Posts tagged: mortgages
Two Thirds of Mortgage Applications Turned Down
Here at The Big Property List we like to report on the latest goings on in the property and mortgage world and there has never been so much going on! It’s an unfortunate situation that many of our articles give or predict bad news within the housing market, but in time we hope to report on a better outlook. In this article we look into the lending decisions by mortgage lending companies and how you can prevent a negative mortgage decision.
Right now, two thirds of home loan applications are turned down. Ben Thompson, managing director of the Legal & General Mortgage Club said, “We know that for some of the best headline rates available on the high street, up to two-thirds of applicants are being turned down.”
Melanie Bien, directory of independent mortgage broker Private Finance also highlighted this trend suggesting that some mortgage lenders re ‘cherry-picking’ the better borrowers. She said “Some lenders, which often top the best buy tables, seem to regularly turn down applicants.
“HSBC, for example, keeps coming up as a lender which turns down perfectly good applicants,” Bien says. “We’ve had a lot of people coming to us who have struggled to get funding with HSBC yet they have been easy to place elsewhere, so there is nothing wrong with the applicant or the property. In HSBC’s case, it is very much cherry-picking of customers.”
As always, it’s the first-time buyers who are worst hit and especially those with a 10 per cent deposit or less. Whilst there are more products being released that are targeted at this market, very few are getting a positive decision from lenders. In May, only 23% of all mortgage approvals were for properties valued under £125,000 – typical first-time buyer properties. This is 24% down on the average for 2010.
“We accept around eight in 10 of all customers who apply for a mortgage with the bank and the growth of our mortgage business backs this up,” says Martin van der Heijden, head of lending at HSBC.
He dismisses claims that HSBC cherry-picks the best customers, but went on to say that the focus of most banks is on the loyalty and custom of existing customers rather than attracting new customers.
“Lenders have realised that holding the ongoing relationship with their customer is more important than just making another sale,” says Van der Heijden. “We’ve taken a lead in offering exclusive and preferential mortgage deals to existing customers which allows us to maintain competitive mortgage pricing sustainably. The more business customers do with us, the better the price or interest rate we can offer them.”
So, with that in mind, what chances do you have if you are not already a customer of the big name lenders? Many experts say that instead of focusing on applying for the best deals first-time buyers should apply for those products they can afford and which they are more likely to be accepted for. This may command a larger monthly payment, but it could be the best way to step onto the property ladder.
“Most borrowers will be left disappointed with the number of products available to them on the high street,” points out Ben Thompson. But it’s not just disappointment. Making unsuccessful applications could actually affect your credit score. That’s why it’s important to review the market and apply for a product that you are more likely to be accepted for.
“Lenders prefer to choose the borrowers with the highest deposits, incomes and credit scores,” Thompson points out. “A typical applicant applying for a best rate product, which our research shows most will do, runs the risk of a refusal and damage to their credit record.”
So, how can you find the best deal that is right for your situation? Many people are turning to mortgage brokers for mortgage advice and this is a very sensible option especially if you choose a broker who researches the whole of the market for the best deals.
A mortgage broker will know the best ways to get a mortgage offer given your situation, your deposit and what you can afford to pay each month.
There are also many things you can do yourself that will significantly increase your chance of receiving a mortgage offer on a good product.
“Borrowers can help themselves by pulling together as big a deposit as possible,” advises Melanie Bien. “Ensure your credit record is correct and have any mistakes changed before you apply for a mortgage.
“If you had credit problems in the past which have been rectified add a note explaining why you got into difficulty in the first instance and how you have come back from this, demonstrating that you are now a good risk.”
If you have no lending history on your credit report then it’s a good idea to create some. Taking out a low or no interest credit card and repaying it each month will show you can handle credit well and are therefore more appealing to any mortgage lender. Build up a good credit score and keep it that way.
The fact is the housing market is volatile right now so whilst you might be desperate to move, it might be a better idea to sit tight, build up a good credit score and wait until the market improves. It will happen and you could be in a really great position when it does!
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Adverse credit – Why it pays to be honest
It’s getting increasingly difficult to get a mortgage these days even if you are simply looking to switch existing borrowing to a new property. Due to the current economic climate, banks are quite sensibly revising their lending criteria and choosing borrowers very carefully.
Part of the arduous mortgage application process involves a credit check and this is where so many mortgage applicants are declined. Proof of income, employment status, and credit worthiness are thrown into the application mix to create what can often seem like a really tough and to some unfair process. The simple fact is the banks want to be sure you can pay the money back. Before you begin the mortgage application process, it’s really important that you understand the implications of making an application and the agreement you are entering into.
Even if you have been with a lender for years and want to extend your borrowing you will usually need to undergo further credit checks. After all, your circumstances may have changed or you may have acquired some adverse credit on your credit record since your last application. One of the most frustrating things about the credit check is that lenders often refuse to tell you why you were refused a mortgage. This is frustrating on two counts. Firstly, you are being declined the chance to buy the house of your dreams and secondly you have no idea how to go about rectifying the situation.
Of course, if you know you have adverse credit then you should be honest and make sure you mention this in the appropriate area on your application form or if you are using a mortgage broker, let them know so they can scour the market for lenders who are most likely to consider your application. Most lenders prefer an absolutely clean credit file or at the very least a file with no late payments or arrears within the last 6 months.
There are some lenders who will give you a mortgage if you have adverse credit, but they will often do so at a premium rate. They need to protect their interests as they see you as more of a risk than somebody with a clean credit record. This option might work for you, but you need to go in with your eyes open and make sure you really can afford to meet the monthly repayments.
The best way to avoid the disappointment of a declined mortgage is to check out your credit file before anybody else does. This will give you the opportunity to resolve any conflicts or misinformation on your file or to wait a few months before you make an application. Remember, every application you make is recorded on your file too and you will look unfavourable to lenders if you have made many applications over a short space of time. There are many ways to check your credit file online and for a relatively small fee. You could save yourself a huge amount of money, time and anxiety in the process.
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1 in 4 Brits fear base rate rises
A QUARTER of British homeowners are worried about Bank of England base rates going up, after an 18 month period of 0.5 per cent rates, according to research from Moneysupermarket.com
The Bank of England’s Monetary Policy Committee is expected to hold base rate at 0.5 per cent at their monthly meeting in just over a week’s time, marking more than 18 months of no change.
At their September meeting, eight members of the Committee voted to keep the base rate at 0.5 per cent, but Andrew Sentance voted against, preferring an increase in Bank Rate of 25 basis points.
Interest rates will have to start rising at some point and the research found that one in four people are worried about the impact this would have on their finances.
Here’s an infographic with some key figures:
As you can see – with the argument is taken to its conclusion i.e. if base rates were to return to pre-credit-crunch levels, average monthly payments could rocket by up to £563 (based on someone with a £150000 interest-only mortgage on a 2.5 per cent SVR and a base rate increase of 4.5 per cent.)
However, 52 per cent of 1192 people polled said they would welcome base rate rises to give their savings a boost.
Kevin Mountford, head of banking at moneysupermarket.com said: “Low interest rates have been fantastic for a large proportion of UK homeowners and subsequently many people have become used to more disposable income each month.
“However, a Base Rate rise will push up mortgage rates forcing many families to reign in their spending – potentially causing financial problems for many.
“As the poll shows, homeowners are clearly worried about the negative effects of a Base Rate rise. Whilst it is expected that the Base Rate will creep up slowly, consumers need to understand the effect this will have on their finances and plan accordingly.”
Mark Hooson is a personal finance writer for Moneysupermarket.com, specialising in savings, credit and debt.
Gross mortgage lending rose in July 2010
The Council of Mortgage Lenders has today announced that Gross mortgage lending in the UK rose by 5% in July 2010 compared with June. This is still down 3% year on year but is on par with the CML’s revised forecast for the year.
In today’s market commentary, CML economist Paul Samter commented:
“It is difficult to see anything other than a slow market for the rest of this year as underlying activity remains subdued. The rest of 2010 is likely to see rather lower lending and transaction numbers compared to the same period last year.
“But for most home owners, the situation is not that bleak. The vast majority of households continue to pay their mortgages in full every month, and many have benefited from the record low interest rates. This looks set to continue for some time yet. While there are a range of risks to the outlook, low rates will further help most stay on top of their finances.”
Bank of England maintains Bank Rate at 0.5%
The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion.
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The question on everyone’s lips – is now a good time to buy?
Following the emergency budget last week, many homeowners and landlords are picking through the new factors that have been thrown in to the to-buy-or-not-to-buy conundrum.
A few reassuring points remain:
- The new Government have some measures in place to tackle the wider fiscal issues over time.
- The public sector has scope to cut costs without dramatically pushing up unemployment which should keep demand healthy.
- Prices will be stable or only grow slowly for a fair while yet, allowing incomes and house prices to get that bit more comfortable in their relationship and give people time to clear other debt.
- We are still a nation of aspirant homeowners and property should remain a viable investment; and certainly the only one you can live in!
What about first time buyers?
Many people believe that house prices are unlikely to reduce further, so now could be a good time to take that step on to the first rung of home ownership. The biggest barrier facing first time buyers is getting an affordable mortgage and a big enough deposit.
For us, that’s where the regional building society can help. Knowledge of the local area and manually underwritten mortgages makes Saffron able to help first time buyers in our community. And that extra guidance and support from your mortgage lender makes a real difference when taking out your first mortgage.
What will happen to interest rates?
This is a question which we ask ourselves regularly. It’s a difficult one to call – and though there have been some murmurs that, considering the rise in inflation, the Bank of England ought to lift base rate off the floor, they’ve not moved yet, and when it does, it’s unlikely to be dramatic.
Saffron is prepared for base rate to remain at 0.5% throughout 2010 and we don’t anticipate it rising by more than a percent or so in 2011. It’s quite a conservative projection, but we have to play it safe and reforecast regularly as the climate changes.
Ultimately, though, this is all based on conjecture and opinion. To help you make up your own minds, here are a few facts:
- For the first time since the Thatcher days the percentage of people owning a home in the UK has declined.
- This recession was worse than the previous 2 – GDP fell for 6 consecutive quarters by 6% peak to trough, where as in 1980/81 and 1991/92 it fell 3.8% and 2.5% respectively.
- Industry faired better this time around, keeping more people in work – with unemployment peaking at 5% versus 1980/81 at 10.3% and 1991/92 at 9.9%.
- House price falls were bigger and quicker this time around with a range of 7 – 33%, against ranges of 0 – 12% in1980/81 and 0 – 15% in 1991/92.
- Low interest rates are helping keep repossessions low being at a peak of 6% pre this recession against 15% in both the 80’s and 90’s.
This article was written for thebigpropertylist.co.uk by Michelle Monck DipM ACIM, Head of Marketing at Saffron Building Society.
Saffron Building society is a regional building society that has been providing savings accounts and mortgages to communities in the East of England for over 160 years. They offer a range of fixed rate mortgages and tracker mortgages. They have over 120,000 members and are the ‘most followed’ Building Society on Twitter! Visit their website at www.saffronbs.co.uk or follow them @SaffronBS
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2 year high for first time buyer loans caused by end of stamp duty concession say CML
Loans to first time buyers increased drastically last month as the window for taking advantage of the concession on tax duty for properties in the £125,000 to £175,000 bracket came to an end.
There were 24,900 loans to first-time buyers in Dec 2009 – the highest level since November 2008 and 26% up on the preceding month.
Source: Council of Mortgage Lenders
Proportion of income needed for new mortgages at five-year low
Home buyers in November needed to use less of their income to cover their mortgage interest than at any time for more than five years, according to new data released today by the Council of Mortgage Lenders.
In particular, home movers are experiencing a low debt burden by historical standards. They typically needed only 10.6% of gross income in November 2009 to cover mortgage interest payments, down from 11.1% in October. Other than a brief low of 10.2% in the middle of 1996, this is the lowest debt burden on home movers since the CML started recording this data in 1974.
The debt burden on first time buyers also reduced, with 14.4% of gross income needed in November, down from 15.1% in October – the lowest it has been since May 2004.
Source: CML Press Release
More help for First Time Buyers
The Minister for Housing (Caroline Flint) this week launched a document entitled “Facing the Housing Challenge: Action today, innovation for tomorrow”.
Introducing the document to the House of Commons she said: ‘We know that the vast majority of people aspire to home ownership. This is more than an economic calculation—it represents their hopes and dreams for their families. Across Government, we value and support these aspirations. We are absolutely committed to making sure that everyone can find the housing that meets their needs.’
The Financial Times reported that First-time buyers ‘will be able to rent homes cheaply while they scramble to raise enough money to buy them’ under a new initiative.
The “rent now, buy later” scheme will be available to first-time buyers with a household income of less than £60,000. They will be able to rent a house for 80 per cent of rental market value over a period of up to three years, to buy them time to save for a deposit to purchase a share in the home.’
TBPL View:
First Time Buyers have been kept out of the housing market in recent years due to high property prices in relation to earnings. This has recently been compounded by low mortgage availablity due to the global credit crisis. In spite of the government view this may not be a bad thing as it may protect first time buyers from over-extending themselves with a big mortgage at the start of a period in which house prices are predicted to fall and there are concerns about the wider economy.
First Time Buyers may be wise to wait out the current drop in the market (even if they can find an affordable propery and attainable mortgage) and see if house prices continue to fall as predicted this year. But if you can rent at a discount under the new scheme for 3 years – it may be worth considering.
Sources:
Hansard (Official Parliamentary record) 16/7/08
Financial Times 17/7/08
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