Mortgages & me

Market update

Tue, 30 Jun 2009 15:27:00 +0100

According to the latest survey from the Nationwide, UK house prices rose by 0.9% in June, the third rise in the past four months, and shrank the annual rate of decline to just 9.3%, from 11.3% in May. The increase in prices during the past month means the average home now costs £156,442, which is £15,973 less than a year ago. The Nationwide said the stabilisation of prices was a "welcome surprise". Since their recent low point in February, of £147,746, average UK house prices as measured by the Nationwide have now risen by £8,696. They also said the best measure of short-term trends was to compare the average price for the past three months with that for the previous three. On that basis, prices were now 0.9% higher, the first time they have been on an upward trend since December 2007. They added that that if this pattern continued then this year would end with prices down by only "small single digits". "This would represent a stark shift from trends seen at the turn of the year, when most indicators were pointing to a repeat of the large declines seen in 2008," it said. Although there has been no let up in rationing of loans by mortgage lenders, the building society said potential sellers, and builders, were putting very few properties up for sale, which was bringing some equilibrium to prices. But it warned against interpreting its latest data as the beginning of a sustained recovery in prices, as the abnormally low supply levels would not last for ever. The National Association of Estate Agents (NAEA) says the increase in agent sale boards shows optimism in the housing market. The group revealed that a third of estate agents said they've seen around a 10% increase in properties coming onto the market, compared to six months ago. Furthermore, one in six agents said they'd experienced up to a 20% increase, adding further optimism in a recovery in the housing market. Gary Smith, president of the NAEA, said: "Since the beginning of the year NAEA members have seen a significant increase in demand. There are clearly plenty of buyers out there. Last month the NAEA registered an average of four buyers for every available property." The UK housing market is over the worst, added. Half of all home sales are going through without the Home Information Pack demanded by the Government, it has been claimed. The controversial requirement for sellers to buy and complete a HIP costing £300 or more is simply being dodged or ignored, according to research. This mass disobedience of the law has been highlighted by the Conservatives, who have pledged to scrap the 'pointless and expensive' system. Sellers have been required since April to have a full HIP in place before marketing their home. However, a survey by Spicerhaart, the country's biggest independent estate agency firm, in the following five weeks found a HIP was available and completed in only 48 per cent of cases. According to the latest figures from the Bank of England, the value of purchase loans taken out by homeowners swelled from £5.1bn in April to £5.4bn in May. In real terms this equated to 223 more purchase loans taken out in May, rising from 43,191 in April to 43,414 in May. Remortgages taken out in dipped in terms of the number, falling from 31,701 in April to 30,984, but the value of the loans was consistent over both months at £3.9bn. Overall, some £10.2bn worth of loans secured on homes were taken out over May, up from £10bn in April.

MARKET SHOWS CONTINUED SIGNS OF RECOVERY AS PURCHASES OVERTAKE REMORTGAGES FOR THE FIRST TIME SINCE 2007

Wed, 17 Jun 2009 12:46:00 +0100

Latest John Charcol Monthly Mortgage Index shows purchases now represent over half of all new mortgage applications

Market Update

Fri, 12 Jun 2009 15:54:00 +0100

According to the CML, the number of loans handed out for house purchases in the UK rose by 16% in April compared with the previous month. However the figure remains 28% down on the same month the previous year. The data is bound to add further evidence to indications of a spring bounce in the housing market.• In April, the average amount borrowed by first-time buyers for a home loan rose slightly to £96,000 - the first rise since May 2008.The data is the final set of figures relating to the state of the mortgage market in April, and effectively echoes lending data from earlier surveys. The figures confirmed a rebound in the popularity of fixed-rate mortgages, with many predicting that interest rates are unlikely to fall further. • In January, 48% of new home loans were fixed-rate deals but this proportion rose to 69% in April. • The average rate charged on those deals in April - of 4.83% - was the lowest paid since January 2004. • The number of loans for house purchases stood at 35,500 in April. • The number of people remortgaging dropped to 31,000 - down 22% compared with the previous months and a fall of 65% compared with a year earlier.Unfortunately this comes at a time when many lenders will be increasing their fixed rate offerings following the sharp increases in Swap rates over recent weeks.The Bank of England has said negative equity among home owners might have exaggerated the speed with which the UK economy fell into recession. Its Quarterly Bulletin says negative equity can undermine the solvency of lenders as well as depressing borrowing and spending by home owners. • Negative equity affects between 700,000 and 1.1m households, the Bank says, though they admit that there is no exact measure of the size of the problem.The Bank's main concern is about the effect of bad home loans on the stability of the banking system itself. "Large losses on mortgage loans and associated securities can erode banks' capital positions, affecting both lenders' willingness and ability to lend and, in extreme cases, their solvency," the Bank says. The bulletin suggests that negative equity may have amplified the speed and scale of the economy's fall into recession during the past year as banks, worried about potential losses, reined in their lending to both individuals and companies.Its bulletin points out that the amount of money the UK's biggest banks have lent in the form of home loans, is five times the value of their shareholders' capital and reserves, known as Core Tier 1 capital. And in turn, 40% of all mortgage debt has been packaged up and sold to raise even more loans from the banking system, thus spreading the risk of losses around the banking system far beyond the original lenders. However the bulletin avoids making any prediction about how much worse negative equity, and its effect on the banking system, will become, but it does point out that the scale of negative equity is similar to that of the early 1990's.The problem has emerged much more quickly, because of the very sudden fall in house prices from their peak in the middle of 2007 to the first quarter of 2009. • Between the middle of '07 to 1st Quarter '09 UK house prices fell by about 20%, whereas it took six years for them to fall by 15% between 1989 and 1995.The Bank acknowledges that negative equity can pose a myriad of problems for households in that position if they are in financial difficulties, as it makes it harder for them to sell up and move, or to borrow against the value of their homes to pay off other debts, or to finance normal household spending during a period of unemployment. There is a slight ray of hope this time around though in that so far the level of mortgage arrears and repossessions has been far lower than that of the early 1990's, partly due to the very low level of interest rates now prevailing, which have slashed many homeowners' monthly repayments.According to the ONS, new construction orders for April have provided further tentative evidence that the worst of the downturn in the economy may have passed.• Total orders rose for the second consecutive month to stand 26% above the February low, although in the three months to April, orders were still 8.7% lower than in the previous three month period.Meanwhile, in the housing sector alone, orders in private housing have jumped 57% over the past couple of months. "Although in terms of actual numbers this still represents a low level of activity, the improving picture is consistent with reports from house builders that they have seen inventory levels being run down of late," said RICS chief economist Simon Rubinsohn.

LESSER SPOTTED FIRST TIME BUYER MORE COMMON THAN YOU THINK

Thu, 21 May 2009 09:19:00 +0100

Confidence started returning to first time buyers (FTBs) at the beginning of this year according to the John Charcol Index, the new monthly mortgage activity monitor from John Charcol, the UK’s leading independent mortgage adviser. The index reveals a sharp increase in the proportion of purchases made by first time buyers in the first four months of this year, with that proportion being 31⁄2 times higher than in the previous 4 months. “The return of significantly more FTBs in to the market this year, despite the lack of high LTV mortgages, is one of the best indicators of confidence we’ve got at the moment. A surprising number of FTBs have managed to find deposits of at least 25% in order to access a wider choice of mortgages and get a cheaper deal. Many branches of The Bank of Mum and Dad have proved more robust than many of our High Street banks, haven’t needed a Government bail-out and recognise that providing their son or daughter with a sizable deposit is often a good way of utilising their savings,” comments Ray Boulger of John Charcol. Boulger continues, “Banks and building societies bemoan their ability to attract savings in the current low interest rate environment but their mortgage rates give them the best gross margins they have experienced for many a long year. With parents providing bigger than ever deposits for their FTB children, some families have found a way of cutting out part of the middle man’s turn!”Fixed rates now 82% of all lendingThe proportion of all applications for fixed rate mortgages (i.e. not just FTBs) continued to climb in the last month, from 80.9% in March to 82% of all business written by John Charcol in April. This number is over 70% higher than the proportion of fixed rate applications in January, when it stood at 47.8%.The John Charcol Mortgage Index is published monthly, tracking three important statistics, based on mortgage business written by John Charcol. The index is a leading indicator of trends being based on mortgage applications submitted to lenders, whereas figures reported by the Council of Mortgage Lenders (CML) and the Bank of England (BofE) are based on completions, which typically take place 2-3 months after the mortgage application is submitted. The three statistics tracked each month are the percentage split:• Between Fixed rates, Capped rates and Tracker/Discount rates*.• Between Purchases and Remortgages.• Of First Time Buyers compared to all Purchasers.

Fixed rates on the up

Fri, 08 May 2009 16:08:00 +0100

We have heard from a number of lenders today about putting the rates on their best fixed rate mortgages up. If you are thinking about one then the message is clear, get in quick. To have a look at the current selection of the best fixed rate mortgage click here. To read about why we think it is time to fix your mortgage rate the click here

MONTH TWO OF BANK RATE STABILITY AT 0.5%

Thu, 07 May 2009 12:15:00 +0100

• Some improvement in availability of higher LTV mortgages• More signs of confidence returning to the housing market“Today’s decision by the MPC to leave Bank Rate unchanged for the second month running is likely to be the precursor for several more months of the same, with the committee’s focus being switched from Bank Rate to how aggressively to implement the Quantitative Easing programme. However, whilst it is difficult to be confident how long Bank Rate will stay at 0.5%, it is likely than when the MPC starts increasing Bank Rate it will move up quite quickly, which could be very uncomfortable for anyone still locked into a variable rate mortgage at that time, especially borrowers whose mortgage payment comfort zone has migrated to their current low payments, comments Ray Boulger of leading UK mortgage broker John Charcol.Boulger continues, “Borrowers on variable rate mortgages, especially those with any sort of interest only mortgage, should therefore be very aware of the risk of a rapid rise in their payments at some stage, even though that may not happen this year. Switching to a fixed rate for at least 5 years will be the best way for most people to buy protection from increased rates, but the timing of when they should switch will depend on individual circumstances and borrowers should seek advice from an independent mortgage broker. “Meanwhile borrowers with tracker mortgages and those coming off fixed rates onto what in most cases will be a lower variable rate, should take advantage of the current low interest rate environment to pay down any expensive debt such as credit or store cards, and/or reduce their mortgage, so that when rates start rising again their debt burden will not be so onerous.” What now for the housing market?Boulger continues, “There has been more positive news on the housing market over the last month, with Nationwide’s real, i.e. non seasonally adjusted, house price index showing increases for each of the last 2 months and a net fall of only 0.8% in the first 4 months of this year. Estate Agents have been reporting increased interest from both first time buyers and movers since the beginning of the year, which is also reflected in our figures, and some of that interest is now translating into sales, fuelled by a significant improvement in affordability as a result of a 20% drop in house prices and lower mortgage rates. “However, the restricted availability of mortgage finance is thwarting a significant number of potential buyers and however affordable the mortgage might be becomes irrelevant if a deposit of at least 10% can’t be found. Even with a 10% deposit many First Time Buyers, despite having no adverse credit, are being knocked back because of the very high credit score lenders require to agree a 90% LTV mortgage. Knowledge of the market and lenders’ criteria is therefore a key issue. The good news on the mortgage front is that over the last few weeks lenders have been increasing the availability of mortgages up to 80% and 85% LTV, but deals available up to 90% are still thin on the ground. I expect the choice of deals available up to 90% to increase over the next few months but the return of the 95% LTV mortgage is still some way off for most borrowers, although Nationwide offers mortgages up to 95% for existing customers moving home.“Other positive news for the housing market comes from the RICS monthly survey, which is now reporting the average length of time taken to sell a property is slowly declining and that relatively little new stock is coming onto the market, despite the increased number of forced sales. Furthermore yesterday’s Consumer Confidence Index from Nationwide recorded its largest rise for 2 years.“These are all indications that conditions in the housing market are now improving and I expect the market to stabilise by the third quarter of this year and house prices to show a net fall of only 5% in 2009. However, house prices are unlikely to recover quickly. Redundancies, and the fear of redundancy, will haunt the economy for at least another year and that will be a deterrent to buying for many. It will also be the main reason for the expected sharp increase in repossessions this year, despite improved mortgage help schemes from the Government for people who lose their jobs.“Looking further ahead the prospect of increases in interest rates, plus lenders’ less generous affordability calculations, will inhibit house prices increasing too quickly. “

Market News

Wed, 06 May 2009 16:03:00 +0100

According to the National Institute of Economic and Social Research (NIESR), the UK recession could be the worst since the early 1930s. They said in 2009 the country's GDP could contract by 4.3%, and then grow in 2010 by 0.9%. The government has predicted the economy will shrink by 3.5% this year, and then grow by 1.25% in 2010. They also predict:- That the economy will manage to pick up to a 2.3% growth rate in 2011. Forecasts that "unemployment will carry on rising to a peak of 3.1m people - 9.6% of the labour force in 2011". But the NIESR's gloomy prognosis was countered by the Nationwide figures, which indicated a steep jump in the proportion of people who felt upbeat about how the economy and labour market would be performing in six months' time. Around 26% of people think the economy will have improved in six months, up from 19% in March, while only 32% think it will be worse, down from 41% a month ago.

JOHN CHARCOL SEES APPLICATIONS FOR FIXED RATES SURGE TO 8 OUT OF 10 NEW MORTGAGES

Mon, 27 Apr 2009 11:17:00 +0100

• John Charcol launches a new 3 part Monthly Index tracking split between:(1)Fixed/Capped/Trackers (2)Purchases and Remortgages (3)FTBs/Other PurchasersThe first quarter of 2009 has seen one of the biggest ever changes in the take up of fixed rates according to a new monthly mortgage index from leading UK mortgage broker John Charcol. Based on mortgage business written by John Charcol, the index shows a huge increase in the percentage of fixed rate mortgage applications from 29.1% in December 2008, through 47.8% in January and 67.4% in February to 80.9% in March. The increase comes as a result of a combination of several factors, the most obvious being that with Bank Rate now at 0.5% there is only one way for it to go – the only questions being the timing and the scale and speed of the increase.Another important factor is that the historically huge margins above Bank Rate now being charged by lenders for new tracker mortgages means that the risk of being locked into an expensive tracker mortgage when rates go up outweighs the fact that initially a fixed rate is a little more expensive. A third factor is that until recently there were no trackers available above 75% LTV and so borrowers wanting more than 75% couldn’t have a tracker even if they wanted one.In the first quarter of 2008, as Bank Rate fell towards 5% and it looked as if it wouldn’t fall much further, the take up of fixed rates accelerated rapidly and in the second quarter stabilised at around 60%. However, when by mid year further rate cuts looked on the cards fixed rate take up fell away sharply to 26.5% in July and then fluctuated between 14.2% and 23.4% for the next 4 months, before starting to increase again following the Bank Rate cut to 2% in December.The John Charcol Mortgage Index will be published monthly, tracking three important statistics, based on mortgage business written by John Charcol. The index is a leading indicator of trends being based on mortgage applications submitted to lenders, whereas figures reported by the Council of Mortgage Lenders (CML) and the Bank of England (BofE) are based on completions, which typically take place 2-3 months after the mortgage application is submitted. The three statistics tracked each month are the percentage split:• Between Fixed rates, Capped rates and Tracker/Discount rates*.• Between Purchases and Remortgages.• Of First Time Buyers compared to all Purchasers.

Nationwide update

Mon, 27 Apr 2009 10:48:00 +0100

With effect from Thursday 30th they are launching a new variable rate, the Standard Mortgage Rate (SMR). The SMR will be their new revert rate and will launch with a variable rate of 3.99%. The SMR comes with the full range of flexible features including, overpayments, underpayments and borrow back. All products from Thursday will revert to the SMR at the end of the deal period. This new 'revert to' rate no longer has any cap on how high they can set it, unlike the current BMR which is capped at no more than 2% over base. They claim that having this extra scope on their 'follow on rate' to will enable them (at some undisclosed point) to launch more competitive tracker rates. Bearing in mind they are effectively increasing their 'revert to' rate by 1.49% you would certainly hope so, but I wouldn't count on it...

Nationwide SVR changes

Mon, 27 Apr 2009 10:43:00 +0100

Word reaches Charcol Towers that Nationwide will be introducing a new Standard Variable rate with a new name which will allow them to get round the fact that they have to keep their current one at 2% above base rate. More to follow...

Mortgage lending fluctuates

Mon, 27 Apr 2009 10:15:00 +0100

Mortgage lending by the UK's major banks fell for the first time in four months in March, tempering the talk of housing market recovery. The number of mortgages approved for house purchases fell to 26,097 in March, down 6.8% from February and 25% lower than a year earlier. The British Bankers' Association, which produced the figures, said it expected fluctuations during a recession. And so would we. Things are not as black and white as they once used to be, they are somewhere firmly in between...you might say there were a shade of grey...charcol?

To fix or not to fix...

Mon, 27 Apr 2009 10:12:00 +0100

This is a question that is becoming more and more prevalent in the market, to which we believe the answer is firmly the former - now is indeed the time to fix. At the start of this month there were some fixed rate reductions from a number of key lenders and the general sentiment is that this will now be the floor for fixed rates. Indeed, some have begun to edge up again over the last few days. Waiting for any further significant cuts now looks to be a losing game.The lenders that were able to cut their fixed rates did so because of a fall in longer term swap rates of about 0.3% which came about due to a large fall in gilt yields after the Bank of England announced the details of its Quantitative Easing programme. However, this fall in swap rates has been largely reversed since meaning that the recent trend of fixed rate reductions has now been turned on its head.So why the increase in gilt yields?Put simply, there are three main reasons. Explaining them in detail could easily occupy several pages of A4, but we will keep it brief. Firstly, the shock inflation figures released recently; secondly, last month's comments from the Governor of the Bank of England to the Treasury Select Committee effectively telling Gordon Brown to stop flexing the corporate credit card; and lastly, the failure of the long dated gilt auction with only 93% of the gilts on offer taken up.What does the future hold?After the fall in the best fixed rates it now looks like the right time to take a fix, preferably for at least five years. The need to fix for longer is driven by the fact that interest rates have to go up at some point, only our old friend Walter Mitty would disagree with that. When this will happen is still open to question, but we believe that longer term fixes are much more likely to help most people ride out the storm that is brewing. In fact, the first quarter of 2009 has seen the biggest swing towards the take up of fixed rate applications from 29% in December to 81% in March.One struggle many borrowers have at the moment is that when they are currently paying very little for their mortgage each month having to convince someone who is paying 1-2% on a tracker that they should take a fixed rate of 4-5% is a task of Herculean proportions, but it really could be the best move in the long term. With underlying interest rates easily capable of reaching the 6-7% mark, it is no exaggeration to say that pay rates could be priced at 10%+ in the future. Some basic maths will show that fixing in now will be the winning game. Property ValuesOne final point worth highlighting is that the ratio of the loan against the value of a property (loan to value) is critical in this market and will be an increasing problem so long as property prices continue to fall. Recent reports suggest that house prices are back to their 2006 levels, with 13.4% being wiped off property values in the last year. This could mean your loan-to-value (LTV) could be worse then it was when your mortgage was arranged and in the short term, it will continue to drop.If you are near to a major LTV threshold, particularly 75%, reduced choice and higher rates will absolutely work against you. Due to capital adequacy requirements the margin that lenders will demand, and indeed need, for higher LTVs are highly likely to take many a year to come down. Anyone who has a high loan to value (75% +) ratio and is sitting on their lenders standard variable rate should now be looking at fixing for an absolute minimum of 3 years although we believe 5 year fixed rates to offer more value and stability. Property values will continue to fall this year and lenders will NOT be offering more favourable rates or LTV ratio's meaning it will be harder to come off your SVR the longer it is left. Being stuck on a the SVR in an increasing interest rate environment is not a place you want to be especially as SVR's are traditionally at least 3% - 4% higher than bank base rate and would therefore ask that some serious thought is given around fixing your mortgage.Getting detailed, independent mortgage advice has arguably never been more important. Ensuring you are in the best place for the next few years will prove to be the winning game.

A rock does bounce after all...maybe...

Mon, 23 Feb 2009 10:15:00 +0000

Northern Rock is set to return to the mortgage market with a £14bn lending plan only 12 months after it was nationalised. The nationalised bank will also offer deals up to 90 per cent loan to value, a level that has been severely lacking in the UK market of late.In 2009, the bank will lend £5bn in 2009, and lend the other £9bn by 2011. The Government is allowing this move as the bank has paid back around £18bn of its £27bn Government loan, much quicker than anticipated. A percentage of this pledge is Government money.Chancellor Alistair Darling told the BBC Today Programme that while the rate of Northern Rock’s payback will slow down, it is better that it remains a lending bank.Darling said: “We are working to resolve the problems in the banking sector and get to lending again. People need to put this into perspective - this is one of a number of measures. We are using Northern Rock to help fill the gap left by the international banks.”Darling called 100 per cent mortgages “ridiculous” and said he is going to make sure Northern Rock mortgages will not exceed 90 per cent, judged on a case-by-case basis.Whilst the news, at face value, appears to be good, the devil is always in the detail. What will the criteria be? What sort of service levels will NR offer? Etc etc. There is much still to be found out, but let’s not get too negative now…It’s a start…

MPC Minutes cut and dry

Wed, 18 Feb 2009 14:53:00 +0000

The latest MPC minutes show the committee voted 8-1 to cut interest rates to 1% from 1.5% in February, with only one dissenting vote from David Blanchflower, who wanted rates cut more sharply to 0.5%. The MPC also voted 9-0 to seek government approval for measures aimed at raising the supply of money in the economy. In the minutes, the Bank hinted that increased quantitative easing was necessary, as cutting rates alone may now not be enough to help the economy out of recession. "To the extent that further cuts in bank rate could not inject sufficient stimulus, the committee would need to use alternative policy instruments," the minutes said. "There was a great deal of uncertainty about what would happen to banks' and building societies' ability and willingness to lend at low levels of interest rates." The PM has also said that staff bonuses at the new Lloyds Banking Group, will be limited, though agreement on the exact amount hasn't been agreed yet.

Market News - 4th Feb

Wed, 04 Feb 2009 12:16:00 +0000

The National Institute of Economic and Social Research (NIESR) also has said the UK economy will shrink by 2.7% in 2009, its worst performance for 60 years. As recently as October, the NIESR was only predicting a 0.9% decline. They predict the recovery would begin in the third quarter of 2009, but said it would be "feeble", with growth of just 0.6% in 2010. It said the economy would be hit by a 3.8% fall in consumer spending and 8.8% drop in business investment this year. The Bank of England has announced that it has lent £185bn to financial institutions since April under its special liquidity scheme (SLS). They've revealed that 32 banks and building societies took part in the scheme. The idea of the SLS was to help encourage banks to resume normal lending practices by reducing the uncertainty that having illiquid assets on balance sheets was creating. But it only applied to assets, such as mortgage-backed securities, held by the banks before 31 December 2007. In total, the Bank of England received assets from the banks valued at £287bn. The Bank conceded that financing conditions were still difficult and so fresh measures have been put in place. One of these is the new Discount Window Facility, which will allow banks and building societies to borrow money using a wider range of collateral than the SLS. In January, the Bank of England also extended the length of time that banks could borrow under the new scheme from 30 days to 364 days "in recognition of the continued stress in financial markets". The UK's recession will last between one and a half and two years, according to Nouriel Roubini, professor of economics at New York University, and one of the few people to predict the credit crunch. The problems facing the UK economy are "pretty severe" and "will take quite a while to resolve", yet he also said things were manageable, and the UK could afford the banks bail-out. The government has lost a vote in the House of Lords on an amendment to its flagship bill to protect the banking system. They were defeated by 35 votes as peers backed a Conservative amendment calling for a quarterly update on the cost of the bank bailout. Ministers must now decide whether to ask MPs to overturn the amendment when the bill returns to the Commons. Measures in the bill include increased protection for depositors and enhanced powers to deal with failing banks. Ministers are working against a tight deadline to pass the legislation as existing legal provisions used to nationalise Northern Rock and Bradford & Bingley expire on 20 February. The government wants replacement laws on the statute book by 12 February, when Parliament rises for a week-long "half-term" recess.