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Could mortgage market ‘seize up altogether’?

by Alison Feemantle

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?

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A Slow Down in Mortgage Rate Rises?

by Alison Feemantle

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.

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Latest Which? Survey Reveals Mortgage Concern

by Alison Feemantle

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.

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Typical Spring Bounce But Mortgage Approvals Down

by Alison Feemantle

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.

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Lenders Succumb to Mortage Rate Rise

by Alison Feemantle

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.

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Thousands Trapped By Generation Rent

by Alison Feemantle

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.

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Mortgage Lending Increases But Rates Do Too!

by Alison Feemantle

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.

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Mortgage Lending Up Despite News of a Sales Slump

by Alison Feemantle

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.

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Buy to Let Mortgage Products Soar

by Alison Feemantle

Figures released by the Council of Mortgage Lenders (CML) this week reveal a huge spike in the number of Buy to Let Mortgages taken out in 2011 and although they have yet to reach the boom period of 2007, it’s clear that this is a major growth area for the mortgage industry as a whole.

The findings state that overall, the number of loans agreed leapt by 84,000 with the biggest rise appearing in the last three months of the year when 34,800 buy to let mortgages were agreed. Those figures for the final quarter of 2011 represent a significant increase from 26,300 in the same 2010 period.

By comparing these statistics with 2007, when over 93,000 loans were advanced, the rise is thereby put into some perspective but by the end of the year, this type of funding was worth around 13% of the overall market.

Paul Smee of the CML pointed to a number of factors that have contributed to the increase including a static housing market and an increase in demand for rental properties.

‘These figures do not suggest that buy-to-let is crowding out first-time buyers; more that it is performing a really important role within the overall housing market,’ Mr Smee said.

‘The benefits of the availability of good quality, private rented housing should not be overlooked, especially as there are many households which need the flexibility and mobility that the private rented sector is well-placed to provide.’

Industry experts are now predicting steady growth for an area that is something of a shining light among a depressed market. In addition, some commentators have linked the problems involved in finding first time buyer deals to the increase in buy to let mortgages.

‘The buy-to-let sector is one of the few beneficiaries of the current economic climate,’ said Jonathan Samuels of Dragonfly Property Finance.

‘Buy-to-let is being driven by the weakness of the economy and the continued caution of high street lenders at higher LTVs.

‘Consumers are wary about buying and lenders are wary about lending. The result is soaring demand for rental property, which is pushing yields ever higher’

Overall this may seem to be good news for everybody but there is a suggestion that those who are renting in the private sector may become trapped and at the mercy of greedy landlords. With first time buyer mortgages hard to obtain, rent increases may have to be endured.

Matt Hutchinson of spareroom.co.uk concluded with a warning to landlords.

‘Landlords should weigh up the benefits of retaining reliable tenants against the short-term benefits of hiking rents to take advantage of a booming rental market,’ Mr Hutchinson said.

‘The last thing any landlord wants is rental void periods, and if that means holding off imposing rent rises on current tenants, or even dropping the rent a little, then in the longer term that may be a better course of action.’

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To Rent or To Buy? The Debate Rages On!

by Alison Feemantle

It’s a question that will probably never be met with a definitive answer as many would be homeowners face up to the question of whether buying or renting is their best option. Naturally, as individuals, those in this position will have a differing set of circumstances and the difficulties in securing a mortgage may well be enough to push many down the rental channel.

As for the costs involved, the Halifax has declared that home owning is considerably cheaper and on average, anyone renting their property could be paying in excess of £100 a month more for the privilege.

As part of the Halifax Buying Versus Renting Review, the organisation took into account many factors including the relative cost of monthly mortgage and rental payments, the cost of essential building repairs and maintenance and any money lost as a result of funding a deposit. Additional expenditure such as buildings insurance was also used as part of the overall survey.

Using their own records and those supplied by the National Office of Statistics, Halifax claim that the typical cost of purchasing a three bedroom house in December 2011 was £600, which is £116 less than the finances involved for renting an identical property.

Ultimately, that works out to be a 16% saving and a significant change to a previous survey carried out in 2008 which claimed that the costs involved for buying a home worked out to be 29% more expensive than renting.

“The affordability gains for buyers relative to renters in the last three years have been significant,” said Martin Ellis, housing economist at Halifax.

“The average mortgage payment has fallen dramatically over recent years as a result of falling house prices and mortgage rates. At the same time, rents have risen due to strong demand for rented accommodation.”

The findings also arrive after a claim from the Association of Letting Agents that the rental market is showing clear signs of softening and that demand for the type of three bedroom property used in the survey is on the decline.

The figures are indeed significant but as the property market has already indicated, this promises to be a volatile and uncertain period in terms of mortgage rates and the ability to arrange a home loan. In addition, economic uncertainty and the difficulty in raising a substantial deposit are likely to see very few renters change their current position in the light of these statistics.

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