an extra £5bn into the market last week.

Mr King also predicted that house prices would be "broadly stable" over the next few years, which he welcomed. He said that a slowdown in the housing market would eventually make houses more affordable for first-time buyers, as the ratio of wages to house prices returned to more normal levels.

Activity and prices had continued to weaken in both the residential and commercial property sectors, he added.
"That stems in part from the continued tightening of credit conditions reflecting the turmoil in financial markets," Mr King said.

He told the Treasury select committee that the global financial crisis had "moved into a new and different phase".

"Across the world, confidence in financial markets is fragile. It is not that banks, at least in the UK, have made loans that are likely to result in unsustainable losses," he said.
"The heart of the problem is not in the real economy. It is in the financial sector itself."

Uncertainty about the strength of banks' financial positions has grown because of their difficulties to secure funding against assets they hold, he said.
Despite the billions being pumped into money markets, the Libor rate remains high.
Mr King said that it was a "matter of concern" that the efforts by central banks had so far failed to stem the problem.

The Bank of England would continue to offer extra money in the markets as a short-term way of boosting confidence in the system, he added.

However he said that longer-term solutions would be discussed with UK banks.

Perhaps there is some light now at the end of the tunnel?

Stamp duty slashed on shared-equity homes

2008-03-12T14:06:00.002Z

In his first budget today the Chancellor revealed that there will be no stamp duty on shared ownership homes until the owner owns 80 per cent of the equity.

Alistair Darling also confirmed in the budget that it will be launching a new shared-ownership housing scheme in April, which will see the old scheme extended to key workers who can only afford 50 per cent of a home.

The current Open Market HomeBuy scheme is available for those who can afford 75 per cent of a home.

Darling also repeated his wish for more long-term fixed-rates, such as 10, 20 and 25 year fixed-rates, to be on offer in the mortgage market. They are quite common in the rest of Europe and in the USA, but they have never taken off over here.

Mr Darling had no further details to announce other than the Government would be seeking views in the mortgage market on how this could be done.

Darling says the Government will then report back in the next Pre-Budget Report.
"I will seek views on how we can deliver - drawing on international experience - the right framework for the UK to achieve affordable, long-term fixed rate mortgages", Darling adds.

Government Housing Policy Failures

2008-03-07T12:54:00.001Z

After much hulabaloo the Government’s Home Information Packs (HIPS) were finally branded a complete waste of time yesterday by the Communities Department. What a surprise!

Research undertaken by the Department into the Government’s pilot scheme found that the packs which were introduced to speed up house sales were only being provided to four in ten buyers. A further 20% did not receive them from estate agents until after they had made an offer on the property and in total 80% of buyers never saw them at all. Grant Shapps, the Tory housing spokesman said: ” It is proving to be a very costly and bureaucratic farce”.

It also emerged yesterday that in spite of the Government spending £100m on a scheme to help first time buyers onto the property ladder only 700 people had actually received helped since the programme began nearly 2 years ago.

Research also showed that while 115 first time buyers in the South East had received help and 117 in London, the scheme had only assisted 4 people in the east of England and not helped a single first time buyer in the East Midlands.

How does this compare with the non- Government scheme for first time buyers run by Joint Equity Ltd? The answer is it doesn’t. I know for a fact that 12 people in the East Midlands were helped by Joint Equity in the space of two months, not two years!

The answer for first time buyers is plainly don’t wait for the Government to help you, contact Joint Equity Ltd now.

Inflation threat will keep borrowing costs on hold

2008-03-03T10:18:00.002Z

The main housing news this week will be on Thursday when the Bank of England’s Monetary Policy Committee will decide whether to cut interest rates or keep borrowing costs on hold.

Although most economists are predicting that we can expect a further one or two cuts this year it will not happen on Thursday. Why? Because inflationary pressures are still rising and cutting rates under those circumstances would damage the Bank's credibility.

Since last December the Bank has cut rates by 0.5 per cent from 5.75 to 5.25 per cent, but with inflation just above the Bank’s 2 per cent target at 2.2 per cent and rising food and fuel prices expected to push this to nearer 3 per cent I don’t think we can expect any good news for homeowners for a couple of months.

Whilst aspiring homeowners would love to see the predicition of Charles Goodhart, a former Monetary Policy Committee member, that interest rates could be safely cut to 4 per cent now materialise, sadly it is not going to happen

Year of the Broker?

2008-02-28T10:24:00.000Z

It’s hardly surprising that there has been a sharp fall in the number of mortgage products on offer. With the cost of money for banks rising most of the specialist lenders have culled their heavy and medium adverse products. The prospects therefore for those homeowners unfortunate enough to fall into this category have become very gloomy indeed.

Figures released by the two leading mortgage sourcing systems reveal that the number of products has fallen by a dramatic 40% since the credit crunch hit last summer.
Trigold now shows 40,000 products on its system and Mortgage Brain 24,000.

The end of the era of cheap debt means that fewer aspiring homeowners will be tempted to borrow too much, but when they do decide to take the plunge they will need the services of an independent broker more than ever.

With fewer products to choose from- although 40,000 is still a decent number- borrowers need to be certain that they are getting the best deal and who better than their friendly independent broker to advise them?

Where to now for First Time buyers?

2008-02-20T11:49:00.001Z

The news that The Abbey, the Alliance & Leicester and Coventry Building Society will no longer allow people- mainly first time buyers- to borrow more than the value of their home has hardly come as a surprise in the current climate. They will soon be followed, I suspect, by Northern Rock whose reputation was largely built on their generous help to first time buyers with their 125 per cent deal and Birmingham Midshires.

Before Christmas, a third of lenders offered mortgages of 100 per cent or more. Today, just one in ten do so.

The decision to axe 100 per cent deals will make it even harder first-time buyers, to get on the property ladder. However, there is still hope.

For a similar cost to renting first time buyers can still purchase up to a 75% stake in a home of their own, via the Joint Equity scheme.

The scheme works by matching first time buyers with a private investor to help them purchase the property and on the share that the first time buyers don’t own they pay an investment return to their investor partner.

There is no landlord breathing down the necks of the first time buyers as the relationship is a true partnership-unlike that of a landlord and tenant. Plus as homeowners they can redecorate or improve the home whenever they like.

When the first time buyers choose to sell the property, they split any profit with the investor according to their ownership shares.

The required deposit from mortgage lenders offering this unique scheme is 10% of the share of the property. So if the home costs £100,000 and your share of the property is 50% you pay 50% of the deposit i.e 5% which equates in this instance to £5,000.

For more information and to obtain a free personalised illustration go to
www.joint equity.co.uk/buying.

The Government’s long-term fixation

2008-02-18T12:17:00.002Z

With Mr Darling’s first budget fast looming on the horizon he is once again expounding the virtues of long-term fixed-rate mortgages inspite of the apathy felt by most borrowers towards them. Gordon Brown was convinced by Professor David Miles that such loans – popular in the United States and in Europe – are the key to housing market stability. Now Alistair Darling is expected offer help to lenders to encourage “more people to fix their mortgages as a matter of routine”.

“For many households, particularly those on low incomes”, said Mr Darling “fixing the level of mortgage repayments for several years makes real sense and it can also contribute to wider macroecnomic stability.”

Whilst few can fault the concept the problem remains that fixing a mortgage for any term over 3 years is a huge gamble. Who can say what is going to happen over that time- to interest rates and, more importantly, to you especially if you are a first time buyer? You could get married, divorced, have children, suffer a long-term illness, lose your job, change job , decide to go and live abroad, in short almost anything can happen and if you are in a fixed rate mortgage for 25 years which Mr Darling would like you to be your lender is going to charge you a punitive exit fee for escaping from this arrangement.

Over 20 lenders, including Abbey and Halifax, now offer loans with fixed-rate terms of ten years or more, but most homeowners fix for two. This is partly because the shorter term products usually offer better rates and homeowners realise, unlike the Government, that their circumstances are likely to change over anything longer than two years.

It is anticipated that the reforms likely to be introduced in Mr Darling’s Budget will make it easier for lenders to finance long-term fixes through covered bonds. This should mean that rates will be better than they have been in the past, but in a climate where the cost of borrowing in a year’s time is predicted to be heading towards 4 per cent who in their right mind would want to take out a fixed rate mortgage for 25 years?

It’s a time of opportunity.

2008-02-15T12:38:00.001Z

I don’t know if you are like me, but I’m absolutely fed up with all the doom and gloom mongers. So it was refreshing to hear the Governor of the Bank of England advising many of them to get out of London and go and see that life exists outside the capital - it’s far rosier.

Yes, he said people there are just as concerned about the economy, but they are getting on with their lives and going about their business as usual.

Many of our customers outside of London are in fact doing just that. They recognise that there are opportunities out there and that the key to success is often to invest when markets are in a turbulent state.

According to wealth manager Courtiers “it is important to keep an eye on fundamentals when markets are volatile” and the fundamentals as far as UK residential property is concerned are inescapable. Demand outstrips supply. We build too few houses and estate agents rarely have enough properties to sell.

Moreover, if you are looking for a solid investment in these troubled times nothing beats residential property- a fact highlighted today by the Dutch Bank ABN Amro.
Unlike most research which is often carried out by those with a particular axe to grind, this is quite revealing. Over the past decade the bank found that the best returns were provided by property. Equities came way down the list.

So if you want more bang for your bucks, always provided you can afford it of course, now’s the time to take the plunge.

Expect a 0.25% cut in rates today

2008-02-07T09:24:00.000Z

Although business groups and homeowners would welcome a slash in the cost of borrowing, the Bank of England is expected to cut rates by a mere quarter of a percentage point to 5.25% from 5.5%. ‘Steady Eddie’ is unlikely to have been replaced by ‘Merv the Swerve’.

The Bank of England's Monetary Policy Committee (MPC) will announce its rate decision at 1200 GMT after a two-day meeting.

Many economists are predicting that rates will fall further this year, but it will be a gradual process as the Bank doesn’t want to cause undue panic in the markets which is what happened to some extent recently in the USA.

What will the cut today do for mortgages? Not a lot I’m afraid. Whilst every cut helps lenders have been increasing their rates over the past few weeks, so when they cut their rates next month we will really only be back to where we were.

What we need perhaps more than anything at the moment is for confidence to be restored in the banking community itself. This is why the Chancellor’s announcement yesterday to introduce measures to lure investors back to the credit markets which provide funding for banks’ loans to homeowners was so important.

What really adds value to your home?

2008-02-05T11:41:00.000Z

Research from the One Account shows that home owners are abandoning the aspiration to emulate the rich and famous and are turning back to traditional money making favourites.

So, according to them, out go hot tubs, swimming pools and his and hers sinks in bathrooms as we return to basics to add value to our biggest investment.

The survey carried out by the mortgage lender The One Account reveals that we all have an inflated expectation of how much value our improvements will add to our homes. For example we seem to believe a luxury Jacuzzi or pool will add in excess of £10,000, but the survey found that in reality it adds nothing - yes a big fat "zero".

So what is hot at the moment to add value? Well according to One Account's valuers;
1 A garage or off street parking
2 An extension
3 Loft conversion

However, we have to remember that surveys do not always tell the whole story and they need to be considered alongside real life.

The problem about translating greatest returns on investment into what we should do is that the investment vehicle is also our home so there is the "lifestyle" factor.

Lifestyle in this instance relates to what you want to do to your home to increase your enjoyment of it. What can you do that will enrich your life? Experts call this the utility factor and you need to weigh cost against benefit and time to enjoy.

If you are going to be in a home for 10 years and an alteration, that you want and will enjoy, costs £2,000 but adds no value, the utility cost is £200 a year or 55p for every day you use it. If you consider that whatever you do is worth the cost of a newspaper a day then it is good value – to you. However, if you intend to stay in the house only 2 years the same alteration costs £1000 a year or £2.74 per day and you might not think it is worth it.

There is another factor to consider if the alteration does not add any value it might add "wow" in the eyes of the future purchaser and while they will not pay more they might ask for a lower reduction because they really want your house and the sale might be quicker. How much is it worth to you to sell your house in 3 months instead of 6?

For example, I have always liked 2 sinks in a bathroom, I have no idea why maybe its an age thing. Ages ago I extended the master bedroom and built an on-suite bathroom. As I liked 2 sinks the additional cost, around £350, was acceptable and I had them fitted.

Did it add any value – no.
Did we "enjoy" having 2 sinks – yes.
Did it sell the house quicker – yes, the purchaser fell in love with the en-suite and that sold my house.

The moral I think is do what suits you and balance your lifestyle requirements against best value and if you want an ornate garden pagoda and can afford and it will enrich your life then do it. But remember to add the garage at the same time!!!

Anyway back to The One Survey the full results were;

Rank

1. Garage or off street parking

2 Rear or side extensions

3 Loft conversion

4 Conservatory

5. Kitchen refit

6 New bathroom

7 Double glazing

8 Central heating

9 Underfloor heating

10 Swimming pool

11 Jacuzzi

12 Sauna

13 Sunken baths or gold plated accessories

14 Ornate garden pagoda

The other thing the survey found was that the biggest turnoff for buyers was poor quality workmanship, extensions that clash with the existing property and stone cladding.
The survey got that right then.

Lenders Play A Cagey Game

2008-01-28T14:37:00.000Z

The fact that America’s Federal Reserve slashed interest rates by a draconian 0.75% last week has caused many pundits to call for the Bank of England’s Monetary Policy Committee to cut rates by at least 0.5% in response.

Whilst I believe there is as much chance of this happening next month as there is of Pamela Anderson winning an Oscar, they will almost certainly cut them by 0.25%. The question is will the lenders pass this on?

At the moment lenders are playing a cagey game and consequently there aren’t that many good deals to be had. Part of the reason for this is, because those specialist lenders who used to raise their funds on the money markets have found it difficult to continue to do so and the other reason is, because the mainstream lenders like the Halifax, Abbey, Nationwide and the C&G aren’t that hungry for business.

The first two months of the year are normally the time when new aggressive rates are launched in order to gain market share, but because of the inactivity of the specialist lenders the mainstream lenders already have the market share they are used to fighting so competitively to achieve.

This could be part of the reason why trackers which offered such good value a week or so ago are now creeping up and fixed rates are coming down again. Lenders want to be seen to be doing something, but they don’t want to risk doing too much.

Obviously with the rates which banks lend to each other falling lenders would be hard pushed to justify keeping their fixed rate mortgages so high, but in order to compensate for their reduction the Abbey, Woolwich, Nationwide and Alliance & Leicester have all put their tracker rates up. The gap between fixed and tracker rates is rapidly being eroded.

All in all it’s a very strange time in the mortgage business at present with both lenders and borrowers waiting to see which is the best way to move. We all believe that rates will tumble, but no-one knows yet how this will be reflected in actual mortgage products.

A week is now a long time in mortgage broking

2008-01-23T13:27:00.000Z

They say a week is a long time in politics. They should try mortgage broking.

A rollercaster ride hardly begins to describe the events of last Monday when lenders were pulling their products left right and centre and we brokers, as usual, were left to explain to our customers just why the product we recommended in the morning was suddenly no longer available in the evening!

Thankfully given the economic problems the entire world is now facing our customers didn’t vent their spleen on us.

We obviously need a deep cut in interest rates to restore confidence and we need it now, but if you think that we are going to get anything like the 75 basis points reduction they had in the States yesterday then think again.

Minutes just released by the Bank of England's rate-setting Monetary Policy Committee (MPC) show that it voted 8-1 to keep interest rates on hold in January and whilst it is widely anticipated that it will reduce rates to 5.25% from 5.5% next month, the minutes also showed that more aggressive cuts are unlikely.

The reason for this is because the MPC believe that inflationary pressures are increasing.

I know that the Bank of England’s remit is to keep inflation on or under the 2% level per annum, but desperate times require desperate measures and a cut of 25 basis points will hardly soothe the nerves of homeowners increasingly worried about meeting their mortgage payments.

If you are unfortunate enough to be in this position what can you do?

First, you should talk to your lender and see if you can switch from a repayment mortgage to an interest only one. They will probably charge you £50 to do this, but it could save you thousands of pounds a year in outgoings. This can only be viewed as a short term measure, because failing to pay off the capital means that you risk not being able to pay the loan off in its entirety at the end of the term.

Something else worth considering is to extend the term of your mortgage. If, for example you have a mortgage over 25 years you could possibly extend this to 35 years. On a mortgage of £150,000 at an interest rate of 6% you could save over £100 a month.

Finally, you could consider remortgaging to release some equity in your property. Despite everything you’ve read in the papers, there are some lenders out there who are offering free legals and free valuations and if you talk to your friendly independent broker they will soon tell you if you would qualify for one of these deals.

Hope for First Time Buyers

2008-01-17T09:42:00.000Z

According to last night’s London evening newspaper, the ‘Evening Standard’ first time buyers in London will have to double the size of their deposits as banks and building societies cut back on lending following the credit crunch. “This means, that based on the price of an average London property- now around £350,000- a first time buyer would have to find a deposit of £35,000 instead of £17,500”.

Now I don’t know where this reporter lives, but there a lots of properties in London which are nowhere near that price. They won’t be in Chelsea , Hampstead, or Knightsbridge admittedly, but there are thousands of properties available in many other parts of London , north and south of the river that are far cheaper than that.

This aside the article goes on to record how some lenders like the Alliance & Leicester, Cheltenham & Gloucester and the Britannia have all reduced their maximum loan to value levels to 90% or less, making it even harder for first time buyers to get on the ladder- especially when they were used to getting 95% and even more with Northern Rock, whose rates now are unfortunately ridiculously high.

There is however, another way that first time buyers can get on the ladder and that is via shared ownership. This is a scheme whereby a first time buyer purchases a property from a housing association. They normally purchase 50% of the property and can increase their equity in the property- known as staircasing- as time goes by.

The problem with the scheme, however, is that it isn’t open to all; there aren’t enough properties to go round and, as you can imagine there are long waiting lists. A far better scheme is called Joint Equity, because you don’t need to find a hefty deposit and it's open to everyone.

The Joint Equity scheme works by matching aspiring owners- usually first time buyers, but not exclusively- with individual property investors. The owner partner and the investor partner purchase the property, which can be of any description and anywhere in the country, together. As with the shared ownership scheme with a housing association with the Joint Equity scheme the owner partner pays the investor a monthly return for the part of the property they do not own themselves.

The benefit for first time buyers , or owner partners, is that they gain the security of their own homes and take responsibility for the property. The benefit for investors is that it’s much better than a buy-to-let as they get a “hands off investment” in the property, good returns and no voids or damages.

Both parties are protected by the Joint Equity Partners Contract which controls the relationship and protects everyone’s interests. When the property is sold, capital gains are shared between owner and investor according to their ownership shares.

So if you are a first time buyer don’t despair. There is hope.

Just take a look at www. jointequity. co.uk

How attractive are fixed rates now?

2008-01-15T11:06:00.000Z

Recent research carried out by the Council of Mortgage Lenders (CML) indicated that there was real consumer interest in long term fixed rate mortgages given the uncertain times we now live in.

Apparently 42% of those interviewed said that they would take a fixed rate deal for peace of mind. Of these 43% said that they would prefer a medium, 5 to 10 year deal, or long term, 10year+.

Oddly enough this goes completely against everything we have experienced since we returned to work after Christmas. We are finding that clients are increasingly interested in variable rates and trackers in particular. Very few are asking or are interested in a fixed rate product.

Fixed-rate mortgages were introduced into the UK in the late-1980s in response to demand for something that would reduce homeowners’ exposure to shifts in interest rates. Unlike much of Europe and the US where mortgages are often fixed for 30 years, long-term fixed mortgages have never really taken off over here where the most common period for a fixed-rate mortgage is 2- 3 years.

So why are we finding trackers mortgages so popular at the moment? It’s simple. The markets are expecting interest rates to fall and we and our customers support this view.

Anyone choosing a fixed-rate mortgage now which is cheaper than the variable rate alternative when they take it out, will soon find themselves penalised as variable rates fall throughout the year and they are left with higher monthly repayments.

Perhaps its time for the CML to do some more research.

Bank keeps interest rates on hold

2008-01-10T12:35:00.000Z

So now we know.

The Monetary Policy Committee of the Bank of England has decided to keep interest rates unchanged at 5.5%.

The Bank faced a very difficult decision, having to balance indications of growing inflationary pressures against signs of an economic slowdown, particularly in consumer spending.
The decision will disappoint homeowners and retailers alike who had called for a cut after disappointing Xmas results.

Although rates have been put on hold this month, they are now almost certain to be cut in February. Some economists are calling for a cut of 0.5%, but I think that’s highly unlikely. A cut of 0.25% followed by another one perhaps in April seems to be on the cards.

While a rate cut would have raised both existing borrowers and potential first time buyers’ confidence, it could also have risked adding to price pressures growing on the back of higher oil, gas, electricity and food bills.

It will be interesting to see how close the vote was.

Lenders not passing on rate cuts

2008-01-08T10:55:00.000Z

Last month all nine policy makers that constitute the Bank of England’s Monetary Policy Committee agreed to cut interest rates to 5.5% from 5.75%. Unfortunately the unanimity they displayed was not shared by lenders as approximately one in five of them failed to pass it on. To my mind this begs the questions just how much money do the banks want to make and whatever happened to the principle of Treating Customers Fairly?

Intelligent Finance which I have always rated as a decent lender didn’t reduce it’s standard variable rate. Neither did the Skipton or Newcastle Building Societies, nor 16 other lenders for that matter. In addition Northern Rock- or wrek- as brokers are now referring to it- failed to pass on the full cut as did Egg and Alliance and Leicester.

I think I can appreciate, given their current plight, Northern Rock and Alliance & Leicester wanting to boost their profit margins, but in these difficult times borrowers need as much help as they can get and it is plain for all to see that we cannot expect much help from the banks.

They may well argue that they have all just signed up to the new Banking Code which requires them from March to offer at risk customers alternative debt repayment plans , but this is shutting the barn door after the horse has bolted.

If the Bank of England does cut rates again on Thursday what do you think are the chances of lenders passing on the cut in its entirety. Slim if their recent actions are anything to go by.

To cut or not to cut?

2008-01-07T13:12:00.000Z

The Bank of England’s Monetary Policy Committee meet this week to decide whether to cut interest rates this month or to wait until February. Unlike this time last year there is a unanimous belief amongst economists that interest rates are only heading downwards. What they can’t agree on is when the cuts should come and by how much?

Last month’s decision to cut by 0.25% was taken to prevent a sharp fall in economic activity, but nothing that has happened since then has brightened the outlook. Retail figures over Xmas are thought to be disappointing. Share prices are tumbling, sterling is falling and the credit crisis is still with us and is likely to remain so for at least the first half of the year.

So it should be a no-brainer really. We need another 0.25% cut in base rate and we need it now. What’s more we then need all lenders, not just some, to pass on the cut in full to borrowers.

Will we get the cut on Thursday? I have a sneaking suspicion, and I hope I’m wrong, that the Bank will wait. Energy prices are rising and inflation is still a major worry. In addition, three month LIBOR- the rate at which banks lend to one another- has tumbled to 5.83%, just under 0.4% above the base rate.

For the sake at least of 1.4m homeowners whose fixed term rates are up this year, let’s hope Mr King acts sooner rather than later.

Gloom, but not doom

2008-01-03T13:18:00.000Z

15 years after the last shock to the housing market and following almost unbroken growth since then there now appears to be a daily ritual amongst economists of predicting whether the market is heading for a full-scale crash or a soft landing?

The problems started in the US and over there, there is a broad consensus that things will get much worse before they get better. House prices are forecast to continue to fall and, as inflation and unemployment continue to rise so consumer incomes will be squeezed. A recession cannot therefore be ruled out.

In the UK, whilst we are in danger of talking ourselves into a recession which I don’t think will happen, there is no such consensus about the housing market. Optimists such as the Nationwide and Phil Spencer the presenter of Channel 4’s programme Location, Location Location believe there is no need to panic. They feel, that whilst the continuing credit crunch will make things uncomfortable throughout 2008, the ongoing shortage of housing stock, coupled with the cuts in interest rates and the increasing number of tenants will ensure a soft landing.

But pessimists led by the International Monetary Fund paint a much bleaker picture. The IMF believe that the UK housing market has been overpriced by as much as 40% for years and investment banks such as Morgan Stanley predict that prices will decline by 10% this year and thereby revert to those of early 2007.

Which ever camp is right and I tend to side with the optimists, believing that prices will either stabilise or fall by no more than 5% this year the key to sustainable housing market growth lies in the hands of first time buyers who are finding it more difficult than ever to get on the housing ladder. According to the Halifax only 300,000 first time buyers entered the market last year which is the lowest level since 1980.

In theory young buyers are better off than ever. They are better educated, harder working and better paid, but the tightening of lending criteria and the shortage of homes make it almost impossible to get a mortgage. It’s all very well for the Government to proclaim that we need to build 240,000 homes a year to keep up with the current demand, but according to the Home Builders Federation we can only manage to build 180,000 each year. What therefore is the answer?

Apart from incentivising first time buyers by way of more affordable housing and the relaxation of stamp duty one sure fired way is shared ownership and for this reason I think this year we will see more lenders than ever offering these schemes.

I do have, however, a problem with these schemes. As well intentioned as they are, first time buyers are limited by the number of properties available and by ever increasing waiting lists. Far better then to look at Joint Equity Ltd. They offer a shared ownership scheme with no restrictions and no waiting lists. As a first time buyer it may not be the cheapest option available but it may well be one of the best.