Mortgages Uncovered

On 9th December Lloyds TSB and C&G brought new tracker mortgage deals to the market and rates start at 3.69%.

After the 1% BofE base rate cut the previous week Libor the internal money market that the banks borrow between each other on has fallen by 0.4%.

Lloyds had already pledged to pass the savings on to their mortgage customers, prior to the latest rate cut and has also dropped rates as much as 0.7% on the launch of its newest range of tracker mortgages.

The lowest rate on a Lloyds TSB tracker is a 75% LTV range where their 2 year tracker has a 2.5% fee and a rate of 3.69%. In the same range there is also a 2 year mortgage deal at 4.09% with a £1995 fee.

A Lloyds TSB spokesman said:

“Each tracker has the ‘All Weather’ option, which allows customers to switch to a Lloyds TSB or C&G fixed rate product at any time during the deal without incurring early repayment charges. Lloyds TSB was the first lender to announce it would pass on the new base rate cut in full to existing customers from 1 January. It reduced fixed rates for new customers straight after the base rate decision.”

Nationwide Building Society, however, went on to announce it was pulling its 2 year tracker mortgage deals from new customers.

“Existing tracker borrowers are not affected by this change.” said Nationwide. “They will benefit from the full one per cent fall in the Bank of England Base Rate as announced by the Society last week,”

Nationwide says it will re-launch its new range of tracker mortgages next week.

Abbey has seen a larger share in the mortgage market within the last 12 months, in fact it is now the second largest mortgage lender currently in the UK and it has just added a further 0.25% to the cost of its 2 year tracker deals even given the recent interest rate cuts.

Previously Abbey charged 1.99% above the BofE base rate on their 2 year trackers for those borrowers who had 25% deposit or more, however it has now officially put a the interest rate up to a point where it is 2.24% over base. The arrangement fee for this tracker has risen from £995 to £1,495.

The rate rise was even more confusing because it came despite the international wholesale money market Libor dropped by 50 points last week.

Abbey has further introduced a £200 fee for those people who try to change their mind after applying for a mortgage with them.

Abbey’s “pre-completion product change fee” even applies to borrowers who have decided to switch to another Abbey mortgage before their original mortgage application is complete.

Melanie Bien of Savills Private Finance, the mortgage broker, said: “Borrowers must watch out for extra fees such as this which push up the cost of a deal. Given that it can take months between agreeing a loan and completing in this market, pricing on mortgages could have dipped dramatically in the meantime so you may well want another deal. Particularly in the current climate with swap rates and, correspondingly, fixed rate deals falling sharply, borrowers should not be penalized for taking out a better rate, especially if it is with the same lender.”

HSBC has set its sights on being a larger chunk of the mortgage lending market in 2009. The banks has set £15 billion aside for lending to homeowners throughout next year which will work out roughly at double the amount that HSBC in 2007.

It is expected though that new mortgage lending will come to a halt next year as banks are left with no fresh funds to spend following the credit crunch.

“We will be surprised if we do not have a bigger slice of a smaller market,” said an HSBC spokesman.

HSBC is one of the strongest and largest of the world’s international banks and is not as badly affected by the current financial climate unlike many it’s UK rival banks.

As the spokesman continued to explain HSBC is able to draw still on its own internal financial resources in order to finance a much greater mortgage lending because it also does not reply on the financial wholesale markets or UK taxpayers to provide its own funds and therefore is probably going to be able to offer highly competitive prices.

“We believe we are the only UK bank that can do this,” he said.

HSBC said its lending is was likely to be to more to existing homeowners that are either moving home or just wanting to move their mortgage deal.

It fees for first time buyers will continue to be charged at higher amounts and the interest rate that borrowers pay, particularly if the deposit is a small one.

“It appears house prices will fall again next year,” said the spokesman. “But the quality of our mortgage book will not fall,” he stressed.

HSBC has also announced that it will be making £1 billion of extra credit available for supporting smaller British businesses some which the government has been demanding from banks for weeks.

It said lending would be decided on a “case-by-case basis” using HSBC’s normal lending criteria.

Alan Keir, co-head of HSBC’s commercial banking, said: “This is new money, new money to support struggling small businesses that bank with us.”We’ve heard that their critical need is for working capital, so we’re responding to that.”

For first time buyers who are looking for decent tracker deals at up to 90% of a home’s value have started to reappear on the mortgage market after being pulled during the initial stages of the credit crisis.

Last week, the internet arm of HSBC Bank; First Direct brought a lifetime tracker to market with only 1.69% above the current base rate at just 3.69%.

Further attractions to this tracker are the fairly low £399 arrangement fee and the fact that it allows first time buyers or people wishing to re-mortgage their homes up to 90% of the buildings’ value.
Mortgage broker for London & Country said:

“This is the best deal for some time and it looks like it is going to be very popular. It was launched on Wednesday (before the base rate reduction) so I’m assuming that it will actually go on sale. The market has been crying out for a reasonably priced tracker for some time – this is going to be snapped up.”

He also added that Cheltenham & Gloucester have reverted back to offering up to 90% of a property with two of their fixed rate deals.

One of them offers a rate of 3.89% and carries an arrangement fee of 2.5% of the amount you are borrowing (so the less you borrow the better). The second is probably better for first time buyers and is set at a rate of 5.69% coming with an arrangement fee of £1K. Since it had been the case the most first time buyers had recently been pushed out of the housing market at a time when they were most needed was due to many of them being unable to find the 25% deposit required as most mortgage deals until now have demanded it as part of their terms.

Now the government has cut its’ base rate another 1% how could you benefit if you have an SVR?
What this means for existing customers: If you are paying your lender’s standard variable rate (SVR) then it is down to your bank to decide whether to pass the change on, Lloyds TSB and C&G have SVR guarantees to offer no less to its customers than 2% above the Bof E base rate. Those borrowers with these mortgages will see their SVR cut down to 4%.

In October lenders providing SVR; s came under pressure from the government to start reducing their SVRs and many responded, a full 87 of 95 lenders cut their borrowing costs.

Out of the 87 lenders who did pass on reductions to their SVR’s, 57 of them failed to pass on the full base rate cut and some only reduced SVR rates by 0.25%. Boulger claims;

“ even fewer lenders will cut their SVRs by the full amount this time – most reductions will be between 0.25% and 0.5%. Borrowers are likely to have to wait until at least January 1 before any SVR changes come into effect.”

What happens to new customers: Those lenders who cut their SVR’s after the base rate cut will probably start to offer the newly reduced SVR rate to new customers immediately. Traditionally it was the SVRs that were higher than early special offer rates on the mortgage deal that was offered by lenders and once only paid by those customers that were at the end of their initial ‘special’ deal only represent 10% of overall lending.

Now SVRs have fallen so incredibly low that they are looking really attractive to new borrowers, especially as many of these deals have not got early repayment charges or very much required in upfront fees. Now there are some lenders who are stopping any new customers from taking one of these deals – Nationwide and Newcastle B.S both took their SVR deals away from new borrowers.
Most lenders have started to pull their discounted loans that are directly linked to their SVR, however, there are one or two smaller building societies who do still offer them. The rates of these mortgage deals will only drop if those respective lenders decide to drop their own SVRs.

Now the government has cut its’ base rate another 1% how could you benefit if you have a fixed rate mortgage?

For existing customers: There will be no change and your rate is the same level until you reach the end of your deal.

For New customers: Short term lenders swap rates have already been forced down due to the expectation of today’s additional Band of England cut and since the Bank of England base rate cut is what some of the 2 and some of the 3 year fixed rate mortgage deals are based upon, it will no doubt, this mean that customers who are looking for new fixed rate deals will start to find that lower priced mortgage loans are more readily available on the market.

Lloyds TSB will be offering 2 year fixed mortgages at 3.89% as from Friday 5th December and it is likely that other lenders will soon follow suit.

It is unlikely that longer term fixed mortgages will fall far, says John Charcoal Mortgage Advisors’, Ray Boulger, although towards the end of December it may well be possible to find a fixed rate deal over 5 years at 4.5%. The current fixed rate deals are around 4.65% on 2 year loans and over 5% five year fixed deals.

“Anybody who wants a fixed-rate mortgage should not be in a hurry to fix as the base rate is unlikely to stop falling,”

says Boulger.
 

What it means to existing tracker customers: The interest rate on your mortgage should reduce by the 1% as a result of the new base rate cut. As an example if you have a mortgage of 150K which stands at 0.5% above the base rate then your repayments will be cut by £78 a month.

It is likely that most lenders won’t pass the base rate changes straight away so you will see them in your reduced mortgage repayments by 1st January 2009.

What out though for those mortgage tracker deals which contain collars – which guarantees that he bank don’t have to pass on the base rate if it is below the minimum pay rate set by the bank and attached to the mortgage deal. Nationwide trackers have set collars at 2.75%, so if the rate is 0.5% above the Bank of England’s base rate you will never pay any less than 3.25%.

Both Skipton and Yorkshire building societies contain tracker collars of 3%. Senior Technical Manager at John Charcoal Mortgage Advisors, Ray Boulger, thinks that 500-600K of current tracker customers will not benefit from the full cut.

Halifax’s terms and conditions ensure that the bank reserves the right to amend your tracker margin should the Bank of England base rate fall below 3%, although it has claimed today that it intends to pass on the full rate cut.

What this means for new customers: There has been an obvious immediate interest in tracker mortgages following the recent 1.5% cut which meant that most lenders got shaky and restricted their deals from the market. Now Nationwide have finally joined the rest of the big lenders and came back into the mortgage market at a 1.99% above the BofE base rate which is 4.99%. The collar that caps this deal is 1% which means that the lowest rate it can reach is 2.99%.

Only yesterday more yo-yo deals disappeared and Lloyds TSB decided to pull its tracker deals yet again!! A temporary move they say when they have worked out what the impact in the BofE base rate change would have on their wholesale funding costs. Previously it was offering mortgage deals at 1.79% above BofE base rate, a margin, it is felt may increase when these new deals are re-launched.
 

Yesterday the prime minster announced a new plan that gave some reprieve for the UK’s struggling homeowners.

Gordon Brown revealed that people with mortgages who are hit with unemployment will now be offered help in deferring part of their mortgage interest payment for up to 2 years.

The new scheme is designed to cover any mortgage up to £400K.

At the offset it will be the homeowner and the lender who would agree on the amount of payment that is to be deferred, although it can in some cases be up to 100%.

Eight of the UK’s major mortgage lenders have apparently already signed up to the plan which will be starting in early 2009.

Predictions on the number of repossessions next year are set to rise to 75,000.

Yesterday, Gordon Brown said:

“Hardworking households that experience a redundancy or significant loss of income as a result of the downturn will be able to defer a proportion of their interest payments for up to two years while they get their family finances back on track.”

Gordon Brown went onto announce that the government-owned financial establishments; Northern Rock & Bradford and Bingley were following RBS’s lead for further agreeing repossession proceedings would only begin in any cases when a household was more than 6 months behind on its’ mortgage payments.

As yet full details of this new scheme are still to fully emerge; however, it is currently the understanding that the government would underwrite the interest payments which would be repaid by the homeowner at a later date that has been agreed between them and their lender.

Figures published yesterday revealed that lending for mortgages took a dive to 70% down in October. The BofE’s recent report on the housing and mortgage market showed that net lending on properties (without showing redemptions / repayments) hand reached £459 million during the month of October which is the 2nd lowest figure recorded by Bof E since 1993 when they first started to collate data of this nature.

In October 32K new mortgages were recorded which was down from 33K that took place in September. To put this into perspective, an average at the end of 2007 per month was 72,000 new mortgages a month. 460K mortgages were approved over the last 12 months to date. Over the same period last year this was 1,098,000.

Chief economist, Simon Rubinsohn, from the Royal Institution of Chartered Surveyors, claims:

“Interest rate cuts and falls in interbank lending have not yet encouraged activity to rise in the UK mortgage market. First-time buyers and homeowners alike are still struggling to buy a property as banks are still requesting sizeable deposits, further stagnating the property market.”

BofE figures additionally showed that there was an increase in more unsecured borrowing and lending via overdrafts, credit cards and loans rise by a staggering £844 million in October which is up from September.

Royal Bank of Scotland has pledged to give its struggling mortgage customers six months before it starts to repossess homes, however, rival banks have reacted with skepticism. Lloyds TSB claims that it is slightly curious as to why RBS felt this was a newsworthy plan because Lloyds TSB already rarely seizes any property before 6 months and normally will wait much longer before it will take action.

It is now official that there are no mortgage products which are 90% loan to value (LTV’s) that are available currently available through any intermediaries within the financial market place in the UK for any homeowner looking to remortgage or for second time buyer looking for mortgage product.

Recent research that has come in from the Home Buyer Systems has shown statistics to uncover that at least 30 mortgages which are 90% loan to value which are in fact available directly from the lender.

In the meantime, for people buying for the first time there is now only one mortgage product that is 90% LTV which is available via intermediaries. This though calculates to be more than £3K more expensive over the 2 years than the cheapest direct mortgage product available which equates to nearly £130 a month more.

Additionally, the Home Buyer Sourcing Index also found that direct to lender mortgage products are currently up to nearly £3k cheaper when the borrower takes their mortgage over two years – this is equivalent to around £120 a month – the broker will then distribute the equivalents for all the non first time buyer mortgage products.

Managing Director of Home Buyer Systems, Richard Angliss, said:

“Direct-to-lender products have consistently been cheaper for borrowers since the dual-pricing issue first came to light in July, making it harder for brokers to earn procuration fees. Now, the lack of 90 per cent deals via intermediaries is bound to cause further problems for brokers, packagers and networks.”