Mortgages Uncovered

The Bank of England has stated that approvals for mortgages relating to new house purchases rose to 33,000 in September up from the record low of 32,000 in August, this spells the first rise since June last year, however, it is still recorded to be the second lowest level since the series began during 1993. This is 67% lower than the number of mortgages approved in September 2007.

Economists are warning that the slight upturn for new mortgage approvals certainly did not indicate a recovery yet.

Spokesman of Global Insight - economic consultancy, Howard Archer stated:

“This is another very weak set of Bank of England mortgage approvals and lending data that suggests that the downturn in housing market activity and prices still has a long way to run. On the positive side for the housing market, the Bank of England seems likely to cut interest rates more aggressively as a consequence of the now-deep economic downturn. Indeed, it looks very possible that interest rates could fall from 4.5 per cent to 3.5 per cent by the end of 2008 and all the way down to 2 per cent in 2009.”

Vicky Redwood, spokesperson for Capital Economics, said.

“At this level, the figures are consistent with annual house price inflation of between -20 per cent and -25 per cent, compared with the current rate of -13 per cent or so.”

Consumer credit made a slight recovery rising to £251 million in September, however, this shows the weakest rise since 1994, and other associated statistics also show that consumer spending is beginning to weaken further.

The UK retail arm of Spain’s Santander, Abbey National is benefitting from the current climate and the discomfort of its peers as it gained market share in mortgages and has been continuing to win new customer deposits.

Their profits they say are “significantly ahead. Abbey National’s seeming continued success is monitored without the figures from Alliance & Leicester, the UK mortgage lender, who Santander just recently acquired, nor any of the deposit taking recent activities of Santander’s recent take over, Bradford & Bingley.

Abbey claimed that net lending for mortgages during the third quarter was £2.5 billion which took the total for the 9 months to end from the beginning of the year to £10.8bn, which was up from £6.7bn against the same timeframe in 2007 which was the final period of time before the crises hit.

Abbey have clearly benefited from maintaining higher margins in their mortgage business and claimed that arrears rates were well below the industry average. The amount of properties in their mortgage portfolio had risen to 802 by end of September 08, from 589 at the end of the last quarter.

Abbey will not be raising capital through the UK government’s scheme, because Santander has already injected another extra £1 billion of capital into all its UK businesses following the acquisition of Alliance and Leicester and Bradford and Bingley. These two additional acquisitions have given Santander 1,300 branches throughout the UK, which equates to the third largest mortgage deposit taker in the country.

According to a recent report by Moneyfacts the financial information provider, three quarters of UK mortgage lenders have still not passed on the 0.5% interest rate cut to their customers.

After the announcement from the Prime Minster and The Bank of England’s Governor only last week admitted that we were heading for a recession which meant that further cuts in interest rates were on the cards.

Darren Cook spokesman for Moneyfacts has said though that the next bout of rate cuts may well have no impact if not very little to the mortgage outgoings of most of the current household’s and may still result in an increase in repossessions.

Moneyfacts have published statistics that show that out of the 96 of mortgage lenders offering standard variable rate mortgages, there are no more than 50% offering homeowners the recent rate cuts.

The banks that have passed on the whole rate cut include; Halifax and the Northern Ireland-based, Northern Bank.

A spokesperson for the consumer organization Which?, claimed that banks were “having their cake and eating it” and were putting pressure on the Government to persuade all banks to lower rates.

There are growing fears that HSBC is starting to waiver from its original resilience in the credit crunch and it is now revealed the bank is sitting on a potential £20.8 billion of bad or toxic mortgage assets. Not only this but now that the Hong Kong economy is starting to topple it spells the end of the bank’s reasonable shares prices.

HSBC shares took a large 17% nose dive this week from 109p to 696p in just a week. Morgan Stanley’s, Michael Helsby had warned that HSBC have most of their subprime mortgages offered through it household division in Northern American and at present this equated to 33 billion of dangerous mortgage assets which was far more than the bank’s market value. Should the bank need to write off this money then the capital reserves it has will fall back to such a level that it will be in exactly the same situation as many of its rival UK banks and will become forced to be re-capitalized by the taxpayers.

HSBC is Hong Kong’s leading mortgage lender and it has started to tip into the recession, with plummeting home prices.

A spokesman for Alliance Bernstein said

“evidence from 15 bank crises around the world in recent years indicates that bank share prices hit the bottom three to four months after government intervention, a pattern that would mean UK banks reaching their nadir in December or January next year.”

Barclays bank will be the first lender to make use of the new government £250 billion guarantee. Barclays plans to raise up to £1 billion via sales of three-year notes this is the new move which mortgage brokers and the government are hoping will help to kick-start the market.

The hope is that if UK banks are successful through raising money in a cheaper ways such as through the government bond scheme then they will be able to pass over savings to home-owners and would be home buyers so the property market because buoyant again.

Not much has been seen so far from the Bank of England’s emergency 0.5% interest cut which was over two weeks ago because all that has happened is that many banks have withdrawn their tracker products rather than choose to pass on the fall in interest rates.

Once again last week, Nationwide the UK’s biggest building society raised the interest rates on its tracker mortgages.

Last week, Barclays announced it was beginning issuing the 3-year notes in order to raise at least £1 billion – this will come with a government guarantee and will serve to encourage more investors to lend higher sums of money to the bank. This is all part of Barclay’s larger plan to raise a £400 billion bailout and the Government has said it would guarantee the senior unsecured debt instruments issued by Britain’s banks.

The BBA say that they are not surprised about the dropping level of mortgage approvals, the figures only go to show the continuing weakness in the housing market with plummeting sales and house prices with rising interest rates.

”Compared to a year ago, the mortgage environment has changed significantly, with supply restricted as a consequence of the situation in financial markets and demand at a much reduced level,” said the BBA’s statistics director, David Dooks.

”Pressure on household budgets, the slowing economy and fragile consumer confidence are suppressing consumer appetite for unsecured borrowing, but personal deposits across the high street banks held up.”

Simon Rubinsohn, RICS chief economist commenting on the figures, said: “The slight month on month rise in September is consistent with the pick-up in new buyer enquiries in the RICS monthly housing market survey indicating that opportunist buyers are still on the lookout for bargains.

“Many first time buyers have been denied access to the market, due to insufficient funds but the government’s rescue plan may go some way to kick start mortgage lending. However, as the country teeters on the brink of recession and the employment picture deteriorates, mortgage lending is unlikely to see a recovery in the near term.”

Even though it was anticipated, the sheer intensity of the slump in the mortgage market has surprised everyone. It is apparent that mortgage lending at the beginning of 2007 was very cheap and an impact was due from this, even so it has been quite a tough lesson to learn for us all.

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Lenders are now slashing their interest rates and there is a prediction of more cuts in the base rate.
RBS reduced some of its fixed rate loans from 0.35 – 0.6% and Abbey cut 0.15% of its 3 year deal.
This follows the sudden sharp drop in the swap rates which these fixed rate deals are based upon which now also means that there is speculation that other lenders will follow these measures by the end of the year.

There are plans by the Bank of England to cut interest rates by 4% in November in order to save the country from a deeper recession.

For the first time in a decade The Bank’s Monetary Policy Committee is cutting borrowing costs by 0.5% in forthcoming months suggest various economists.

Potentially millions of home owners who have tracker mortgages could see a few hundred pounds cleared off their payments. i.e. a £100K loan would give a saving of £600 per annum. Additionally, if lenders were to cut interest on fixed rate deals it would entice new borrowers into the housing market which would start to build momentum.

Capital Economics spokesperson Vicky Redwood, claimed rates may fall to 2.5% which will be the lowest figure since 1951.

The MPC would continue to “act aggressively”, she said. “Not only did all members vote for the 0.5 per cent cut at this month’s rate-setting meeting but the discussion was unambiguously dovish. The case for leaving rates on hold – or indeed cutting by just 0.25 per cent – wasn’t even discussed.”

UK’s biggest building society announced it was raising rates on its loans for the second time in just over a week.

Nationwide, the UK’s largest building society has just announced 0.24% - 0.6% interest rate rises on their tracker deals.

As of today a 3 year tracker deal for a mortgage borrower who has a 40% deposit will now cost them 6.18% in interest yet last Monday the same tracker would have carried a 5.64% interest rate.
Mortgage borrowers with smaller deposits are seeing a bigger interest rise on trackers at Nationwide, on larger loans this is an additional 0.6% higher.

Their lifetime Mortgage Tracker deals offer borrowers who have less than 25% deposit a full 2.03% above the Bank of England base rate.

After the 2 recent rate increases Nationwide will more than offset the 0.5% Bank of England base rate fall, which is the saving that Nationwide has said it will pass to all its borrowers as of 1st November!

The Director for Mortgages at Nationwide, Matthew Carter, claimed that the rate changes had been driven by market conditions and competitor changes in the market.

“It is regrettable that we have to increase our tracker rates, but we must take into account ongoing volatility in the wholesale markets and the high cost of funding. These changes will allow us to maintain control of the volume of business the society is attracting, and to continue lending in a responsible and prudent way.”

Senior Technical Manager, Ray Boulger of mortgage brokers John Charcol, claimed that the decision of Nationwide’s in re-pricing its Tracker deals so quickly may be a result of competitors completely pulling out of the mortgage tracker market:

“The fact that Nationwide have increased the margins on larger loans suggests they were getting too much business above 75% LTV, in the future we are going to see tracker margins go up and fewer trackers to choose from,”

HSBC are the only bank so far to announce in a formal manner that it will not be reducing its current standard variable rate, although other banks have so far made no announcements at all.

If you are having problems getting a mortgage, statistics show that you are one of four of would-be home buyers who are facing these problems.

In the last 10 years, to the amount of people working different hours being self employed etc. banks are less likely now to invest in people who do not have a standard nine-to-five job.

Now searching for the right mortgage is easier. Spokesman for Charcol Mortgage Brokers, Ray Boulger said:

“Ten years ago lenders would not accept contract workers, for example. Now they recognise that someone on a yearly contract, regularly renewed, may have more job security than someone on PAYE who could be sacked at short notice. And they now know there are certain industries where contract working is the norm. Mainstream lenders don’t like temporary workers generally, especially if they are working irregularly and don’t have much of a deposit.

A lot of people choose to work as temps because they can easily take a break when they feel like it. But if someone has been working full-time for one agency for several years they may be treated as if they were in regular employment but with different employers. Like the self-employed, they may be asked to self-certify how much they earn. It will then come down to how big a deposit they have. If you have a 25 per cent deposit, mainstream lenders such as the Halifax, Abbey, Royal Bank of Scotland, NatWest and Standard Life will lend to you.

One reason why lenders are more willing to consider people with less-regular employment is there is much more electronic information available from credit reference agencies such as Equifax and Experian. So they can assess your creditworthiness more easily. They will look to see how reliable a borrower you are. For example, you will get a better credit rating if you have five credit cards on which you repay the minimum without fail each month than if you have one card which you always pay off in full. I warn that you could be turned down if you are found to have held information back on your application form. They look at your income and existing outgoings to decide how much more you can afford to borrow. So it will look very bad if they see a loan on your credit file that you did not tell them about.”

The 500,000 temporary workers who are on Blue Arrow’s (one of the UK’s largest temping agencies) books were experiencing problems in getting a mortgage.

Head of Blue Arrow Financial Services, Gary Forster, said:

“We were losing reliable people because they were unable to get a mortgage if they continued temping. We now have a dozen lenders who will take on borrowers from us so long as they have been with us for three months, can show they were working for at least a year before that and are in an occupation where their skills are in demand. We can demonstrate that temping can be more secure than a regular job because we can always find work for temps.”

Muslim Mortgage products will accept mortgage applications with all sorts of other factors (including family members contributing), however, it is against their religion to be in a contract that demands they pay or receive any interest.

A Muslim mortgage product means that the bank buys the house and then lets it back over an agreed lease term. Each month you pay rent to the bank including payments towards the final purchase price of the house, finally becoming the owner when the last payment is made.

HSBC are now offering this type of hire/purchase mortgage scheme in 25 areas in the UK including London and Birmingham.

Statistics show that over 60K households are falling to negative equity and thousands of families are facing repossession. After last night and taking into account the figures, government is now under pressure to push its plans through faster in its bid to rescue some families who face losing their homes right now.

There are some analysts who claim that this situation is yet to get much worse than it was previously during the recession in early 1990, should house prices continually fall during the course of the next 24 months. Figures show that there could be double the amount of people who may experience negative equity in comparison to the peak during 1995 of 1 million.

Vince Cable, Liberal Democrat Treasury spokesman claimed that the government needs to quickly consider bringing forward its measures which are designed to aid unemployed homeowners. Whilst he commended government plans for providing benefits in covering interest on unemployed mortgage payments for home owners after only 13 weeks of losing their job, rather than the current 9 months, he still thinks that more clarification is needed regarding when the new ruling will take effect:

“In the meantime thousands of people could needlessly be thrown out of their homes.”

Figures also show that the number of new mortgages that were taken in 2007 was over 2 million, however, only 377K people purchased private insurance to cover mortgage payments should they be left unemployed or ill.

The amount of unemployed now claiming benefits jumped sharply in September to 940,000. There has been a 15% fall in house prices since the peak last year, however, some experts are now saying that this could rise still to 50% by 2011. The CML now predicts that a total of 45,000 properties will end up being repossessed this year alone which is around 26,200 more than last year.