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UK Property Market Recovery Could be Marred By Interest Rate Hikes

by Laura Halloway

If the UK economy improves later in 2011 it could lead the Bank of England to rising interest rates suddenly.  Experts are warning that this could cause potential problems for the property market.  It’s not come as much surprise that the bank’s Monetary Policy Committee has made the decision to leave interest rates at their record low rate of 0.5%.

However, this could mean trouble for those looking for larger mortgages or starting out on the property ladder.   ‘There are still serious concerns about consumer spending and the full effects of the fiscal tightening measures that were implemented in April are not yet fully known. However, if the economy turns a corner the MPC could be forced to make a series of sudden rate rises which could unbalance the housing market,’ said Jennet Siebrits, head of residential research at consultants CB Richard Ellis.

Nick Hopkinson, Directory of property company PPR Estates, however, doesn’t seem to think interest rates will rise this year.   ‘The Bank of England is clearly not going to be able to increase interest rates this year, even though inflation is running away from it. UK PLC is still very weak and any increase in borrowing costs would almost certainly tip the scales back into recession,’ he said.

‘The Government’s austerity cuts continue to bite, unemployment continues to move upwards and household incomes and cash flows will continue to come under increasing pressure for the remainder of 2011,’ he added.

Whatever does happen in 2011, the effect on the property market isn’t going to be promising.   ‘The house sale market has virtually ground to a halt this spring with transaction volumes falling back to the lowest levels seen since the credit crunch outside London recently. I therefore expect house prices to fall by 5% this year, even if base lending rates remain artificially low,’ said Hopkinson.

‘If interest rates are forced up due to the MPC needing to retain credibility on its inflation management brief, then things will get a lot worse for many struggling sellers,’ he added.

According to Neil Chegwidden, director of residential research at Jones Lang LaSalle, the decision will do little to lift the mood in the national housing market but will help it to tread water.

‘The UK housing market has weakened since last autumn but has probably proved a little more resilient than many had expected during the first few months of 2011. London is bucking the national trend in prices but all regions of the UK are suffering from an even further decline in transactions,’ he said.

‘The key mood enhancing trends that the housing industry will be watching for are a pick-up in transactions, a rise in mortgage lending and a boost in first time buyers. News that visitor numbers at new homes sales sites have increased during the first few months of 2011 is one positive sign, but whether these other indicators can follow suit is more questionable,’ he added.

from → property

Millions Locked in Mortgage ‘Prison’

by Alison Smith

An estimated 3.5 million people in the UK (that’s around one in three homeowners) may be a prisoner to their mortgage, unable to escape to a new home or cheaper rate.

Those experiencing the most difficulties are more mature borrowers who have been paying off their mortgage for a number of years.  Many of these borrowers are nearing the end of their mortgage deals only to find their path obstructed by strict new lending regulations imposed by mortgage lenders.  This situation isn’t expected to get any better, as house prices continue to plummet.

Many homeowners hoping to move house in the future find their way blocked as they are not even permitted to transfer their current deal to a new property.

Those facing difficulties include:

Middle-aged borrowers on interest-only mortgage deals

Homeowners whose property has decreased in value so much they are in negative equity and not able to raise a 10% deposit in order to move

Those who have experienced drops in income since they first took out their home loan

Anyone with even one missed payment on a credit or store card – you will be refused for any adverse credit these days as mortgage lenders are more wary of risk

Self-employed people who need to prove their income in the form of audited accounts

The Financial Services Authority (FSA) has imposed a number of changes in the way mortgage lenders approve mortgages.  This means homeowners and first-time buyers are going to face more detailed checks to analyse risk and whether they can meet the repayments each month.

These changes are plain to see if you have recently applied for a mortgage.  Whereas you could have a mortgage offer in the post the next day a few years ago, you will have to wait longer whilst checks are made and in many cases potential borrowers are turned down for the smallest reason.

Trade body the Council of Mortgage Lenders estimates 3.2 million of the six million people who took out a mortgage since 2005 would not be able to get a new deal because of these changes.

Many of these borrowers are being barred from taking advantage of the lowest interest rates ever recorded.

If that didn’t sound bad enough, those trapped in their mortgages or blocked from getting a mortgage, are having an adverse effect on the economy on a wider scale.  Because fewer people are able to get a mortgage, less homes are being sold causing the housing market and house prices to stagnate.  And because fewer people are moving, fewer are spending out on high value items such as new furniture, electrical items and kitchens.

Ray Boulger, senior manager at mortgage broker John Charcol, says: ‘Many people are struggling to find the mortgage deal they want. They are shocked when they find they no longer qualify for the mortgage they have already got.’

There are no up-todate estimates of the numbers of homeowners who may be in negative equity, though Lloyds Banking Group recently admitted it had 150,000 customers in that situation.

from → mortgage, property

Thinktank Calls for Tough Mortgage Lending Criteria

by Sean Matthews

It’s hard to get a mortgage these days.  You only need to drop into a few consumer forums such as Money Saving Expert to see how much first time buyers and homeowners are struggling to secure a mortgage offer.  Since the credit crunch, mortgage lenders have reviewed their products, tightened their security checks, and made it impossible for a lot of people to step onto the property ladder.

However, a UK ‘thinktank’ has recommended that the banks keep their tough lending criteria in place to prevent another house price bubble building in the near future.

It’s been suggested by the Institute for Public Policy Research (IPPR) that mortgages should be capped at 90% and that customers should also be prevented from borrowing sums that are more than 3.5 times their annual income.

The Institute said there had been 4 separate occurrences of these ‘housing bubbles’ in the last 40 years and that each had caused damage to the economy on a wide scale.

The most recent house price boom, when property values trebled between 1996 and 2006, has been blamed and more specifically the loose lending criteria being used during that time.  In fact, prior to the credit crunch, the UK had the highest LTV (loan to value) ratio out of all OECD countries, except for the Netherlands.

The UK has the highest level of mortgage lending compared with the USA and the rest of Western Europe.  The group said that even though the UK had a deficiency in housing, the availability of cheap credit could cause the property market to become more volatile.

The IPPR has approached the Government and City regulator, the Financial Services Authority, asking them not to bow down to lobbying by the banking industry.  Instead, they want to see caps put on mortgage lending.  It also asked for mortgage deposits to be increased for buy-to-let properties to ensure that rental income was sufficient to pay mortgage repayments.

Nick Pearce, IPPR director, said: “Britain has suffered four housing bubbles in the last 40 years, each of which contributed to major economic and social problems. We must learn the lessons from this economic history.

“A central plank of economic policy should be to target moderate increases in house prices, rather than allowing runaway house price inflation which is always damaging in the long run.

“The Housing Minister, Grant Shapps, has tentatively floated the idea of aiming for house price stability but he and (Chancellor) George Osborne should go further and make it an explicit policy objective.”

What do you think?  Time to toughen up even more and risk locking some first-time buyers out of the housing game for years to come, or time to loosen up a little?  Our previous article suggests things may be looking up and that the IPPR’s fears may be ignored.

from → mortgage, property

Secret ’95% mortgage’ Talks Held by Top Lenders and House Builders

by Laura Halloway

If you’re one of the struggling first time buyers trying to get on the property ladder, help could soon be at hand.  Many of Britain’s largest mortgage lenders and house-builders are starting to consider products offering a 95% mortgage to first time buyers.

It’s been reported that secret talks are being held by senior executives from a number of FTSE-listed companies, leading lenders and the Council of Mortgage Lenders.  The aim of these meetings is to find a way to make mortgage lending easier and more accessible to those trying to buy their first home.

It’s also been claimed that the attendee list of these meetings has included Lloyds, Santander, and some of the major housebuilders in the country including Taylor Wimpey, Persimmon and Barratt.  It’s understood that one proposal on the agenda was to create a fund that would be ‘ring-fenced’ for each housebuilder and then utilised by banks to underwrite mortgages for up to 95% of the value of the property.

However, any such proposals need to be handled with great care.  After all, it was these high-risk mortgages that were thought to have contributed to the recent recession.  Moving too soon on this proposal could cause a backlash against banks and the mortgage lending industry.  However, the fund put in place would assist banks in meeting ‘increase capital ratio’ requirements in which they have to set aside capital for mortgages with low deposits.  This will help to reduce the risk should customers default on their loans.

As a result, house builders would gain decreased credit risk ratings from mortgage lenders and banks.

A potential stumbling block however might arise when deciding the amount of money that should be deposited to such a fund.  With suggestions that interest rates could quadruple within a year, some careful planning is going to be needed when implementing the fund.

Analysts also released a warning last week that new home owners would spend over half of their take-home salary on their mortgage payments once interest rates start to increase again.

from → mortgage, property

Senior Mortgage Expert Advises Against Short-Term Fixed Mortgages

by Alison Smith

Short-term mortgages.  Many of us have one and have been attracted by the appealing rates and the security of fixed monthly payments, but are they all they are cracked up to be?

Ray Boulger is the senior technical manager at John Charcol, one of the top mortgage brokers in the country.  He says that borrowers should ignore the two –year fixed deals being offered by mortgage lenders and to instead consider a variable rate mortgage such as a tracker or a discount off the standard variable rate.  This will allow borrowers to take full advantage of the lower rates currently on offer with these products.

He went on to say “So far this year we have sold twice as many five-year fixed rates as two-year ones, although lenders generally have been putting most of their fixed rate promotional activity on the two year market – presumably because the headline rates are more eye-catching.

“The rationale for taking a longer-term view is that for clients who want the security of a fixed rate, two year fixes only offer security during the period when it is least needed, and if rates rise during that period it is inly likely to be possible to re-fix at a higher rate after two years.”

According to the John Charcol mortgage index, the popularity of fixed rate products is waning.  Only 41% of customers chose a fixed rate in April a figure which is down from 50.5% in March and 56.1% in February.

John Charcol expects the decreasing popularity for fixed-rate mortgages to result in the cheapest five-year fixed rate mortgage to fall below 4% – “this will reduce the premium over variable rates to a more acceptable level.”

There are some great deals out there right now for those looking for a five-year fixed rate with rates as low as 3.99% for loans up to 75% loan to value (LTV).  It’s prudent to shop around and to get the lowdown on the market as much as possible.  The Big Property List will bring you the market news as it happens helping you to make an informed decision.

from → mortgage

Buy to Let Market grew 7% in 2010

by admin

The latest figures from the Council of Mortgage Lenders (CML) say the UK buy-to-let market grew by 7% in value terms to £10.4 billion.  The total number of buy to let mortgage loans grew 10% to 102,000.

Interestingly the number of defaulted loans in the buy to let sector is now on a par with owner occupied mortgages in percentage terms where this had previously been running a a higher rate.  This is though to have been balanced by low interest rates which have a much more powerful impact on the buy to let sector due to the prevalance of interest only mortgages.

The CML have stated in a press release that they expect ‘strong rental demand to remain, driven not least by the continuing deposit constraints to entry to the owner-occupier market’.