This weekend’s Independent on Sunday contained one of the clearest explanations of the 2000 – 2008 Housing bubble that I have read. Two simple graphs: one showing the spike in ‘House price to average earnings ratio’ between 2002 and 2008 and the other showing a corresponding spike in ‘UK Net mortgage lending’.
The relationship between a huge net lending increase (credit creation) and house prices seems undeniable.
I won’t add any value with additional commentary so head over the the Independent website to read the full article:
In fact print it off and keep it in your purse/ wallet and hand it to any bubble deniers you encounter.
Figures relating to mortgage lending and the property market as a whole have been affected by a number of unusual factors this year. Firstly, there was a late rush to beat the stamp duty ‘holiday’ on properties priced up to £250,000 and the subsequent summer lull was exaggerated by major public events – namely the Queen’s Jubilee and the Olympics.
However, figures released today by the Council of Mortgage Lenders (CML) suggest that lending in June 2012 was boosted by the return of many first time buyers to the market but does this mean we can expect a settled period for the remainder of 2012?
The CML confirmed that lending to First Time Buyers (FTB’s) stood at its highest point since July 2010 – excluding the solitary month of March 2010 when the property market saw a late rush to beat the stamp duty reintroduction.
Paul Smee, Director General of the CML welcomed the news but said that he expected further fluctuations in the market. Concern over the Eurozone crisis continues and the statistics have yet to see any impact from this year’s Olympics.
“Lending figures have see-sawed in the first half of the year and we may see more fluctuations in the coming months,” Mr Smee said.
Many property professionals are pleased to see FTB’s return to the market in such numbers but insist that more has to be done to make first time property purchases more accessible.
“It’s good news that ending the stamp duty concession appears not to have held first-time buyers back permanently, but they still need as much support as possible,” said Charles Haresnape, managing director at Aldermore Residential Mortgages.
“It will be good to see more lenders participating in NewBuy and offering schemes to help borrowers who are struggling to find a deposit.”
The Mortgage Advice Bureau confirmed that their own figures were largely in line with those released by the CML but they also predicted an uncertain period ahead.
“MAB’s own figures for May reflect those released by the CML,” said Brian Murphy, head of lending at the Mortgage Advice Bureau.
“However, we expect external factors to play a major part in activity levels in the next few months, with activity levels to continue to fluctuate.”
Overall, it’s impossible to identify any pattern in the figures released by the CML but it has to be a positive aspect to see FTB’s returning to this level. The future may be uncertain in the short term but longer term benefits should be attained by making it easier to make that first step onto the property ladder.
Some of the UK’s biggest lenders have announced fixed rate mortgage rate rises this week as they finally succumb to the pressures that funding costs provide. At least ten lenders will have announced their increases by the time April comes to an end making it ever harder to obtain home loans for new purchasers.
The Bank of England has also announced that an average two year fixed interest mortgage backed by a 25% deposit has risen from 2.9% last September to 3.45% in March. However, that September 2011 figure marked an all-time recorded low after this type of funding peaked at 6.35% in 2008.
The Council of Mortgage Lenders (CML) indicate that this latest batch of rises backs up their claims that rates would have to increase because funding costs meant that the current low levels were unsupportable.
“Funding costs have been experiencing upward pressure for lenders, who have been operating at low margins,” said Sue Anderson of the CML.
“So at some point lenders will take the decision to raise rates for good balance sheet management,” she added.
The market seems to be experiencing a typical ‘reverse domino’ effect with lenders reacting to rises from their competitors and increasing their own rates accordingly.
“Lenders seem to have increased their rates in two stages this week, some at the beginning and the others catching up later in the week,” said Trinity Financials’ Aaron Strutt.
Among those increasing their rates this month are Abbey, Halifax, Santander, Lloyds TSB Britannia, HSBC, and Cheltenham & Gloucester.
“When you take into consideration that some lenders have raised their rates at least twice in the past month, they all add up,” Aaron Strutt added.
The figures also come at a time when certain organisations were pointing to a market dampening and the impact of greater restrictions on lending criteria. At the beginning of March, the Bank of England warned borrowers to expect more difficulty in obtaining finance and that seems to be the case.
The National Association of Estate Agents (NAEA) are also concerned at the moves which they believe will stunt a market which had showed signs of improvement during the stamp duty holiday.
“The recent move by some major lenders to severely limit the availability of interest-only mortgages is no doubt dampening the levels of supply in the market,” said Wendy Evans-Scott of the NAEA.
There have also been rises in the variable rate offered by some lenders and it is widely expected that more will follow the lead of their rivals in the weeks to come.
Figures released by the Buildings Societies Association (BSA) show a rise in gross mortgage lending of 32% in January and the report goes on to call this rise ‘significant’. However, any optimism felt as a result of these findings may have been tempered by the announcement that both the Halifax and Royal Bank of Scotland were increasing their interest rates, blaming increased funding costs.
The BSA’s figures showed that the 32% rise resulted in an increase in lending from 1.4 billion to 1.9 billion from the previous month and this represented a rise of 54% on the findings declared for the same period in 2011. However, the stamp duty window, which is being cited as a reason for most positive signs in the property market is also being credited for much of this increase.
The window closes later this month and it’s widely accepted that any spike in lending and sales is down to a rush of homeowners looking to take advantage of the waiving of the 1% fee for properties between £125,000 and £250,000.
“Lending activity by mutuals was up significantly in January compared to the same month last year, continuing the trend of increased lending by the mutual sector seen throughout 2011,” said Adrian Coles of the BSA.
The news comes shortly after the association reported a two year high in mortgage approvals which had risen in January by 7% to 58,728. However, the Council of Mortgage Lenders rather summed up the current position, claiming that the figures were slightly obscured by the Stamp Duty Holiday.
“We are now likely to see an unhelpful bunching of activity prior to the concession’s expiry, followed by a dip,” the Council said.
That dip could also be affected by a rise in mortgage rates which has been led by Halifax and the RBS, both of whom announced their increases last week.
Halifax announced that it would be raising its variable rate from 3.5% to 3.99%, adding that the process of raising money through retail savings and wholesale markets was proving to be very expensive. Meanwhile, the RBS confirmed that it was raising the rate on two of its products by 25 basis points.
The two lenders have already been joined by Santander in increasing its own rates and more are expected to follow.
“If lenders continue to raise their rates those with the smallest deposits – the first-time buyers – will get hit hardest, because the risk they pose means they cost more to lend to,” said Mark Harris at broker SPF Private Clients.
As with much of the current announcements within the property market, it appears that the true picture won’t be known until the stamp duty holiday ends and any increase in rates takes hold.
Earlier this month, the Nationwide revealed figures that claimed a small drop in house prices for January 2012 in comparison with the previous month. Overall, the society suggested that average prices had fallen by 0.9% over the period but those findings are at odds with the latest set of figures produced by the Halifax.
From December 2011 to January 2012 the Halifax suggest that the average cost of a home in Great Britain actually rose by 0.6% to £160,907. The reasons behind these findings lay with low interest rates although they still represent a fall of 1.6% compared with the same period in 2011.
These statistics will be a positive sign for economists who had predicted a gloomy opening to the year. Martin Ellis of the Halifax welcomed the findings while warning that any future figures would be subject to the economy’s ability to withstand all the various problems that it currently faces.
“Low rates have contributed to mortgage payments falling to their lowest level as a proportion of disposable earnings for a new borrower for 14 years. A recent improvement in employment trends may also have supported demand,” Mr Ellis said.
“Prospects for house prices over the coming months will, to a large extent, depend on events in the eurozone and the repercussions of developments there for the UK economy. If the UK can avoid a prolonged recession, we expect broad stability in house prices in 2012,” he added.
Welcome though the figures may be, they still contradict not only the Nationwide’s findings, but additional statistics released by the LSL/Acadametrics house price index which suggest a fall of 0.2% from December 2011 to January 2012 with an annual rate of decline of 1.4%.
LSL Property services who supplied the figures also suggested that the fall was sharper than expected.
“Prices edged down in January, dropping further than the normal seasonal slowdown we expect to see in the first month of the year,” said David Brown, Commercial Director at LSL.
“This means prices are now falling at 1.4% on an annual basis – the fastest rate of decline since September 2011. This has been driven by growing concerns among property buyers about the state of the global economy – especially the extent to which the eurozone crisis will slow the market.”
Confusing though these figures may be, the Halifax are sticking by an overall prediction that will see prices drop considerably for the whole of 2012. This forecast was backed up by Howard Archer, Chief Economist at IHS Global Insight.
“We are sticking to our view that house prices are likely to fall by around 5pc in 2012,” he said. The latest Halifax data, along our belief that the economy will likely just avoid recession, suggests that house prices are unlikely to fall sharply,” Mr Archer concluded.
Following our recent article on the expected freeze on interest until 2014, we thought we would give you a brief guide to fixed rate mortgages. If you’re thinking of buying a new home now then a fixed rate mortgage could give you peace of mind about your monthly payments for up to five years. More companies are now releasing 5 year fixed rate products as well as tracker mortgages which track the Bank of England base rate.
When you take out a fixed rate mortgage your rate, as the name suggests, is fixed for a set period of time. You can usually choose to fix your mortgage for 2,3,5 and in some cases 10 years.
To find the best mortgage product for your situation we always advise speaking to an independent financial advisor or mortgage broker. They will give you a ‘whole of market’ view so that you get the best deal.
Advantages of a Fixed Rate Mortgage
Choosing a fixed rate mortgage will ensure that your monthly mortgage payments are the same over the fixed rate period.
Let’s say you took out a 5 year fixed mortgage in 2011 and interest rates increased in 2014, as they are predicted to do, your mortgage payment would not rise as a result and would stay the same until 2016 when your fixed rate runs out. It really is that simple and for many people, a fixed rate mortgage is a blessing.
Disadvantages of a Fixed Rate Mortgage
Naturally, there has to be a little bit of a catch and here it is. Fixed rate mortgages do incur set up fees and these can be quite high. That makes it even more important to shop around for the right mortgage at the right price. The set-up fee can usually be added to your total balance and monthly payments.
It’s usual with a fixed rate mortgage that you will be tied to that product until the fixed rate period expires. If you find a change in your circumstances causes you to review your current mortgage, or that you need to end the fixed rate term early, you will normally be forced to pay a redemption charge. This can sometimes equate to thousands of pounds depending on your mortgage amount and the terms of the product. Again, obtaining mortgage advice at an early stage could help you to avoid this type of situation.
If you’re looking for protection against a rise in interest rates then a fixed rate product is for you. However, it’s also important to understand that interest rates can go down and that if they do, you won’t be able to take advantage in the lower rate. Right now, interest rates are at a record low 0.5% and have been that way for 28 months now. This rate is now not expected to rise until 2014 so it’s a great time to look into fixed rate products or even tracker mortgages which track the Bank of England base rate.
If you’re looking for a mortgage now or considering starting the search in the near future, there’s a bit of good news to come out of the City. The Bank of England has said that it is not likely to change its monetary policy stance soon leading experts to suggest that interest rates will not rise until at least 2014.
The chances of a rise in interest rates in 2011 started to ebb away following the steady flow of depressing news regarding the British economy and worsening prospects across Europe.
Members present at the July Monetary Policy Committee meeting voted 7-2 to keep rates held at 0.5%. The minutes of the meeting also add that members admitted that inflation would go above their prediction of a peak of 5%.
This news comes just one day after Woolwich revealed its cheapest mortgage products for over 15 years – they have reduced the rates on a third of all their tracker and fixed mortgages.
Vicky Redwood, of analysts Capital Economics said “Our long-held view is that interest rates will remain on hold. We are not expecting interest rates to rise now until 2014 at the earliest.”
Economic forecasting company Ernst & Young’s ITEM Club also reported that they expect no change to the base rate until at least 2014. The base rate right now is historically low and was first introduced back in March 2009 and it could be here for at least another 12 months.
Other financial analysts have said the Bank of England is “stuck between a rock and a hard place” with both growth deteriorating faster than first predicted, and inflation pressures increasing.
The Good News for Mortgage Seekers
Lenders are really starting to push there products onto the market right now and there’s a lot of fierce competition out there – great news if you looking for a mortgage right now. Being able to fix your mortgage for 5 years at rates below 4% is a pretty good offer. Mortgage rates are being pushed down by predictions that the base rate is unlikely to rise anytime soon and also swap rates affecting fixed rate mortgage products have also fallen. Many lenders have their half year targets to hit and whilst funding might remain tight, the Council of Mortgage Lenders has reported that there may actually be more funding available than first expected.
You can’t open a newspaper these days without reading articles about debt and how the UK is drowning in it. Of course dramatised stories and over-egged reports sell newspapers, but what do the general public think? What is the perception of UK debt versus reality? It’s true that many people are struggling with debt and it’s fair to say the reccession has been the catalyst of many a personal debt problem.
In the UK we are quite secretive about our debt. It’s one of those taboo subjects that never really comes up. It’s considered crass to wave a platinum credit card around these days and we tend to keep any debt problems to ourselves or at least within our own four walls. Perhaps if we were more open about debt and debt problems we could find a way to get help more easily.
A recent survey conducted by Payplan asked a section of the UK public seven questions about their perceptions of debt. The short survey was designed to explore our thoughts about gender, marital status, housing status, total amount of unsecured debt, monthly income, the regions where debt is more prevalent, and how long it would take to pay back their debt.
Let’s take a look at those questions and the results. In some areas the perception is pretty close to reality, but in others it’s way off!
For example, a large percentage of those questioned thought that renters were most likely to have debt problems when the reality is it was the homeowners that came out on top. Of course, homeowners usually have more secured debt in the form of mortgages, but the survey was focusing on unsecured debt and particular debt problems.
Another question asked how many years it would take to pay off a debt management plan to clear a debt. 21% thought it would take 13 years whilst 18% thought it would take 5 years. The reality is 9 years for most people.
Marital status was also an interesting question. A lot of those surveyed believed divorced or separated people to be most likely to have a debt problem when it was in fact singletons who came out top.
The infographic below shows perception vs reality in clear detail. It’s interesting to see how much of the UK is affected by debt and it’s clear to see that our perception is a lot different to what is actually happening out there.
Of course, it goes without saying that you should only take on debt if you can afford the repayments. Debts like mortgages and personal loans will usually take years to pay off so know what you are getting into before you sign on the dotted line.
Source: Payplan – IVA and Free Debt Management Plan provider.
The Bank of England warned this week that the number of homeowners defaulting on their mortgage payments has made an unexpected increase. Between January and March, lenders reported a surge in customers being unable to find the money to meet their monthly loan repayments. They told the Bank of England’s researchers that they fully expect this number to rise further over the next few months at least.
This rise is the first since the second quarter of 2009 and will inevitably increase again should interest rates increase; something which could be on the cards as early as May 2011. Nationwide, Britain’s biggest building society, announced their own fears yesterday about ‘the squeeze on borrowers’, a fear that is shared by many of its competitors.
The Bank of England surveyed a number of lenders with 11% reporting that mortgage defaults rose significantly during the first quarter of 2011. Many lenders had expected this number to remain flat given that the Bank’s base rate is still at a record low of 0.5%.
Research also shows there to be a significant drop in demand for mortgage products and a further drop is expected over the next 3 months. A poll conducted by Reuters found that the majority of lenders expect the Bank of England to hold off from raising interest rates until July 2011, but 45% also expect an increase to be announced and in effect before June. As inflation has risen, the pressure has been rising for an increase on the cost of borrowing.
As if that wasn’t enough, further data released this week has shown consumer confidence has failed to bounce back since its biggest drop since 1992. Consumers are no longer as willing to splash out on big ticket items either because they can no longer afford them or because they are choosing instead to save their money. Figures released by GfK NOP Social Research also showed that the hopes for a recovering economy over the next year increased two points since last month, but were still down 29 points since last year.
Plan for a mortgage as you would a holiday, with enthusiasm and precision.
Mortgage lending criteria over the last couple of years has tightened up and this may continue through 2011. We recommend to give yourself the very best chance of securing a mortgage in 2011. Start your preparations now.
1. Credit report/ score
When a mortgage application is placed the lender usually credit searches the applicant.
We recommend that you order a credit report prior to starting the mortgage process, why?
- to ensure that you have not been a victim of identity fraud.
- Find out what your credit score is: 0 low and 1000 high
If the score is low, it might be improved by,
I. Setting up Direct Debits for payments of credit cards/storecards or loans. One late payment can count against you. Show the mortgage lender you can manage your accounts.
II. Register on the Electoral Role at each address resided. Still living at home? make sure that from the age of 18 you are registered.
III. If you are in rented accommodation even just for six months, we recommend you ensure you register on the Electoral Role.
2. Documents – be prepared
Some mortgage lenders have a time limit to get documentation to them to support an application. Having the following documentation to hand, aims to ensure a quick mortgage application process.
I. A current driving licence or passport for personal identity
II. A utility bill or bank statement not older than three months showing your current address and name.
III. Last three payslips/3 years accounts
IV. Latest P60
V. 3 months bank statements
3. Independent mortgage advice
If a mortgage lender credit searches / scores an application, a ‘footprint’ is left on your credit report and your score could potentially be lowered. If you are unsuccessful in obtaining a mortgage and you have to go through the process again, the new lender will see the previous activity. Talk to Your First Mortgage Company who can undertake a Feasibility Study on your behalf. This will let you know potentially, how much you could borrow, what type of interest rates are available and most importantly will help you gain an understanding of your purchasing and monthly payment budget.
There are no guarantees that you can obtain a mortgage but by good preparation, the feasibility of you being accepted is likely to be much greater. Good luck!
The Financial Services Authority does not regulate some forms of mortgages. There may be a fee for mortgage advice. The precise amount will depend upon your circumstances, but we estimate that it will be £275. The overall cost for comparison is 4.6% APR.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP YOUR REPAYMENTS ON YOUR MORTGAGE
Please note that there may be variations for those living in Scotland and Northern Ireland.
Carol D Brown Cert CII(MP & ER)
Click here to Contact Carol