Mortgages Uncovered

In the wake of the credit crunch the trading body for the mortgage industry has written to Alistair Darling outlining all the steps that have been put into place to minimize problems that borrowers are now and about to face including attempting to minimize the number of home repossessions which are expected to increase rapidly.

There are four “significant specific measures” that the CML have outlined and are quoted below word for word:

* To analyse their existing arrears management policies and implement any changes identified as a result of the industry guidance which we (the CML) are preparing. The guidance will be informed by the feedback we receive from the FSA (Financial Services Authority) on its thematic work on arrears management. We hope the industry guidance will in due course be confirmed by the FSA, but we are at a very early stage of this process.

* To provide consumer information to borrowers in arrears to help explain the arrears management process, to help borrowers understand what to do and expect, and to set out how their lender will treat them fairly.

* To introduce an appropriately worded pre-action protocol for mortgage cases for use before court proceedings.

* To ensure they have a strategy for contacting borrowers coming out of initial deals, such as two or three year fixed rate periods, to inform them in good time of their new payment and encourage them to make contact if a financial problem is likely to arise.

Regardless of all these statements it would still appear that there is not much in terms of the “significant measures” promised at the initial stages of the correspondence.

Blaming the increase in money market rates, lenders have put their rates up in the last few weeks to a new high.

Competitive fixed rate mortgage deals can still be seen from companies such as Abbey National, however, fees have increased to £1K and now the maximum amount of lending in relation to properties has been cut.

Britain’s second largest mortgage lender, Nationwide Building Society only announced on Monday 16^th June it was following suit with a rise of up to ½ % on some of its tracker and fixed rates. This new broadcast comes on the back of rate rises announced within the last few weeks from Halifax, Abbey and Woolwich.

Due to the rate rises, fixed and tracker rates are virtually on a par with SVRs (the standard variable rates that customer are charged at the end of their fixed rate period).

So now we see SVRs scrapped by Woolwich, Halifax, Lloyds TSB, Cheltenham and Gloucester, Royal Bank of Scotland amongst others.

For the first time in 10 years fixed rate mortgages have hit a new high and more news suggest that this could climb further according to analysts at Reuters.

According to Darren Cook at Moneyfacts’ due to the huge increase in swap rates which price the fix loan rates these have not yet been fully passed through to consumers so things will get worse.

The highest 2 year fixed rate of 6.75% is the highest we have seen in ten years and only marginally lower is the 5 year fixed rate which is at 6.72%

Mortgage company mform.co.uk state that they feel the fixed rates we have seen of below 6% in previous years will completely disappear within a few weeks time and that the situation will get worse before it gets better.

At the moment at least Skipton still offer a 5.79% 2 year fixed rate but it should be noted that they have in place a £998 fee which effectively brings the true fixed rate to over 6%.

Year upon year huge numbers of homeowners refinance their home mortgage to reduce the interest they are paying and to reduce monthly payments to either make home improvements or pay debt.  Not everyone though, is aware that you can refinance other loans too.  The financial services sector has refinancing options available for a huge variety of loans just as car loans.

Refinancing on your vehicle is a more financially sound way for consumers to rework their car loans to get more favorable terms and reduce monthly outgoings.  Since vehicles are an asset but don’t appreciate as time goes on, refinancing opportunities are limited. Understandably, the vehicle you are refinance has to be worth more than the loan you apply for because the bank will need assurances on their return of investment.

Sales in the housing market are nearly half the level that they were last year and the construction industry has plunged to the lowest we have seen since 1945.

Share prices for HBOS have plunged 45% in recent weeks matching the new shares it has issued in order to raise £4bn which it desperately needs to shore up capital. It’s a grim picture.

Concerned that house prices will fall by the forecasted 9 per cent HBOS has stated it will be lending cautiously.

Currently, the British still have jobs and can pay for their homes and May saw the biggest one month rise in retail sales for nearly twenty two years.

However, if you approach a bank or building society chances are such that you will be turned down for a mortgage or offered such a low proportion of the loan you need that you will unlikely be able to proceed.

Acknowledging that the classic free-market is wrong when applied to financial markets could be a step forward. Keynes pointed the right direction when he said; without public intervention, financial markets go badly wrong.

In the US, central banks cut interest rates even given what is happening with oil prices. The US has been able to avoid disaster in its mortgage market due to guarantees by 2 public mortgage banks – Freddie Mac and Fannie Mae. Either directly or indirectly these banks have provided 80% of all new US mortgages in the last 6 months. Together, they guarantee over half the US’s £5 trillion mortgage debt.

So in the US market a bank can turn to one of these 2 public mortgage banks whom will buy or insure the mortgage and thus keep mortgages flowing in bad times. Without Freddie Mac and Fannie Mae the US market would have suffered catastrophic house price crises.

People who are trying to find a reasonably priced mortgage are now struggling.

One of the UK’s cheapest 2 year fixed rate mortgages on the market came from First Direct who recently raised the costs on their mortgage product. Following the stunning about turn made by the UK arm of Bank of Ireland, Bristol & West who withdrew 7 new mortgages buy to let and fixed rate products within hours of them hitting the market.

Shortly before the Bristol and West announcement, Nationwide raised most of its mortgages by ½% and Woolwich withdrew many of its mortgage products and highered its cost across many of its other products.

Monefacts financial data complier publically confirmed that mortgage costs on two-year fixed rates are the highest they have been in a decade.

Charcol are offering a 2-year tracker at base rate plus 0.99% for customers borrowing up to 80% LTV. The fee for this is £995.

Moneyfacts claim that the best 2-year fixed-rate deals are currently offered by Skipton Building Society at 5.79% only on new purchases. Remortgages are 6.09% with a lower LTV. These deals have fees of £998.

If you have a small mortgage, ING Direct’s standard variable rate is one of the best deals currently at 6.59%, and a free fee. If you fall into this category then this deal is worth checking out but do it quickly!

According to the CML the amount of mortgage arrears and repossession are going to remain low and certainly lower than the last house market crash back in the 90s.

Due to the previous years’ huge increase in house value the average amount of loan-to-value is more likely to be low which means that there are a few borrowers who are in a negative equity position.

HSBC published data in May that out of their new business with mortgage borrowers the average mortgage only represented 56% of the value of the property it was secured on.

However, borrowers are beginning to suffer as lenders limit bad debts and protect their margins.

The maximum amount that people can borrow against their property value has started to fall extensively, fees have doubled, lender criteria is stricter and cheap deals have been replaced. In turn, the housing market has slowed down due to lack of mortgages available which has hit first-time buyers considerably and those with little deposits.

Independent brokers are now being by-passed as homeowners are getting a better deal going direct to lenders; however, this now means that consumers are not getting proper searches of the best propositions that the entire market has to offer.

Halifax is increasing rates on 19 out of 31 fixed-rate mortgages as of 22^nd June 2008. The new rate increase is applied to everyone from customers with smaller loans on their property to customers who have borrowed larger proportionate loans against their homes’ value. 5 of the Halifax’s tracker mortgages are also affected by the rate increases.

Halifax is the UK’s largest mortgage lender and the average fixed rate increases will be 0.42% with some of the increases reaching 0.50%.

Now homeowners will be digging deep into their pockets to cover the monthly increases. With the news of the new increases this is said to be the 20^th set of changes in 2008 alone from Halifax.

Nathan Wallis spoke out on behalf of Halifax explaining that the increases were unavoidable due to the increase in swap rates and the expense of wholesale money, unfortunately it is with regret that Halifax has to pass the increased costs to its’ customers.

Director at independent mortgage brokers Savills Private Finance, Melanie Bien urges people who are looking to purchase a home or to re-mortgage on their existing properties to move quickly in order to secure a rate based on the current market deals before it gets worse.

The Council of Mortgage Lenders (CML) has released figures showing that over 22,000 people took out 100% mortgages last year and many of them could face negative equity this year if they aren’t already in negative equity.

Negative equity is when your house is worth less than the mortgage you have secured on it.  This means that if you wanted to sell your home, you’d then have to find a large sum of money to make up the shortfall so it’s not a comfortable scenario at all.

The CML and press coverage have offered the following advice:

1 – If you can, just continue living in your home.  Most people have a 25 year mortgage or so and eventually prices will rise again

2 – If you do need to leave, consider renting your home out, providing the rent will cover the mortgage interest repayments.

3 – If you need to remortgage, be sure to shop around and find a good mortgage advisor to help you find the best deal for you

The controversial (HIP) home information packs should be made voluntary states Sir Bryan Carsberg, former head of Fair Trading.

People selling their homes in Wales and England have to have a HIP pack which comes with a cost of several hundred pounds, it is a scheme which has caused much controversy since its introduction and is due to be extended to Scotland next year.

Some consumer groups purchasing properties have welcomed the packs, however, many critics claim that the HIP packs have done nothing to reduce the shortage of properties available for sale on the market.

Sir Bryan, is currently reviewing the residential property market and has asked both estate agents and letting agents to become more regulated in order to give consumers far greater protection.

Alarmingly, the current law is such that anyone can set up as a letting or estate agent because there is no requirement for a licence or qualifications.

The Office of Fair Trading can close rogue property agents down by but this only happens in extreme cases.