Mortgages Uncovered

The amount of house builds has lowered by nearly 60% over 12 months due to tighter mortgage lender criteria

In comparison with last year’s figures in May of 15,713 to May 2008 when the figures dropped to 6,890 shows a drop of 56% which were the figures released by The National House Building Council who have 20,000 registered house builders on its books.

Public-sector houses being built has lowered to 2,699 houses being built in May 2008, compared with 4,306 in May last year.

Around 60% social housing is built by private developers.

Strategic policy adviser Roger Humber at the House Builders Association, said results were “not surprising”.

“We’ve seen an enormous downturn with the rate of sales falling 60% year on year. The issue is not the lack of demand but an absolute lack of mortgages.  Until the credit crunch is resolved by a reopening of the wholesale markets from which banks rely on, we’ve got to see a continued low level of house building. Home building levels have got to come down in line with sales.”

Many home builders are now struggling in the wake of the credit crunch, and shares have dropped. Barratt have recently has forged a new deal with its lenders to give their chief executive Mark Clare time to improve Barratt’s fortunes.

Building magazine claim an agreement was reached to waive debt-laden Barratt who were in breach of banking covenants.

Following the emerging plans set on some of the proposed boundaries of inner Manchester Centre’s new congestion charges investors with commercial mortgages in the area seeking information to find out what impact this may have on the value of their properties within the boundaries.

The new scheme proposes that during rush hour times traffic entering through the outer zone based on the M60 orbital motorway will be charged £2 and another £1 fee will be required for all traffic entering Manchester’s central zone.

In return for the congestion charges better public transport links have been promised so those with commercial mortgages in other parts of the conurbation may benefit even if some businesses that fall within the zone suffer.

There are protest groups rising to fight the congestion charges although currently plans are still set to continue.

A recent published report from Jones Lang Lasalle a property management company claims that Leeds are still performing extremely well even in light of the commercial property market slow down in the wake of the credit crunch.

The property management company also claims that Glasgow along with Leeds is in a better position to weather the credit crunch storm than London. Research reveals that demand in Leeds city centre for office occupation is divided well across 4 sectors; government and public sector, service industries, banking and finance and professional services.

Due to a more even divide across business sectors in northern cities (unlike London where finance plays a major role), some sectors in northern cities will perform better than others keeping an overall more buoyant market than London.

The Birmingham Post published that the district of Edgbaston has been host to some major commercial property deals of late and the newspaper states that its hopes are raised for a revival in the office rental market across other areas of Birmingham including central Birmingham.

Buy to let landlords in Britain have taken a battering on repayment rates as Bradford and Bingley the largest lender of buy to let mortgages raised its mortgage rates.

Coming from the announcement that Bradford and Bingleys’ profits would fall by 50% due to a rise in bad debts due to a rise of 36% of borrowers missing 3 or more of their payments from Dec 07 to April 08.
Recent announcements from Mortgage Express, the mortgage arm of Bradford and Bingley, says it is increasing its buy-to-let mortgage rates up to 0.55% on 3 and 5 year fixed rate loans.

BM Solutions who lent the most in terms of buy to let mortgages in 2007 has cut back on its products from an original 20 to 7 since February 2008.

Capital Home Loans, another popular mortgage lender with brokers has completely quite the market.
Even the landlords who hold equity of 25% with many properties and a great credit history with the banks are required to pay standard variable rate following changes to remortgaging criteria.

Mortgage lenders now demand that any rental income covers 130% of the repayment in comparison to only 100% at the beginning of 2008 which leads to a steep increase in rental charges.

Punter Southall Financial Management spokesman, John Postlethwaite says:

“Private landlords are faced with a stark choice. Increase the rent, pay more or sell the property. The worry is if large numbers of landlords are trying to offload properties at the same time, prices will fall even further and faster than they are now.”

23,000 of homeowners could be stung with houses now worth less than the debt of their mortgage after taking 100% mortgage on their properties as house prices continue to plummet harshly leaving thousands of people at risk of negative equity.

Over the last 12 months 23,310 people took 100% mortgage deals according to the Council of Mortgage Lenders. In March 2008 alone, 1,470 people secured mortgages for the whole value of their properties.
Since March 2008 prices of houses have fallen 5% according to Halifax data.

If a borrower has not in that time made enough overpayments on their 100% loan they are likely already be in negative equity and would likely make a loss on their houses if they choose to sell.

The US investment bank, Morgan Stanley says that even many more house owners could be facing the negative equity threat; with 370,000 at risk should prices continue to fall by more than 5% over the rest of this year and 2009.

Halifax data reports prices dropped by 2.4% in May 2008 alone which prompted economists to forecast that prices would continue to slump to more than 20% over 24 months. Should this happen, Morgan Stanley forecast that this would mean 2 million homeowners which is 1 in 6 borrowers would hit a negative equity situation.

According to The Council of Mortgage Lenders though they say there is no guarantee all 100% mortgage customers would be in negative equity because there is no way of monitoring what level of repayments have been made.

Virtually all 100% mortgage deals are now withdrawn from the market in the wake of the credit crunch.

Figures released show that annual mortgage lending in May 2008 has taken a 56% nose dive to a new record low.

The British Bankers’ Association (BBA) published figures showing that that monthly mortgage approval dropped 20% from April 2008 at 34,752 to May 2008 at 27,986 which is below a 6 month average of 40,570.
Comparisons to May 2007 show mortgage approvals have fallen by 56% cent over 12 months.
Re mortgage loans that were approved dropped from 68,971 in April to 63,303 in May.

Chief UK and European economist from Global Insight, Howard Archer, is quoted as saying

“we are in for an extended, deep correction in the housing market.”

Now only people with deposits of over 5% of the value of their home are able to secure a deal but these deals will not necessarily be competitive unless you have a 25% deposit or more.

The distinct lack of buyers within the housing market is forcing sellers to drop house prices and look for ways to make purchasing their homes a more attractive proposition.

Many sellers have been forced to take over £3,000 of original asking prices in June to try and make a sale according to figures published by Rightmove, the property website.

However, consumers are still spending even with the downturn in the housing market as credit card spending rose by £500 million throughout May 08, after a sharp fall of £300 million in the previous month. In fact according to retail sales figures, spending on the high street rose to record highs in May.

Normally this is the peak house buying season although figures show that the number of sellers outnumber the amount of buyers by a staggering 15 to 1.

Now the slump in the housing market has forced asking prices down to an average of 1.2% during this month, according to the property website Rightmove.

It is also the case that property transactions in the UK have dropped by more than 1/3 in May.
One hundred thousand property deals on properties worth more than 40K in May 2008 is down from 158,000 from May 2007 according to estimates released from HM Revenue and Customs.

Royal Institute of Chartered Surveyors spokesman Simon Rubinsohn, says:

“These numbers clearly highlight the very real pressure on the residential property market. Indeed, the RICS suspects that the level of activity will fall further over the coming months. A drop in property of this magnitude will have an impact on household spending on durable goods as well as on jobs with both estate agent and those working in ancillary areas increasingly under threat.”

With a 60% fall in the amount of new builds it is apparent that home builders are now struggled to attract new buyers.

Chief UK and European economist from Global Insight, Howard Archer, said:

“Against this backdrop, Global Insight forecasts house prices to fall by 12 per cent in both 2008 and 2009, before essentially flattening out in 2010. This highlights the fact that house sellers’ bargaining power is currently becoming ever more limited and that buyers now very much have the upper hand – if they can afford to buy a house and can get a mortgage.”

Here are some tips to ensure your investment stays afloat.

Offset your mortgage interest repayments

Landlords can cut the tax they pay on their rental income by claiming a deduction for making interest repayments, however, you may not claim these deductions on repayments made towards the capital amount it is strictly on interest only repayments.

Claim all tax deductible expenses

Make sure you claim all expenses back and check what is a tax deductible cost such as painting and property maintenance and also letting agent fees are deductible from your taxable income. If you pay council tax, water, gas and electricity these are also deductible from your taxable income but obviously not if your tenant is paying these bills for the property.

Make your property a holiday let home

For holiday letting you can claim up to £50k tax relief on maintenance and renovations to improve the property as a holiday letting home. This is not applicable to buy to let mortgaged properties.

You could qualify for furnishings finance

There are some companies offering finance for investors who have committed to buying off-plan but have run short of money for furnishing their properties due to rising mortgage costs.
Some companies such as Style Counsel Interiors will grand landlords 12 months leeway for finding money for furniture or alternatively will arrange staged payments. If you are able to repay your loan within a year you will not be charged interest. For a loan over 36 months a rate of 9.9% is available.

Are green mortgages really going to reduce your carbon footprint? Does your choice of home loan make that much of a positive effect on the environment?

Critics claim that making green mortgages mainstream they actually cost to the consumer coupled with the limitations they will have far outweigh any benefits they would have to the environment.

Before changing mortgage providers, particularly in the current market climate should be something that takes long hard consideration because mortgage repayments are normally the highest chunk of your monthly expenditure. If you are really stuck on taking out a home loan that means you will benefit the environment check first with your current lender as they maybe only too pleased to help you make environmentally friendly home improvements without you needing to jump ship.

Currently there is no standard definition of what makes a mortgage green and conditions vary depending upon the lender. Generally speaking you will receive incentives such as cash back, lower interest rates or waiving of certain fees in order to help homeowners reduce the amount of energy usage. Some green mortgage lenders will offer a discount on standard variable rates if have home energy efficiency. As defined by Energy Efficiency Partnership of Homes there are only currently 7 green mortgage lenders out of the top UK’s mortgage providers who currently offer this environmentally friendly home loan.

Amongst those offering green deals include Ecology, Kent Reliance and Teachers B.S., Ulster Bank, Co-op Bank, Norwich & Peterborough and Yorkshire Bank

Currently offer a rate of 6.45% on residential mortgages reducing to 5.45% for the life of your mortgage if your home meets government energy efficiency standards. The greenest lender appears to be Ecology building society who is happy to help borrowers really committed to reducing their carbon footprint.

However, making changes to qualify for these mortgage reductions could set you back thousands, however, in the long run it will benefit you in terms of saving money on energy bills and it will make a difference when you sell your property.

According to a survey by Nationwide last year it showed that potential buyers were more attracted to a home with solar panels than period features!

In the current market there is an understandable caution for applying for new mortgages, although shared ownership may actually create an opportunity which otherwise could not be sought.

If you buy a share in a property, (this can range from 25 / 50 to 75%) with a deposit and mortgage to the share value required the reminder of your property will be retained by a housing association and this way you will pay an amount of rent for letting the space and at a later stage when the market calms down you could take out a more reasonable mortgage deal and buy the rest of the property.

Spokesman, Ray Boulger at the broker John Charcol is quoted as saying

“You’ll suffer a proportionate loss but whether you’ll be in negative equity depends on how far the property value falls – and how big your mortgage is in relation to the share of the property you buy.”

So borrowing a lesser amount on the share of your property is a wiser move because the less you purchase at the moment, the less likely you will be of finding yourself in negative equity.

On the flip side, Melanie Bien at Savills Private Finance, states that falling sale prices could offer a cheaper alternative to buying the remainder of your home.

“Assuming the price remains reduced, when you ‘staircase up’ and buy further shares in your house, you will be doing so at the reduced value – so it will work out cheaper.”

Broker’s London & Country state:

“Lower house prices will mean that the value of your existing share in your property will also have fallen.”

Do research your mortgage thoroughly because you will find at the moment there are few lenders who will now offer a mortgage on a shared-ownership basis in the current climate (although you will find a few).