Mortgages Uncovered

Britain’s 6th largest mortgage lender came under fire last night after the introduced a £150 penalty for any customers who intended to back out of a mortgage deal after it had reached the approval stage prior to completion.

On average, one in five people who apply for a mortgage will back out of a deal, the bank declined to give any further information or figures regarding the penalties.

Woolwich is also set to assess the fee should applicants make any mistakes on their mortgage application forms should it mean that the form is rejected or provide information that does not check out and delays the application.

Woolwich is owned by Barclays and a spokesperson for Woolwich:

“We have worked hard to ensure this charge is the fairest solution so we will not charge a customer where the mortgage does not go through at no fault of the customer. This change makes it very transparent, as customers will know that if they do not proceed with a mortgage application, they have to pay the withdrawal fee but any application fee is fully refundable.”

Cheltenham & Gloucester has levied a £99 fee for those customers who back out of their mortgage applications following approval and Abbey, Britain’s second largest mortgage lender, has now introduced a £150 charge from June 2008 but withdrew it in December.

Ray Boulger, of John Charcol, the broker, said: “This fee is to recoup costs and discourage borrowers from shopping around. A fee, however nominal, requires more thought and commitment from a customer – however, I’m not convinced that it will stop people switching. But at least Woolwich will be compensated.”

Mortgage brokers claim that money markets are now indicating that interest rates’ are about to move upwards. This will directly reflect on market rates which are the determining factor when it comes to costs of fixed rate mortgage lending which increased from 2.96% two weeks ago to 3.15% yesterday.
The best fixed rate mortgage deal on the market yesterday was with the HSBC, who were offering a five year fixed deal for 3.99% for any borrowers who have a 40% or more deposit.

There are a million people in the UK with an SVR, however, they are being urged to move to a fixed rate deal as there are fears that lenders are about to increase their costs for lending in response to the rising yields on the money markets.

Melanie Bien, of Savills Private Finance, the broker, said: “The cost of wholesale borrowing is expected to rise, which lenders will soon be forced to pass on to mortgage customers. We appear to be near the bottom of the market and homeowners looking for security would be wise to secure a longer-term fix as soon as possible, preferably for five years.”

Ray Boulger, the senior technical manager of John Charcol, another broker, said: “The rise in yields is bad news for homeowners hoping to fix. We are at the bottom of the market for fixed rates and lenders could respond to the events this week by pushing up the cost of fixes as early as next week.”

The Woolwich’s 5 year fixed rate mortgage deals see the biggest reductions of all.

There have been a good number of cuts on the mortgage interest rates across the Woolwich’s range of products with the largest reductions being seen on their fixed five year mortgage products seeing the biggest savings for customers.

The popular financial services provider states the 5 year fixed rate deals are set to see a further reduction of 0.5% whilst the 3 year fixed rate products will receive a 0.4% cut.
Andy Gray, head of mortgages at Woolwich, said:

“What we are seeing is what customers have been hoping for all along - more affordable mortgages. There are two main causes for the change - increasing competition in the market and reduced longer term fixed rates thanks to lower interest rate expectations. The last three months have seen an increase in mortgage activity across the UK, and our more competitive mortgage range can only help.”

Previously, the head of mortgage productions at Barclays head office, Chris Keane, who own the Woolwich, claimed that their customers were looking for more long term certainty from their mortgage products during an economically turbulent time.

The scheme was unveiled by Gordon Brown in December 2008 which was put into place to help homeowners struggling with repayments is remaining uncertain due to the deadline for the lenders showing their support has passed.

There will be 50% of building societies not taking part in the new Homeowner Mortgage Support Scheme says the head of one building society.

The government is releasing a list of participating lenders soon.

The scheme, which starts in April, will defer payments for those people suffering temporary loss of income.

According to Gordon Brown when he announced the scheme it was to provide a person temporarily out of work who has suffered a “significant loss of income” and meant that a proportion of interest could be deferred on payments for up to 2 years.

This was for:

“Struggling homeowners with a “temporary” loss of income
Their mortgage must be for less than £400,000
The household savings must be less than £16,000
Monthly repayments can only be cut to 30% of the original
The rest of the payment can be deferred for up to two years”

Initially we were told that all key building societies and banks would be part of the scheme but at this stage it appears this may not be the case.

Gordon Brown has been publicity defended his handling of the Northern Rock situation after he had criticism over the bank offering risky mortgages after the bailout.

He said:

“I taken the necessary steps to save the bank, which would otherwise have gone into receivership.”

The Tories said failing to end 125% mortgages immediately was “inexcusable” - the Lib Dems called it a “disgrace”.

Gordon Brown, speaking in Brussels recently to EU leaders agreed measures to support the new global economy, and said ministers had taken

” the right action in nationalising the bank” he continued. “We acted when Northern Rock got into difficulty, we’ve taken the actions necessary by bringing Northern Rock into public ownership,” he said. “I think the NAO agrees this was the necessary course of action. The Financial Services Authority had “already said that it made some mistakes in its dealings with Northern Rock earlier on.”

Philip Hammond, shadow chief secretary to the Treasury said;

“officials failed to ask the right questions about the quality of loans Northern Rock was offering. It is really astonishing to discover that the Treasury did not clamp down on that immediately,” he told BBC News. “Taxpayers will find that truly shocking”.

There was a continued slump in mortgage lending during February, gross lending plummeted to 60% on February 2007 were recent figures released by the Council of Mortgage Lenders (CML) has said.

The CML said

“members’ ability to lend was drying up because too many savers were choosing to put their money in National Savings policies.”

This has lead the market to mortgage rationing which has slipped house prices by more than half in some place.

“Retail savings are now the predominant source of funding for mortgages,” said Michael Coogan, the CML’s director general. But banks and building societies have seen savings ebb away to National Savings & Investments, which has a negative impact on their ability to lend. Until funding improves, the capacity of lenders to lend will remain constrained,” he warned.

NS&I has raised another £10 billion in the first 9 months of this current financial year which is way ahead of its first forecast of an extra £4 billion for the entire year.

£6 billion came in the last 3 months of 2008 during the collapse of B & B and whilst Icelandic banks were pushing savers into a completely safe home for their money.

NS&I brought down savings rates with the Bank of England’s bank rate.

This week NS&I announced

“the payout rate on Premium Bonds will be cut from 1.8% to 1%, with one of our two £1m jackpot prizes being cancelled.”

The deputy CEO at RBS said this week;

“Lending mortgages to homebuyers with no deposit is immoral and akin to giving them a “loaded gun.”

The comment has further increased pressure on the Financial Services Authority whilst there are calls for Gordon Brown to ban 100% mortgage lending.

The RBS deputy CEO, Gordon Pell said directly to MP’s last week that 100% mortgages were “bad banking.”

It was common knowledge that Mr Pell had just got back from Singapore where their banks were not allowed to lend over 80% of a property’s value.

“RBS would be able to operate in this type of environment, he said. “If you tell me these are the rules on the pitch, I will work to them … If you define the pitch for me, I will operate on it. There is a lot of sense in qualitative controls of this sort.”

The bank has been cautious in the market, lending very few customers 100% mortgages, which is a huge contrast to it’s’ rivals like Northern Rock. But Mr Pell’s out-spoken comments –

“it is immoral for us to put a loaded gun in the hands of someone who can’t afford to repay”

– are likely to reinforce calls for stricter mortgage regulation.

Finally, the 5 year fixed rate mortgage is coming back onto the market, as the base rate is estimated at rock bottom for a while longer by banks and building societies.

HSBC are offering a great 3.99% for a 5 year fixed period for borrowers with a 40% or over deposit. There is a £999 fee over five years.

Abbey is offering the most competitive 5 year fix at 3.95% and a £995 fee for people with a 40% deposit.

People who wish to borrow but have a smaller deposit are still able to fix for five years because The Post Office is now offering a 4.15% fix to people with a 25%deposit and 6.01% for those with 10%. For both the fee is £599.

5 years maybe too long for some and HSBC are offering 2 year fixes for below 3% for people with a higher deposit. The deal is 2.98% for 2 years for anyone needing 60% of their property’s worth.

First Direct are now offering 75% of the cost of their home at 2.99% with a £898 arrangement fee.

Those needing up 90% can fix for two years at 5.99% with Yorkshire Bank for a £599 fee.

Look at the four main reasons to do this before you take action:

• A cheaper deal to reduce your monthly repayments.
• release some of the value of your property for paying debts or necessary home improvements.
• extending the mortgage term to reduce monthly repayments.
• reducing your mortgage term – through finding a cheaper deal to pay off faster.

Now we are in the midsts of a credit crisis, however, we now know that banks have tighter criteria on lending. Typically the deposits required are now 15%-20% before anyone will consider a remortgage application; a bigger deposit of 40% is the only thing that will widen your choice of cheaper interest rate.

Get your paperwork together
Wait to remortgaging for at least three to six months before your deal ends. Should your mortgage be a SVR or tracker, it will have already gone down during recent months check what you were paying before the interest rates fell to get a truer picture.

How much it will cost you to move?
Check for any early redemption charge (ERC) which will be a clause for many fixed discounted, cash back / capped deals. Also be aware of any restrictions.

Find a mortgage
Use a factsheet to decide: tracker, fixed rate or variable etc and then check; moneysupermarket.com or moneyexpert.com

Fees are involved
Check any legal fees involved with the new product (typically £400, according to mortgage broker London & Country), application/arrangement fees (upwards of £300) and a valuation fee (£300).

FSA say that mortgage arrears have been steadily increasing since early 2007.

The amount of accounts that have shot up into arrears is 31% in 2008 say recent statistics from the Financial Services Authority (FSA).

There were 377,000 mortgage accounts in 2008 that had reached 1.5% in arrears.

Home owners in trouble currently hold loans worth just over £40 billion.

Recent government figures show that the speed of prices has increased downwards in property values.

“With borrowers increasingly struggling to clear their arrears, the total number of loan accounts in arrears has been steadily increasing since early 2007. Self-certified mortgages have produced the greatest arrears problems for troubled lenders such as the Bradford & Bingley, and are sometimes referred to as “liars loans” as people have exaggerated their incomes to obtain a mortgage.”

Said the FSA.

Department for Communities and Local Government said;

“The DCLG index is currently showing a similar trend in annual house price rates to other indices available from commercial sources,” it said. The price of homes bought by first-timers fell by 15.4% in the year to January, compared with a drop of just 10% experienced by homes being bought by former owner-occupiers. Prices have been falling fastest in Northern Ireland, down 14.3%, and are still highest in London, where the average home costs £301,383.”