15 Month High

The British Bankers Association (BBA) has found that mortgage approvals by major banks have increased in a 15 month high in June.

35,235 mortgages were approved for house purchase in June, which is higher than the previous months 31,919 according to the BBA.

This reflects that the banks are finding it more easy to lend now than they were about a year ago when mortgage approvals were only 65% of what they were in June last year.

However, the number of people wanting to remortgage or borrow with other loans has remained low.

 Contradicting Signs

The increase in mortgage approvals brings hope that there will also eventually be a rise in the activity of the property market.

The BBAs statistics director, David Dooks said that he believed that approvals are recovering from the very low level they found themselves in, in November. However, he also says that the pick-up in mortgage lending by major banks contradicts the number of people lending by other home loan providers.

Director of mortgage brokers Coreco, Andrew Montlake said he wasn’t convinced there was a significant shift in the mortgage market.

He said: “Some recent mortgage figures, including BBA’s have led some to suggest things are finally beginning to pick up, but I don’t buy it.

The Highs & The Lows

“From where I am standing, the next few months are still going to be exceptionally difficult for borrowers and this will only change once the lenders begin to lend – and they are still not lending at levels sufficient to drive a sustained recovery in the property market.”

Values of mortgages being approved has also shrank. The average mortgage approved by major banks now stands at £136,400. This is 11% lower than just a year ago, reflecting the fall in house prices.

Gross mortgage lending however has improved for the first time since April 2008.

Remortgaging approval also rose slightly in June compared to May. 28,133 people are now remortgaging their homes, which is 52% lower than a year ago.

Credit Cards & Overdrafts Remain Steady

According to the BBA, credit card spending also remains stable, with people continuing to pay back everything they borrow via their cards, and overdrafts remaining steady.

But personal loans that are often taken out for large purchases, such as a new car, have fallen by £1.4 billion since the end of last year.

Mr Dooks believes that people are exhibiting “little appetite for unsecured borrowing.”

With low interest rates, the number of people putting deposits into savings accounts is also remaining very weak according to the BBA.

What Do You Think?

We would love to know your thoughts and opinions. Leave your comments here.

Figures from mortgage lenders show that the number of loans handed out for purchasing homes in the UK rose by 16% in April compared to March.

Even with this rise though, the figures are still 28% down compared to April the previous year according to the Council of Mortgage Lenders (CML).

The figures add to other evidence that there has been a spring rise in the housing market. But first-time buyers are still expected to put down an average deposit of 25% of the value of their new home.

The average amount of money borrowed by first-time buyers rose slightly to £96,000. This is the first rise since May 2008.

Fixed-Rate Mortgages Increase In Popularity

This data is the last of a large set of figures relating the state of the mortgage market in April. They confirm that fixed-rate mortgages are currently popular as homeowners believe interest rates are unlikely to fall further.

This is shown by the fact that just 48% of home loans were fixed-rate in January, compared to 69% in April. The average rate charge on such deals in April was 4.83% – the lowest since January 2004.

Bob Pannell, head of research at CML said: “With the interest rate cycle now at its floor, an increasing proportion of borrowers are taking out fixed rates, including for longer term periods of 5-10 years.

“With expectations for rates to remain low in the near future, shorter term fixed-rate deals are less appealing than attractively priced variable-rate deals.”

Fixed-Rate Mortgages Becoming Unaffordable?

Nationwide Building Society reported that it will increase the cost of its fixed-rate deals on Friday by 0.86%. Analysts believe that other lenders will follow suit due to the sharp increase in swap rates – the amount banks charge each other for borrowing and lending money over a fixed period.

Director of mortgage broker Coreco, Andrew Montlake said: “Lenders are now hiking their fixed rates, partly because swap rates have increased dramatically over the past few days, partly because lenders have too many applicants and too little to lend, and partly because they can.

“What concerns me is that many people coming to the end of their existing mortgage products are still reverting to, or being forced to revert to the standard variable rate (SVR), which could come back to bite them should rates rise sharply.”

CML says that the number of loans for house purchases in April was 35,500. Mr Pannell says: “There are tentative signs of house purchase lending stabilising, but we need to see considerably higher transaction levels to underpin house prices.”

The latest house price surveys show that there is some pent-up demand, but also that there was a squeeze in the number of homes on the market pushing down the prices of those that were available.

What Do You Think?

Is the worst of the housing crisis behind us, or is the upturn temporary? We would love to know your thoughts and opinions. Leave your comments here.

April saw the third consecutive monthly rise in mortgage approval for home buyers in the UK according to the Bank of England.

Lenders apparently approved 43,201 new loans for home buyers, but the number of people changing their existing loans fell again.

The increase in approvals is a good indicator of short-term trends and suggests that sales may continue to rise.

Completed sales in March and April rose by 35% compared to the levels in February.

Philip Straw of Investec says: “Although it is an upward grind rather than a jump, at least it is a steady upward grind, and it’s consistent with a steady recovery in housing market activity.”

Challenging

Paul Broadhurst of the Building Societies Association (BSA) also commented that: “the rate of decline in activity in the housing market may have started to slow, but overall the lending environment remains very challenging.”

Figures produced by Moneyfacts also indicate that lenders are still rationing funds for new borrowers.

1,623 mortgage deals are available at the moment, two-thirds of which still require a deposit of 25% or more, with a quarter of all deals needing a down-payment of at least 40%.

Although, with the wholesale financial market weakening, competitors have been fighting hard to attract ordinary savers funding mortgage lending.

But the BSA said the building societies had experienced a net outflow of £811 million of savers money in April, suggesting this may be because people preferred to pay off their debts over saving.

Demanding Competition

It also says that members were still suffering unfair competition from state-backed institutions like Northern Rock and National Savings & Investments: “Those banks that are supported by the state are able to compete unfairly for deposits, and steps need to be taken to ensure that the government backing for some institutions does not distort competition for savings.”

Another reason for reluctance may be the very low rates on saving accounts, as the Bank of England figures show that returns on savings are still extremely low.

The average rate from instant access accounts in the UK is at 0.16% at the end of April from 2.43% a year earlier. Typical interest rates for cash Individual Savings Account (ISA) at the end of April was 0.42%, again lower than the 0.63% average just a month earlier, and much lower than the 4.81% a year ago.

Property sales have begun to increase from the winter, but there is conflicting evidence as to whether or not house prices are also starting to revive.

A monthly survey conducted by Nationwide shows that UK house prices rose in the past two to three months, making them just 11% lower than a year ago. This shows a considerable slowing down compared to previous reports on the annual rate of decline.

What Do You Think?

We would love to know your thoughts and opinions. Leave your comments here.

Lenders have warned that lack of equity in the housing market will cause as many as 2 million homeowners to either have negative equity or too little equity to afford to move.

The research conducted by the Council of Mortgage Lenders (CML) also warned that these problems could lower the number of houses on sale.

It also found that two thirds of 900,000 that fall into the category of negative equity’s shortfall is by less than 10% – around £6,000 of these are first-time buyers, and around £8,000 are other homeowners.

Head of research at CML, Bob Pannell has said: “Although negative equity has resurfaces as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder.

“Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected.”

As Bad As The 1990’s Crash?

Lenders are still restricting their lending due to lack of mortgage funds, few are prepared to accept a 10% deposit from anyone buying a house.

According to other recent research conducted by Moneyfacts, there are currently only 106 mortgage deals that require a 10% deposit or less. On the other hand, two thirds of deals – 1,485 – require customers to have a deposit of at least 25% of the cost of the home they intend to buy.

This will have a huge impact on those planning to move home, even if they have limited equity of less than 10% they are unlikely to be able to afford to move.

CML have predicted that around 600,000 mortgage holders will have less than even 5% equity on their homes. It also thinks that around 500,000 have equity of between 5% and 10%. Therefore it believes that around 2 million homeowners could not sell their own homes in order to raise the equity to put down a deposit on a new home.

House prices have already dropped around 18% since mid-2007, already outstripping the national price drop of the early 1990s price crash. However, the estimated 900,000 people suffering from negative equity now is still a lot lower than the 1.5 million thought to have been in negative equity in the early 1990s.

Only a Problem If You Want To Move?

Of those that are currently in negative equity, about 270,000 are thought to have a loss of around 10-20%, and around 30,000 are believed to have a deficit of over 20%.

In the worst cases the negative equity averaged £28,000 for first-time buyers, and £37,000 for other homeowners.

The CML say: “payment problems are typically associated with unexpected spending commitments, reduced income and changes in household circumstances.

“Negative equity, on the other hand, only surfaces as a problem if households need to move, or are also experiencing repayment difficulties.”

What Do You Think?

We would love to know your thoughts. Comment here.

Though mortgage lending activity is still weak compared to how it used to be, it did rise a little in February.

The number of new mortgages submitted was 4% higher in February than the previous month according to the Council of Mortgage Lenders (CML). However, they have also warned that though this is an improvement, mortgage lending is still at a “very low level historically.”

The director general of the CML said: “We are not convinced that underlying trends have shifted sufficiently to change our forecasts for mortgage market activity in 2009, but there are some positive signs for later in the year.

“Some large banks are making more funding available through enhanced lending commitments, which is helpful but will not satisfy consumer borrowing demand on its own.”

One Small Step for the Economy?

The number of home loans completed for all buyers increased slightly month-on-month even though the value of these homes is still at £3.1 billion.

These figures do suggest an improvement on recent months, however, compared to recent years, it is still quite severely low.

The number of completed mortgages was running at around a third of the average February total – 76,000 loans for house purchases between 2002 and 2007.

There was however, a 20% decrease in the number of remortgaging deals, from 44,000 in January to 35,000 in February.

The group also found that the choice mortgage at the moment is the Standard Variable Rate (SVR).

Low Value Equals Low Equity

Equity is also a problem at the moment. With house prices falling, as is equity which means that people are excluded from the best deals which require large deposits.

However, now that the Bank interest rates are unlikely to fall further, people are asking for fixed rate deals as opposed to those that rely on the Bank rate. This can be seen in the fact that in February of this year, 56% of new home loans were fixed rate mortgages, compared to 49% in January.

First time buyers are also finding it increasingly tough as the typical deposit to now find yourself is 25%. This has led to only 9,400 home loans being completed.

Michael Coogan of CML said: “Such amounts remain out of reach for all but the most affluent buyers, for example people returning to home ownership after a period of renting, divorcees, or those who get financial assistance from their family.”
Mortgage lending is up 7% from January, though this is not seasonally monitored. It is traditional that there is a lull at the beginning of the year.

What Do You Think?

We would love to know your opinion on this. Leave your comments here.

The Financial Services Authority (FSA) are considering introducing restrictions on the initial size of mortgages, according to Lord Turner’s review of banking regulations.

The report suggests reasons for limiting the amount of money that can be borrowed in order to purchase a home in order to protect consumers from borrowing too much and also protect banks from the potential threat of excessive lending.

However, Lord Turner has been the first to admit to potential disadvantages to the idea of restrictions, and therefore the FSA will discuss the issue in the autumn.

The review says: “The rapid extension of mortgage credit was a key factor in the origins of the financial crisis in the US, the UK and several other countries.

“In the UK high initial LTV (loan-to-value) and LTI (loan-to-income) ratios played an important role.”

Market Discipline Not Working?

The Council of Mortgage Lenders (CML) is welcoming the discussion, saying: “We see the FSA’s September paper on the future of mortgage regulation as a real opportunity to help shape a future regulatory landscape that will serve both lenders and consumers better.”

If the decision to legally limit mortgage size does go ahead, it would mean that it has to fundamentally change its previous policy.

The regulations have previously focused on the health of the financial service and making sure customers are treated properly and letting both sides make their own choices.

But the “market discipline” would help both individual customers and banks from taking excessive risks with money has been disproved in the last 18 months.

The review states that: “Both some customers and some providers relied imprudently on the assumption that ever rising house prices would reduce the risks otherwise inherent in high LTVs.”

Serious Disadvantages

September will see the publication of the FSA’s paper, which will look at various ways in which mortgages can be regulated. This will include things like formal limits on either the LTV or LTI ratios.

The report will also protect lenders and borrowers, and limits on the mortgage market could stop rising house prices exaggerating wider economic rises and falls.

Some countries, for example: Hong Kong; Netherlands, Greece, Poland; and Austria, already have formalised restrictions on the size of home loans.

However, the potential disadvantages of the idea are serious. For example, some people could be kept out of the property market as they can’t find enough money to put together a deposit, therefore not allowing them to buy a home.

Other borrowers may get around the restrictions by borrowing the extra money needed elsewhere, such as on credit cards, which will prove an even greater expense in the long run.

The Royal Institution of Chartered Surveyors (Rics) is worried about this: “Restrictions on mortgage lending run the risk of stifling activity in the housing market and could cause more problems than they solve.”

What Do You Think?

Leave your comments here.

The Mortgage rescue plan has been extended across England in a bid to stop thousands of homeowners from losing their homes.

Many not-for-profit housing associations will be buying homes from people struggling with their mortgages, while allowing the owners to still live in their homes.

The £200million scheme, set to help up to 6,000 homeowners who would otherwise face repossession, is just one of many other plans launched or expanded to help.

The National Housing Federation devised the program last year, and it is already in place across 80 local authorities in England, but will spread across the country on Friday.

Wales, Scotland and Northern Ireland either have, or soon will have, their own schemes in place.

According to the plan, the housing associations will buy homes after the market price at an independently assessed market price.

Successful applicants have the right to remain in their homes as tenants on affordable rent, or owners after receiving a loan from a housing association. It aims that once the economy is stable again, the homeowner can pay back part, or all, of the loan.

The scheme targets families, especially those with small children, disabled households, pensioners and other “vulnerable” homeowners.

If an owner wants help, they have to apply to their local authority and will have their finances assessed by an agency. The property will be valued and the housing appreciation will buy it.

National Housing Federation chief executive David Orr says the scheme aims to give thousands of families long-term stability. It will also undermine “shadowy companies currently making money out of other people’s misfortunes”, those that offer to buy properties below market value and promise owners they can have a tenancy agreement, only to change the terms of the contract.

Housing minister Margaret Beckett said that the priority was to help people remain in their homes.
“We know that some families are worried about their mortgage payments right now, and we are determined to do everything possible to ensure repossession is always a last resort.”

Both the government and lenders have been pressured to offer help to homeowners that have been badly hit during the economic crisis and risk repossession.

The government has expanded its Income Support for Mortgage Interest (ISMI) so that homeowners that lose their jobs only have to wait 13 weeks, as opposed to the original 39 weeks, after they lose their jobs before they can claim financial help with the interest payments on their mortgage.

The Homeowner Mortgage Support Scheme will be put in place, and will allow households whose income unexpectedly falls suddenly, to defer part of their payments for as long as two years.

The Mortgage Pre-Action Protocol means lenders will be legally obliged to use repossession as a very last resort after looking at all other alternatives with the borrower, including reducing monthly payments.

Ms Beckett said: “whatever the situation, the clear message for households struggling with their payments is to speak to their lender as soon as possible.”

It is expected that the Bank of England will cut their rates to their lowest on over fifty years.

Business leaders and economists alike have suggested an interest rate cut down to 2%, which has not been seen since 1951, in order to try to halt the current economic depression as much as possible.

It was just last month that the Bank announced that it would cut its interest rates by 1.5%, to 3%.

Minutes from last month’s meeting show that the Banks policy makers had discussed bigger cuts in borrowing costs, before settling on the dramatic reduction in interest rates.

Since then, there has been rapid deterioration in businesses since this meeting has raised fears that the economic crisis in Britain could be worse than originally feared.

Among our current economic problems includes the fact that  businesses are finding a continued restriction in bank loans, unemployment continues to rise, mortgage lending is still slowing, consumer confidence has fallen and shops are having to severely lower prices in order to attract Christmas shoppers.

Yesterday, a key measure in our services sector contracted in November at its fastest rate since at least 1996.

Also in November, the UK services purchasing managers’ index (PMI) dropped more than expected to a record low of 40.1, compared with 42.4 a month earlier. (Figures below 50 is a sign of their outlook worsening.)

Economists expect the Bank of England to respond decisively. George Buckley, chief UK economist at Deutche Bank has said: “They need to do something aggressive again, because of where the data’s been taking us.”

Judging by past actions, the Bank has shown itself to be capable of such decisive, drastic action when needed.

Governor Mervyn King told a parliamentary committee last week that: “We will take whatever action we feel is necessary on interest rates to steer the economy back into calmer waters. We may need to cut Bank Rate more than we would otherwise have done.”

Moneyfacts, a financial information service, has estimated that homeowners with a standard £150,000 repayment mortgage, could be saving anything between £19 – £75 per month, depending on how big the rate cuts actually are and if lenders will pass on the cuts in full.

John Charcol, mortgage advisors, has said that only 10 of 69 lenders have passes the last two mortgage rate cuts in full to their customers on standard variable rate mortgages.

Lloyds TSB, and therefore also Cheltenham & Gloucester, as the company also lends under this brand, have already promised to pass on reductions to borrowers on standard variable mortgages in full.

Customers on tracker deals however, may not see the full benefit of further Bank cuts in rates.

Some lenders have introduced a floor (also called a collar by some banks) which means that if interest rates fall below a certain point, the cuts will not be passed on to customers.

Mortgage rationing is set to become more of a problem in 2009 if the government don’t intervene, according to a lending group.

Director General of the Council of Mortgage Lenders (CML), Michael Coogan, has said there are now fewer lenders with less money. He also suggested that if lending levels in 2009 go in a similar way to 2008, they could be a challenge. And added that smaller companies may have to spend a third of their profits covering the bail-out of bigger banks.

Mr Coogan was speaking at the CML’s annual conference on Tuesday and painted a rather dull picture for people intending to get onto the property ladder in the near future. He said that: “Consumer borrowing will simply not return to the levels seen in 2007, even if funds increased and a wide variety of lenders were to become active in the mortgage market again.

“In fact, unless the government takes further targeted action to help market participants, we will see a worsening of the picture next year compared to this.

A good outcome next year in my view would be if we had lending at levels seen in 2008, but bearing in mind we will be in a recession…this would be a real challenge.”

Sir James Crosby also voiced similar views earlier this year, when in a recent report to the chancellor, he suggested that net new mortgage lending would pads the low of £15 billion in 1995 and fall below zero.

House prices in Britain have fallen by 10% to 15% this year so far. Mortgage approval is also down 74% compared to last year, and it is expected that there will be further falls in prices.

Mr Coogan also claimed that building societies would make a loss this year. Other small financial businesses are seeing their profits hindered by “unintended consequences” of moves to protect customers with failed banks.

Though the government may have made changes in order to avoid tax-payers having to cover compensation paid on those who have lost money with Icelandic banks, in actual fact, it will be financial institutions of all sizes that have to cover the cost via the annual financial services compensation scheme. This has cost some of the smaller institutions up to 30% of their annual profits.

Mr Coogan has however backed the mortgage lenders decision to delay the process of repossessions for borrowers in financial troubles. But he has also asked for more support from the government. He has proposed a “backstop scheme” in order to sell property to their lender which they could rent back. This would stop the need to go to court, as well as underpinning property prices, and allow people to stay in their own homes, therefore supporting the local community.

Prior to Thursday’s decision on interest rates, he also criticised the idea as “short-sighted and counterproductive”, claiming that this was pushing down interest rates offered to savers.

Jon Pain of the Financial Services Authority has warned lenders to keep to contractual rules when passing on cuts to customers, saying that any floor on tracker mortgages must be made clear in an initial mortgage contract.

At the same conference, Liberal Democrat Treasury spokesman, Vince Cable also said that there should be no return on reckless mortgage lending, claiming that: “the industry should now be exploring new products to restore faith in mortgage lending.”

The Royal Bank of Scotland guarantees that it will not repossess properties belonging to owners who have fallen behind on their payments for at least six months.

RBS are currently the fifth biggest mortgage lender in the UK, with a 7% market share. Therefore, their decision could put pressure on HBOS, who are currently the biggest mortgage lender.

The government have recently also bought out a 58% stake in the Royal Bank of Scotland recently after shareholders held a meeting and decided to take the government money, and therefore bought out a tiny percentage of the shares offered to them.

RBS have said that it wants to make sure customers are given an opportunity to seek help and independent advice before starting legal action against them.

Craig Donaldson, the RBS’ managing director of retail banking has said: “we fully understand that one of the biggest worries facing homeowners in financial difficulty is the thought of losing their home, and this is especially true given the current economic climate.”

Citizens Advice and charity Crisis, who represent homeowners struggling to keep up with arrears, have welcomed the news.

Just last week, Ian Pearson, Treasury minister, said that he would hold banks’ “feet to the fire” in order to assure that customers were treated properly.

Shortly after the RBS made this announcement, the Bank of England released figures that showed mortgage approvals had dropped again in October of this year by around 1,000 approvals less than in September.

BBC business editor, Robert Peston has said:” Here’s the positive side of what Royal Bank has done : it gives those who lose their jobs in the looming wave of redundancies a better chance of getting a new source of income in time to prevent the bank seizing the family property.

“But there is a cost, which will fall on estate agents and – possibly – anyone interested in seeing an end to savage deflation of house prices.”

Initial assumptions were that the delay in repossessions was due to the government take over, but it may not be entirely down to that.

Jonathan Charley, from EDS consultants, has said: “At a time when house prices are falling, banks don’t really want to do repossessions because all they end up with is no money coming from the mortgage loan and they end up with a stock of houses, which they probably can’t sell.

“So, for most banks they’d rather avoid having repossessions and actually just get some form of money coming in from people.”

The delay in bank repossessions for people who are struggling to keep up with their mortgage repayments is just one of many new changes being enforced by the bank. Others include an agreement to return to “normal” lending practices and guaranteeing overdraft rates and contracts for its business customers for at least a year.