Mortgages Uncovered

Any FTB’s with smaller mortgage deposits or even mortgage switchers with very little equity within their properties are struggling as most of the best mortgage deals are still out of reach for them.

And now there is a much wider gap against competitive interest rates for the lower risk customers and the more expensive mortgage products for those that pose themselves as a higher risk. Sadly, for these borrowers who are mostly the important piece of our mortgage chain to keep it fluid, the first time buyers.

US boost
Good news breathing new hope into our own housing crises is the news that has flown across from the United States with breakneck speed which is the welcome news that the United Sates Government has finally bailed its mortgage giants Mae and Mac out of their financial crises. A much welcome sound of action punctures the global markets and investors are becoming a little more trusting of the market as they see a glimmer of hope on the impending stability to the United Sates housing market.

United States government backed companies now own and hold at least 50% of the U.S.’s mortgage debt which stands roughly around 5.4 trillion dollars!!!! After making a dangerous loss of 14 billion dollars during the past 12 months, concerns rose in that it was impossible for them to operate with these losses.

This U.S. Government rescue is reassuring for the global investors and share prices once again started a welcome rally after the U.S. Government bailout announcement.

Back in the U.K. joyful changes were echoed in a more moderate way but with the welcome combination of a cheaper range of mortgage products coupled with the reprieve in stamp duty on properties worth up to £175,000 a helpful push should start to stimulate necessary activity within the lower end of the UK property market.

There is no clear ending to many of the rising prices of mortgage products though and the loan-to-values will continue to be expensive in the foreseeable future, however, this is a welcome first ray of hope in what was beginning to seem like a dark and never ending tunnel of black news and financial oppression.

Why the recent interest rate cuts?
Our swap rates represent the bottom line cost that lenders can borrow money at a fixed rate and these have recently been heftily dropping at record pace so lenders are now reflecting this within their new mortgage pricing.

On top of this, lenders need to attract more customers so they continue to compete with each other aggressively launching a price war which is something we did not have the opportunity to see during the first 6 months of this year!

What should you look out for?
If you are a borrower with a large cash deposit or / and a person remortgaging their property, there is no catch at all to the new cuts. For these customers there are genuinely good deals to be had at well under 6% interest and some of these even include low arrangement fees. Nationwide combination mortgage product a combination low fee / low rate is fixed for 2 years at 5.78% and only comes with a snippet of a fee (nearly half of most fees on the market), £599, however, this is only available to people who have a deposit of 40% or more.

In the previous week a huge range of newly launched products from Halifax saw new low interest rate mortgage products for those borrowers with minimum deposits of 40 percent, this normally fits the bill of people re-mortgaging, which included a 2 year fixed of 5.59%.

A brief rundown of mortgage market activity from recent weeks gives you a good informative view of the market we all have a watchful and nervous eye on.

HSBC did reduce its rates this week and managed to massively increase its market share within the mortgage market in 2008, which has meant it has cut rates on everyone of its fixed-rate mortgage products by a minimum of 0.46% whilst introducing a new 5.69 percent 3 year fixed deal for any borrowers with at least a 10 percent deposit.

Lenders have been fighting each other to try and offer the best mortgage deals on the market over the last 2 months whilst mortgage rates were dropping rapidly and on a weekly basis.

Where are the cuts?

9 of the UK’s twelve main mortgage lenders reduced 2 and 3 year fixed rate deals over the previous 2 weeks, as published by Moneysupermarket.com.

Lloyds TSB and the Halifax have 2 year fixed rate mortgage products which are all under 5%, ( 4.89% and 4.99%), both of the product offerings do come with a hefty fee of 2.5 percent of your loan amount.

It is not just the larger players in the mortgage market who are now dropping their rates. Now there are many of the smaller lenders who have already slashed fixed rate mortgage deals.

The Britannia Building Society cut their 2 year mortgage deals to 5.44% which is close to 75% of a property’s value and this comes with the fee of £999, furthermore, YBS also cut its 2 year fixed mortgages to 5.29 percent dropping 0.9% from July 2008. The new deal that is now readily available is for up to 75% of the home’s value and has an arrangement fee of £975.

Britain’s Bankers’ Association, the BBA has thrown all its weight behind the big chief, the Governor of the Bank of England Mr Mervyn King. and the Chancellor clearly seems to be supportive of the Bank of England’s stance. However, it is said, that in strange contrast, Number 10, is now understood to be the ones recently behind a curious series of leaks regarding some mortgage-guarantee schemes.

Chief executive of BBA, was quoted:

“It’s the money market we should be looking at, not that sort of government guarantee… I don’t think it’s for the Government to intervene. Once you start, where do you stop?”

There is a far less welcome to the Bank of England, with the BBA’s seeming enthusiasm for further extending its Bank’s Special Liquidity Scheme, allowing the banks to continually swap their unmarketable mortgage backed securities in favour of gilts.

“We think that is the way to go,” said Ms Knight. “That is enhancing what a central bank does, it’s not government intervention.”

The new BBA policy to extend these schemes was also echoed by the Council of Mortgage Lenders, in representing the banks’ interests, wrote very recently to the Chancellor:

“We believe that an early announcement of the renewal/extension of the Special Liquidity Scheme and any other measures being planned will help to resolve market uncertainty.”

Banks actually really would like SLS to apply to all their new mortgage products but the Bank of England has already rejected this.

The Government asked Sir James Crosby, previously the chairman of HBOS, to provide a full review of his options and reporting soon to be published, however, in his published interim report he suggests the best thing for ministers to do would be to do nothing at all at present. However, now in the run up to the Labour Party Conference on the 20th September, the pressure is piling onto MP’s to do something fast in the housing crises to drum up support for their cause.

It is not just FTB’s who are suffering in this market but the impact that their suffering has on the rest of the market has a huge impact. Housing chains fall through, buyers markets slow down, sellers markets slow down and housing developers are another industry along with banks that suffer with great impact so savvy building developers have looked at their options in self preservation and approached Halifax to team up and provide a market innovative mortgage deal when buying a House Builder Persimmon Home.

The attractive product which was produced for the FTB market is known as “Double your Deposit” which is a scheme that does just that – it doubles your savings, under certain conditions; a) You are have an HBOS bank account and, b) you already have up to £5,000 for a deposit to place on your Persimmon Home. When you place your deposit it effectively doubles – so if your deposit is £5,000 it will double in value to £10,000, which is taken off your overall loan amount.

Now there are also a lot of developers are who have started offering their ‘Stamp Duty Paid’ FTB schemes on their own properties to boost sales and interest, already in the knowledge that any buyers they get in would already try to negotiate greater discounts on their home’s asking prices because they will be aware that these developers are desperate to sell. Right now it is necessary to increase the interest required from potential buyers and just now any incentive is a welcome help in attracting potential house purchasers.

Even though it is still a very rocky time for FTB’s there are now a range of various lender and developers and also new Government initiatives on offer within the market to help get their foothold on the housing ladder.

The offsetting Family product offering has a very different approach to the idea of a Guarantor Mortgage but is based on the same principle in that it still helps the FTB to purchase their home with the aid of a parent. It doesn’t, however, allow an FTB to borrow more against their parent’s salary (probably financially sounder idea for the lender here) but this type of mortgage package means offsetting allows the FTB to pay off their mortgage loan quicker and helps in reducing their monthly mortgage payments.

The offset mortgage allows an FTB to offset their savings against their outstanding mortgage debt and saving interest on the debt rather than earning interest on their savings.

This new offset feature will allow parents in offsetting their own savings against their son or daughter’s mortgage which means sacrificing their own interest on their once ‘own’ savings in favour of helping reduce the interest being charged on their child’s mortgage.

Now, Newcastle Building Society offer a similar mortgage feature but with no restrictions on the number of family offsetting investment accounts which can now be used against one mortgage only if the primary account holder is related through birth to the person offsetting their investment account against it.

The CE just recently announced Stamp Duty would no longer apply to any purchases in the residential property market of £175K or less over the next 12 months, before its original threshold returns to its normal £125K level. So now with an extra 100,000 borrowers expected to directly benefit from this tax exemption during the next 12 months many of these are thought to be FTB’s which could mean a slow build back into the housing market.

Furthermore, the Government has extended their ‘Homebuy’ initiative to more FTBs than before helping them get on to the property ladder faster.

There are many people who have already criticised the Government’s plans for doing too little too late but now at least these changes will mean a welcome hand in a critical market and they should start to have some impact.

Lend a Hand is a product which was born from the Norwich & Peterborough and is a specialized mortgage which offers a competitive mortgage rate for a joint parent and child. This will now allow the first time buyer to borrow nearly 75percent of their loan as long as they are able to support the repayments from their own income – in this case the maximum income can be a multiple of 3.75x – the parent is supposed to ‘top up’ the remaining 25 percent to only a maximum of 1x their annual income.

So, in the Norwich & Peterborough instance it means that both the parent AND child are made legally responsible in the repayment of the full loan amount and still only the child will have legal title to that property.

Bank of Ireland and the Co-operative Bank have just launched their own mortgage products which enable FTB’s close family relatives to guarantee mortgage payments.

Only last week the Skipton Building Society launched their mortgage product which was designed to aid FTBs in finding small deposits. The deal offers an arrangement to its internal customers only and is a 95% ‘Mutually Exclusive’ LTV deal which means a guarantor arrangement by either person in the guarantor deal who holds an account with the building society already and are credit worthy.

Basically, rather than the customer paying their savings into their mortgage account, the primary borrower and their family may ensure their money is kept separately although is there as security against that mortgage.

Otherwise known as FTB’s, they play such an extremely important role to the overall housing market and are the most important people in any property chain. If FTB’s are not buying as would normally happen, housing sales fall through the entire way up a property chain.

Due to the recent tightening of lending criteria and falling (although still high) house prices FTBs are struggling to get onto the property ladder, however, it would appear that there is now help at hand.

In a market like this one, all resources are required to move forward and find a home and in some cases FTB’s have parents they can turn to for help in finding their first deposit toward their home, however, these are the lucky ones, so lenders have tailored mortgage products that mean that parents can offer financial support based upon their credit rating and assets in the hope that this will increase support that they are unable to offer FTB’s due to bad debts.

If this strategy works then it works 2 fold;

a) It encourages more FTB’s buy and to push open the choked housing market to open up buying chains.

b) It means that banks are taking on new customers (but those with a good credit history) which are the good creditors and that is exactly what they need to see right now.

Allowing for people to give friends and family that helpful first step onto the property ladder is a product called Guarantor Mortgages, the product means that you are able to be a guarantor to the mortgage loan or other should it come to an event where the borrower could not meet the payment demands, or, optionally, they can become a 2nd party to the mortgage loan amount and thus jointly liable for the debt but with assets of their own which gives the bank more security, with one good credit backer.

Reuters say that United States stock prices rose for a higher open last week as a small drop in oil prices and some mortgage rates seemed to buoy some sentiment onto the market along with positive actions by brokers on bellwethers which include Hewlett-Packard.

A Dow component, the shares in Hewlett Packard rose to 1.4% before the final bell following a brokerage that raised its rating and price targets.

Another Dow component that day was McDonald’s, who jumped to a market’s notable 1.6% after their August store sales had risen higher than expected beating many analysts’ recent expectations.

Having a huge affect on Wall Street is the trigger of the U.S. government bailout operation for home finance giants Fannie Mae and Freddie Mac, which triggered a significant drop in the United States mortgage rates which will now undoubtedly boost demand for homes again. Hopefully this will start to have a positive knock on affect to all of us.

Investors are still waiting for a report on the United States pending home sales in July 2008 which is due very soon.

However, for now United States stocks have risen due to investors betting on Washington’s impending government cash injection to failing Fannie Mae and Freddie Mac which will been seen to finally stabilize the crucial United States housing market, calming the wider world of jittery global financial markets.

Leading city analysts seem to think that now Britain’s banks are looking at writing off at least £38 billion in mortgage debts due to the huge plunge in the house markets current house prices which is now said to be sending nearly a fifth of home loans as a total across all home loans on British Bank’s books into a complete negative equity.ing City analysts.

This type of negative equity slashes almost raise like a giant and tower over the costs experienced in the Nineties during the last housing depression when mortgage bad debts get to £12 billion. Lenders are right now, far more exposed than back in the Nineties at which point they experienced a £3.4 billion in write-offs came through the insurance companies who had issued mortgage indemnity guarantees (which were the policies that covered those loan losses which no longer existed.)

Bernstein Research has a prediction which, is based upon the forecasts that property values are now to drop 25-35% after their peak. It was only last week that the Halifax stated its survey had shown that house sale prices had indeed dropped dramatically to a staggering 10.9 per cent within the previous 12 months which is now their biggest fall in 25 years!!

Anticipated to be the largest loser in all this is HBOS who owns Halifax who are currently Britain’s biggest mortgage lender. This is where Bernstein goes on to predict we will see almost £6 billion written off in bad debt over the 2 year period of 2009 – 2011. This will now equate to over £4.1 billion in profit HBOS made during the whole of 2007.