Mortgages Uncovered

Most analysts are in agreement that the mortgage market needs to adapt to the changing needs of the public if it is to spur the necessary growth to help the housing market recover properly. There is a lot of uncertainty in the housing market at the moment and that is in part a side-effect of a mortgage market that needs a new approach.

Perhaps a more successful approach within the mortgage market would be to take a less objective point of view when it comes to lending. Subjectivity allows lenders to target consumers with tailor-made mortgages that better suit their circumstances.

This has been shown to work in various areas. For example, contractor mortgages are available for those who have been turned down when they have approached ordinary lenders on account of the fact they work as contractors charging daily rates as opposed to employees on the payroll at their place of work.

If smart lenders are able to offer mortgages for contractors that meet their needs specifically then there is much less of a risk attached to the venture and there is less need for caution. Lenders can take this as an example of how the market can adapt to the needs of the public in order to offer a more positive service.

This is a tough question however one in which many would like to know the answer to. There are thousands of people each day applying for mortgages with in the UK whether first time buyers or looking to add other properties to their list.

The best advice would be too look around and compare using the comparison sites and by browsing their sites looking for the best APR and repayment. It seems to be the big banks that many are going to these days such as:

· Abbey

· Alliance & Leicester

· HSBC

· Natwest

However there may be better lenders out there that will suit your needs.

Under new plans drawn up by the City watchdog, self employed persons will have to wait at least two years before they can get a loan. New business traders will thus not be able to buy their first home or even move house. This also means that those people who find that their one year introductory mortgage is coming to an end will be stuck on the standard variable rate until their two year trading anniversary.

The change has come about because from today lenders will have to confirm their applicant’s income which means that self-cert mortgages are effectively a no-no.

So how do you get a mortgage if you are self employed?

You now need to show two years tax returns or two years company accounts’ to get a mortgage if you are self employed.

It may seem a little ridiculous for a bank to quote their rivals’ mortgage rates to their own customers even if they are lower than their own, however, HSBC are doing exactly this. The first step has been taken with HSBC customers at the bank’s Market Hill branch within Cambridge as they are the first to be given the option of HSBC’s own mortgages or those of their competitors.

The first step of the trial is to be extended to a further 19 branches over the course of the next few weeks and should the trial prove successful it is to go national in November 2009.

It is clear why HSBC have decided to do this. Whilst it is Britain’s sixth biggest lender, over two thirds of borrowers will choose to get their mortgage via independent mortgage advisers due to them getting the best deals across the market.

HSBC have linked up with mortgage brokers John Charcol to bring a service that charge each customer £150 for the privilege – a clever move. Should a customer decide to go with an HSBC mortgage, then the bank stand to make its normal profits from the sale. Should a customer arrange their mortgage with a “Mortgage Matcher” consultant, who will be a John Charcol employee then the bank will earn a referral fee plus their customer’s advisory fee.

Some people have a different view of the move that HSBC have decided to make and London mortgage adviser Peter O’Donovan said: “…hopefully HSBC’s customers will see that seeking advice from advisers to compare the whole market is common sense, as the lowest rate is not always best advice.”

Within the Times newspapers recently, the paper has talked about an particular instance which saw a customer of Northern Rock turned down when he tried to take back his mortgage overpayment by withdrawing from what is called his ‘flexible’ mortgage.

There are many people who have these flexible mortgages with Northern Rock and have also been told that they may overpay but based on understanding that they may later withdraw their money back if they wished to do so by making a telephone call to the bank.

Apparently, a reader of the Sunday Times overpaid £1 million on their £3 million mortgage account and then tried to withdraw back £25,000 only to be surprised when met by a series of questions regarding his outgoings before he was referred to an underwriter.

Now it is official that Northern Rock customers may no longer have the option to withdraw overpayments.

An independent mortgage broker, Ian Gray told The Times Newspapers;

“This is yet another example of lenders tightening criteria for borrowers unexpectedly. Many people took out those flexible deals with the promise that it was a place to park cash and they could get it next day with a phone call. There are now serious questions about whether they can get their money.”

Lending figures for mortgages have recently suggested that buyers are now coming back into to the housing market.

The amount of mortgages that were approved for purchasing homes have jumped up considerably by 19% during the month of February and is a definite sign that home buyers are eventually returning back to the housing market.

37,937 mortgages for home loans were approved in February which is the highest level that has been seen since last May say the Bank of England.

The new figure now suggests that double digit house prices and falling interest rates have become a temptation for bringing buyers back into the housing market.

Last week figures were released from the British Bankers’ Association which showed that the amount of mortgages that were approved for home purchasing through major banks had risen in a third month in a row in February.

Today’s BofE figures suggested that sales were picking up again.

UK economist at Capital Economics, Vicky Redwood said:

“February’s household borrowing figures suggest that housing market activity may finally have turned a corner. The rise in the number of mortgage approvals for new house purchase … might suggest that the pick-up in new buyer inquiries is feeding through into actual activity. With new buyer inquiries still rising, this is clearly quite promising.”

In March house prices rose again, say the Nationwide.

The Nationwide building society claimed that house prices further increased by 0.9% in comparison to the previous month.

The annual rate of property price falls fell from February’s 17.6% to 15.7% in March, which brought the average cost of a UK home to £150,946.

Nationwide described the change as a “surprise bounce” and warned against concluding the market had turned.

Chief economist at Nationwide, Fionnuala Earley said;

“While the rise in prices in March is welcome, it is far too soon to see this as evidence that the trough of the market has been reached. Cuts in interest rates and the Bank of England’s move to expand the amount of money in the system would take time to work through into the housing market before there was a sustained recovery in house prices.”

The survey from Nationwide found that UK house prices had dropped by 4.2% during the first 3 months of this year in comparison to the final quarter of 2008.

Ms Earley commented that

“… the significant slowdown in falling prices year-on-year was distorted by the sharp decline in the market last year.”

The figures from the building society further show that the prices of flats have been particularly volatile in comparison with other types of properties.

According to the independent financial website Moneyfacts.co.uk, most new mortgage products that appear on the high street have little more than an eleven day lifespan and are designed just to generate a quick burst of consumer interest.

In May last year the average length of time that a mortgage product was available was thirty working days. Bearing in mind that the products on offer are mortgages, which are considerable financial binds upon customers and certainly not things to be entered into lightly, even thirty days seems a bit short, let alone the paltry average of eleven days offered this year. In fact in April, there were some mortgage deals that appeared in various lender companies that lasted for as little as six days!

This dramatic shift has come at a time when loans and mortgages have become increasingly hard to come by, with available loans falling from 15,000 to 3,814 over a twelve month period. Because of this limited availability, any new home loans that come on the market tend to have an overwhelming response – far more in fact than staff are able to handle.

The Office of Fair Trading has taken the long overdue step to investigate the Sale and Lease Back sector, which, under existing laws, has no regulation and does not require those businesses involved register at Companies House. It is not yet clear whether there is enough legislation in place to protect the public.

Suffice to say there is a real scandal brewing in the sector that sees companies buying homes at a knock-down price from people who are in need money, only to become a landlord that leases the properties back to the original owners for an agreed period before putting the homes on the market if they so desire.

Although it is perhaps unfair to point a finger at all companies and businesses in this sector, there are a growing number of reported incidents where homeowners who find themselves in need of capital because of short-term financial difficulties they have been facing, have been encouraged to take out Sale and Lease Back agreements when they don’t fully understand what they are getting themselves into.

Obviously this financial arrangement isn’t the same as a re-mortgage, but some customers don’t seem to have seen the difference, nor that they stand to lose their homes when the lease-back period runs draws to a close.

Indeed consumer groups have alleged that such is the pasity of legislation that lease-back landlords are allowed to annul their lease with their tenant and thereby get the property even more cheaply and quickly thean they can already.

We will of course have to wait to see what conclusions are drawn by the Office of Fair Trading and whether the sector will finally subject to greater regulation. However, even if matters are resolved in the eyes of the Office of Fair Trading, there may yet be a media backlash if some of the more sensational stories of families losing homes hit the headlines.

You probably won’t be all that comforted to learn that the Emerald Isle (that’s Ireland, not a place somewhere over a rainbow) has been hit as dramatically as everywhere else in terms of credit and mortgages. In April last, growth in residential mortgage lending rates was seen to have fallen to the lowest level in 16 years, according to Irelands Central Bank.

Although April has always been a poor month for mortgages lending due to its coinciding with the Easter Holidays, Easter fell earlier in March this year and so the figures should be taken as being particularly grim.

Residential mortgage lending saw to the lowest annual rate of growth seen since May 1992.

In terms of hard cash the figures seem astounding with €143.4 billion in outstanding residential mortgages. Outstanding debts on credit cards saw a year on year increase of 7.2% in April, although at least this was down from the 8.6% in March.

However, the Bank of Ireland is assuring the population that the housing market is going to start ‘balancing out’. In its quarterly Irish Property Review, the bank claimed that the average price of a house had fallen back in line with levels as they were in 2006 – around €281,600. The report also claims that Ireland will see a rise to 37% in terms of house affordability in 2008 as the average income rises by 4.9%.

But don’t break out the party hats and streamers just yet. The same report indicated that average rents had seen a 22% increase in the three years running up to March 2008.