Mortgages Uncovered

The CML said the amount of home repossessions increased by half in 3 months to December 2008 in comparison with the same period in 2007 up to 10,400, which is slightly down from 11,100 in the last quarter.

Market analysts also agree that the outlook is bleak.

“Unemployment is set to reach double digit rates as the recession runs its course,” said Ed Stansfield, a property economist at Capital Economics. In short, mortgage possessions remain on course to match, or possibly exceed, their previous peak of 75,500 seen in 1991. Currently, the proportion of repossessions to the total number of mortgages is still well under that seen in the recession of the early 1990s.”

The government has provided a number of measures for reducing the number of repossessions.
The International Monetary Fund expects Britain will be the hardest hit out of the world’s biggest economies.

“Corporate failures, mortgage repossessions and individual bankruptcies all seem set to rise substantially through 2009,” said Howard Archer, an economist at Global Insight. Deep economic contraction, sharply rising unemployment, high debt levels, substantially lower equity and house prices, and more and more people being trapped in negative equity will exact an increasing toll on individuals over the coming months.”

The number of properties in Britain that were repossessed by banks rose in 2008 by 54% to 40,000, say the Council of Mortgage Lenders (CML).

CML despite the recession said that it was fewer than they had originally predicted, however, they expect repossessions to rise to 75,000 by next year.

CML also added that they felt lenders were continuing to make “strenuous efforts” for ensuring repossessions were the last resort. CML did, however, report a sudden rise in homeowners who had to hand back their keys.

“We strongly urge borrowers to contact their lender and work with them before taking this step, as there may be other solutions,” said the CML’s director general Michael Coogan. “Borrowers are still liable for their debt, even if they leave the property, so working through their problems is much more likely to be in their best interests,” he added. We’re putting in place this comprehensive package of measures to try and reduce the risk of repossession as much as we can”
“For every repossession, it’s a tragedy for somebody – for a family or household – so we have to continue to be focused and determined to minimise as much as possible the risk of repossession,” he said. “Gordon Brown is hampering, not helping, hard-pressed families across the country as nationalised banks such as Northern Rock pursue very aggressive repossession policies,” he said.

House prices are plummeting and 25% of home owners have huge concerns regarding their negative equity say FainInvestment.co.uk.

House prices falling by a further 1pc in January, home owners are finding that the equity in their homes is diminishing. Particularly vulnerable are those who bought their homes at the peak of the property market.

11% of current mortgage holders are becoming concerned for the value of their properties as there are fears these will be less than the mortgage they are paying say FairInvestment.

Those people who hold mortgage that are interest only deals that do not reduce their mortgage amounts are also hoping that their homes’ value is greater than the outstanding mortgage.

27% of the people questioned planned to stay in their own home until the market recovers so negative equity will hopefully prove not to be a problem as the market re-adjusts.

The Bank of England interest rates are at a historic low and if it is at all possible to do so it does make a lot of sense to overpay monthly mortgage payments now that they have dropped in most cases. Reducing your loan size in the current market is wise and also reduces negative equity risks.

With the B of E base rate at 1% according to a survey, the majority of the UK population think the base rate will fall further and are holding on to remortgage at the best rate possible.

Research from unbiased.co.uk, predicts that the base rate will fall to its lowest level in March.
Many borrowers as a result are holding out for a lower rate so they may get a fixed rate mortgage below 4%.

The average rate that lenders are looking at fixing mortgages is for a three year period at 3.86%; this is below all fixed rate deals previously available.

Over a third of people surveyed are expecting and holding back to see fixed rates at below 3% prior to fixing a new mortgage rate deal for themselves.

Chief executive officer of the online UK site, Unbiased, David Elms recently commented by saying ‘Interest rates are now 4% lower than just 12 months ago. With rates so low, and further cuts likely to have been priced in by lenders, borrowers need to ensure they don’t lose out by holding out too long for falls which may not come.’

The Coventry Building Society is one of the first lenders that are prepared to offer re-mortgage deals at 100% of the value of the property.

Coventry customers taking 125% of their home’s worth normally would have found themselves on the building society’s (SVR), which is currently at 4.74% when their mortgage deal expires.

Homeowners who are in negative equity have been unable to secure mortgage deals elsewhere due to most lenders demanding at least 10 or 40% equity for the best deals.

Coventry are offering their existing customers who are coming to an end their new 5 year fixed rate at 4.99% at 100% of the property’s LTV. There are no arrangement fees with the deal.

Aaron Strutt of Chase De Vere Mortgage Management, a broker, said: “This is great news for Coventry customers. Homeowners in negative equity have been frozen out of the mortgage market and are being forced on to their lender’s standard variable rates (SVRs). SVRs may be low at the moment due to the base rate falling to 1 per cent, but they will inevitably go up again, which could mean large increases in borrower’s monthly repayments. The opportunity to fix at a sub 5 per cent rate will be very welcome and will provide some much-needed peace of mind. The deal is available to any existing Coventry mortgage customer, although it is mainly aimed at “MOREgage” customers who were able to take out 95 per cent LTV secured against their home as well as an unsecured loan worth 30 per cent LTV. Most of these deals were taken out in 2006 and 2007.”
Mr Strutt added: “Other lenders should follow Coventry’s lead and offer some peace of mind to their customers.”

The breathtaking plummet in interest rates has left tracker mortgage holders rubbing their hands in glee.

But at the speed rates drop, they may well rise, this is now what mortgage experts warn, this is tempting some homeowners to look at fixed-rate deals when their existing arrangement ends. Most will go for 2 or 3 year fixed rates to lock a low rate of borrowing, but how safe is their money by nailing a 5 or 10 year + mortgage down? Is it a massive mistake to tie yourself into what may end up an extremely uncompetitive deal?

“The advantage of a fix for five, seven or 10 years is that it will buy you peace of mind for a good length of time without tying you in for too long,” says Melanie Bien, director of mortgage broker Savills Private Finance. “And if you have a deal on a high LTV, this might be particularly useful as property prices are likely to fall further before they stabilize. If you opt for a two-year fix, you may struggle to get another attractive rate when you remortgage as your LTV could be even higher and lenders may not have returned to this market. Early repayment charges are certainly one of the big disadvantages of fixing for longer than two or three years.”

Ms Bien warns. “Shorter deals are so popular because borrowers welcome the flexibility as they know what they will be doing during that time. This is not always the case with a longer deal so don’t fix for 10 or 15 years if there is a strong possibility that you will move house inside two years.”
A very long term lock in deal means even more time for anything to go wrong, says David Hollingworth at London & Country Mortgages.

“The ‘portability’ of this type of mortgage can cause tremendous funding problems for people wanting to move house, especially for those who want to upsize,” he says. “If you need additional borrowing, you may be limited to what your existing lender is willing to advance to you, if anything. It could be a case of giving up the property you want to buy, or paying huge penalties to get out of your deal.
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Northern Rock is to being ordered by Gordon Brown to offer cheaper mortgages to start kick starting the housing market.

The prime minister has stated that it is priority for the economy to boost home buying.

Gordon Brown stated that:

“We have got to get to a situation where mortgages are more available than they were over the last few months. We are talking to banks and building societies about that. We are looking at how we can use Northern Rock to offer mortgages.”

In front of a committee of senior MPs, Gordon Brown told them:

“It should not be a one-way bet. In other words, if you fail there is a claw back which is also possible within a bonus system. The short-term bonus culture of the banks has got to be brought to an end. We are now putting in measures that are set to achieve this. I believe there is justification for mortgages for people to get into the housing market at 70 per cent, 80 per cent, 85 per cent.”

There were only 516,000 mortgages taken out during 2008.

Gordon Brown called for bankers to be charged with massive fines if they mess up any future deals.

Lenders who afeel under pressure from the Government to help borrowers are now offering phantom mortgage deals say angry brokers. At the time the home loans appear to be available, however, when borrowers apply, they are consistently getting turned down. Brokers are saying that this is especially true for first time applications where they are few mortgage products available on the market and the customer has a smaller deposit.

Several banks such as ; Halifax, Abbey, Post Office, Cheltenham & Gloucester, RBS NatWest and Yorkshire Building Society are currently advertising mortgages for only 10% deposit. However, brokers are saying borrowers are being rejected with excellent credit histories, high incomes and stable jobs.

Arieh Zucker, broker at Windfall in West Sussex, says

“ most of my clients without a 15 per cent to 20 per cent deposit have been rejected by lenders, despite higher loan-to-value deals being widely marketed. It would appear that some lenders are in the 90 per cent loan-to-value market in name and product – perhaps to satisfy the Government’s request for banks to lend – but the reality is that they don’t want to lend at this level because they feel it is still too risky and reject borrowers who apply’.

Some UK banks are literally leaving some people unable to pay their mortgages by withdrawing money from their customers’ current accounts to cover their loan and credit card debts which seems a little easier to do now that more bank’s have merged a charity has claimed.

Banks are legally allowed to transfer money out of a person’s bank account without their permission to cover bad credit card debts and Citizens Advice is calling for this to be scrapped.

CAB says it has now seen a 25% increase in the amount of such cases during the past 2 years.
The British Bankers’ Association says that it is down to the customer to sort their problems out with the banks if they are in financial difficulty.

In the majority of cases though, companies are only able to force someone to pay a debt through the courts.

However, as set out in many banks terms and conditions the ‘Right of Set Off’ does give banks the legal right to transfer cash to pay a loan or credit card arrears without needing the permission of the account holder.

CAB says there are many cases recently of people having benefit payments taken out of their bank accounts which have left them unable to pay their “priority debts” like mortgages and council tax.

The British Bankers’ Association commented on this “inappropriate” activity as regrettable but supported banks by saying that they take their responsibilities under the banking code very seriously.

Self-certs have in some cases been manipulated by people who have obtained false statements through inflating their incomes. This is now the problem that many potential borrowers wanting a self-cert are paying for. Property prices, earnings that don’t correlate and the general ‘feel good factor’ in the economy at the time persuaded the world investment in property was the way to go and its prices would do nothing but rise. What goes up must come down – unfortunately this hasn’t been the case. Some people have ‘self certified’ for themselves into enormous mortgages which was perhaps based upon an ideal situation and should there be problems with payments then equity can be released from the rising property –price.

Due to the credit crunch, the amount of self-cert lenders has halved. Meanwhile due to the increased risks in offering these types of mortgages borrowing has dropped 75% LTV even if you have an excellent credit score.

Now there are only a few self-cert lenders it mean rates are high and mortgage holders taking these arrangements over the previous 2-3 years are going to be stuck with their current lender on a considerably higher rate than was originally taken out. There are nearly no self-cert lenders available to help people re-mortgage and given property prices have dropped extensively because the customer cannot prove their income, then the customer has no option available because they cannot use high-street banks unless they opt for fast-track.