The Ticking Timebomb!
It seems that many home owners who took out interest only mortgages, particularly from 2007 to 2008, are now worried about how they will repay their loans.
Current analysis shows that the capital on 2.6 million interest only home loans will be due for repayment over the next 30 years. Read more
First Time Buyer Numbers Leap.
Lenders are it seems coming out of their shells once again and beginning to support first time buyers as they become more confident about their credit supplies and the state of their balance sheets.
The Council of Mortgage Lenders (CML) has stated that the number of first time buyers taking on mortgages leapt by 20 per cent in March this year, fuelled by the bank of England’s funding for lending scheme. Read more
Mortgage Advisers Face Mis-selling Scandal.
Just when the financial industry appears to have righted itself following the payment protection insurance (PPI) scandal, it appears that it may have another mis-selling scandal on its hands.
Some claims management firms are currently claiming that tens of thousands of people may be victims of sub-prime and interest only mortgage mis-selling. Read more
Mortgage Advertising Blunders….
The very nature of financial products makes them hard to compare at the best of times, meaning that consumers are more and more reliant on accurate financial advertising.
It is hard enough at the moment for potential borrowers to work out whether a mortgage deal is good or not due to the complicated variety of rates and fees now on offer, without inaccurate adverts.
The thing is that effective advertising does encourage consumers to find out more about a particular firms products and may then in turn prompt them to buy the particular product.
Since April this year the Financial Conduct Authority (FCA) has been responsible for checking that all financial promotions are correct and accurate.
Therefore the Financial Conduct Authority (FCA) states that in regards to financial promotions businesses should make sure:
– Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups.
– Consumers are provided with clear and accurate information
So basically when buying a financial product consumers need to be clear on what they are purchasing so that they are able to make an informed choice.
Although just of late it does appear that both lenders and some home builders have been getting away with incorrect information in their subsequent advertising campagians.
A recent Post Office advert promoted a five year fixed rate mortgage at 2.63 per cent, available up to 60 per cent loan to value (LTV). After the fixed rate expires, the mortgage reverts to a tracker with the revert to rate stated as 4.49 per cent, which is described as ‘Bank of England base rate plus 3.9 per cent’.
However, Ray Boulger of mortgage broker John Charcol, says “When I went to school 0.5 per cent plus 3.9 per cent used to equal 4.4 per cent. Therefore either the revert-to rate of 4.49 per cent should be 4.4 per cent and the Post Office is quoting the wrong margin over bank rate or it thinks bank rate is at 0.59 per cent”.
Although a Post Office spokesperson has since apologies for any confusion caused by the ‘rate error.’
Fairview New Homes advertised one-bed flats from £152,995. The advert claimed that with a 5 per cent deposit and 20 per cent equity loan via Help To Buy, mortgage payments on the property would be ‘just £428 a month’ assuming a mortgage with an ‘amazing’ APR of 2.74 per cent.
Rules about financial promotions state adverts are only allowed to mention interest rates currently on the market and at the moment there is not a first time buyer mortgage with an annual percentage rate (APR) of 2.74 per cent available.
The Financial Conduct Authority (FCA) has refused to comment on individual adverts but they have stated that financial promotions should be ‘fair, clear and not misleading’.
Therefore it does seem that mortgage advert blunders such as these are making comparing home loans an even tougher task!
Too Old to Get a Mortgage!
It seems that record numbers of people in Britain are now carrying on working after the age of 65.
According to recent figures from the Office of National Statistics (ONS), people aged over 65 in employment in the first quarter of this year have reached 980,000. Read more
Can You Buy a Property with no Deposit at the Moment?
Getting a foot on to the property ladder is a tricky business, especially with the demand of high deposits from lenders before they will even consider lending.
In the height of the property boom there was an abundance of deals and lenders that were willing to lend 100 per cent of the value of a property.
But 100 per cent mortgages have been practically non-existent since the credit crunch and mortgage meltdown. This is purely due to the fact that these particular deals were partly to blame for the financial crisis.
One of the biggest risks with 100 per cent mortgages is that they instantly mean borrowers are in negative equity.
Realistically then it is now extremely difficult to borrow 100 per cent of a property’s value.
The Aldermore bank did launch a 100 per cent back in September 2011, it is a family guarantee mortgage which comprises a 75 per cent mortgage combined with up to a 25 per cent secured loan guaranted by the borrowers parents, step parents or even grandparents. Although no money from the guarantor is required up front.
More recently Bath building society launched a 100 per cent loan to value (LTV) mortgage which is a 3 year fixed rate guarantor mortgage with a 5.29 per cent rate.
Borrowers wanting to access this deal must be at least 21 and have a minimum income of £25,000 and have been either employed for 12 months or self employed for 3 years.
The deals also requires third party collateral in the form of a charge on the parental home equivalent to 25 per cent of the house being purchased.
Dick Jenkins, chief executive of Bath building society, states “the 100 per cent parent assisted mortgage scheme is intended to open up home ownership to a wider demographic in a responsible sensible way”.
Borrowers should also not assume that new build properties are going to be out of their price range as many construction companies and property developers can provide accessible ways to get on to the property ladder.
Developers will sometimes offer to lend potential buyers the money they need for a deposit.
So how it works is that the developer may lend say 20 per cent of the property value and ask for this to be repaid in 15 years. Meaning that the potential buyer would only need to apply for an 80 per cent mortgage, which are far easier to come by and far more affordable than a 100 per cent mortgage deal.
All this said recent data has suggested that first time buyers with smaller deposits are making up a bigger share of house purchase loans, meaning that the market continues to be favourable for those looking to buy their first home.
Paul Smee, director general of the Council of Mortgage Lenders (CML), said “more borrowers are taking out higher loan to value mortgages than any other time in the last 4 years”.
HSBC’s Lending in 2013.
HSBC entered in to the UK market when it acquired Midland bank in 1992, it slowly phased out the brand in 1999 and has been known as HSBC ever since.
In the UK, HSBC, only offers its mortgage products direct to consumers through its branch network and telephone services, it does not sell its products through mortgage advisers. The bank now ranks as one of the UK’s biggest lenders. Read more
Rising Mortgage Debt but Borrowers Seem Unfazed.
A study conducted by the Office for National Statistics (ONS) suggests that the average debt on a property rose sharply in the early stages of the financial crisis.
Statistics revealed that between 2008 and 2010 home owners racked up a combination debt of around £847.9 billion.
However, despite the country being plunged in to the worst post war recession, the number of households nationwide who considered their property debts a heavy burden fell from 15.2 per cent in 2006/8 to 13.6 per cent in 2008/10.
Although the burden of debt did ease thanks to the intervention by the bank of England as they dramatically cut back its bank rate, eventually taking it down to a historically low 0.5 per cent.
It has remained there for three and half years and some economists are not expecting it to rise any time soon. However, other experts feel that if and when rates do go up, many people in the UK are likely to experience their property debt as a ‘heavy burden’.
Recent research from the Halifax showed that around 85 per cent of all households would struggle if they had to try and find even just an extra £24 per month on top of their usual monthly repayment.
But while borrowing costs fell, consumers were then squeezed by high inflation and low wage growth. Although the fall in borrowing costs seems to be enough at the moment to outweigh this.
Therefore more recently borrowers have benefitted from the governments funding for lending scheme, this initiative has driven mortgage rates to historic lows.
Mark Dyson, director of independent mortgage broker Edinburgh Mortgage Advice, said “low interest rates helped borrowers to maintain their repayments despite the economic downturn”.
It seems then that currently the low interest rates mean that fewer Brits consider their mortgage debt a ‘heavy burden’.
The Royal Institution of Chartered Surveyors (RICS) has also reported that property demand rose to its highest level in more than 3 years.
According to new research, home owners in the UK have an average balance of almost £100,000 outstanding on their mortgage.
This average mortgage balance appears to then offer a glimpse in to the size of loan British households are trying to service at present in a time when inflation is easily outstripping wage growth.
The housing equity withdrawal figures from the bank of England have consistently shown that households have been paying down their debt, which suggests the debt burden will have become lighter.
Industry regulators have therefore raised concerns about the level of property debt in the UK, which is only being serviced and not repaid.
Some financial experts have therefore warned that interest only mortgages still remain a ‘ticking timebomb’ for many financial institutions.
Current data shows that more than 2.6 million interest only mortgages will be due for repayment over the next 30 years but as few as one in ten people with these deals have no way or plan in place to repay the debt.