Millions could be forced to sell homes as fixed rates expire

Article 2007-11-20, 08:20:00

Selling up and renting could be the only option for sub-prime mortgage holders

More than a million homeowners face a jump in mortgage payments of up to 60% when their cheap fixed-rate deals end. Analysts fear the impact will result in a surge in repossessions.

The Council of Mortgage Lenders is so concerned that it has taken the extraordinary step of suggesting that some homeowners should sell their property rather than risk losing it.

Michael Coogan, director general of the CML, is particularly concerned about the 1.4m people reaching the end of cheap fixed-rate loans. They took out mortgages when interest rates were far lower but will have to switch to more expensive deals in the next 12 months. 'There is a potential payment shock of anywhere between 30% and 60% for many,' he warned.

Many could switch to new fixed or discount rates, but some will have no choice but to move to costly variable rates. In a worst-case scenario, someone currently paying £890 a month on a £150,000 mortgage fixed at 5% could see the figure rise to £1,424 a month on a variable rate.

'We are facing very difficult times,' said Mr Coogan.'We have a number of uncertainties in the market. We've effectively had two seismic events that we've still not recovered from - the earthquake of the capital markets closing because of the problems in the US subprime market and the earthquake of the Northern Rock bank run.'

Mr Coogan said those with a suspect credit record face big problems, including falling into arrears and repossession. He said they will need to protect themselves, which could mean selling up and renting.

Speaking to business information company Cantos, Mr Coogan said: 'They're clearly most at risk of repossession. They can avoid it by seeking to sell and becoming a tenant.'

Banks and building societies have redrawn lending rules in the wake of the global credit crunch, leaving a rising number of buyers being rejected as high risk, or sub-prime. These people are being forced to sign up with specialist lenders, which impose ruinously high interest rates.

Mr Coogan also suggested the Bank of England is lagging behind the US Federal Reserve which has cut interest rates by 0.75 of a percentage point in recent months.

The CML said Britain's property market slowdown will run through 2008 and partly blames the introduction of Home Information Packs in August.

Debt advisers accuse bank of being too quick to repossess

Article 2007-11-19, 05:35:00

CCCS Chairman labels Northern Rock “aggressive”

Debt campaigners challenged Northern Rock yesterday to soften its line with mortgage customers who fall into arrears after they claimed the bank was one of the most aggressive on the high street for repossessing borrowers' homes.

The stricken bank refuses to negotiate with borrowers who are unable to make monthly repayments and moves quickly to gain control of their properties rather than allow arrears to build up.

The Consumer Credit Counselling Service, which handles thousands of debt enquiries a week, said feedback from debt counsellors showed the bank was one of the most aggressive lenders dealing with customers unable to pay their bills.

Northern Rock has often stressed the strength of its loan book and its low arrears figures. It has maintained its figures for arrears of more than three months at about 0.4% of its customers, compared with an industry average of 0.8%.

The CCCS said Northern Rock refused to accept debt-management plans and routinely rejected individual voluntary arrangements, a five year repayment scheme. It is understood that the bank often offers customers further loans to repay debts over a longer period, though the bank denied this was a policy.

Malcolm Hurlston, CCCS chairman, said: "Northern Rock is one of the least charitable on the high street. It says borrowers are treated fairly, but that simply doesn't fit with our experience."

He said the bank's Together product, which combines a mortgage with a personal loan of up to 125% of the property value, was at the root of many repossessions. "The ramifications of the Together loan are felt by many customers," he said. "It blurs the line between secured and unsecured lending to the detriment of the borrower."

In many cases the customers will attempt to protect their mortgage and stay solvent by cutting back on personal loan repayments. Defaults on unsecured personal loans cannot trigger repossession orders but must be pursued through the courts.

However, the bank can apply a charge on a home to the value of the personal loan, in effect securing the entire loan against the customer's property.

Northern Rock denied that it dealt harshly with borrowers in arrears. A spokesman said the bank was well known for allowing miners to keep their homes during the miners' strike of the early 1980s and that policy persisted today.

Surveyors see house price falls

Article 2007-11-13, 05:19:00

Interest rate rise now showing effects

The slowdown in the housing market is becoming more pronounced, says the Royal Institution of Chartered Surveyors (Rics).

Its latest survey of members in England and Wales suggests prices in October fell for the third month in a row, and at the fastest pace since July 2005.

London was the only region where prices did not fall during the month, according to the Rics survey.

Almost all other surveys have pointed to a slowdown since the summer.

"The housing market is seeing the awaited slowdown that many had been expecting, with modest falls reported across most UK regions," said Rics spokesman Ian Perry.

"Credit market turmoil has yet to put downward pressure on prices in the capital, although prices have now stabilised even here," he added.

A combination of high prices and increased interest rates have finally reined in the housing market, with the unaffordability of homes, relative to average incomes, having risen to record levels.

Enquiries from new buyers also fell, for the 11th month in a row, as other factors came into play.

"Interest rate rises, the recent credit crunch and the subsequent tightening of lending conditions have all had an impact upon demand," said Rics.

Overall, 22% more surveyors in England and Wales in October saw prices fall than rise in their locality.

Although prices are still rising slightly in Scotland they are now falling sharply in Northern Ireland.

Pound sets new high as rate-cut hopes fade

Article 2007-10-30, 08:48:00

Bank of England may leave interest rates on hold for now

The pound soared to a fresh 26-year high against the dollar today as currency traders bet the Bank of England may leave interest rates on hold while the US Federal Reserve will opt for a cut.

Bank of England rate-setter Kate Barker - seen as a crucial swing-voter on the monetary policy committee- today hinted there may be no need to cut rates in the UK next month despite the recent disruption in the financial markets.

'We are asking ourselves if things are so different from August, and do we actually have to cut rates,' she said, reinforcing views in the City that the MPC will leave rates on hold at 5.75% until early next year.

The Fed, however, is expected to cut rates from 4.75% to 4.5% tomorrow. The pound rose 26 cents against the greenback to $2.0656, having hit $2.0663 - the highest since May 1981.

'The market mindset is that the Fed will continue to cut rates, while in the UK there's no certainty in that respect,' said Neil Mellor of Bank of New York Mellon in London.

Malcolm Barr, of JP Morgan Chase Bank, said next month's MPC is shaping up to vote 7-2 or 6-3 vote for no change.

Virgin suicide?

Article 2007-10-15, 08:24:00

Branson to bid for distressed Northern Rock group

Troubled mortgage bank Northern Rock said on Monday it was working with "a number of potentially interested parties" on options for its future but added talks were at an early stage and the proposals preliminary.

The mortgage bank gave no details on the number of possible bidders or their identity.

"Northern Rock will continue to work with potentially interested parties to understand more fully their preliminary proposals," the bank said. "While discussions continue with selected parties, Northern Rock emphasises that there can be no certainty as to their outcome."

The statement follows recent news that billionaire Richard Branson has joined a growing list of suitors eyeing Northern Rock.

Citigroup in shocks the markets with profit warning

Article 2007-10-01, 11:06:00

Sub-prime mortgage losses stack up

Citigroup shocked investors today with a profits warning after losing billions of dollars in the recent global financial turmoil. Its gloomy warning came just hours after UBS announced its own substantial losses in the US sub-prime mortgage crisis.

The bank, which is one of the world's most prestigious financial institutions, revealed that net profits in the third quarter of 2007 have nose-dived by 60%.

It blamed "dislocations" in the mortgage-backed securities and credit markets, and also said that its losses from consumer credit have increased.

Charles "Chuck" Prince, chairman and chief executive of the group, admitted that the results were "a clear disappointment".

Citigroup lost $1.3bn (£638m) through securities backed by sub-prime mortgages – loans made to people with poor credit histories who may struggle to pay them off.

It has also written off $1.4bn of highly leveraged loans, and lost a further $600m through trading during the recent market turmoil. As a result, third-quarter profits will be 60% lower than the previous quarter.

Citigroup's profits warning came just hours after UBS announced 1,500 job cuts and a shake-up of top management, after making a huge loss on its own sub-prime investments. The Swiss company has written down £1.3bn worth of sub-prime assets, and has made its first quarterly loss in nine years.

Ironically just three months ago, Mr Prince denied that the financial industry had stoked up trouble through reckless borrowing and excessive risk-taking.

Looking for a better future?

Article 2007-09-28, 05:46:00

A remortgage may be the answer

Debt Consolidation is becoming an increasingly common way of dealing with debt. By paying off all your existing debts and simply making one monthly payments, your debts are under control.

If you remortgage your home then you may be able to pay off existing debts with the extra cash, and your monthly payments will be more manageable as you may be paying less each month for your new mortgage.

Debt Consolidation combines all your individual debts from other sources, such as credit cards, overdraft, personal loans, etc, into one. A single secured loan is arranged at a more affordable rate for your own personal circumstances.

This single secured loan would typically pay off all the existing debts you have, leaving you with just the one payment to make each month. There is no need to sink deeper into debt through struggling to find the money, no need to miss the payment on one bill to pay another.

The fact that the single secured consolidation loan would be arranged at a more affordable rate, meaning you would be able to budget more effectively each month and would not sink deeper into debt.

You deal with just one creditor instead of many. Debt consolidation is growing in popularity and an increasing number of companies are offering debt consolidation loans and programmes and promote them as an advantageous way of dealing with debt.

If you have problems with debt then debt consolidation could be the answer and remortgaging is a good way to consolidate your debts. Why not see how a remortgage could work for you.

Abbey branded “irresponsible” for 125% mortgages

Article 2007-09-20, 09:13:00

Lessons not being learnt from Northern Rock avalanche

Britain's third biggest mortgage lender was last night accused of fuelling the national debt crisis by launching a new home loan worth up to an incredible125% of a property's sale price.

The Abbey loan, the biggest of its type ever offered to UK homebuyers, is entirely secured on the property.

This means borrowers could potentially lose their home for missing a payment even on the portion of the loan secured beyond the property's value.

The scheme has left Abbey open to accusations that it has failed to heed the lessons of the Northern Rock crisis and is ignoring the Government's call for a return to responsible lending.

The deal - being offered to first-time buyers and others across the country in a pilot scheme - has sounded alarm bells among debt advice experts, who say taking it up would be lunacy in the current climate.

The mortgage would immediately lock the buyer into large negative equity - owing more than their property is worth.

If property prices fall in some parts of the country over the next year, as many experts are predicting, then this negative equity would balloon even further.

In the event of an economic downturn, there is a good chance that some takers would find themselves adding to the 30% rise in home repossessions that the industry reported earlier this year.

The timing of the launch could not be worse. The troubles of Northern Rock have highlighted concerns about irresponsible lending by banks.

Keith Tondeur, Director of the debt advice charity Credit Action, said: 'There are real dangers. Someone taking on this loan would have to be incredibly bold or incredibly stupid.

'I would say it is very unwise for Abbey to offer a loan of this sort, particularly at the moment. People should not be sucked in by this.'

The Abbey loan is structured so that a homebuyer can borrow 100% of the value of the property they want to buy, plus another £25,000. A first-time buyer paying £100,000 for a home would be able to borrow £125,000 - or 125% of the home's value.

Someone paying £150,000 would be able to borrow £175,000 - 116% of the value. If the mortgage is less than £100,000, the size of the separate secured loan falls on a pro-rata basis.

Mortgage rates set to fall after Bank U-turn

Article 2007-09-19, 09:40:00

Homeowners could see mortgage rates fall after the Bank of England announced it would inject £10bn into the money markets in a bid to make lending between banks cheaper.

The Government will cover every penny in Northern Rock accounts. Will you still withdraw your money?

The Bank's aim is to help reduce the three-month inter-bank lending rates, known as Libor.

This move would have the knock-on effect of lowering variable rate mortgage costs.

The about-turn by the Bank of England comes just weeks after it asserted that it was not its job to lower three-month Libor rates.

Recently however the three-month Libor figure has risen not only above the Bank of England's base rate of 5.75%, but also above its punitive emergency lending rate of 6.75%.

The Libor rise has been sparked by banks' apprehension to lend to each other because of the uncertainty in the market due to the US sub-prime mortgage crisis.

Most High Street mortgage lenders have subsequently hiked the rates on their variable rate products for new customers.

Chancellor Darling attacks banks over slack lending culture

Article 2007-09-13, 05:50:00

Bankers greed overtakes sense of caution

Chancellor Alistair Darling has slammed Britain's banks for recklessly lending money to consumers and for using complicated investment vehicles without considering the risks.

In an interview in today's Daily Telegraph, he sent the banking industry a no-holds barred warning to examine its behaviour. He urged them to take more responsibility when lending money, rather than recklessly handing out credit.


"Primary responsibility has to rest with people," he says. "In crude terms they need to know who they're lending to, how much they're lending and what the risk is," said Mr Darling.


"Now, that's elementary banking, one might think, but there are times when going back to good old-fashioned banking may not be a bad idea," he added.


Mr Darling also attacked television adverts for debt consolidation products, which are aimed at people who have run up too much credit. Recently TV personalities such as Carol Vorderman have come into the firing line for their support and endorsement of the TV loan companies.


The chancellor's comments were published a day after Bank of England governor Mervyn King said the banks had taken too many risks, exacerbating the effect of the global credit crisis on the UK economy. He said the Bank of England would not bail them out. This seems to contradict the Bank of England’s actions of last week when they lent 100’s of millions to Barclays in a crisis loan.


One problem has been the growth of funds that invested in high-reward but high-risk assets, backed by commercial paper - a loan from another bank. Many of these funds invested in the US sub-prime mortgage market, and have seen their value plummet recently.


Mr Darling suggested that the potential rewards of such schemes has made the banks blind to the dangers.


"Institutions themselves need to open their own eyes and be more honest. When someone comes up with a fantastic way of making money they need to ask, how is this money being made and what are the risks?"

What happens when you switch mortgages?

Article 2007-09-07, 06:20:00

If you've chosen to switch to a new lender, the re-mortgage process will follow the steps set out below.

You will complete a mortgage application in the same way as you do when you first bought your property. Your lender will credit check you and will require you to submit certain documentation to support your application (such as bank statements, payslips or proof of identity).

At the time of your application you'll need to pay a valuation fee unless this is provided free. If it's not free, your lender may refund the fee after completion, depending on the deal. You may also have to pay an arrangement fee (sometimes also called a booking or application fee) and a Higher Lending Charge if you're borrowing a high proportion of the value of your property.

Provided that the lender is happy to lend to you, it will issue you with a mortgage offer and an updated Key Facts Illustration. If you're happy with the offer, you'll need to sign and return it. You're not bound by the offer so you could pull out if you change your mind. If you do so, you will lose any non-refundable fees that you have paid.

The legal work will start. Some lenders will have a panel of solicitors and licensed conveyancers they use on a regular basis who you can choose from. Otherwise you can choose to appoint your own solicitor or licensed conveyancer. Whoever you decide to appoint will act for both you and the lender.

The solicitor or licensed conveyancer will ask your existing lender to send the title deeds and a redemption figure. This figure will include the amount left to pay on your mortgage plus any fees and penalties. They'll also carry out the necessary searches such as a local authority search.

A date will be set for completion of the re-mortgage.

You will be asked to sign the mortgage deed.

Your solicitor will submit a report on title to the lender to confirm that you have got proper title to the property and that it's safe for them to lend.

The solicitor will request the funds from the new lender and, on the day of completion, will send these to your existing lender.

If you've borrowed extra funds, the solicitor will release these to you on or shortly after completion.

Ouch! First-time buyers triple mortgage debt

Article 2007-09-04, 10:15:00

Rates and fees spiralling

Not surprisingly first-time buyers are taking on three times as much debt as a decade ago and are being charged record fees to boot.

Mortgage site mform.co.uk calculates the average first-time buyer now has to take out a £120,500 mortgage, but in 1996 the figure was under £40,000. What is worse, one in five lenders is capitalising on their misery by linking application fees to the size of the loan.

This is just the tip of the iceberg: another survey by a price comparison site found borrowers now face 51 different mortgage penalty charges, significantly more than on any other financial product. With five new penalties cropping up in the last year alone, we can surely expect that number to rise.

Maybe this would be easier to accept if the fees were for levied for justifiable reasons, but that just isn’t the case. To name but a few, consumers are charged for wanting a copy of title documents, changing the repayment method and (most outrageously) for not taking building insurance from the same provider. High street banks have seemingly departed upon a crusade of stealth charges and penalties, exasperating an already stressful situation for many home buyers.

Recognising the problem was getting out of hand, the Financial Services Authority did make a token attempt to tackle it by clamping down on mortgage exit fees. But many lenders responded by simply re-branding the fees.

With house prices (and fees) spiralling, many parents are now helping their children onto the ladder, spending £21,314 on average.

In a recent Alliance & Leicester survey, over two-fifths of parents said they either plan on giving financial assistance to their first-time buyer offspring or have already done so. More than a third feel obliged to help out their children and fathers are especially prone to feeling guilty if they fail to provide assistance, the research found.

At last some good news for potential first time buyers, house price inflation is at its lowest level since March as decreased demand and the interest rate hikes appear to be taking hold.

"The expected slowing results from three main factors, each of which have been around for some time. First, weaker affordability, as house prices continue to grow more quickly than earnings; second the effect of higher interest rates and inflation on consumers’ pockets; and third lower house price expectations," explains Nationwide chief economist Fionnuala Earley.

Nationwide declares property prices slowing

Article 2007-08-30, 09:21:00

Mortgage rate increases show their effects

House price inflation in the UK eased to its lowest level since March 2007 amid signs that higher interest rates are having an impact on the property market, Nationwide building society said today.

The Nationwide said prices had risen by just 0.6% in August but that the annual rate of growth had dipped slightly from 9.9% to 9.6%.
August's rise was higher than the 0.5% the City had been expecting and represented a recovery from the 0.1% increase registered in July, but the Nationwide said the five increases in bank rate over the past 13 months were being felt.

"There are now clearer signs of slower demand in the market," said Fionnuala Earley, Nationwide's chief economist.
Other indicators of the housing markets health, including figures from the Land Registry, have also suggested that demand is cooling, although today's figures are unlikely to solve the debate about whether bank rate has peaked at 5.75%.

Fear for first time buyers as average English house price will top £300,000 in five years, says study

Article 2007-08-06, 04:54:00

The average house price in England will rise by 40% in five years to break the £300,000 barrier, according to research published today by the National Housing Federation.
It suggested that the mini boom might provide short-term reassurance for homeowners, who would profit from the increase, but also warned that the rise "carried a sting in its tail" as a growing number of parents would face paying their children's mortgages. The National Housing Federation, which represents 1,300 housing associations, also said that a generation of first-time buyers would most likely have their aspirations dashed or only be able to buy a home only at "enormous personal and financial cost".
Research by an Oxford Economics group, described the current housing market as "distorted and dysfunctional" due to the average house price being nearly 11 times the average salary. Compounding this, more than 4 million people are on waiting lists for social housing.
In response to the housing crisis, the government recently published a green paper in which it announced plans to build 3 million new homes by 2020, with up to 70,000 new units a year being social homes for key workers and low-income families.
As we reported earlier the North/South divide will continue to widen as regions hit hard by rocketing projections are projected to be the south-east, where the average house price will be £392,900 compared with £247,762 now.
The report states that there are only seven areas in England where the cheapest homes cost less than four times average local earnings - Barrow, Burnley, Hartlepool, Hull, Pendle, Stoke-on-Trent and Wansbeck
Finally, the report recommends that the government must increase its investment in preventing homelessness and supporting the continued regeneration of England's most deprived housing markets by investing £400m a year in low-demand areas.

It's Still Grim Up North - So They Say

Article 2007-08-01, 09:01:00

Rich and poor divide in the UK is as wide as it has been for 40 years.
A recent report has found that households in wealthy areas had become "disproportionately" richer compared with society as a whole.
But a social policy think tank has said the number of "poor" households had risen over the past 15 years.
Rich and poor are less likely to be living next door to one another than in the 70s, it was reported.
The report also concluded that "both the poor and wealthy have become more and more clustered in different areas".
The wealthiest of homeowners, defined by JRF as "exclusively wealthy", are found in suburban pockets, usually in the south of England.
A separate report into public attitudes to wealth inequality, also produced by the JRF, has found some unease.
"There is widespread acceptance that some occupations should be paid more than others: but the gap between high and low paid occupations is far greater than people think it should be," said Michael Orton, the author of the report.
According to Mr Orton people are more likely to think that people at the top of the pay scale are paid too much rather than people at the bottom paid too little.

Bank of England Increase Interest Rates Again!

Article 2007-08-01, 08:57:00

Bank of England votes 6-3 for July rate hike

In the news today it was reported that Three Bank of England policymakers opposed this month's hike in borrowing costs but a split among the hawkish majority dented any expectations that interest rates need to rise beyond 6 percent.
"There is clearly some concern within the Monetary Policy Committee that raising interest rates again in the near term at least could have an excessive dampening impact on the economy," said Howard Archer, an economist at Global Insight.
"Nevertheless, we suspect that a majority of MPC members will eventually feel that another interest rate hike is warranted given the still significant upside risks to the longer-term inflation."
Homeowners are starting to feel the effects as the central bank has now hiked five times in less than a year, taking borrowing costs to 5.75 percent, and financial markets are still pricing in another hike to 6 percent.
Inflation figures released on Tuesday showed consumer price growth has cooled since the decade-high hit in March but remains well above the bank's 2 percent target and may not be slowing as quickly as it had hoped.
Compounding the issue, British average earnings rose at their weakest pace in 1-1/2 years in the three months to May despite a tightening labour market and above-target inflation, official data showed.
"This is just what the (BoE) Governor ordered," said Karen Ward, an economist at HSBC. "This increase in demand for labour tapped into the very liquid pool of available labour in the UK, so firms didn't have to offer higher wages."

Surfs Up For Mortgages

Article 2007-08-01, 08:52:00

An ever-increasing number of people are choosing to research their mortgage purchase online, it has emerged.

There is a growing trend to try and find a better mortgage deal on the internet, claims Andy Wiggans, director of mortgage products at Bradford & Bingley.

He said that consumers use the internet to gather information about how much they can borrow. He also noted that for certain types of mortgages many people were happy to apply online as well.

The claims follow findings last month that there is an increasing number of loan applications online, as more and more people use the internet as a way of controlling their finances.

However, the level of borrowing in the country has not significantly changed with the shift to online finances, with the Bank of England recently detailing that borrowing in the country has been increasing at a steady rate so far this year.

The True Cost of Sub Prime Mortgages

Article 2007-07-31, 10:52:00

Unless you have a perfect credit record you could find yourself tagged as a ‘near prime borrower’ when looking for a new mortgage. Near prime borrowers are a section of the sub-prime market. They are for people who have some bad credit and/or little or no proof of income.

People who have a really bad credit rating, they may have been declared bankrupt at some point or have many CCJs, will be sold a heavier version of ‘sub prime’, while someone who has only missed a couple of mortgage or loan payments will be sold a ‘near prime’ or light version of a sub-prime mortgage.

The interest rates on ‘heavy’ sub-prime mortgages can be up to 2% more than the interest rates available for someone with a clean credit history. Near prime mortgages pay about 1% more than people with a clean credit history.

With debt levels increasing there are concerns borrowers who could once take out a high street mortgage are now been forced into taking out a sub-prime loan. An insider from the industry claimed mortgage lenders are cherry-picking who they lend to. This is confirmed by the growing number of ‘niche’ lenders who specialise in offering mortgages to people who have had some kind of credit problem.

Even if you have a less than perfect credit record you should never go straight to a lender who specialises in mortgages for those with credit problems. The problem with these companies is that they usually don’t have access to both high street and sub-prime mortgages and they usually charge a hefty fee as well. Most high street lenders consider minor debt cases so this should be your first port of call.

However, rising interest rates, combined with a change in circumstances such as illness or divorce can drive even the most careful of borrowers into the sub prime market. But, its not always bad news. Although the up front fees are usually higher the interest rates are as good, if not better, than some of the less competitive high street offerings.

According to lenders, near prime mortgages allow people to repair their credit rating. Rates are wafer thin on prime mortgages, so lenders cannot afford to take a risk on people who have defaulted in the past.

Customers who take out a sub prime mortgage are often moved onto a prime mortgage after a couple of years as long as they have made enough repayments.

©2007 Discovery Re Mortgages UK