Mortgages Uncovered

After Bank of England cut its base rate hopes for first-time buyers rose slightly only to be dashed very quickly afterwards after major mortgage lenders made their next move which was to withdraw their most popular mortgage products from the market.

Lloyds TSB’s home loan arm, Cheltenham & Gloucester has immediately withdrawn some of their most competitive and popular “tracker” products which were directly linked to the Bank of England base rate. The largest building society in the UK, Nationwide and the second biggest mortgage broker Abbey are also said to be contemplating similar moves. Literally millions of current homeowners will benefit, however, from the Bank’s dramatic move to cut base rates because it will save them substantial amounts of money on their mortgage repayments.

There are around 4.7 million people who hold an existing tracker mortgage/ paying their lender a standard variable rate and these are the people who will see their mortgage payments cut straight away.

RBS, Halifax and Woolwich have all announced that they are now reducing their SVR rates.
Cheltenham & Gloucester have stated that they have taken some of their tracker deals off the market to “manage demand” due to an outstanding surge of new mortgage applications. Now C&G have instigated the changes to their mortgage products it means that only those people with substantial deposits will now be able to benefit from its tracker deals.

L&C Mortgages broker David Hollingworth, stated:

“Lenders have been increasing tracker rates to improve their profit margins.”

He thinks that this may continue until the banks grow more confident about lending to each other.

Lulu Egerton, of Strutt & Parker estate agents described the base-rate cut as

“a show of commitment towards assisting the battered property market”.

The Work and Pensions Secretary James Purnell has been stating Jobcentre Plus plans at their conference this week and their intention for the recently unemployed is to suggest the interest is paid on people’s mortgages. Under the present scheme, it is only the people whose homes are valued at £100K who qualify, however, this is increasing to include people with homes worth up to £175K. Additionally, the current waiting period is to decrease from 39 weeks to only 12.

“People need to know that there is financial help and support out there if they lose their jobs,”

he says.

Interest rates have suddenly been cut dramatically by 0.5% in the UK and central Banks globally after Bank of England made a dramatic move in slashing interest rates on Weds. This is a new unfolding in the dramatic reaction to current global financial turmoil.

The decision to cut rates funded by the 50 billion Treasury bail out of the banking system was announced by the Bank a day earlier than originally expected.

This will be the first move by the Bank since the financial aftermath of the U.S. 9/11 attacks during Nov 2001.

US Federal Reserve have also cut their interest rates by 0.5% along with European Central Bank, Swiss, Swedish and Canadian central banks. China has also cut its rate by 27 points.

Bank of Japan has current rates at 0.5% currently and did not make any changes but the Fed said that the BOJ has expressed very strong support for the new action.

“Incoming economic data suggests that the pace of economic activity has slowed markedly in recent months,”

the Fed said in a statement.

“Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”

The Fed claims that cutting US rates was a unanimous decision and that their inflation predictions appeared to be starting to diminish which may also help support current price stability.

“The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,”

the Fed said.
The new Bank of England cut now means that people could be saving £47 per month based on a £150K mortgage should the reduction be passed on in full by mortgage lenders. Mortgage lenders who have promised to pass on the rate decrease so far include Lloyds TSB, Halifax and HBOS amongst the key lenders. Economists have predicted that more cuts are due.

Julian Jessop, Capital Economics said:

“Today’s co-ordinated half-point rate cuts from all the major central banks will provide at least a temporary boost to confidence but we fear that there is still a lot more work to do. For a start, the fact that the central banks have had to take such extreme measures underlines how bad market conditions have become.”

This week saw the London’s FTSE 100 plunge to its largest fall since the renowned Black Monday in 1987 and the turmoil also spread through Europe, interbank lending has virtually ground to a halt.

Chief economist for the EEF manufacturer’s Org, Steve Radley said:

“Manufacturers will welcome this bold and decisive move to arrest the current crisis and collapse in confidence.
Coupled with the plan to shore up the financial system, today’s co-ordinated moves should help arrest the potential slide into depression.”

On Sunday a meeting was called to discuss global economic summit with Gordon Brown and European Union leaders it is meant to help to ‘rebuild the world’s financial system’ and to put methods into place to avoid the same crises occurring again.

The emergency meeting, held in Paris saw the 4 largest economies the UK, France, Germany and Italy agree to call for a new financial world which required all leading economic nations to be called together.

The leading economic nation’s summit is planned for November and is expected to include all of the G8’s leading industrialized nations, along with China, India, S. Africa, Brazil and Mexico. Sarkozy, the EU President, claimed that it was high time for all governments to begin the clamp down on speculators and start to restore more of a moral element to the heart of a regime that has clearly failed.

‘We need to literally rebuild the international financial system. We want to lay the foundations of entrepreneurial capitalism, not speculative capitalism,’ he said.

During Sunday’s meeting the EU’s ‘big 4′ agreed the release £12 billion in emergency aid immediately to ailing smaller businesses across the EU and a further £12 billion as soon as possible after the initial cash injection.

The European Investment Bank has announced that funds would be released gradually over a 4 year period.

In the last 3 weeks we have seen some of the most historical moves in financial market history and even the most profligate and hardened of spenders would now be forgiven for having second thoughts. However, even if you did still fancy maxing out your credit card you may not be able to because for the first time in a whole decade banks are now turning borrowers away.

A huge number of personal loans as well as mortgage products have been withdrawn from the market. Mortgages have not been the only type of borrowing that has been hit and now credit.
According to the comparison site, uSwitch it claims that 8 providers have increased their rates by at least 9% in 4 weeks.

The amount of mortgage products now available on the market is a mere 6,300 in comparison to a whopping 30,000 products in September. At the moment banks are trying to clear their backlog of debt before they can afford to invest in mortgage products. Halifax was almost priced out of the market recently because it increased its mortgage rates for the second time in 8 days.

The interbank rates are still extremely high and this has a huge bearing on our mortgage costs so even if Bank of England did reduce its base rate anytime soon it is not likely to make too much of an impact at this stage.

Lloyds TSB are planning to takeover HBOS was forced to hit landlords in the pocket last week with increases to their mortgage buy-to-let rates. Cheltenham & Gloucester are now set to raise its 2 and 3 year deals by up to 0.25%. Now Northern Rock also is incurring rises of 0.3% on their buy-to-let mortgage deals.

The others including Nationwide, Abbey and Bristol & West are anticipated to announce rate rises.
One of the very last remaining mortgage lenders that were offering 100% mortgage borrowing against rental income, Bristol & West are expected to follow suit with other lenders and now demand 125% of rental income as collateral.

During the last fortnight inter-bank lending has almost completely dried up which now means that wholesale borrowing for funding items such as fixed-rate products has now suddenly increased dramatically which is forcing lenders to higher their rates and it is also speculated that this will continue into the foreseeable future.

Melanie Bien, Savills Private Finance gave her opinion:

“Lenders have referred to ‘unprecedented’ business levels, which could be because landlords who are coming up to remortgage are panicking, particularly on the back of the news that Mortgage Express is no longer offering new deals. This will leave less competition in the marketplace and less choice, which may ultimately result in higher rates.”

L&C Mortgage’s David Hollingworth, said

“With few new landlords entering the buy-to-let market, the changes are mainly going to hit landlords coming to the end of fixed or discounted deals who will find that remortgage rates are much less competitive.”

Broker Aaron Strutt, at Chase de Vere:

“Lenders are raising rates and cutting products because the last they want is to be bombarded with business and see their service levels suffer as a result.”

Literally hundreds of mortgage deals disappeared off the market last week due to lenders beginning to respond in the interbank freeze of trading.

Moneyfacts claim that around10% of mortgage deals were very quickly pulled due to lenders running out of money to finance them, which took 445 deals off the market leaving 3,469 mortgage products left on the market.

The shocking exodus was following the Government news announcement on the postponement of Sir James Crosby’s report into the mortgage market.

Originally due to be released at the end of September, The Crosby report is now expected sometime during mid-October, however, an interim report earlier this year claimed it would probably take the mortgage market another 3 years to fully recover from the global crash.

Landlords are now the worst hit by the last few days exodus because of the buy-to-let deals being worst hit falling from 662 to 481 deals, this now equates to 85% of buy-to-let mortgage deals have been dropped from the market during the last 12 months and over 60% of overall residential mortgages have now been withdrawn, according to Moneyfacts.

The now nationalized Bradford and Bingley, previously the country’s largest buy-to-let mortgage lender completely closed its mortgage arm, Mortgage Express.

Fixed rate buy-to-let mortgages were scrapped at Birmingham Midshires and Bank of Scotland and rates were raised on any tracker products going up by 0.5%.

The Crosby report on the mortgage market is now going to be 2 weeks later than originally planned so the revelation of September’s events can be taken into consideration.

This is a very crucial report which is expected to kick-start the U.K.’s stifled mortgage market and will be issued by a committee which is led by original chief executive of HBOS, Sir James Crosby and commissioned by Alistair Darling.

The report, now due on 13th October, is to decide whether our Government needs to either renew or extend Bank of England’s Special Liquidity Scheme (called SLS) after Jan 2009 or, indeed guarantee more high-quality mortgage-backed securities.

So far the Government has resisted any intervention that comes close to matching the scale of the United State government’s £380 billion rescue. The Chancellor has stated that he feels this bailout will have a positive effect on the UK market.

The Times newspaper revealed just recently that Alistair Darling is preparing an intervention for the UK’s finance and housing market.

In July this year, there was an interim to the Crosby report hit criticism from the property industry for not recommending decisive action.

Predictions say that Britain’s mortgage market could take another 3 years to totally recover from the slump.

At last the news has been officially announced and United States politicians have agreed to plough $700 billion U.S. dollars into rescuing America’s financial system and finally end their credit crunch.

Backed by Democratic and Republicans alike the U.S. Treasury are set to spend the equivalent of £380 billion in buying the bad debts from troubled U.S. banks.

The President has been urging lawmakers to support this bill which will require final approval by both Congress houses.

Both Republicans and Democrats in U.S. Congress have been haggling for some time regarding the content of the bill and last week various objections were submitted over the bill which mainly pointed to Henry Paulson, Treasury Secretary not having such sweeping control over how this money should be spent.
Once the White House and Senate have approved the bill this will historically prove to the biggest intervention in these financial markets since the 1930’s Great Depression.

Nancy Pelosi who is the Democratic Speaker for the House of Representatives, said the new agreement was “not a bailout of Wall Street” and had been devised to ensure savings, pensions and jobs.

President George W Bush claimed that the new bill would send a very strong message globally that the US is serious about restoring its financial markets. “This bill provides the necessary tools and funding to help protect our economy against a system-wide breakdown,” the president said in a recent statement.

Last month Bradford and Bingley saw a 55% increase in the number of its loans that had slipped into arrears over 3 months in comparison to the previous 6 months. Repossessions peaked at 27%.

Suddenly the City’s best analysts started to see that the bank’s arrears figures were at double the figures of their competitors’ and it was estimated that 40% of their loans may be starting to run into negative equity should house prices lose a further 30% of their current market value.

To be fair Bradford and Bingley’s capital base is one of the strongest in the UK so it has come nowhere near to experiencing the same kind of pressure that Northern Rock experienced when it came to their mortgage financing. However, despite the 400 million pound rights issue a few months ago their share value has been diminishing at an extremely alarming rate and last week’s rumors were not shocking to hear as the whispers suggested some of the B&B depositors were starting to lose their confidence and withdrawing their savings.

The Bradford & Bingley demise was greeted with much exasperation by a number of people, not least Peter Montagnon who is the director of investment affairs, Association of British Insurers, (his members control nearly a one quarter of the entire stock market, he was quoted as saying: blockquote> “We understand the need for action … but it is a matter of concern that a bank with one of the strongest capital ratios in the sector should have become a casualty.”

It’s business approach to the property market, at the time it started to expand and specialize was not unrealistic, Bradford and Bingley knew that it was never going to become the UK’s largest mortgage lending bank so it chose to plough it’s efforts into the ‘buy-to-let’ property market.

An affluent, thriving market until the slump in the housing market and credit crunch peaked and clashed together relentlessly taking prisoners. Bradford and Bingley literally bought hundreds of millions worth in existing loans as they conquered the buy to let market which transformed it into Britain’s largest buy-to-let lender. It took 18% of this lucrative market in 2007.

There was a fast moving pace and demand in a thirsty market and the urgency of providing so many ‘buy-to-let’ loans gave way to the only Achilles heel in the whole equation which during 2007 at no time posed any risk and that was that if a large percentage of loans ran into arrears it would break the banks margins leaving it in a crippling financial situation, but during previous years the property market had continued to climb and the fastest way for anyone to make money was through property.

Last year Bradford & Bingley spoke in February saying;

“The arrears figures show that, despite some recent reports, the credit profile of buy-to-let remains extremely strong with no increase in the rate of repossessions.”

Last year buy-to-let loans had risen a staggering 120,000 against figures of 8 years earlier it topped 1.1m in 2007. However, as we are all painfully aware that during the last few months this is a completely different picture. The crippling global credit crunch has swept through many countries carrying through a blustering wind of change and left interest costs increasing and house prices plummeting by 12.7%.

Newer buy-to-let borrowers are the most vulnerable as they take (on average), a larger percentage of the higher loans to value and frankly they look vulnerable. A worse position still is that many new landlords have invested in the new build flats and inner city apartments which were demanding a huge return 12 months ago, however, such investments have seen the steepest falls in value, even more worrying some of these have actually halved in value.