High Loan to Value Mortgage Approvals Peak

A report released by chartered surveyors e.surv revealed that mortgage approvals on deals of 85% LTV and higher reached peaked in the month of August.  These figures account for 10% of total approvals.

However, e.surv said that whilst these figures are encouraging, they should not be seen as a sign of long-term market recovery.   High loan to value approvals are still less than half of the peak experienced in August 2008.

More and more lenders are starting to ease their lending criteria slightly and this has helped to fuel an increase in the number of ‘low income buyers’.  The greatest growth has been experienced on properties with a value of up to £125,000 – these are typical first-time buyer homes.  These homes accounted for 24% of all approvals.

Richard Sexton, business development director of e.surv said: “The uptick in high LTV lending is encouraging, and lenders may still be trying to garner market share. But we shouldn’t get too carried away and begin hailing this as a portent of long-term recovery.

“High LTV lending still lags well behind the levels we saw back in 2008 and a slight loosening in criteria only makes a small dent in the vast backlog of buyers stuck in the rental market.”

He added that many high street banks and building societies are still constrained by the weak market and other factors such as strict regulatory controls.

Sexton said; “For those who can get mortgages, the good news is that fixed rate deals seem certain to remain particularly cheap.  The UK has been like a fortress in repelling the international economic contagion, which is good news for borrowers as it means repayment rates will stay low for some time to come.”

Finding the right mortgage product to suit your circumstances is a lot easier if you get independent mortgage advice.  A mortgage broker will be able to give you a whole of market appraisal of all mortgage products including those lenders offering higher LTV products.  We reported last week that the 100% mortgage is back and it looks likely that lenders will slowly start to increase their LTV percentages although strict controls will still be in place.

Quickie Guide to Fixed Rate Mortgages

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.

Couples Forgoing Weddings for First Property

Picture the scene. The champagne is on ice, you’ve planned everything to the finest detail and the moment is right. You get down on bended knee and ask that all important life-changing question “Darling, shall we take a look into mortgages tomorrow?”

More and more couples are choosing to sacrifice their weddings so that they can start saving for their dream home instead. The findings released by Glasgow Credit Union have revealed that 56% of couples would choose to put money away for their new home because saving for both would be too expensive.

Times have certainly changed! Paul Mcfarlane, Head of Operations at Glasgow Credit Union, said “As the economic downturn continues to bite, young couples are increasingly being forced to choose between their dream wedding and their dream home.

“The current climate means that couples have to make sacrifices, especially with demand for a minimum 10% deposit on mortgages. Scottish couples need to save an average of £15,800 to get a foot on the property ladder.”

The Council of Mortgage Lenders has reported that the average deposit required by first time buyers is on average 15%. However, more and more lenders are releasing products that require a lower deposit so this figure should start to show a decline in the near future. The report also suggested that with the average UK salary sitting at £26,000, the required 15% deposit rate would be £1000 more than the annual salary. When you consider that the average cost of a wedding today is £21,000 that puts a lot of pressure on couples to save for both!

Mcfarlane added: “This shows just how difficult it can be for couples to save for a home and why they are sacrificing their wedding day to save for these huge deposits.”

So, do you think it’s possible to save for both at the same time? If you’re not willing to sacrifice the gold Rolls Royce or the £3000 wedding dress then it could be a problem, but with lenders releasing more enticing mortgage products it might just be possible. The good news is that it’s no longer frowned upon by society if you do want to invest in your first property before tying the knot. It’s all about putting things into perspective and thinking about what you want in life and when.

No Interest Rate Rise Until 2014

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.

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!

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.

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.

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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.

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