Mortgages Uncovered

The reality for thousands of people is that their mortgages may well be 8p a month mortgage due to over generous lending of building societies and banks, products that were available during the over generous lending period before the credit crunch hit.

Those borrowers who could see this incredibly low mortgage payment monthly are some of the thousands of borrowers who took tracker deals struck in summer of 2007- these people could likely pay no interest and incredibly may even be in a good position to demand payment back from their building societies / banks due to a strict interpretation in the fine print.

This is down to BofE base rate cuts.

Out of the largest beneficiaries it will include thousands of Cheltenham & Gloucester customers taking trackers in July 2007. Lloyds Banking Group have said that due to there being no zero floor to the tracker deals and due to their computer systems being unable to cope with the figure zero, the bank would have to temporarily charge 0.001% should the base rate be cut to 1%.

For those borrowers on £100K interest only mortgages it translates to monthly interest payments of 8p. Those borrowers who took out repayment mortgages will continue to pay more due to principal repayments being included in monthly bills.

Lloyds said “Borrowers will later be refunded the 0.001 per cent overcharge”

We have been starting to see the early stages of a price war in the UK as Britain’s struggling mortgage market are starting to introduce new competitive mortgage deals recently.

NatWest and RBS shrugged off their collapsed share prices last week following the launch of a new range of fixed rate and tracker products, some of which represent some of the cheapest deals ever produced.

Abbey and Alliance and Leicester reduced many number of their tracker and fixed rate mortgages. However, earlier in the month, Halifax and HSBC started offering 2 year fixed rate mortgage deals of below 3% for any customers who are currently banking with them – these deals are still only available any borrower asking for 60% or below of their property’s value. Regardless of this, the recent round of interest rate cuts appears to be opening up the market for homebuyers who require up to 75% of their property’s value.

“Lenders have been introducing cheaper fixed-rate mortgages in recent days on the back of a significant drop in the cost of funding in the wholesale markets,” said Melanie Bien, a director of the independent mortgage broker Savills Private Finance.”Fixed rates are now extremely attractive but you still need a 25 or 40 per cent deposit or equity to qualify for the cheapest deals. There is little choice for those with a 10 per cent deposit. Fixed rates will continue to look cheap in coming weeks but it is unlikely they will fall much further. Lenders are concentrating on margin rather than market share and being fussy about whom they lend to.”

The amount of available new mortgages currently on the house market for first time house buyers that were approved feel in the UK in 2008 by 52%.

The BAA (The British Bankers Association) has claimed that the amount of approvals shot up from 17K in November 2009 to 22K last month. Whilst more positive, this was still down from 47% from December 2007.

The BBA said the December rise did not suggest a real recovery in lending and was “more likely to reflect delayed activity from November”. The banks approved less than half the 2007 number of loans for house purchase, reflecting falling demand from households facing greater economic uncertainty and double-digit falls in house prices over the year, which led to a wait-and-see mentality,” said David Dooks of the BBA.

What recent figures do show is that most people are becoming more cautious about their spending and borrowing as 2008 drew to an end.

David Dooks at the BBA said

“Consumer credit was very weak in December as people reined in their credit card spending, despite early sales and heavy discounting by retailers.

“This consumer caution was also reflected in personal deposits, which rose strongly,” he added.

If it comes to selling your property you want to get the most money you can for it. There are a number of techniques you can undertake to improve the value of a house. These range from simple cleaning to complex DIY improvements and even as far as getting professional work done.

You should start by walking around your home or the building in question and pretend that you are a potential buyer. Try and put yourself in the frame of mind of someone who is viewing the property for the first time. Check for imperfections and scrutinise as much of the property as possible. It is also useful to try and imagine how you would enhance the property if you bought it.

The next step is to decide what kind of work is needed, whether it is fitting or replacing fireplaces or even doing a full-blown loft-conversion. If you need to get someone in to do the work required then weight up the costs and benefits before hand. There’s no point in spending £1000 to get £500 worth of value added to your home. If at all possible, try and do as much DIY as you can, as long as you are sure you can do the job right and safely. For instance replacing the surrounds of fireplaces can be relatively simple, but installing a whole new gas or electric fire can be highly complex and requires a trained professional.

Once all the work has been carried out, ensure you perform a full clean of the house before doing visitations. People see the house in a much better light if it is clean and clutter-free.

As the cries for nationalization in the financial industry get louder it is crystal clear that the industry can’t afford to take any risks in the future.

Even given the government’s second rescue package, which many estimate may cost as much as £500 billion with an additional cash injection for Royal Bank of Scotland as the bank’s share prices continue to plummet. Within the matter of a week, over £20 billion has been completely wiped off the overall value of Barclays, RBS and Lloyds Banking Group which now leaves the three valued at £17 billion collectively.

For a while, calls to go the whole hog and nationalize the banks intensified - a point of view summed up by John Greenwood, chief economist at fund manager Invesco Perpetual: “By not removing all the toxic assets of the banks in one fell swoop, for example by injecting them into a ‘bad bank’, the government is leaving itself open to the risk that the economy and the banks’ operating results will deteriorate further, requiring open-ended intervention in the future. This means that if the other components of the government’s plan for economic recovery - such as its fiscal spending plans, or any quantitative easing by the Bank of England - do not work, then the authorities will gradually be drawn into larger and larger commitments to the banking system. Full-scale nationalization of several large banks would probably be the ultimate outcome. If this is the case, why not do it immediately?”

Over the past week many high street branded building societies and banks have just cut the price on their fixed rate mortgages which brings them on-line with the best trackers available on the market.
Mortgage lenders such as Natwest, Alliance & Leicester and Abbey have made these cuts.

Mortgage lenders are now still taking the right to reserve their best interest rates for those people who have large deposits or a very good deal of equity left in their properties.

“We are hoping the new extra money the government put into the system last week will encourage lenders to start lending again,” says Richard Morea of mortgage brokers London & Country. “It is pleasing that the part-nationalised Royal Bank of Scotland has already responded to the government calls to improve lending, while Northern Rock has said it is going to encourage existing borrowers to stay with it, presumably by offering cheaper deals.”

Rather than re-mortgaging, there are now many people who are choosing to remain on standard variable rates (SVR) at the end of their mortgage deal, however, there may be some risks in this strategy.

“If you do decide to do this remember that the price of your house is likely to be eroded further, increasing your LTV,” says Morea. “A higher LTV might mean you can’t remortgage off the SVR later should you want to.”

Both HBOS and Barclays bank are now facing the prospect of expensive court action which has been taken by thousands of older homeowners who are said to be financial hard up after taking out a shared appreciation mortgage product in late 1990.

The go ahead was given to solicitors for them to proceed with suing the banks on the behalf of 8,000 homeowners who still held the mortgage deals. The court actions is set to cost the baks hundreds of millions.

Those mortgage products that were sold between 1997- 1998 allowed elderly borrowers the time to release their cash from their property’s equity whilst deferring their loan or interest payments until they sold their property. The mortgage deal included a clause that borrowers must typically re-pay the bank up to 75% of any future rise in their properties value.

Hilary Messer at RWP Solicitors said “Many homeowners who took out these deals are now unable to sell their properties as they will not have enough left to buy a replacement home.”

The solicitors claim that the mortgage products were “unfair” and the marketing information that was made available at the time was “misleading”.

Legal action is being taken on the grounds of “extortionate credit bargains” named in the Consumer Credit Act and solicitors are expected to press the banks to either lower or cap their portion of any property value rises.

Barclays, sold 2,000 of these mortgage products, and said it was “comfortable that it did everything to make sure that customers understood the nature of the product”. But there was one thing that none of us could have predicted – the unprecedented increase in house prices,” said Barclays.

The UK’s two largest banks only last week promoted to their customers the benefits of making over payments on their mortgages.

The new promotion comes as many people who hold SVR’s and tracker mortgages are watching their monthly payments drop by a few hundred pounds a month after BofE slashed base rates last October.
Lloyds TSB’s SVR rate has been halved since summer last year and is down to 3.5% by February.

The bank went on to say that it had already received over 27,000 requests from its current mortgage customers to overpay their home loans and is now actively encouraging all its’ customers to follow the same example. HSBC in the meantime, is contacting 30,000 of its mortgage customers to highlight the financial benefits of overpayments.

Stephen Noakes, Cheltenham & Gloucester’s marketing director, said: “Homeowners with a tracker mortgage are hundreds of pounds a month better off. For those who can spare the extra money, making overpayments is a smart move. Not only can it trim years off your mortgage term, but with house prices falling, overpayments will help to protect the equity in your home.”
Martijn van der Heijden, HSBC’s head of mortgages, said: “There is a genuine danger for homeowners in allowing their lifestyles to become accustomed to the current low rates. Interest rates will increase at some point and it will feel painful for those borrowers who have soaked up the benefit of lower mortgage payments by extending their spending habits.”

I didn’t realise when I bought my house that the garage was made out of asbestos. I was young. I was stupid. I had my mind on other things.

But now it’s obviously something of a priority to get rid of this. I have no real interest in contracting lung cancer and the building itself is crappy and run-down. But what to get in its place?

I hadn’t really budgeted for a new, brick garage, because I hadn’t budgeted for anything. I thought it might be worth looking at prefabricated garages and it was. I had a look in some brochures and they’re not half bad. The cheapest ones have a flat roof and pebble dash exterior. They’re not the most beautiful of buildings, but then again, it’s a garage - a non-lethal one at that - and I can always grow some plants up the side.

Having contacted the company, I found that they could also dispose of the old asbestos garage, which was a bit of a bonus. The final plus point is that prefab garages have thinner walls, so I don’t have to lose a load of garden to squeeze it in - something I’d thought was almost inevitable.

Job’s a good ‘un.

Mortgage lending in the UK dropped by 30% during 2008 which is the lowest level since 2002, say the Council of Mortgage Lenders (CML).

The total lending for last year equated to £256.4 billion, in comparison to £363.7 billion during 2007, as the credit crunch took hold and triggered a drought.

Now market analysts are saying that although loans may slowly become more accessible to people, the falling house prices will still leave many reluctant to purchase.

Mortgage lending was at its lowest in December since April 2001, Michael Coogan at CML stated:

“December is typically a quiet month in the mortgage market, on top of which the market has been constrained by a shortage of funding and reduced demand.”

With regard to the current market and the government intervention Michael Coogan commented:

“A market solely funded by a few large banks and building societies would be unlikely to have the capacity to match future consumer borrowing demand, or be as competitive in the long term as the UK market has been before the credit crunch,” he said.

Some analysts seem to be more skeptical regarding the government intervention.

“With the economic situation deteriorating by the day, the banking system in crisis and consumer confidence at an all time low, it’s hard to believe mortgage activity will pick up any time soon, whatever the government does,” said Toby Goldblatt of financial adviser search engine Rubii.co.uk. “Even if banks do start lending more, the question now is will people want to borrow? “Faced with such uncertainty, the last thing on many people’s minds will be moving house.”