Mortgages Uncovered

The government has pumped another £100 million into the HomeBuy Direct scheme; this could help 18,000 first time buyers get their foot onto the rung of a difficult property ladder.

Originally the announcement came in September and the budget was £300 million, the HomeBuy Direct scheme allows an equity loan to be provided for 5 years completely free of charge. Additionally, it can be used as a deposit and also cover up to 30% of the property’s purchase price.

This government equity loan is partly funded by them and one of their partner building developers – 130 developers are signed up to the scheme.

First time buyers must have an overall combined income of under £60,000 if they want to qualify for the government’s HomeBuy Direct Scheme and its £400 million pot. All first time buyers who are legible for this scheme can start making their applications in early 2009.

The new scheme is also set to provide additional business and support to building firms by immediately identifying their customers at the early stages of the scheme and should go towards helping the house building industry to receive a fast cash injection and new customers.

For all new buyers they will gain access to the HomeBuy Direct scheme via 23 housing associations who are acting as the regional agents on behalf of the government’s many other ‘HomeBuy’ and more affordable housing schemes within England.

Major high street building society, Abbey now part of Santander Group are one of the major UK mortgage leaders has recently announced that it will be introducing a much stricter criteria from their customers in order to calculate and control the number of new customers who can borrow money from them for their mortgage.

This also means that Abbey mortgage customers that borrow from the lender can take advantage of recent low interest rates are still able to afford their mortgage rates when the base rate increases again.

Typically, Abbey had been using its own SVR or standard variable rate for calculating the monthly payments for a customer’s proposed mortgage, the bank can then determine if their new potential borrower can still comfortably afford their mortgage payments. The Abbey’s current SVR rate which they had previously been using as a guide to calculate a customer’s potential monthly mortgage spend when the base rate goes back up, has been 5.44%.

Now it seems, the Abbey will no longer use their own SVR to calculate a customer’s potential mortgage payments should the base rate go up is the fixed rate of 7%.

By introducing a tighter mortgage lending criteria from its customers the Abbey are actively seeking to reduce their risk in mortgage defaults and bad debt.

USwitch have said that many tracker mortgage customers could making a collective saving across the board of £16 billion should they decide to use the recent base rate overpay their monthly mortgage payments to pay their mortgages off faster.

The comparison website said that 230,000 people feel that their mortgage providers have been making the overpayment process very daunting so that is the reason why they have not done it.

The research carried out by uSwitch has found that over 3 million tracker customers throughout the UK who could make a collective saving of £9 billion across 2009 and £16 billion of them overpay for the entire duration of the mortgage.

A fifth of tracker customers (616,350 people) who are currently overpaying up to £260 monthly in interest may soon see a cut of £26,122 and this means that nearly nine years could be cut from their mortgage term.

Personal Finance Manager, Louise Bond who works at uSwitch has been urging mortgage holders to overpay their mortgages if they are at all able to do this as it will bring them long term benefits.
During November 2008, the comparison site, uSwitch also reported a further 16 major mortgage providers who had re-launched their tracker mortgage products.

The average rate is now 5.24% while the previous month it was 6.27%.

Santander owned Abbey reduced its fixed rate mortgages recently whilst introducing new mortgages to the market.

Abbey’s fixed rate deals have now been cut by up to 0.6% and additionally further rate reductions are also being made across a full 85% of the building society’s mortgage products aimed at the first time buyer market and to those who are planning to move home or indeed, their mortgage.

Now there has been a re-launching of the building society’s two year tracker products which now carry interest rates further decreased to as much as 0.9% in some cases. The Trackers are available for between 60 – 75% LTV (loan to value).

One of Abbey’s Tracker deals offers nearly 60% loan to value carrying a £1,995 arrangement fee which holds an interest rate of 3.99%.

Also within related mortgage news, Homeowners Advice Centre has just recently issued a warning in the rises of home repossessions that may start to transform

“previously pleasant areas into ghetto-like estates”.

Al Elliot, a mortgage advisor was blamed in more recent times for providing easy lending and claimed homeowners

“simply went overdrawn on their mortgage account”.

He claimed that the falling house prices and global economic downslide has meant that many over payments could not be made.

The recent new government Mortgage Support Scheme has just recently been described as “virtually / almost worthless” on the price comparison money supermarket website.

In speaking out over the fact that the new government scheme means that mortgage holders would have had to have already sought advice from another source other than their mortgage lender to qualify for the scheme, Money supermarket stated:

“If charitable associations such as the Citizens Advice Bureau are expected to step in and help with the delivery of this scheme, it’s a bit of a slap in the face to the taxpayer who has already bailed out banks to the tune of billions, and exposes the fact that some lenders have no debt advice capacity.”

The price comparison website also exclaimed that the very list of requirements for qualifying for the consideration of the mortgage support scheme were too exclusive.

It also pointed out that any lenders who participate voluntarily can’t “only signed up ‘in principle’”. To qualify for the new scheme, any borrowers would need to complete a number of criteria as reported by Reuters.

It includes having savings of £16K or less, showing that the income loss is only temporary and already showing to have been in arrears for 2-3 months with a tolerant lender.

Now that struggling homeowners may be looking to re-mortgage their property to release much needed funds to help them during these uncertain times for the job market they are finding that their valuations are coming back much lower than originally anticipated. Already house prices have dropped extensively due to the slump in the property market, however, even lower valuations than thought are coming back due to the sheer number of repossessions which have increased and forced quick sales of suddenly empty properties.

The reason this is having an impact is explained by the Energy Reports and Surveys (ERS) who say;
“The valuation part of conveyancing company LMS, explained to the Independent newspaper that valuers have to take several considerations into account, including the recent selling prices of three comparable properties.”

Managing Director of ERS, Mr Paul Staley said “since the open market has stalled, forced sales and repossessed homes are being used to calculate averages. As they are selling for as much as 50 per cent below their peak values, open market homes are suffering falls in valuations by as much as 30 per cent.”

Mr Mark Jones head of Friends Provident recently noted that “some people seeking remortgages may suffer from fewer available deals and stricter lending criteria. Those people with faulty credit records and smaller deposits would find the situation particularly problematic.”

It is a fact that there are far fewer mortgages now available and even less choice for those with smaller deposits recent figures show.

Moneyfacts say much of this is due to the recent base rate cut which means that may tracker mortgages were immediately withdrawn from the mortgage market by banks who no longer could make offering these products financially viable.

Recent figures from Moneyfacts showed that just over a month ago there were 249 tracker deals available on the mortgage market and now the number has dropped to 45.

Moneyfacts stated that the sheer number of mortgage deals on the market had dropped by a staggering 65% during the past 12 months and by a full quarter since the beginning of November 2008.

A spokesperson for Moneyfacts, Michelle Slade, said;

“With base rate falling to such a low level, many lenders are choosing to severely restrict the number of trackers they offer or not offer them at all.”

Just recently the Abbey was one mortgage lender who immediately but temporarily withdrew its tracker rate mortgage products from the market following the BofE base rate cut.

In a recent statement Abbey had said that the reason for this was “to prevent excessive in-flows and the impact on service levels this would have”.

When it comes to trackers, the homeowners who took a tracker mortgage 12 months ago or over are the ones who are really enjoying the extra money that their monthly mortgage payments will be saving them.

Some of those homeowners who took a tracker mortgage are now being forced into paying an additional £2,000 per annum on their original loan said official figures published this week.

Since the records began in 1997 the difference between the BofE’s base rate and extra premium that lenders are charging has never been larger.

In previous years the banks / building societies would charge the BofE base rate plus 0.94%.

However, recent figures just published by the BofE now show that the average mortgage tracker rate is the BofE rate plus 2.84%!

For example, an average loan of £150K will add £165 a month to your bill, which equates to nearly £2K per year, added to the total cost of your mortgage repaying the loan.

These new findings have increased the argument that the recent Government intervention was not enough for jobless and/or cash-strapped homeowners.

Head of European economics, Michael Saunders, at Citigroup, felt that

“the benefit for families of the Bank slashing rates remains quite limited.”

Recent news may be relevant to all those companies and individuals with a commercial mortgages, a professional financier has also predicted that this recent BofE interest rate cut will really start to help the economy.

Economist, Charles Davis at Centre for Economic & Business Research (CEBR), declared that the recent rate reductions would probably result in a very “non-trivial” sum of money being freed to help some borrowers.

He mentioned that “large amounts” of homeowners with tracker deals could benefit immediately from the recent Bank of England’s base rate reduction and could also help to lower some variable rate mortgages.
He went on to state that he felt the banks were “remaining very cautious” still in relation to their lending because it is very apparent that they are trying to “reduce their debt levels and risks on the balance sheet”.

The recent bank cuts resulting in a base rate of only 2% came just after statistics were released from Office for National Statistics revealing that the consumer prices index annual inflation prices had fallen to 4.5% during October 2008.

This represented a decline of 0.7% over one month (from September) and showed that it was food and fuel costs that had dropped.

Central bank at Hong Kong’s spoke on Thursday saying that their government backed Mortgage Corporation, HK would be prepared to purchase more mortgage products from flagging banks all over the world to help boost the liquidity of many countries banking markets and to keep the credit flowing into the mortgage and therefore housing markets.

Head of HK Central Bank, Joseph Yam, said that Hong Kong’s mortgage corporation had been previously holding talks with some banks on the possibility of increasing the purchase of mortgages from them. The corporation is looking to manage HK$25-30 billion (which is US$3.2-3.9 billion) of mortgages by the end 2008 alone.

“The clear objective of the Hong Kong Mortgage Corp is to promote banking stability by taking mortgage assets off the books of banks in need of liquidity,” Yam said in a weekly column on the HKMA’s Website www.info.gov.hk/hkma/eng. With the sharp worsening of the global financial crisis since the middle of September, some banks in Hong Kong have been considering the adoption of a more conservative business strategy, involving the raising and retention of more liquid funds. The mortgage corporation can obviously help those banks wishing to turn part of their illiquid mortgage portfolios into liquid assets. Any significant disruption in mortgage funding as a result of liquidity conservation by the banks could lead to unwelcome stress in the property market that could have wider implications for the economy and banking stability. A sudden contraction of mortgage finance could exacerbate any adjustment of property prices.”