Mortgages Uncovered

What is the best option for mortgage deals now?

“Any borrower who does not require the absolute security of a fixed rate mortgage would simply be crackers not to take a cracker at the moment,”

says Drew Wotherspoon of Charcol, another broker. The reason for this is that, although inflation is high at the moment, and is set to rise further, it is forecast to fall sharply as the economy slows.

“As a result, it is highly probably that the bank base rate will fall sharply in 2009,”

Wotherspoon says.

Look at SVR’s

Unless you are lucky enough to swan from one good fixed rate deal to the next you need to closely look at your SVR right now! A recent survey the results were recently release from Nationwide show that borrowers are spending a long time on a lender’s Stand Variable Rate than before. Before people agree to move to this rate they need to consider in the SVR’s between different lenders the rates can range as much as 6.49% at Nationwide to 7.90% at the Abbey National. Although fixed rates have indeed been slowly coming down there are a number of lenders who have also been raising and quite significantly, their arrangement fees to fiercely protect their crushing margins. A report issued by Moneyfacts from 6th July 2008 – 6th August 2008, an average 2 year fixed rate had fallen at its original 7.08% right down to 6.9%, although, during the same time an average upfront mortgage arrangement fee rose by a general £100.

“Borrowers should consider the overall combination of the headline rate, fee and the lender’s SVR,”

claims head of mortgages, Nationwide’s Martyn Dyson.

Is a higher fee still the best bet?

Should you be continuing to get a good rate it could be worthwhile considering the prospect of paying a higher fee,

“Some lenders offer a choice of paying a higher arrangement fee to get a lower mortgage rate,”

according to Ray Boulger of Charcol.

“The fee is added to the mortgage – but in some cases it is better to have a slightly bigger mortgage than one with a higher rate that you cannot afford.”

Keep a clean credit record

In the sub-prime market the people most affected in this credit crunch seems to be anyone who has or recently has had a poor credit record who are struggling the most to find any competitive deals that they qualify for.

“Rates are significantly higher, and those with serious credit problems will find products hard to come by,”

Hollingworth goes on.

“Check your credit record through the various credit reference agencies and make sure that there is nothing adverse on your record that should not be there.”

Register to vote – absence from the electoral roll is one factor which will damage your credit file.
Should you be having problems in finding a loan that is right for you and a good enough deal to take try and seek the advice of a mortgage broker.

“If your case is complicated – perhaps you have a county court judgment against you or have missed payments in the past, if you are self employed or have a property of unusual construction – a mortgage broker will be able to help point you towards a lender who is equipped to deal with your situation,”

Bien says is the best thing to do.

If you need security should you go for a fixed rate deal?

“If you need certainty to help with budgeting, opt for a fixed rate,” Bien says. “Rates have fallen on fixes in recent weeks – although fixes are still not as competitively-priced as trackers in the majority of cases.”

Look at planning for the long term.

“With it looking increasingly likely that it will take another couple of years for the market to recover, borrowers may be better placed to opt against short-term fixed rate mortgages,”

says Jonathan Cornell of Hamptons Mortgages.

“The rising costs of short-term fixed rate mortgages mean that the average arrangement fee on a two-year deal is £1,168, with some as high as £2,000. Some long-term deals are priced more competitively – and homeowners can avoid the hassle of having to remortgage every two years.”

During the past year it is true to say that mortgage market has gone through a complete transformation and the total amount of mortgage products has now fallen to a new low of 23,000 and any lenders that had previously offered generous mortgage lender during the peak housing period when they were lender more than 90% of a home’s value are plummeting to critical financial levels. We can no longer multiply our salaries by five or six times it’s amount to work out our potential buying power.

Borrowers now with poor credit history cannot get loans in this market although we are still told not to despair.

“Although the market has changed substantially since the onset of the credit crunch, it is still possible to get a mortgage, and there remain thousands of deals out there,”

David Hollingworth mortgage broker at London & Country.

Providing large cash deposits go a very long way ….

“One of the biggest changes is that the keenest rates are now available only to those with a large deposit, typically of more than 25 per cent,” Hollingwoth says. “Most lenders now tier rates are those available up to 90 per cent will in most cases carry a significant premium, so the main message for any borrower keen to improve the choice of product available is to put down as much as possible.”

Larger deposits are more important for re-mortgages than ever. There is a good chance you have now slipped into a new loan-to value or (LDV) band because of the fall of house prices if you are re-mortgaging now and your property value has gone down.

“If you have savings available, you could use them to reduce the LTV in order to get better mortgage rates,” claims Melanie Bien at Savills Private Finance. “It is important not to commit funds if there is a chance you might need them again in the short term however, as on most mortgages you will not be able to draw down the money again.”

Typical housing downturns in more recent years have always proven to last for quite a long time from their worst points to their inevitable endings. Capital Economics research shows it could take up to 6 years from the high point or the peak of a housing crash, before any of the property values can once again begin their new climb in a fresh new optimistic earnest. Analysis of this price phenomenon is provided through UBS Wealth Management who constantly look at housing corrections in a many countries globally before putting it into its intriguing psychological context that helps us predict movement and markets.

It has always proven that investment in housing plays a massive role in a person’s personal finances, and additionally, self-esteem; an expensive home in this day and age can be seen as a huge signifier of success as is a fall in its value also is a massive blow for many reasons not least the self esteem.

So, the impact this had and the pattern it follows is surely not surprisingly different to the experience we go through in a housing downturn when we are alikening it to Elisabeth Kübler-Ross’s indepth description of the full process of grief, which contain 7 natural stages of the process ranging through various states of; disbelief, denial, bargaining, anger, guilt and depression, before finally acceptance is achieved.

History has proven itself NOT to particuarly be the best guide to the future, falls in transactions and prices have been quite unusually quick and steep at times. A lot is left to speculation that this may be a short and sharp shock but it still is the case that home values will still need to fall much further before several key measures are put into place.

Even if some potential buyers do prepare themselves to enter back into this precarious market they still have a massive problem which is that the shortage of mortgage offers available for people at the moment may now mean that they don’t even qualify to apply for the mortgage or lest they do the rates available would be a carzy option to consider.

Now with the interest rates and growing unemployment figures even lower than they were in 1990, households are not only heavily indebted but also our jobless figures are predicted to rise.

Well, clearly, our housing slump is progressively getting worse and now our ministers are starting to prepare for giving its councils vital extra money which is now much needed for the intervention in the devistated market.

During this month, alone, house prices fell again but at a fasteer rate than anything we had seen within the last 18 years and one leading estate agent was claimed to have said that the multimillion-pound homeowners were suddenly now really feeling the pain of this downturn and this was now for the first time!

We just saw average home values fall by £5,000 to just under £165K, and, in accordance to the figures published through Nationwide building society that was nearly £22,000 less than in October 2007, the previous year. Prices have now just fallen by well over 10% since the last time in August, this is now the largest drop since the very worst point (as we thought) of the housing market crash back in 1990.

This time, initially, the multimillion properties seemed pretty much unaffected by this housing crash which had rolled through from the credit crunch, this is because well-heeled buyers didn’t need to worry about the camp down on the high restrictions required for mortgage lenders because they had hugley disposable incomes which contined to open doors that others couldn’t afford to open.

However, prices for properties that were once worth between £1-4 million fall really really sharply in these recent months.

Country homes that were once worth between £1 million and £2 million fell in value by 5.2%, (or £72,000 in the three months to June). Houses that were once worth between £2 million and £4 million slipped by 3.2%, (wiping nearly £100K off the price of a £3 million home). Prices of London homes which were once worth between £1-2 million dropped by more than 8%.

Still, prices of properties that are worth £4 million or more were holding up in the current downturn so the elite of the elite are still enjoying their untouched status.

I would suggest that was more worrying though for our ministers would be that the Council of Mortgage Lenders have predicted over 45K people will probably be re-possessed within Britain before the end of the year, which would be an increase of 50% based on last year through rising food and fuel costs and through a slowing economy which is now leaving many families completely unable to pay their monthly mortgage payments back to the stuggling banks.

So now, under current plans set out by councils there will be encouragement to now offer more of the lower income families currently at risk of repossession the opportunity to sell a stake of their home for the return of desperate financial help. Additionally, the introduction of more council backed assistance to the first-time home owner / buyer will mean town halls will be given extra money to buy empty or unsold new property and help with deposits.

Some recent fears where taxpayers may end up footing an even larger bill for Northern Rock intensified even more after it emerged the now nationalised bank was still suffering dramatically high default rates which they couldn’t cope with.

Northern Rock borrowers falling more than 90 days behind their mortgage payments had risen at a much faster rate than the overall mortgage market and the numer of home repossessions neccessary wiin Northern Rock’s mortgage customers were also starting to rise but at a far faster rate.

Initially the problem was identified in Granite the £40 billion offshore trust that holds in fact most of Northern Rock’s mortgages and provides the performance figures to their bond holders.

Granite was performing much worse than similar vehicles which were set up by; Barclays, HBOS, Abbey, Alliance & Leicester and Standard Life.

The arrears of 90 day or more mortgage accounts held by the Northern Rock’s Granite securitisation vehicle has soared by over two thirds between this year’s 1st and 2nd quarters, with over £508 million in loans now turning sour!!!! Contrasting this, similar trusts that are run by key rival banks only saw relatively small increases in their delinquencies in the first quarter of 2008.

Repossessions of properties listed within Granite’s portfolio of mortgage accounts also soared from 134 a month in the first quarter, a staggering 353 a month in the 2nd quarter uncovering a far worse deterioration than within the overall industry generally.

Staying keen to move but completely trapped by the credit crunch? Well if you decide to rent out your house you manage to help yourself get back onto the property ladder.

Maybe this could ia the perfect solution for you within this gridlock? For at least some would-be home movers, if they decided to rent their current home with a view to moving on shortly,then, withn the economic uncertainty, deciding to suddenly become a landlord yourself might look like its a little bit of a mad move but clearly for some homeowners it’s now actually looking like a perfectly sane step to take.

Rentas are also beginning to rise, as you would expect, in the market at the moment and if you had bought more than say 4 or 5 years ago, the rent you can get on your place would probably more than cover your mortgage repayments (as long as you haven’t re-mortgaged). In the meantime, our property prices are still falling and just selling now means taking a massive hit on your property’s capital appreciation which you had in the bank a year ago.

Then the double pressure of higher rents and lower home sales have been kicked to the dust by some canny homeowners who, rightly, just won’t sell their home in such a buyer’s market. The recent survey from the Royal Institution of Chartered Surveyors’ which was a lettings survey that showed the figures for the new rental customers who were received by letting agents increased at the fastest pace within the survey’s full 10-year history and not only this but in the meanwhile, many estate agents reported growing numbers of own-home landlords.

Ed Phillip who is the lettings director at the estate agents Foxtons, stated that some homeowners were finding it a very difficult thing to accept that they won’t get what they might have got had they sold last year and are now turning to renting their homes for six to 12 months to see what happens.

Once again, new mortgage approvals for properties had fallen again last month by a huge 65% in comparison to 12 months ago, latest figures show a near record low which was originally set in June 2008.

British Bankers’ Association (BBA) have stated that the number of mortgages that were approved in July totaled a mere 22,448, only slightly above 21,118 which were approved back in June 2008 which is well below the average of the previous six months.

Values of loan deals approved for purchases new homes in the month represents a 10 year low of a total of £3.2bn, which now the BBA say is 69% below the monthly figure of last year.

In fact the total value of ALL mortgage approvals dropped 7% to £11.8bn which is now 44% lower than the 12 months ago.

Re-mortgage deals are also down 21% but still had made up at leats half of all the overall mortgage activity.

The mortgage market has slowed as potential buyers have panicked and put their purchases on hold intending to wait for the market to pick up. So, the situation is not likely to improve until this liquidity increases back into the house prices.

Whilst commenting on recent figures, Oliver Gilmartin who is the senior economist at Royal Institution of Chartered Surveyors, claimed that activity appeared to be stabilizing a little, although the paltry level of activity was not supportive of a near term pick up in house prices.

Reuters published that in August British approvals for any new home loans had fallen by 65% across the year from July 2007 holding a close record low. British Bankers’ Association stated that it was not expecting recover in the housing market at any point soon.

Evidence of this survey only pointed to a sharper downturn in what had been a red-hot property market and also reinforced expectations that the forthcoming interest rates will be down again as Britain is in full flirtation mode with its first recession since the 1990s.

According to the survey it also said mortgage approvals only totaled a 22,448 in last month, which is only just above June’s new low during the recession period of 22,369 which is nearly 12,000 below average figures in last six months.

The CCL said new mortgages once lucrative for buy-to-let lending had fallen to 15% from the previous year in the first six months of 2008.

House prices in Britain have fallen nearly 10% since last August after a complete decade in which prices almost trebled.

Now, the global crunch has forced our banks to tighten our mortgage lending requirements and many now just refuse to offer mortgages to homebuyers with anything less than a 25% deposit

Taylor Wimpey’s chief executive, Mr Pete Redfern, hit the nail on the head admitting there is little that the Government can do to fix the slumping housing market. Several of Taylor Wimpey’s rivals had also put forward for a government bail out from each of their beleaguered industries and Pete Redfern conceded that a suspension of stamp duty could not restore the market back to health.

The slump began when our mortgage availability started to get limited because of the credit crunched which stopped the normal demand for property. Bank of England’s package has not improved mortgage market liquidity; now, the housing market slowdown is spiraled too far out of control. Britain’s economic slowdown is the product of a collapse in consumer confidence. But the slowdown now springing a life of its own is feeding the property sector’s problems.

The Government’s priority should have been protecting the real victims of the slowdown, those who now face the prospect of losing their homes as they can’t keep up with their mortgage repayments. In the market climate, these borrowers don’t have any options of selling before the bailiffs arrive and these people absolutely need all the help they can get.

The Treasury really does not want to hear this, because delivering that sort of help would require serious spending. So, a quick and easy option to help homeowners get through this difficult period would be in providing more generous income support for helping people pay mortgage interest. But at the moment some struggling borrowers don’t even qualify for this for at least 9 months and even if they eventually do they still may not get their cover for all their interest payments in full.

Extending need with income support doesn’t have to be free; for instance, requiring borrowers to re-pay some or all of the benefit they had received once their finances recover again.