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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.

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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.

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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.

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6 Million Brits Shun The Property Game

by Sean Matthews

Whilst the availability of credit might be improving on the high street, people are still nervous about committing to a mortgage.   Research is suggesting that over 6 million Brits have given up on finding a mortgage and have decided to rent or stay at their current property until the market improves.

Unfortunately, it’s a catch 22 situation.  The market needs confidence from buyers in order to recover and buyers need confidence in the market.  Mortgage rates are steadily falling and the number of mortgage products being offered are on the increase.  However, these products are focused at the high end of the market and are therefore only accessible to those homebuyers with significant equity available.

According to a report released by moneysupermarket, those looking for a house now expect to buy their first home at around 38 years old and only 5% of those planning on buying a house in the future actually have a deposit saved.

However, the number of products aimed at first time buyers has risen by almost 200 which still offers some hope for those wanting to purchase their first property.  The average loan to value (LTV) for first time buyer products is around 77% which means that first time buyers still need that all important deposit.  Whilst house prices may have dropped, the cost of living has continued to rise, and less people have the spare funds to commit to saving for a deposit.

For those with a deposit of 10% the market is still limited when it comes to mortgage products and any products have rates that are significantly higher than the most competitive mortgage rates.  This makes the monthly payments for first time buyers much higher than those with larger deposits.

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