Mortgages Uncovered

There were a number of Eastbourne businessmen arrested in recent dawn raids by police who were investigating a £40 million mortgage fraud.

Fifty police for the City of London managed to arrest seven men and one woman at residential addresses in Eastbourne.

Eight people were arrested aged between 29 and 73 years on suspicion of money laundering and conspiracy to defraud as part of an on-going investigations into a 2005 – 2007 buy to let scam involving over 500 properties in the South of the country.

Some of the people arrested include a solicitor, bank employee, two mortgage brokers and a property developer. All eight were quickly released on bail pending further enquiries.

Those arrested are suspected to have links the liquidated Eastbourne Financial Services Ltd.
Detective Superintendent Bob Wishart from City of London Police said,

“The scale of Tuesday’s operation shows City of London Police’s commitment to investigate frauds and bring those behind them to justice. We know that fraud has the potential to impact on local communities and we are determined not only to work with colleagues across the UK to investigate such frauds but to liaise with other agencies to mitigate that impact on innocent people affected by the criminal greed of others. We have worked closely with the local police in Sussex and with the owners of the properties involved to minimise the impact of our investigation on local communities and on tenants. As a result we believe it is unlikely that the operation will affect residents who are not directly the subject of the police investigation. People who are living in affected properties will continue to do so, subject to the terms of their existing mortgage or tenancy agreements. Anyone who has any concerns should therefore contact their mortgage lender or landlord in the first instance. We want to it clear that Eastbourne Financial Services Ltd is in no way connected to Eastbourne Mortgage Services, which remains authorised and regulated by the Financial Services Authority.”

Unless the government starts to halt the sliding prices of properties then pumping more money into the economy will be ‘pushing on a piece of string.’

In terms of the global credit crisis Britain is still a few months behind the US although our housing boom was bigger and the slid in house prices has been more severe than in the States which has been further fuelled by a distinct lack of mortgages during the crunch.

House prices have dropped so far by nearly 20% in the UK and there is a big lack in available mortgage products.

Dhaval Joshi at RAB Capital recently commented that although house prices had fallen homes have become less affordable to first time buyers due to the requirement for a large deposit.

“Not only do they need a larger deposit but the equity in their current home has plummeted,” Joshi says. “The upshot is that any would-be homebuyers need to have a substantially larger pile of savings now compared with a year ago – and the confidence to exhaust these savings at a time of acute job and income insecurity.

As the RICS itself admitted, even if mortgage approvals do recover, to perhaps 35,000 a month, “by no means could this relatively small pick-up in transactions be seen as representing a move back towards a more orderly housing market”. It added that the modest recovery in confidence could be extremely vulnerable, as the outlook for the labour market deteriorates. “The worsening trend in the employment picture could gradually begin to eat away at the improved sentiment amongst potential buyers.”

The UK based leading mortgage broker Chase de Vere along with Cobalt Capital have recently been forced to bring the administrators in only last week as they blamed the “appalling” market conditions in the housing and banking sectors for their companies downfall. There were further warnings announced last week that another 5,000 mortgage brokers in the UK were looking likely to also go bust before the end of the year.

There were around 400 customers at Chase de Vere customers who were going through the process of applying for mortgages when the administrators were called into the offices. Many customers had already submitted their mortgage applications and had been reassured that their applications would go through without any delays or problems.

A former partner of Chase de Vere, Simon Tyler commented: “Nobody is in danger; we have to complete applications to satisfy the creditors. Where necessary we will work with other brokers to do so.”

Mortgage brokers are not the ones holding the funds for property purchases; therefore, borrowers do not need to worry about losing their deposits. There are, however, some mortgage brokers who do, arrange a property valuation and in this instance, the broker should have already transferred the fee to the surveyor for immediate action.

The FSA City watchdog is about to completely clampdown on any risky mortgage lending through putting limits on the size of the amount of loans that are offered to UK homebuyers in a new hard-hitting replacement of banking rules which are due to be announced this week.

Mortgage lenders, who had offered ‘extreme loans’ during the mortgage boom were giving borrowers sometimes five or six times their annual salaries and sometimes more than 100%of a home’s value will now be forced to put strict limits the amount of debt they allow buyers to borrow.

The move is to mark a radical break in the previously liberalised mortgage markets that had begun to evolve during the last decade and further ensure that a repeat of the housing crash will be less likely, however, this will now mean that some borrowers could find it much harder to purchase the property that they really want.

Chairman of FSA, Adair Turner is due to outline plans for a huge shake up in banking regulations for the prevention of a repeat episode of the credit crisis in a discussion document which has been prepared for Weds 18th March.

This means that we will never see the inflated mortgages offered by Halifax, Northern Rock and Abbey in 2006 / 2007 sold again to a British market. A few years ago our high street banks were passing on mortgages to customers that were up to 120% of loan to value and sometimes four times larger than a customer’s annual income.

Pre tax losses of £78.7 million were reported from the house builder Bovis Homes for 2008 which is a huge difference to their published profit reports in 2007 of £123.6 million.

Bovis has written off £77.4 million on the value of its assets such as land and has further written of £10 million from the benefits it had expected from 2007 during its acquisition of the house builder Elite Homes.

Bovis boss David Ritchie described it as “an unprecedented year”, saying there had been, “the toughest trading environment for many years”. He blamed the problems on “declining mortgage finance availability and poor economic conditions, allied with low consumer confidence”.
“In response to this, during the year the group has restructured its operations, sharply reduced its expenditure on land and production, renegotiated its banking agreements and focused its management on the need to manage cash flow.”

Bovis Homes has said that much of this is down to the lack of mortgages especially those available to first time buyers where the lending criteria has just tightened. The overall availability of mortgages for homes has dropped 70% to date.

At the beginning of 2008, Bovis has planned to build another 3,500 new homes but they had to trim back on costs and only built half that number. The number of employees at Bovis Homes has cut back from 1,000 to 400 since the start of 2008.

Bank shares took a large tumble on the London stock market last week as the City showed its dismay at the deal which had taken place between the government and Lloyds Banking Group.

Lloyd’s shares fell 15% at the beginning of trading to 36p and dropped down over 7% to 39p by midday. Market analysts claimed that it was the disappointment about the prices that the bank is paying to guarantee their full toxic assets of £260 billion.

“The market perceives that on a pro-rata basis Lloyds has paid far more for its asset protection scheme – about 5% against RBS’s 2% – a cost of £15.6bn. This is perceived as disastrous for shareholders,” said David Buik of BGC Partners.

Chief executive Eric Daniels defended the terms of the deal this morning. He told analysts that Lloyds had placed all HBOS’s “specialist loans” into the insurance scheme, including its self-certification mortgages and buy-to-let loans.

Daniels explained that he was

“comfortable with the decision not to put any Lloyds TSB mortgages into the scheme as “life events”, such as a death or the loss of a job, were a more important factor than the loan-to-value ratio of a person’s mortgage in determining whether they defaulted on their debt. What we didn’t feel comfortable with was the more specialist loans from HBOS,” he said.

A 41 year old man has been given a suspended prison sentence after attempting to defraud a mortgage company for £338,000 by presenting false bank statements and false building work.
The accused, David Peyton of Rickmansworth said he was guilty of both counts of fraud at Crown Court in St Albans.

Mr Peyton admitted that he had made false representations to Crystal Mortgages when he had shown the company an invoice that had been raised to B Abbot & Sons, for building work that had been carried out at Hillcrest, Templepan Lane, Chandlers Cross, was genuine.

He further admitted that between 30th September 2007 and 1st December 2007, he had produced to his mortgage company a false HSBC bank statement showing that he had received payments for fictitious work at the Chandlers Cross property.

Judge Breen warned the defendant David Peyton who had no previous convictions to “prepare for prison”.

Judge Breen said: “I am not going to prejudge the issue, but taking bail away. You have had the courage to come to court and plead guilty today and are entitled to credit for that and it would be inappropriate in the circumstances. It appears to me that custody is likely if not inevitable in these circumstances and you must prepare yourself for that.”

Later Judge Serota at Luton Crown Court imposed the maximum suspended prison sentence that was allowed as a ruling which was 51 weeks around two years.

Peyton was also order to carry out 200 hours of community service over the next 18 months. He was also made to pay the defence and prosecution costs which totalled £1,200.

Over 20% of mortgages from Lloyds Group, who are the UK’s largest lender, have recently announced that they are the company’s most toxic assets and have needed to get into the insurance scheme run by the government to help them to insulate the bank from the full impact of plummeting house price.
There are hundreds of thousands in mortgages amounting to £74 billion which are included amongst the Lloyds Group £260 billion of assets it has had to place under the protection scheme guaranteed by the taxpayer as part of a deal that was agreed a week ago and it may see the government stake ruse to as much as 77%.

The majority of toxic home loans are from HBOS who were taken over by Lloyds TSB in January 2009. Last month it was only just announced from the bank to their investors that every one in six mortgages originated by HBOS were then in negative equity by the close of 2008. Arrears and home repossessions rose from HBOS mortgages from £28 million during 2007 to £1.13 billion.

Roger Lawson, chairman of the UK Shareholders’ Association, said: “The general view of Lloyds investors is that [chairman] Sir Victor Blank and the rest of the board should go … The key concern is that ever since Sir Victor and [chief executive] Eric Daniels decided to take over HBOS, it has been a disaster. Clearly, it was a mistake and the result is that shareholders no longer own the company.”

A spokesman for Lloyds said yesterday: “The board is completely behind the management. It is imperative we have a strong balance sheet behind us at a time like this when the UK is moving into a very difficult economic situation.” He stressed the bank had bought “cost-effective protection” for its most troublesome assets.

You can improve the value of house or property a number of ways, below a few ideas that may be able to add value to a property. These are by no means a guarantee and careful consideration needs to be given to any changes you make to a potential sale house. Make sure that any costs you incur doing improvements aren’t outweighing the realist gains in value.

Proeprty Development

By this I mean improvements to the building and surrounding space. It might be worth investing in a house expansion if you have enough initial cash and space. You could consider building a garage and additional bedroom above it.

Another good property development is some sort of HVAC installation. HVAC stands for Heating, Ventilation and Air Conditioning, all of which are common in larger properties. This may be more worthwhile if you plan on selling a property that will be used for sub-letting due to the large numbers of people that may end up living in the building. It is worth replacing old heating systems with newer, energy efficient ones.

Refurnishing existing rooms can be a good way of enhancing a house, replace the fireplace with a more modern, sleek one. You could possibly refit the bathroom or kitchen with smarter looking fittings.

According to the OFT, nationalising the Northern Rock has had no “significant adverse” effect on the competition.

IN February Northern Rock were told to boost their mortgage lending to £14 billion across the next 2 years which is as part of a government initiative to revive the flagging economy.

In 2007, Northern Rock approved around £29.8 billion new mortgages, however, this further slumped to around £3 billion in 2008.

The Chief Secretary to the Treasury, who is Yvette Cooper, has set the remit of the recent report to the legislation of the nationalized bank.

Senior Manager of the mortgage broker John Charcol is Ray Boulger who recently commented:

“The nationalisation of Northern Rock had a major impact on the mortgage market, but not in the sense that the OFT was focused on in its report. Last year Northern Rock was forced to repay significant government loans it acquired during nationalisation, dramatically reducing net lending across the whole UK mortgage market.”

Kevin Mountford, savings expert at moneysupermarket.com, the price comparison website, said: “Last year Northern Rock was forced to move quickly to dilute the impact of the 100 per cent guarantees on customer’s savings which came with being state-owned.”