mortgage
The Vital Role of Parents in Property Buying
In recent weeks we’ve looked at many surveys in different parts of the property sector and one of the common themes is the difficulty young people face in buying a property. Organisations such as Shelter have called on more efforts by the government to address issues within the rental market while it’s also being suggested that young people are being forced to stay home for much longer than they would prefer.
Figures released by the Bank of Scotland this week are now stating that the majority of parents are now fully aware that they will need to provide assistance if their children are to stand any chance of getting onto the property ladder.
The findings show that 55% of those surveyed believe it to be essential that they offer a financial hand in this type of situation but the numbers of prospective property purchasers seeking that help has risen dramatically.
The survey concentrated on those between the ages of 18 and 34 and it found that while around 61% were looking for home buying aid from their parents in the 1980’s, that figure had shot up to 84% in the present day. Additionally, it was also found that 30% of young people were receiving aid from their parents to pay rent as opposed to 8% some thirty years ago.
“Much has been said about the bank of mum and dad in relation to the cost of getting on the housing ladder, but it is clear Scottish young adults rely on financial support from their parents for a lot more than this,” said Greg Coughlan, head of savings at Bank of Scotland.
While that quote may mention Scotland specifically, the survey took in 1500 young adults from across the UK so it’s clear that this is a nationwide issue. Aside from buying a first property, those surveyed said that they were also looking for parental aid to pay for other essentials such as a car and university fees.
A separate poll carried out by Post Office Mortgages looked to underline how keen young people were to get onto the property ladder. The survey said that 36% of males and 32% of females aged between 18 and 34 were hopeful of buying a property in the near future.
“All first-time buyers need to make sure they don’t compromise on getting the right mortgage to help them get on the property ladder,” said Mike Cook head of mortgages at the post office.
Mr Cook also went on to suggest that FTB’s should also look at saving a 10% deposit but that is precisely the problem that is seeing those prospective purchasers look to their parents for financial aid in the first place.
UK Mortgage Lenders Not Immune to Eurozone Crisis
UK financial analysts are warning that the crisis hitting many parts of Europe at present may filter through to Britain to the extent that mortgages may become even scarcer to track down than they are at the moment.
Financial trading continues to operate with fewer borders and as such, UK banks with a Europe-wide presence are going to feel the effects of the current problems and their mortgage arms may be set to tighten their criteria and maybe even remove some products altogether.
According to the Council of Mortgage Lenders, short term prospects for the UK mortgage market were going to be directly affected as a result of the on-going problems in Greece and elsewhere. Recent figures released by the CML have shown an easing of mortgage lending following a spike at the start of 2012 as many borrowers sought to take advantage of the stamp duty holiday.
Gross mortgage lending for April stood at £10.2 billion and while that represented a fall of 19% from March, it was still 2% higher than for the same period in 2011. The stamp duty window was always going to give a false picture and the fact that lending is higher than a year ago might give cause for optimism but the CML have warned against complacency.
“The underlying picture appears to be one of easing momentum in the housing market, but with potential for a sharper downwards correction on bad eurozone news,” said Bob Pannell, chief economist at the CML.
Meanwhile, mortgage brokers are urging borrowers to be alert to the danger that the crisis may bring as lenders consider their options.
“The cross-border nature of banking means that UK banks cannot remain immune to what happens in the eurozone,” said Mark Harris of SPF private clients.
“While interest rates are unlikely to rise for three to five years, supporting the market to an extent, borrowers must keep an eye on lenders raising mortgage rates regardless and take action if required and if they are able to.”
On many occasions in the past, prospective buyers may have been put off by dramatic headlines in the media and it is also felt that this factor may apply in the current climate.
“Few could argue that the demand for property, already weak, has been dealt a further blow by the deterioration of the Eurozone,” said Martin Stewart of London Money.
“With apocalyptic headlines every day, who wants to commit to a transaction as big as moving house?”
The volatile situation looks set to continue for the coming months but how much effect will the news from Greece and elsewhere start to have on the UK mortgage market?
Could mortgage market ‘seize up altogether’?
Advice coming from a proportion of mortgage experts suggests that potential buyers should be looking to arrange a mortgage before the market seizes up. The claims come in the wake of moves by Santander to drastically reduce its lending for the near future.
The bank has allegedly dropped its share of the lending market through brokers from 25% to 14% in recent months and the concern from everyone’s point of view is that nobody is stepping in to fill that void. The end result could be that lending grinds to a halt bringing the property market to a complete standstill.
In contrast with these claims, figures from the Council of Mortgage Lenders (CML) showed that mortgage lending surged in March but brokers have recently been suggesting that there has been a slowing of this market for some considerable time now.
“Both confidence and funding could be affected by the renewed eurozone uncertainties, so the underlying picture of a relatively quiet mortgage market seems likely to persist for some time,” said Bob Pannell, Chief Economist at the CML.
There are, of course, many lenders who are currently increasing rates and adjusting their selection criteria so why are Santander being singled out? It seems that the bank have been such a major home loan provider since the Credit Crunch back in 2008 that their absence from the market today is being keenly felt.
Ray Boulger of John Charcoal Mortgage Brokers revealed that 10% of his company’s business was placed with Santander in 2011 and that figure stood at 11.5% at the beginning of 2012. However, at the present time only 5.5% of its present mortgages are funded by the Spanish based bank.
“Those who want a good mortgage deal should act sooner rather than later, in case the market seizes up altogether,” Mr Boulger said.
In the meantime, Ben Thompson of the Legal and General Mortgage club said that alternative lenders were hoping to fill the gap in the market left by Santander but funding conditions were making it extremely difficult.
In addition, there is a range of potential new lenders looking to enter the mortgage market but have yet to be regulated by the FSA. Those names include Tesco Bank and Castle Trust and as they wait for clearance, the blame for the delay has been levelled firmly at the FSA.
You could certainly name the FSA as a culprit in the lack of capacity,” Ray Boulger added. “It would be helpful if it stood by its own deadlines.”
With Santander pulling back, there is a clear need for someone to fill that gap but is anyone going to be in a position to step in during 2012?
A Slow Down in Mortgage Rate Rises?
The theme for much of the latter half of April and the beginning of May was one of continued mortgage rate rises and the threat of an increased number of households faced with a significant increase in monthly payments. The knock on effect that this had would conceivably leave more households in the so called ‘mortgage trap’; unable to afford higher payments but not in a position to switch lenders as they were unable to meet stricter criteria.
However, there are suggestions within the industry today that the mortgage hikes may soon be coming to an end and Ray Boulger, senior technical manager at mortgage lender John Charcol leads the voices making this suggestion.
“I think that this upward rate movement that we have seen, we are probably fairly close to the end of that,” Mr Boulger said.
“We have seen over the last two months or so, a series of lenders continuing to push rates up – typically only by ten or 20 basis points at a time, but it is a steady increase – and most lenders have increased their rates several times over the last few months simply to try to stem the flow of business,” he added.
The reaction came after several weeks of mortgage rate hikes which have been tempered to some extent by cuts from some lenders. The overall picture tends to balance itself out, although that may not be welcome news for those in the ‘mortgage trap’ who have suffered at the hands of a recent increase.
“We are now coming to the stage where we are seeing some lenders put rates up but some lenders cut them, whereas a few weeks ago nearly all the rate changes were upwards,” Mr Boulger added.
“So there are signs that this upward movement in fixed-rates is coming to an end.”
The reaction comes in reply to a survey from Which? that pointed to worrying signs in the housing market with significant percentages of property owners facing difficult periods if their lenders were to increase their monthly payments. That survey showed that 70% of people interviewed held fears of prospective interest hikes while 14% were already having difficulty in paying their mortgage.
Elsewhere, monthly figures released by Nationwide claim that property prices fell by 0.2% in April and are now 0.9% down from the same period last year.
Overall, this may point to mixed news depending on where you are in the property chain. For first time buyers it suggests that this is a good time to get onto the ladder but if your variable rate is increasing and you can’t switch lender, news of impending cuts will come as little consolation.
Latest Which? Survey Reveals Mortgage Concern
In recent weeks there have been many reports of lenders increasing their mortgage rates and there has been plenty of additional discussion about the impact that this may have. Results of a survey from Which? have just been released that highlight consumers concerns over the hike in their monthly charges.
Amidst reports that over a million customers would be facing a collective rise of £300m in mortgage payments, the organisation found that of those surveyed, 70% of mortgage holders are concerned about monthly increases while 14% declared that they were already struggling to meet higher payments.
Which? claim that those worst affected can be put into the bracket known as ‘mortgage prisoners’ – those who are not able to move to another lender for whatever reason.
Of those people surveyed, 41% said that if their mortgage were increased by £50 a month then they would have to cut back on regular household essentials such as food with 11% stating that they simply wouldn’t have enough for the vital areas of the family budget.
The percentages continue to increase in line with potential higher payments and for anyone facing a £100 a month rise, 11% said that they would simply be unable to pay their mortgage.
Which? went on to find some worrying statistics with regards to those already facing up to mortgage debt. The organisation found that an encouraging amount of people in this situation had already contacted their lender but very few were being met with any real help.
“Our advice to anyone struggling with their mortgage repayments is speak to your lender straight away. It is encouraging that a third of people we spoke to had approached their lender, but, worryingly, in one in five cases, they said their lenders offered no help at all,” said Peter Vicary-Smith, Chief Executive of Which?
“This is just not good enough and we want to see banks do more to help their customers who are struggling. These SVR rises are the consequence of the lack of competition in the market and the failure of the Government to take action to promote competition.
“This is why the new financial regulator, the FCA, needs to be a watchdog not a lapdog. It must stand up for consumers and stand up to the banks.”
This ‘Watchdog not Lapdog’ campaign that Mr Vicary-Smith referred to wants lenders and the FCA to protect their customers against unjustified rate rises and ensure that they are offered options of fixing payments at a reasonable level. Which? also wants lenders not to take advantage of those who are unable to switch mortgages.
Typical Spring Bounce But Mortgage Approvals Down
A significant rise in the number of homes sold in the UK was recorded by HM Revenue and Customs (HMRC) in March and they claim that this is largely down to a seasonal ‘spring bounce’ that is evident in the housing market on an annual basis. HMRC also suggest that the Stamp Duty holiday has had an effect on property figures for the earlier part of the month.
HMRC recorded 74,000 sales during March as opposed to 63,000 for the previous month with Gross Mortgage Lending up by 30% over the same period according to the Council of Mortgage Lenders (CML).
This is the third year in a row that housing market activity has increased sharply from February to March but the figures are still some way short of those declared during the most recent housing boom. Sales activity for March 2012 stands at around 50% of the number of transactions recorded in March 2007.
In the meantime, the British Bankers Association (BBA) have produced a set of figures which at first glance seem slightly at odds with the claim that gross lending had risen sharply. The organisation indicated that mortgage approvals slumped alarmingly in March and they now stand at a ten month low.
Approvals had hit a two year high of 37,977 in January but after falling back to 32,840 in February they have dropped further to 31,888 in March. The BBA also point to the Stamp Duty Holiday as a reason for masking some of the figures but Howard Archer of IHS Global Insight fears that these figures indicate a worrisome trend that could lead to a depressed period for the UK housing market.
Moreover, Mr Archer is concerned that news confirming Britain’s return into recession will have severe implications for the property market as a whole.
“The housing market may well be hit by heightened consumer concern over the economic outlook following the news that the UK is officially back in recession with gross domestic product contracting 0.2pc quarter-on-quarter in the first quarter,” Mr Archer said.
“It is also possible that housing market activity and prices will be softer in the near term as a result of the stamp duty concession having brought forward a significant amount of fist-time buyer activity,” he added.
As we’ve seen in recent weeks, the recent Stamp Duty Holiday has been given credit for inflating many of the statistics within the property market within the first three months of this year. It had been widely expected that those statistics would be lower for the rest of 2012 but with consumer uncertainty over the recession, there are clear fears of an alarming slump.
Lenders Succumb to Mortage Rate Rise
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.
Thousands Trapped By Generation Rent
In recent weeks and months, much of the focus in the property market has been on rental properties and the constant argument between buying and renting. Recent surveys have indicated that in pure financial terms, renting is actually a better option and other positives continue to be highlighted.
On the downside, we’ve seen a rise in complaints about landlords to the Ombudsman and while it seems that property rental is a growth area, it’s been suggested that it’s not exactly a preferred option and there are many who would rather own their home but are simply unable to do so.
A recent survey was conducted by YouGov on behalf of Countrywide, who include an estate agency, a lettings arm and a mortgage broker within their business and are therefore ideally placed to offer an unbiased view of all sides of the market.
The survey of 18-34 year olds found that 45 per cent claimed that the issue of deposit affordability was the biggest stumbling block to buying a home. More tellingly, of the private tenants surveyed, only 32 per cent declared that they were happy where they were and just 5 per cent of tenants claimed that they were delaying a property purchase because they believed that house prices would fall.
“We see first-hand that mortgage deposit and repayment affordability remain the biggest issues facing homebuyers in the UK,” said Grenville Turner, Chief Executive of Countrywide.
“These findings confirm that we are at a crossroad for homeownership, where we could see the next generation becoming a nation of renters without the right intervention from Government.
Mr Turner went on to claim that movement in the property market was so slow that it could go on to have serious implications for estate agents all over the UK.
“Based on current levels of activity, the average home owner moves house once every 25 years as opposed to once in every 12 years,” he added.
“These levels are unsustainable and we call for further support as a strong, vibrant housing market contributes to gross domestic product growth and will dramatically improve the economy.”
In amongst all of these statistics Countrywide maintain that the desire to own one’s own home remains high right across the UK. Throughout the first few weeks of the year we’ve seen figures released relating to property market activity but we seem set for a long period of stagnation if those potential buyers remain trapped in unwanted rental arrangements.
Mortgage Lending Increases But Rates Do Too!
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.
Mortgage Lending Up Despite News of a Sales Slump
Figures released this week by the Council of Mortgage Lenders (CML) show an increase in mortgage lending for January compared with the same month in 2011. However, the expected seasonal fall led to a dip in lending compared with the previous month of December and the findings come amidst headlines cliaming that property sales have fallen.
The CML’s statistics show that gross mortgage lending for January finished at a figure of £10.5bn which represented a 12% fall from December and a 10% increase from January 2011. In addition, this was the sixth month in a row that year by year comparisons had shown an increase, but the CML qualified that fact by stating that very low levels were involved.
“The recent improvement in housing and mortgage market sentiment is welcome,” said Bob Pannell, CML’s chief economist.
“But we should be careful not to overstate its significance, given the very low levels of activity we are starting from and the protracted and difficult economic rebalancing that the UK and other countries have embarked upon.”
Any thoughts of positivity from these findings were quickly tempered, not only by Mr Pannell’s comments but by figures released by Her Majesty’s Revenue and Customs which show a fall in property for January. However, behind the headlines, there is the usual and completely anticipated New Year slump. Furthermore, sales for last month revealed the highest January figures since 2008.
Throughout the UK there were 64,000 property transactions in January 2012 in contrast to 86,000 sales in December 2011. However, compared with the January figures from a year ago, there is an increase involved of over 12,000.
This could be seen in some quarters as a significant rise but as we’ve already seen, some experts are telling us to expect misleading figures as the window for the entry level stamp duty waiver prepares to close.
The 1% level for properties between £125,000 and £250,000 will be reintroduced in March and it’s believed that the current rise in property sales as a year on year comparison could be sparked by a clamour to buy before the window closes.
“The increase in lending compared to January last year helps support our view that housing and mortgage market activity may be boosted by first-time buyers seeking to complete deals before the stamp duty concession ends in March,” Bob Pannell added.
It’s so tempting to look at these figures and search for long term positive signs but it seems that the real story for 2012 won’t even start to be told until the stamp duty waiver comes to an end.