Mortgages Uncovered

Borrowing costs on tracker mortgages which are tagged directly to the BofE interest rate are anticipated to drop by another 1% before the end of 2009 and possibly even below this level within the next 12 months until the government manages to kick start the economy.

Tracker Mortgages have unsurprisingly become more popular than any other type of mortgage.
Unfortunately, most banks withdrew their Tracker deals after the additional base rate cut of 1.5% a few weeks ago, however, some lenders have cautiously returned back to the market with their tracker deals

Which banks have re-launched their tracker mortgages?

Unveiling their new tracker mortgage products which will be directly pegged to the BofE base rate are: Halifax, (they also released a 2 year deal at 5.14% which is 2.14% points above the base rate. Abbey, (Santander Group), introduced two tracker mortgages.

Lloyds TSB and their mortgage arm, Cheltenham & Gloucester, undercut its rival with their selection of 2 year and full duration term deals; their lowest rate is 4.79%together with the requirement of a 25% deposit. The deal now comes with an arrangement fee of £1,995 and the maximum amount that can be borrowed is £250K.

Alliance & Leicester are offering 2 year tracker mortgages at 4.89% and an arrangement fee of 1% of the cost borrowed including a 40% deposit.

Should I still consider a tracker mortgage?

As the BofE cuts the base rate until the flagging economy kick starts into action people who take a tracker deal today will enjoy better rates over the next 12 months. However, trackers from some lenders along with Halifax have written in “collars”, which allows them the freedom to not pass on any reductions if BofE base rate falls below a certain level. When it comes to Halifax their collar is at 3%. Nationwide’s newly launched trackers will have a collar of 2.75%.
The best-buy tracker is from HSBC.

Leeds MP Mr Mudie spoke out at Westminster Hall, in highlighting the total reluctance of many of our UK banks in passing over the recent government interest rate cuts to their customers and in particular over the recent 1.5 % BofE rate cut just made.

Mr Mudie said

“The Chancellor had to pull the banks into Downing Street, feed them breakfast, show them what the papers were saying about them and browbeat them into passing on the cut.” He slammed the banks that had not passed on the cuts as being in “open defiance.”

Mr Mudie went on to criticized bosses at Lloyds TSB for them telling their staff that they would be paid extra bonuses as incentives to stop their customers witching from their repayment mortgages to an interest-only mortgage.
A spokeswoman at Lloyds TSB spokeswoman did state that should their customers be experiencing financial difficulty they would be entitled and allowed to switch over to an interest only mortgage.

In his speech, Mr Mudie further highlighted figures supplied by Federation of Small Businesses, which proved that at least a third of businesses had been subject to an increase on the overall cost of new credit within the past 2 months.

He said:

“Does anyone get the impression that the banks have learned any humility after having been rescued? I have not seen an ounce of humility or sympathy.
“We have to help people through the recession, but it is clear the banks are not going to be willing partners. As a representative of taxpayers, I have to ask the minister whether he thinks we are getting a good deal?”

Treasury minister Stephen Timms replied: “The banks are certainly not getting a free ride. Public money is being lent on commercial terms and taxpayers will be rewarded for the risks being taken with their money.”

Our UK buy-to-let mortgage loan sector is going to start to show how much is it underperforming in comparison to the entire mortgage market says the credit reference agency, Standard & Poor’s.
The risk to this part of the sector started back in 2006 and 2007 with unaffordable mortgages and since then the credit risk for lenders has been growing and growing.

200,000 buy to let mortgages represents one fifth of this mortgage market and based upon the analysis from scrutinizing this amount of BTL mortgages it showed that 3.7% of the section taken was in arrears by the end of June 2008. The CML has recently stated that residential mortgage arrear averages were at 1.33%.

Credit analyst at S&P, Kate Livesey says:

“While older buy-to-let mortgages outperform similar loans made to prime owner-occupiers, newer buy-to-let mortgages are now underperforming, given looser initial underwriting standards and lower absolute growth in rental coverage since
origination.”

She also stated that this did clearly show that the performance of the buy to let mortgage sector is more sensitive to the current economic climate and tougher credit environment because it is severely more affected.
Kate Livesey went on to say:

“We believe that the BTL sector could suffer above-average loss severities on repossession cases due to a concentration of certain property types that are witnessing above-average price declines. In a downturn we believe that the current stock of buy-to-let loans will carry higher credit risk than the stock of loans to prime owner-occupiers.”

Don’t rush even if it is to catch falling interest cuts, tread carefully.

Homeowners were once able to reserve mortgage rates 6 months in advance from their next mortgage lender without parting with a penny. Should something better come along in the market, they were also given the chance to disregard their first mortgage offer and go with the better deal.

However, in the current financial climate lenders are protecting themselves warns head of mortgages, at Moneysupermarket.com, Louise Cuming;

“The percentage of borrowers who went back on a mortgage agreement used to be tiny. But in recent weeks, with the base rate tumbling, an unprecedented number have wanted to back out. Any valuation fees for the mortgage are sometimes payable upfront and booking fees can also be charged to reserve the rate,” says David Hollingworth at broker London & Country. “Cheltenham & Gloucester, for example, charges £99.”

Other lenders who will be asking for part payment upfront include Yorkshire Building Society who charge between £195 to £495 for what is referred to as a “product fee” upon your mortgage application.

HSBC levies all its fees up front on tracker mortgages

“Every lender’s policy is different but if you find a deal that’s slightly cheaper than the one you have booked in, it may not be worth switching again,” says Mr Hollingworth. “Either way, make sure you know exactly what the implications of changing your mind are.”

Any mortgage deal that once offered the chance for people to only rate a 10% deposit against the cost of their property have nearly completely evaporated from the market recent figures from the BBC disclose.

There are now only 66 deals offering 10% deposit compared with 586 only 3 months ago and 1,197 last February.

Mortgage brokers are now saying that they will not return until the price of houses starts to level off realistically.

Mortgage broker Ray Boulger who is also spokesman for John Charcol said

“The situation will get better some time, but property prices must stop falling, deals for those with only a 5% deposit have already all but disappeared, and now the trend is being followed for deals requiring a 10% down payment. First-time buyers are likely to be particularly affected by the falling number of low-deposit deals, at a time when homes are theoretically becoming more affordable for them. “ he also said, “lenders are still tightening their belts and so are likely to be rejecting more borrowers whom they considered to be at a greater risk of going into arrears. I do not see the situation getting better in the short term,” Aaron Strutt, of Chase de Vere Mortgage Management, said “ tracker deals – linked to the Bank rate – are the most attractive options at present, but the majority are only being offered to those with at least a 25% deposit. The best tracker deal on the market last Friday was from HSBC at 0.99% above Bank rate, with a £799 arrangement fee. Yet, this was only available to those offering a 40% deposit. “

As one of the UK’s largest mortgage lenders, Halifax is threatening to further deprive its half a million homeowners and customers of any further rate cuts due to unseen clauses written into tracker contracts.

As many millions of Britain’s homeowners thankfully welcomed the BofE further 1.5% interest rate cut to bring the rate to 3% (which is £4 billion pounds worth of savings to over 25 million homeowners in the UK that have a tracker mortgage, this converts to £166 a month saving on someone with a £200K loan.

Halifax tracker customers though will likely not feel any benefit since the building society have imposed a clause of 3% or below on tracker mortgages means that the Bank do not have to pass on the cuts.

This clause also applies to another Halifax company called BM Solutions (it does not include Intelligent Finance), although there is a current investigation by the FSA into the Halifax clause as it may break their rules due to it not being clearly highlighted in the mortgage documents.

MPs are now urged Halifax to immediately drop this condition from their policies after it was made known that to withhold a cut of 0.2% alone deprives customers of savings in excess of £140m.

Michael Fallon, vice-chairman, Commons Treasury committee, said:

“These types of clauses are redundant in the new era of the low rate — there’s no excuse for them. Halifax initially played down its intention to rely on the clause, saying it had “no appetite” to withhold Bank rate cuts. Last week, though, it said it might invoke the clause after all. “It is . . . important to recognise that all banks have a need to balance savers’ and mortgage borrowers’ rates.”

Now a quarter of all Jersey residents who have a mortgage are facing a very uncertain future due to the sudden announcement that a leading lender is closing down.

The major mortgage lender in Jersey, known as Jersey Home Loans has a mortgage lending book which is estimated to be worth around £1 billion, has suddenly revealed that it will not be offering any new loans in the Island again. The first to be hit immediately are those who were offered new mortgages by Jersey Home Loans because it is highly likely that these offers will now be withdrawn which could leave some finding that their dream home is still only a dream.

Those people who already have mortgages could be left with very little choice other than to foot the huge cost of having to quickly swap lenders due to Jersey Home Loans only offering higher interest rates. Under the law of the Island of Jersey, lenders have to honour their contracts with their borrowers; therefore, if one of their customers has signed into a 25 year contract term, as an example, the lender is not legally allowed to renege on that agreement.

The parent company of Jersey Home Loans’ known as Kent Reliance has said that they had taken the di9fficult decision to completely shut the doors to any new customers which was most down to the harsh effects of the current credit crunch and they have also blamed the States for disallowing Jersey residents in using their savings products.

Many mortgage brokers are now saying that they expect the majority of banks to pass on the interest rate cuts in time, there is intense pressure coming from the government and consumers to make mortgages more affordable.

The NatWest RBS is encouraged by the current interest rate at which Libor the interbank lending rate had just fallen after the recent dramatic BofE cut.

Banks have already stated that unless the cost of funding the mortgage products reduces, they would still suffer difficulty in passing the BofE interest rate cuts to customers.

Lloyds TSB, along with Cheltenham & Gloucester was the first bank to reduce fixed rate mortgages base rate reduction. Those people who have high levels of equity in their properties or large savings for deposits can now borrow money at 4.89% for 2 years with a fee of £1,995. The bank was also the first to cut SVR rates last Thursday.

C&G marketing director, Stephen Noakes, stated that the falling swap rates that determine fixed rate mortgages, had meant that banks could re-price their fixed term mortgage products.

To date the banks have not given an indication of when they do plan to re-price any of their tracker products. After the recent interest rate cuts, most new tracker products were temporarily withdrawn from the banking market, with new deals expected to be announced next week.

Brokers now expect building societies and banks will increase margins on the new trackers which means that borrowers may make no gain from the whole interest rate fall.

On the other hand, if Libor continues to fall the same brokers are now saying that banks would soon offer much more competitive mortgage rates.

The buy to let mortgage lender who was just recently nationlised, Bradford & Bingley have seen a rise in the arrears that are on its mortgage book which has triggering further fears that the taxpayer may be exposed to some potential losses.

The takeover was following the collapse of Lehman Brothers and it shook the confidence in the global banking system.

The B&B’s branches and their savings operations had been recently transferred to the Santander Group in Spain which left taxpayer with Bradford & Bingley’s £42 billion bill which should start to run down over time.

Bradford and Bingley’s third quarter figures showed a clear deterioration from their second quarter when their arrears were 1.45%.

This increases concerns that the B&B’s mortgage loan book is weak because its securitization programme only shows the best quality mortgages that were written by B&B.

The mortgage book of securitization loans in the programme does not include any of the riskier accounts which B&B acquired from GMAC, (General Motors).

During the B&B nationalization a complex deal was struck between Financial Services Compensation Scheme and the treasury.

This meant that the loan losses for B&B’ would need to reach very high levels before the taxpayer does lose money.

Latest data shows that buy-to-let loans are now performing far better than the mainstream products.
Latest data from the CML tallies with data from Moody and shows 1.1% of all buy-to-let mortgages that are outstanding are now in arrears. This figure is comparable with the arrears of the total mortgage market which is 1.33%.

It still remains though that the buy-to-let mortgage is a relatively new product which was launched in the mid- 1990s so no one yet knows how this product will perform in a recession.

There are many who are now claiming that the UK mortgage rates are actually affected much more than just by the Bank of England’s base rate.

The Daily Telegraph claims that independent brokers, building societies and banks have also now got to take into consideration the cost it is for them to borrow plus the availability of credit in the current market and also take on board the riskiness of homeowner loans in relation to the property price the loan is for.

The Daily Telegraph claims that all the aforementioned are a result of lenders now charging customers a significantly higher rate if they do not have substantial deposits to out down onto a property.

Ray Boulger who is the senior technical manager from the mortgage brokers John Charcol, claims that lenders are actually borrowing money at different rates due to the swap rate market being set at a higher interest rate which means that all the best 2 year fixed rate mortgage products are at least 1% higher than the current BofE swap rate which currently stands at 4.2%.

He said: “This reflects the lack of competition in the market and the very limited amount of funds lenders have available to lend.”

The Times newspaper has reported the current bank’s actions in the unstable market as unfair as they claim that the mortgage rates offered by most lenders now are artificially higher than they should be in the current circumstances.