Mortgages Uncovered

Once again during mid December, we saw the value of mortgages that were being taken in the UK once again fall say recent statistics.

The Council of Mortgage Lenders otherwise known as the CML, reported the new statistics from data that they are recorded in November when they recorded that gross lending was slipping and has reached £14.6 billion in November 2008 which actually represented a staggering 22% drop from the previous month of October.

The figures also showed that in comparison to the previous 12 months home loan borrowing statistics there had been a huge drop of 50% which truly showed the picture of the disastrous state of the British Housing Market.

Michael Coogan who is the director general at The Council of Mortgage Lenders said next years’ mortgage market would be getting even more depressing and it was predicted that the amount of net lending would turn negative.

He also said that those issues with regard to repayments and mortgage arrears are more likely to get worse with unemployment rising whilst lenders and the government continue to attempt to breathe some life back into the economy.

The Building Societies Association also ran a recent survey which reveals that 46% of most people see this as the best time to purchase a new home.

As of 1st January 2009 the Co-operative Bank has recently announced that it intends to cut its interest rates on all its SVR otherwise known as its standard variable rate mortgage products.
The ethical household lender is going to be trimming its SVR mortgage products by 0.5% from its original interest rate of 5.24% down to the new interest rate of 4.74%.

The news was released earlier this month by the bank after the Bank of England’s committee for monetary policy made a unanimous decision to reduce their base lending rate from its original 3% down to 2% at the beginning of December.

The head of mortgages, Terry Jordan at Co-operative Bank announced that he felt it was now vital that this company should effectively balance all the requirements of its customers and that includes both its mortgage and home loan products and its savings account customers.

He also added Co-op group’s Standard Variable Rate products were one of the competitive on the market and even despite the credit crunch the bank had continued to offer a huge range of different products to its customers.

The company has never had any access of additional funding at all during the credit crunch.

Dan Watkins has now bagged the top job as managing director for mortgages for the new Lloyds Banking Group.

Dan’s new appointment finished weeks of speculation that had been circulating internally at HBOS.
Dan Watkins, the previous CEO of the retail products division at HBOS had been responsible for the design and manufacturing of the entire retail product produced by the bank within the UK, his other responsibilities included e-commerce, marketing and operations.

Dan was born in 1962 and graduated in 1985 from Oxford University with his degree in politics, economics and philosophy.

After working for Morgan Grenfell in London he joined Birmingham Midshires during 1993 working in the risk management division and later in 1996, becoming a treasurer.

Following a number of senior posts within BM he went on to become its Managing Director during September 2001 when he also joined the retail board of Directors.

He guided Birmingham Midshires through the takeover to HBOS group managing the change and growth within the organization.

January 2005 saw Dan Watkins as head of retail risk at HBOS before he was appointed in 2006 to the position of group risk director, thus ensuring his position on HBOS’ executive committee.

It seems that more mortgage advisers are now able to get access to a greater number of mortgage products say the AMI, Association of Mortgage Intermediaries.’

Recent results from a survey set by the AMI show that brokers who are unable to help clients because lenders are now offering better deals directly to customers is down from 48% to 33% and the downward trend seems to be the same across the market – it is predicted to continue.

Chris Cummings, director general of the AMI, said: “It is extremely positive that brokers are again getting access to the best products. Consumers wish to deal with mortgage intermediaries and record numbers have done so during the course of 2008. It must always be remembered that consumers want help and advice to find the most suitable mortgage for them - they put ’service’ as the number one reason to use an intermediary not ‘rate’. Intermediaries have a positive future because we provide the service that consumer’s value so highly. We welcomed the intervention of the government in the mortgage market. We now need to see a concerted effort from lenders to kick start the market and ensure the slump we are currently in does not become worse.”

Now that endowment policies are beginning to mature at the staggering rate of 50,000 a month to clash with those insurance companies who have had to make down their values due to their previous year’s drop in share prices.

A brief history on endowment mortgages:

It is a savings plan which is linked to either the investment in bonds, property or shares and is designed to completely pay your mortgage off when the loan is due for final repayment. This type of mortgage plan typically will mature after 25 years.

In the 1990s, endowment mortgages became notorious due to the financial regulators alerting those homeowners with this type of policy that they may not get what they expect from their repayments.
The nightmare of then has become a reality now because suddenly there is a rise in the amount of policies that are paying out during the credit crunch.

There are literally 100,000 people who will now find that there is a much larger shortfall between their home loan and their investment policy (which was supposed to be completely paid off at the end of the term).

Lynda Kennedy, from Foster & Cranfield, (who auctions endowments), warns that the next couple of years could be very difficult. Many endowments sink or swim on the basis of a bonus paid at the end. But she reports that final bonuses are being slashed by as much as 75%. “I would say brace yourselves: it’s going to be a tough ride for some people. Your mortgage may not be paid off and you should make every effort now to make allowance for that.”

The largest building society in Britain, Nationwide, is officially the first lender to bring back the new 95% mortgage based on the value of a property.

The new deal is a two year fixed mortgage which gives an interest rate between 7.18% — 5.18% above the BofE base rate. Nationwide also offers its customers who have a larger than 40% deposit a very similar two year fixed rate mortgage deal at 5.38% interest.

Divisional Director, Matthew Carter at Nationwide, said:

“As part of our ongoing commitment to existing borrowers during these difficult times, we have introduced a new, higher, loan-to-value (LTV) tier. The new tier will ensure that customers continue to benefit from a range of fixed and tracker mortgage options. The new tier will ensure that customers continue to benefit from a range of fixed and tracker mortgage options.”

The financial website, Moneyfacts’, Darren Cooke said figures show

“how banks and building societies have shifted their focus from rate to risk. Reducing property values are the main culprit, resulting in customers finding themselves in negative equity and banks being over-exposed.”

Chris Eagle, commercial manager at CreditChoices.co.uk said: “The new deals are expensive, and lenders are now pricing for risk. Re-entering the 95% market is a bold move by Nationwide and it will help customers who desperately need to move house but can’t find the finance. It is unfortunate thought that first-time buyers who would benefit most from a 95% mortgage, have been excluded from the offer.”

Manager of the mortgage broker Savills, Miranda John, commented recently on the Singapore mortgage:

“The domestic interbank rate in Singapore, as determined by the Monetary Authority of Singapore, starts from an overnight rate of 0.5% up to around 0.80% on a three-month basis. With rates under 1%, understandably a currency mortgage is an interesting prospect, along the same lines as Japanese Yen mortgages were a few years ago. However, the availability of currency mortgages has always been limited, both in the number of banks willing to lend on this basis and in the criteria lenders apply.”

Those who are the more specialist brokers / lenders will aim their more sophisticated products at the people that they consider to be high earners who also have substantial property and may also be likely to make additional stipulations such as a regular monthly income stream in the same currency that you wish to borrow in.

We are currently in an age that is rife with volatile currency and flagging financial markets so it is particularly important to be fully aware of any of the pitfalls of these types of mortgages. Should your income be in one currency, as an example, sterling, then your mortgage will be in a second currency and you will be directly affected by the rapidly changing international exchange rate movements.

Should sterlings value fall against the SGD then you will have to pay more towards your mortgage per month because the sterling equivalent of your monthly repayment fee will increase along with the sterling equivalent of any of your mortgages’ outstanding balance.

The main risks to consider are that even if Sterling does strengthen you have to out weigh any losses against the gains and there is also a chance that any low interest rate you may have had could easily be wiped out completely due to the exchange rate fluctuation and there is very little no absolutely no advanced warning when this happens.

Goldman Sachs the major U.S. Wall Street bank has completely slumped into the red and for the first time since the bank floated and went public nine years previously, its efforts in attempting to dodge the credit crunch have failed.

The bank has revealed a loss of $2.12 billion (£1.38 billion) in mid December.

CEO Lloyd Blankfein said

“Our results for the fourth quarter reflect extraordinarily difficult operating conditions, including a sharp decline in values across virtually every asset class,”

Lloyd Blankfein has also agreed to give up his bonus alongside six other senior executives.

Along with its rival Morgan Stanley, Goldman Sachs just recently converted itself from a stand- alone investment bank into a financial holding company which still allowed it to take deposits from the general public.

Market Strategist, Steve Goldman claimed:

“Investors have been anticipating the worst. It was weaker than expected, but maybe that has to do with how they’re marking it.”

In its recent research note Peter Nerby the Moody’s market analyst said:

“This crisis has demonstrated that the business model of wholesale investment banks is not as resilient as it appeared.”

The staff at Goldman Sachs are also feeling the squeeze as the amount that the bank has spent on compensation claims and benefits has dropped 46% to $10.9 billion over 12 months.

Some people who were looking for insurance from them to secure mortgage repayments should they be ill or redundant may have to think again.

Those property owners who have got themselves saddled with multiple buy to let mortgages are going to be given the chance to capitalise on the low house prices during early 2009 suggests a recent survey.

Cluttons are a London based estate agent who has predicted that London’s property prices will be set to moderate during the course of the New Year due to sellers becoming more realistic regarding their asking prices.

Cluttons also claims that the house prices in England’s capital may well ‘bottom out’ during the early part of 2009, which is being predicted as the trend that will pave the way to those investors returning back to the housing by trying to snap up a bargain through buying properties before the housing market starts its recovery.

Head of residential agency, Richard Cluttons stated:

“This is particularly true of multiple buy-to-let landlords with equity in their portfolios, who want to take advantage of low prices and cheaper mortgages as a result of their strong equity position.”

The plummeting house prices and additional interest rate cuts has already prompted an influx of buyers back to the property market in December, according to a recent survey carried out by Rics.

Whilst a variety of different mortgage customer are now offering their customers better interest rates following the recent BofE rate reduction those who have fixed rate mortgages could have seen an increase of a general £68 a month more recent results show.

The BofE released statistics that showed they had found 1.4 million home owners who were coming off their borrowers special rate mortgages in 2008 were to become subject to a general 10% increase.

80% of homeowners have said that they feel that their homes had dropped greatly in value across the course of the past year shows the Bank’s report.

4% of people who have mortgages are suffering now with negative equity; however, this is a figure that looks set to be increasing.

As a general rule, monthly income has declined by £100 from 30% of the households that were questioned.

Bank of England’s report stated:

“Around 40 per cent of mortgagors reported that they owed more than £90,000 and almost 15 per cent said they owed more than £150,000.”

1% of people who were surveyed also claimed that they would consider a remortgage on their property to give them some free money to cope with utility bills and other credit commitments.