Mortgages Uncovered

Britain’s largest mortgage lender Halifax Bank of Scotland has added a new fee of around £275 to new mortgages.

The HBOS subsidiary sister The Mortgage Business will charge in addition to their £1,499 charges on some loans.

Halifax and Bank of Scotland are now charging an extra £245 to set up a new deal from now on and their sister subsidiary Mortgage Business is now to charge £275. These fees are on top of additional charges already in place of up to £1,499 on some of their loans.

Criticism came from Alistair Darling, the Chancellor, on UK mortgage lenders for charging flat fees amounting to £3,000 and he has now threatened action from the FSA if brokers do not start to reduce the fees. The CML stand firm in their criticism saying that this is constraining the market and the result will be negative and counter-productive.

A spokesman at the Council for Mortgage Lenders said:

“UK mortgage customers continue to benefit from a good choice of mortgages, including hundreds of fee-free deals, even in the current difficult conditions in the mortgage market. Constraining the market to offer products priced in only one way would be detrimental to customer choice.”

The new charges that Halifax Bank of Scotland has just released are sure to aggravate the row further. Following an FSA investigation last year at HBOS it would appear that the bank are now trying to recoup their previous losses after they were forced to drop their mortgage exit fee in the previous year after an FSA investigation.

According to HBOS the new fee is supposed to cover the administrative setting up, maintenance and shutting down of a mortgage account. HBOS say the new fee is to be charged up front, however, borrowers have the option of adding the fee on to their mortgages without having to pay interest on the charge.

A Halifax Bank of Scotland spokeswoman is quoted as saying:

“This new single fee is less than the total of the mortgage exit fee we removed last year plus a number of post completion service fees now also being removed. Many other lenders continue to charge an exit fee.”

Now on a 2 year deal the average fee from Halifax has increase from £374 to £1,174 since June 2006.

Mortgage borrowing dropped 19% from the beginning of May 2007 to May 2008, as cautious banks restrained their borrowing criteria with first time buyers.

Figures show that gross mortgage lending was at an estimated £25.5 billion showing19 per cent fall over 12 months compared to May 2007 when figures were £31.5 billion.

According to The Council of Mortgage Lenders the remortgaging activity did stay strong, meaning that existing homeowners are actually supporting the market and it is first time buyers that are expected to pay more to secure new mortgages at higher expensive rates.

Mortgage lenders have hiked up interest on their accounts and increased borrowing fees on 2-year fixed rate loans to a staggering £1,300 in 6 months alone. Some banks have actually changed their deals up to 19 times since January 2008.

From April 2008, first time buyers’ average deposit deals increase to 13 per cent which is the highest level in over 3 years state CML.

Director General at CML, Michael Coogan is quoted as saying:

“The remortgage market remains on track to meet our forecast for growth this year, demonstrating the resilience of the market despite recent bad news.  However, by comparison, the next few months will remain very weak for house purchase activity for the funding reasons which are now well rehearsed.  We still await first signs of the Bank of England’s Special Liquidity Scheme indirectly helping to ease the current log jam.”

The mortgage lending part of Barclays Bank have withdrawn all their fixed 2 year rates from the market as Nationwide announced plans to raise some of its rates on home loans for the 2nd time in a fortnight.
Woolwich is quoted as saying it needs to “control customer volumes” and has now close to doubled fees on tracker rate deals raising them from £595 to £995.

This has happened during the US mortgage crises which also now mean higher interbank lending costs.
During the previous 3 years these 2 year fixed rate deals have been the market’s most popular type of mortgage deal.

Through 2006, nearly 1.5 million borrowers which equates to 3/4 of all homeowners, took out these 2 year fixed rate deals according to the Council of Mortgage Lenders.

Now Nationwide Building Society, UK’s 2nd largest mortgage lender, hiked up rates by ½% for the second time in 2 weeks.

A Nationwide spokesperson said this was due to “sharp increases in money market rates”, and the recent increases of their rival mortgage lenders. There was also a hint that more rate increases and changes could be expected from them due to the volatile marketplace.

People seeking 2-year fixed-rate loans on up to 90% face increased interest rates of 6.95% which is up from the previous 6.45%.

As an example, on a home loan now of £150,000 the increased difference in monthly repayments would now be £47.

Talks are taking place with the Government to free £1 billion of public money to help the new homes market.
Much needed funds are proposed to purchase 10,000+ of mainly central city flats and family homes from house builders.

Many properties that were supposed to be sold to private buyers have been left partly built or even empty as this industry sector struggles with the fastest plummet in sales for over a decade.

The negotiations have been championed by The National Housing Federation (NHF), which is the umbrella for UK’s housing associations and proposals are in consideration by the Treasury, Department for Communities and also the Local Government. Should packages be agreed, it could boost the slumping social housing market through the purchase of 10,000 units. This in turn would aid the larger house building companies who are suffering a collapse in share prices.

In total this year housing looks on course to plummet between 100,000 and 110,000 new units, which is down 164,000 from May 2007, this is the lowest level since 1945.

The Government also seems to have faith in the extra cash announcement for purchasing unsold homes. With money freed up for the extension of share equity schemes to households who have earnings of under £60K it is seen that this will only help around 775 first time buyers.

Rising inflation is making cuts far less likely. With the credit crunch upon us the raised value of borrowing for housing associations that are the bodies that operate shared equity schemes is huge although the governments still maintain it is possible to turn back time.

Although fortunately many homeowners are not yet panicking as the Royal Institution of Chartered Surveyors show that there are less sellers rushing to put their properties on the market unlike the early nineties when we saw a huge rush of properties hit the market in a stress frenzy.

Estate agent members of RICS’s do not see that government intervention will be a solution to the current market problems. Potentially this is due to the problems caused by the controversial home information packs (Hips), promoted by Government as an answer for all the tribulations of buying and selling properties and also as means of promoting a green sensibility to the market.

Even tougher enforcement of HIP rules which were due in June have been put back to the end of 2008 which surely is an echo of the lack of success of this scheme to the market.

45,000 repossessions are forecast for this year and repossession already count for 1/3 of the lots are some auctions jumping up from 10% at the beginning of 2008.

Many people who are suffering at the hands of an auction room according to surveys are going through a collapse of a marriage or of a business or both. Moore Blatch, a firm of solicitors says that 34 % of repossessions are due to the breakdown of marriages or relationships and a further 25% are due to the collapse of a family company.

Mortgage lenders can pursue their borrowers for the amount owing between their loan and the proceeds of any sale at auction and this pursuit can follow people in official action for over 12 years. So many people caught in a repossession auction just have to cross their fingers and hope for a fast and successful auction price.

It is now noted that properties that do not sell at auction are now agreed out of court though with private deals struck when auctions have closed. Although, it would appear that an auction situation does stimulate some purchasers better than looking at a property in an estate agents window as many auctions will drive some bidding prices far higher than could be expected otherwise.

Although the true value of a repossessed property is not normally met in any of these situations.

As inflation soars fears are that the Bank of England will raise interest rates over forthcoming months leading to a sudden rise in 2-year swap rates from the interbank rates. Jumping from 5.8% to 6.29% over previous weeks, swap rates are now soaring.

Savills Private Finance spokesperson, Melanie Bien, says:

“Borrowers should act quickly to take advantage of current deals because the evidence suggests that rates will keep rising. Some lenders have already re-priced loans and others are likely to follow.”

It is now new homebuyers with a minimum of 40% deposit who are the only ones who can expect the best deals from the UK’s largest lender, Halifax following its revised rate announcements. To put this into perspective, average house prices in England/ Wales stand at £218,875, therefore mortgage borrowers asking for loans from Halifax will require £87,550 either as a deposit or in equity in order to acquire a rate of less than 6%.

The Abbey has also stated it will not let new mortgage customers asking for a 95% loan to add their application fees to the mortgage cost and they will be required to pay a £2,499 charge upfront.
Head of Mortgages at Moneysupermarket.com, Louise Cuming, has been quoted as saying:

“Abbey is clearly nervous about allowing borrowers to exceed the 95 per cent limit in the current climate. I fear that this will be a growing trend, leaving applicants not only needing a 5 per cent deposit, but also significant savings to cover fees, stamp duty and solicitors’ costs.”

MoneyExpert.com statistics show that average application fees have risen from the original £517.19 in September 2006 to £860.25 in May 2008. On the market now there are at least 323 more deals with fees equating to more than £750 than there were in Set 06.

Who would benefit most from an offsetting Account?

If you have savings to at least 5 or 10% of your outstanding mortgage it is worth considering an offset mortgage or if you want to start making decent-sized monthly payments into your account this will also be a good consideration.

“If you earn a large chunk of your annual income through bonuses an offset account is also a viable option.”

Are offsets really good value?

Typically, the higher your interest rate, the more by way of value you will get from your savings.

Offset rates tend to be a little higher than the keen-priced mortgage products but the rates are currently much more competitive than they were previously. As an example, First Direct’s 5.99% 2-yr fixed rate offset account, recently launched, is as cost effective as any standard 2-year fixed rate on offer but comes with a fee of £1,498.

For a high rate taxpayer, earnings will need to reach 9.98% to get similar benefits from your savings. If you have a large enough mortgage to justify the fee and a large amount of cash savings First Direct’s offset product will offer you excellent value for money.

How do offsetting Accounts work?

By deducting your savings from your mortgage balance you are left to pay only the interest on the difference. Offsetting accounts provided by Intelligent Finance and One Account, will allow you to offset the money held in your current account too. This reduces the interest you are paying even if you’re in some cases you are paying the same amount each month on your mortgage which means that you pay your mortgage off much sooner.

If you want to reduce your monthly mortgage payments Woolwich, Intelligent Finance and First Direct, will enable you to benefit by reducing the amount of your monthly mortgage payment instead of the interest. In taking this option you no longer benefit from the interest you currently ear on your savings account, however, an offset account gives you a tax-free solution and can outweigh the downsides making it an extremely attractive proposition.

Offsetting as it is known in the banking world is popular in countries such as Australia where you combine your mortgage, current account and savings into the same package has never taken off in a big way in the UK.

Offsetting accounts is not suitable for all customers, but the recent tougher financial and economic climate makes it a more attractive proposition for an increasing volume of customers. If you have a good amount of savings that you require easy access to putting them into an offset account may help you to pay your mortgage much faster giving you flexibility you may need from your cash.

“In any housing market downturn, it is important to reduce your mortgage if you possibly can, if property prices fall, the threat of negative equity – where your mortgage is greater than the value of your home – grows. By reducing your mortgage, you reduce this risk.”

Says independent mortgage broker Melanie Bien at Savills Private Finance.

At a time when energy and food prices are increasing, an offset account may also help you to reduce monthly mortgage payments.