Chief Economist warns house prices will fall by 20% by 2010

Article 2008-03-19, 04:28:00

Average house price would lose at least £20,000

House prices could fall by up to 20% over the next two years, a senior economist warned yesterday. The prediction from Professor David Miles, chief UK economist at Morgan Stanley, will dismay millions of homeowners.

At present, the average house price is about £200,000. If he is correct, it could fall as low as £160,000 by the end of 2009.

Contracts linked to the Halifax house-price index indicate the average property price will drop from around £200,000 to £160,000 by February 2010, when adjusted for inflation.

The figures quoted by Professor Miles are based on derivatives provided by brokers Tradition Group. The biggest losers will be those who have forked out a fortune to buy a home over the last couple of years.

However, Professor Miles, a former Government adviser, insisted such a fall would not be a catastrophe. He said at a housing conference in central London: 'I am at the pessimistic end of the spectrum, but I don't think it should be seen as the pessimistic end because there are as many gainers as losers.'

The winners, he said, will be first-time buyers and those on lower salaries who will finally be able to afford to buy. His warning comes as a mortgage debt crisis threatens to engulf millions of homeowners, bringing financial misery, repossession and an economic slump.

The storm clouds gathering over the property market bring with them the risk of a repeat of the crash of the early 1990s. Citizens Advice reported a 35% rise in those seeking help with mortgage arrears in the first two months of the year.

The finance website Moneynet said more than one in three home buyers is struggling to cope with repayments on a mortgage debt that is more than three times their gross salary.

It is also clear that banks and building societies are turning the screw. Yesterday, Britain's biggest mortgage lender, the Halifax, replaced much of its existing range with deals carrying higher interest rates or administration fees.

Real difficulties face the 1.7m who face a 'payment shock' when they come to the end of cheap fixed-rate home loans this year. They will face substantial increases depending on their credit ratings.

Industry analysts believe these increases lead to a sharp rise in the number losing the roof over their head. A study by the City watchdog, the Financial Services Authority, suggested that up to one million homeowners are at risk of defaulting on their mortgage.

Banks and building societies have reacted to the global credit crunch by tightening their rules on which customers they will lend to. They have withdrawn thousands of mortgage deals, particularly those offering 100 per cent plus of a property's value.

They have also axed deals that allow customers to borrow many times their salary and pushed up the cost of fixed rate and tracker home loans. The net effect is that thousands who are due to remortgage could find themselves re-classified as a credit risk and forced on to ruinously expensive loans.

Householders are already facing inflation-busting increases in the cost of gas, electricity, water and council tax bills. Teresa Perchard of Citizens Advice said: 'The latest figures suggest a significant number of households are struggling to meet their most basic living costs.'

In the 2006-07 financial year Citizens Advice dealt with 5.7m new inquiries, more than 1.7m of which concerned debt. Debt is now the number one issue advised on, accounting for nearly one in three inquiries - 6,600 every working day.

Research by Moneynet.co.uk shows 30% of the one in three buyers juggling with mega-mortgages are in danger of being classified as a credit risk. These people are worried they do not have sufficient income to convince a bank to give them a new home loan.

The website's chief executive, Richard Brown, said: 'Fewer and fewer lenders will be prepared to offer competitive alternative deals to anyone considered at risk of default. They will have little choice but to accept what their present lender is prepared to offer.'

The study found nearly one in ten homeowners fear they will miss a mortgage payment in the coming year.

Mortgage lending falls by 10%

Article 2008-02-12, 07:06:00

Interest rate hikes and tighter lending conditions take effect

The number of mortgages taken out for house purchases fell by 10% last year, figures from the Council of Mortgage Lenders (CML) revealed today, in a further sign of a slowing housing market.

The CML said the decline in lending - to the lowest level since 1996 - appeared to be driven "more by funding constraints than lower consumer demand", but it said recent interest rate cuts would make life easier for frustrated homebuyers.

Between December 2006 and December 2007, the CML said the average mortgage rate paid by borrowers rose from 5.35% to 6.05% - a direct result of three interest rate rises in the first half of 2007 and the rising costs of interbank borrowing.

Mortgage affordability for first-time buyers also worsened, so that by December last year they were paying 20.7% of their income towards mortgage interest compared with 17.9% just a year earlier.

After peaking in August, the number of home loans being taken out for purchases dropped each month, and December's figures continued the downward trend, the CML said.

It said the final roll-out of home information packs, which took place during the month, was one possible factor in a 22% drop in lending for purchases from 78,000 mortgages in November to 62,000 in December.

Despite a slowdown in lending for house purchases, a rise in the number of further advances and loans taken out by buy-to-let investors increased gross lending to a record high in 2007.

CML members advanced a total of £364bn to borrowers over the year - 5% more than the £345bn they lent in 2006.

Within this figure the value of mortgages advanced for purchases dropped by 2% to £155bn.

Looking forward, the CML's director general, Michael Coogan, said he expected the recent interest rate cuts in December and February would make life easier for home movers.

"Affordability has been stretched further in 2007, but the recent base rate cuts and the expectation of future cuts will ease debt servicing burdens in 2008," he said.

"The impact of payment shock on the large numbers of borrowers coming to the end of fixed-rate mortgages will also be less than we anticipated last year.

"For first-time buyers, the combination of subdued house price inflation and lower mortgage rates means affordability should ease slowly as the year progresses."

The CML's figures also highlighted how interest rate rises in the early part of the year had persuaded borrowers to opt for the safety of fixed-rate mortgages.

A record 73% took out fixed-rate deals in 2007, with the proportion peaking at 77% in June and July when it looked as though interest rates would continue to rise.

As the threat of further increases dimmed, the proportion of borrowers taking these deals fell, so that by December it had fallen to 64%.

This is still a relatively high figure and, given that the CML's figures show fixed-rate mortgages were more expensive than other deals in December - with an average interest rate of 6.1% compared with rates below 6% on other types of loan - it seems borrowers are still uncertain about future interest rate moves.

Hopes of further rate cuts were buoyed today by lower than expected inflation figures.

Rate cuts on the horizon

Article 2007-11-23, 05:57:00

However most banks are unlikely to pass on the benefits

Struggling homeowners can look forward to three cuts in interest rates next year, according to City economists who have examined the Bank of England's quarterly inflation report.

In the report, the Bank forecasts that the economy will slow in 2008 as the impact of five rate rises in 15 months, the current strength of the pound and the recent uncertainty in financial markets all take their toll. The Bank cut its 2008 economic growth forecasts to around 2.2%, following a similar downgrade by the Treasury.

The Bank of England Governor, Mervyn King, also said the economy would overcome the blow to confidence from the woes of Northern Rock with inflation expected to return to target.

A big downturn would enable the base rate to be cut to 5%, bringing much needed relief to millions of borrowers who have seen rates soar from 4.5% to 5.75% since summer last year.

Many homeowners have faced crippling jumps in their monthly mortgage bills after cheap fixed-rate deals come to an end and they were forced to remortgage to a more expensive deal.

Although an interest rate cut would provide borrowers with a much needed boost before Christmas - and most industry pundits agree that the only way for interest rates now is down - the first of the cuts is not expected until the New Year, possibly February.

However there are fears that lenders will not necessarily cut their standard variable rates (SVRs) as they try to protect their profit margins. Lenders including Halifax, Lloyds TSB and Barclays have said there is no guarantee that borrowers will benefit from the base rate cuts.

Standard Life Bank customers are already feeling the pinch. Last week the bank raised its SVR by 0.15 percentage points to between 7.46% and 7.66%, though there has been no movement in the base rate since August. The bank blamed "recent significant changes in the mortgage market" for its move.

But mortgage borrowers on fixed-rate deals are not immune from rising bills either. Even if rates are cut two or three times next year, most of the 1.7 million homeowners due to come to the end of their mortgage deal in the next 12 months are likely to pay more each month for their new deal, as the base rate will not be as low as when they took out their original mortgage.

Homeowners typically pay their lender's SVR after their fixed rate deals comes to an end. Languishing on a lender's SVR is a bad move as rates are high compared to fixed and tracker deals available; borrowers paying their lenders SVR should remortgage to another deal as soon as possible.

Some lenders also offer variable and discount rates linked to their SVR so customers on these deals might not feel the benefit of falling rates if their lender chooses not to pass the rate cuts on. If they are not tied in and subject to early repayment charges, these borrowers should consider remortgaging too.

If you need to know what your repayments will be over a certain period of time, then a fixed rate is the product to opt for. At the moment Abbey's two-year fix and Nationwide's five-year fix appear to be the current cream of the crop, fixed at 5.47% and 5.63% respectively.

Bank of England could drop rates next year

Article 2007-11-14, 09:43:00

Economists predict rates of 5% next year

Embattled homeowners can look forward to three cuts in interest rates next year, City economists predicted today.
A gloomy assessment of economic growth from the Bank of England will allow mortgage bills finally to start falling.

A big downturn would enable the base rate to be cut to 5%, bringing much needed relief to millions of borrowers who have seen rates soar from 4.5% to 5.75% since summer last year.

Many face crippling jumps in their monthly mortgage bills of up to 40% after cheap fixed-rate deals come to an end.

In its quarterly inflation report, the Bank said it had become increasingly concerned about the slowing pace of the British economy because of turmoil in the world's financial markets.

Governor Mervyn King said there was a risk of a 'bigger downturn' than previously expected after the global credit crunch triggered by the meltdown in the US sub-prime mortgage market. The City interpreted the report as a signal that interest rates will start to come down early next year to boost economic growth and will continue to fall into 2009.

Alan Clarke, economist at BNP Paribas, said: 'Crucially the Bank has validated market expectations that we are going to see two or three interest cuts in 2008.'

Howard Archer, chief UK and European economist at forecasters Global Insight, said: 'The report is markedly more doveish and indicates that at least two interest rate cuts are likely.'

Most forecasters expect that the first 0.25% cut will come possibly as early as February. However, they also cautioned that the timing depends on official economic data continuing to point to a slowdown, particularly in the housing market.

The report downgraded GDP growth forecasts for next year to around 2.2% as the impact of five rate rises in 15 months, the current strength of the pound and the recent uncertainty in financial markets slows the economy.

This brings the Bank into line with most economists' predictions as well as the Treasury, which downgraded growth forecasts in October's pre-Budget statement.

However, Mr King said the economy would overcome the blow to confidence from the woes of Northern Rock with inflation expected to return to target.

Unemployment figures also published today indicated that the economy has not yet been badly damaged by the credit crunch. The jobless total jumped by just 6,000 in the three months to September to 1.67m, although the unemployment rate remained unchanged at 5.4%.

Alistair Darling blocked £30bn Northern Rock takeover loan

Article 2007-11-06, 06:04:00

Lloyds TSB were bidders for troubled Rock

Bank of England governor Mervyn King named Alistair Darling as the man who blocked the Northern Rock takeover. He also warned that the crisis that led to the collapse of the mortgage bank could drag on for months.

In an interview with the BBC, Mr King has revealed the Chancellor made the final decision not to support a move by Lloyds TSB to take over Northern Rock after Lloyds asked the Bank of England for a £30bn loan at competitive rates.

The collapse of the deal forced Northern Rock to ask the Bank of England for emergency funding and sparked the first run on a UK bank for almost 150 years.

Mr King told BBC Radio's File on 4 that he had told Mr Darling the decision as to whether to underwrite the takeover was 'a matter for government'.

'I said to the Chancellor: 'This is not something which a central bank can do. They don't normally finance takeovers by one company for another, let alone to the tune of £30bn, which is rather a large amount of money'.

Mr King said it was likely to be several months before banks return to normal after the crisis because it would take that long for them to disclose the full losses from complex financial arrangements linked to the US sub-prime mortgage debacle.

'I think most people expect that we have several more months to get through before the banks have revealed all the losses that have occurred, and have taken measures to finance their obligations that result from that, but we're going in the right direction,' he said.

'There is always, in a period like this, the possibility that a shock from outside the UK, one from the world economy, might create further fragilities but to some extent there are always risks, there are always fragilities. What I would say is that the situation now is in my view different from that in August, though it's not without risk.'

Mr King said it was evident from the start that Northern Rock would need £30bn of support, which it was not possible to provide and it would have been dishonest to tell customers their money was safe.

'In the absence of a government guarantee it was actually rational to queue up and take your money and it would have been dishonest for us to have pretended otherwise,' he said.

Insolvencies and repossessions fall

Article 2007-11-02, 10:23:00

"Calm before the storm" experts say

Orders for home repossessions and insolvencies in England and Wales fell in the third quarter of this year, figures showed today, despite warnings that recent interest rate rises have put the squeeze on borrowers.

The Insolvency Service said 26,072 people had been declared insolvent, a fall of 3% on the previous quarter and 5% down on the same period last year.

The number of bankruptcies was up 2.2% year-on-year, to 15,833, but the number of individual voluntary arrangements (IVAs) entered into dropped by 14.3% to 10,239.

IVAs, which allow a borrower to write off some of their debt in exchange for entering into a payment schedule with creditors, have been criticised by lenders who are often forced to write off bad debts.

James Falla, managing director of debt management firm Thomas Charles & Co, said the lenders' reaction to this was behind the latest figures.

"Over the past 12 months lenders have been tightening up their criteria over what they will accept as an IVA," said Mr Falla. "Some lenders have very much closed their doors to IVAs."

Mr Falla said while there were no figures showing which lenders had accepted applications for IVAs, anecdotal evidence suggested Northern Rock was rejecting applications.

He added that while lenders would traditionally consider IVAs that proposed a repayment of 25p in the £1, HSBC, which has in the past been an outspoken critic of the arrangements, has upped its threshold to 40p.

As a result, borrowers who would have entered into IVAs are instead entering into debt management plans with their creditors, for which there are no official figures.

"The figures seem to show fewer people are in difficulty, but that's just because fewer people are being accepted for IVAs," Mr Falla said.

Mike Gerrard, head of personal insolvency at accountancy firm Grant Thornton, said the fall in insolvencies was simply "the calm before the storm".

He added: "If Sir Philip Green's predictions of a slow down in consumer spending next year prove correct, then I expect we will see a leap in personal insolvencies by the first quarter of 2008 as creditors tighten their belts and increase their rates of refusal on debt management options such as remortgaging."

Meanwhile, separate figures from the Ministry of Justice show the number of orders made for home repossessions dropped by 1% in the third quarter of the year to 23,806.

The figures had been expected to rise as the effects of five interest rate rises continued to be felt by cash-strapped homeowners.

The numbers are also down on the same period last year, when 24,058 orders were made in county courts in England and Wales.

Not all of the orders are with immediate effect, however, and in the third quarter judges chose to suspend 44% of orders (10,578), compared to 49% in the same period last year.

While the number of repossession orders fell, there was a 1% rise in the number of mortgage possession claims by lenders over the quarter to 34,717.

Claims are made before a possession order is granted, and not all result in an order being sought by the lender. Even after an order is granted, a lender and borrower can come to an agreement for homeowners to stay in their house.

The figures come days after the Council of Mortgage Lenders predicted a 50% rise in repossessions next year, from a total of 30,000 homes to 45,000.

Howard Archer, chief UK economist at consultancy Global Insight, said he expected the number of repossessions to rise over the coming months.

"The full effect of the marked overall increase in interest rates since August 2006 is still feeding through, with a substantial number of homeowners now seeing their mortgage bills rise markedly as the cheap fixed rates that they took out in the second half of 2005 expire."

Mr Archer added: "Should the economy slow markedly over the coming months and unemployment start rising significantly, the number of home
repossessions could surge. This is a very real risk."

One Million Paying Rent or Mortgage Using Credit Cards

Article 2007-10-18, 11:06:00

A poll carried out for the housing charity Shelter has revealed rising housing costs have forced more than a million householders to use credit cards to pay their mortgage or rent over the last 12 months. Growing numbers of young people are turning to expensive sources of credit in order to hang onto their home.

The survey questioned 2000 households last month after the Northern Rock fiasco. It found that 6% of householders paying mortgage or rent reported using a credit card to make their monthly payments. This figure rose to 7.5% of younger people, who were doing their best to keep a foothold on the housing ladder.

17 million households across Britain pay either a mortgage or rent, of which 6% have relied on a credit card to pay the monthly payment over the last year.

Adam Sampson, Shelters chef executive, says the results are shocking. He had the following to say: “The number of people hit by the credit crunch, interest rate hikes and unaffordable housing costs, are rapidly rising. For many people trying to keep a roof over their head, desperation is driving them to short term, high cost borrowing.”

The majority of credit cards charge interest rates between 15% and 18%. However for people with a poor credit history this can be as high as 40%.

The poll found most people withdrew cash from their credit card to pay their monthly payments. However, many housing associations allow tenants to pay their rent using a credit card, just as if they were making a purchase.

Buy to Let Keeps Mortgage Market Afloat

Article 2007-10-09, 09:01:00

Figures released today show mortgage lending in September reached £34 billion, buoyed by heavy demand from landlords.

Total lending was £1 billion higher than in August despite an 11% fall in the value of lending for house purchases and a 12% fall in re-mortgages, the Council of Mortgage lenders revealed.

Buy to let mortgages were 37% higher than in the same period last year and has been rising throughout the year.

Increasing house prices, tenant demand, rent increases and landlords’ willingness to make long term investment decisions had all underpinned strong demand from property investors.

The figures, which cover a period before the problems at Northern Rock emerged, showed that compared with July the number of home loans was up 5% to 99,000, while the number of re-mortgages fell 5% to 88,000.

Mortgages for house purchases made up the majority of lending, totalling £15.7 billion over the month, while re-mortgages accounted for £10.5 billion and £7.8 billion was in other lending.

The figures showed that even before the Northern Rock crisis, which is expected to lead to higher mortgage rates for the riskiest borrowers, first time buyers were seeing an increase in the cost of borrowing, with the proportion of income spent on servicing a mortgage up from 19.7% in July to 20% in August. This is the highest level seen in 16 years.

The amount first time buyers borrowed remained at 3.38 times their salary, the same as July this year. Home movers borrowed on average 3.03 times their salary to buy their new property and are spending 17.2% of their pay on mortgage re-payments.

Record Stamp Duty Revenues

Article 2007-10-05, 08:48:00

£6.4 billion in stamp duty was paid into government coffers last year according to figures released by the Halifax earlier this week.

Revenues were up 40% from 2005-06, as rising property prices have seen the number of buyers paying it rise dramatically.

Approximately £5.1 billion came from tax on homes worth more than £250,000, more than triple the £1.6 billion paid five years ago, as rising house prices pushed more homes into the higher bands.

Houses in London, the south-east and the east unsurprisingly account for the majority of the annual revenue, 73% to be exact. Londoners alone paid £1.7 billion in the tax last year.

For properties between £125,000 and £250,000 buyers pay 1% stamp insurance, rising to 3% for properties worth between £250,000 and £500,000, rising again to 4% for properties over £500,000. 25% of properties in the UK are now worth over £250,000, while 4% are worth over £500,000.

If stamp duty had increased at the same rate as property prices, homes would have to be worth almost £1.46 million before buyers paid stamp duty at the highest rate. Homes would have to be worth £739,000 before the 3% band applied.

The 1% band was increased from £60,000 to £120,000 in March 2005, and raised again by £5,000 last year.

Northern Rock Still Lending ‘Recklessly’

Article 2007-09-25, 08:20:00

Northern Rock has been accused of ‘reckless lending’, even after its recent troubles, as it is still offering mortgages six times the borrowers salary.

An undercover reporter who was posing as a first time buyer was last week offered a £180,000 mortgage, even though his salary was only £30,000. The mortgage was more than £30,000 more than any other lender was willing to offer and would have accounted for 60% of the buyer’s take-home salary.

The reporter was also offered a ‘negative equity’ mortgage, where he would be borrowing 117% of the property value. The mortgages offered by other banks were significantly lower.

Financial experts were amazed that Northern Rock is still offering such loans only a week after it was forced to borrow funds from the Bank of England. It emerged over the weekend that Northern Rock has already borrowed £3 billion for the Bank of England over the past week.

Northern Rock is to cause further controversy over the coming weeks by continuing with its plan to pay a dividend of £59 million to its shareholders and executives. The divided is 30% higher than last year and was given special dispensation by the FSA back in July.

On Saturday politicians expressed their dismay at the government not stepping in to supervise Northern Rocks business practices following the government bail out.

Labour MP George Mudie had the following to say: “Of all the people, have Northern Rock learnt nothing? It is reckless.”

The mortgage offered to the reporter was £180,000 for a £200,000 house. The maximum offered by Bradford and Bingley was £127,500, while Alliance and Leicester offered £149,000 and Abbey offered £138,000.

UK Faces its Own Sub-Prime Crisis

Article 2007-09-20, 08:00:00

Almost a quarter of a million vulnerable homeowners face soaring repayments and the threat of repossession, with Britain facing its own sub-prime mortgage crisis.

Despite the Bank of England injecting £10bn into the market, rates for up to 300,000 sub prime borrowers will rise to unaffordable levels of more than 10% when they reach their current deal.

Homeowners with the poorest credit histories will be prevented from re-mortgaging because lenders may refuse to offer them a new deal when they come to the end of their current rate, leaving them stranded on expensive variable rates and adding hundreds of pounds to their monthly payments.

Experts said yesterday this could force many to sell or face repossession, leading to turmoil in the UK sub-prime market, as seen in the US over recent months.

Some of Britain’s biggest sub-prime lenders such as GMAC-RFC and Kensington Mortgages have upped their rates and tightened their borrowing criteria. This would leave many existing borrowers, who benefited from relaxed lending practices earlier in the year, ineligible for a loan.

Earlier in the year a heavily adverse borrower, who had a history of CCJs, arrears and even bankruptcy, could get a rate of 8%. The same borrower would now be lucky to get a mortgage at all, and if they did would be facing rates in excess of 10.85%.

Ray Boulger, of broker Charcol, said: “Some won’t be able to get a mortgage, other wont be able to afford their existing one. For some, the situation will be a bit like the US crisis, although that was clearly much worse.” As most sub-prime lenders rely on wholesale markets for mortgage funding, this has left them exposed to the fallout from the US crisis, forcing them to limit the number of riskier customers.

Victoria Mortgages was the first UK lender to go bust following the US fallout, as it failed to secure enough funding to allow them to continue lending. Kensington Mortgages recently announced they will now only be lending up to 75% of the property value.

The £10bn emergency injection will not be enough to prevent borrowers on the most extreme sub prime deals feeling the effects. Managing Director of Edeus, Alan Cleary, said the following: “The £10bn on offer is quite clearly not enough to make a difference to borrowers who face the prospect of not being able to get loans. We are choosing to do a lot less volume next year because we are assuming the sub-prime market will not get better. This is all about surviving.”
Debt charities blamed irresponsible lending by banks to sub-prime borrowers before the credit crunch for leaving them exposed. Deputy Director of Credit Action, Chris Tapp, commented: “This problem stems from years of overly liberal lending. When the going was good, everyone lent too freely without thinking ahead.”

Sub-prime lending accounts for approximately 9% of the mortgage market, with approximately a quarter classes as ‘heavily adverse’.

Northern Rock Problems Continue

Article 2007-09-17, 11:17:00

Worried Northern Rock customers are continuing to flock to branches to withdraw their savings. Northern Rocks chief executive. Adam Applegarth, continued to stress it was business as usual, but those customers who wished to withdraw funds could do so. Approximately £2bn has been withdrawn since the news broke on Thursday.

The bank has increased its opening hours as well as increasing bandwidth for its website so it can cope with the huge numbers of customers trying to access their savings.

The FSA has announced it is confident Northern Rock is solvent and borrowers will have no problem withdrawing funds.

The bank had expected more than £2bn to be withdrawn. However, there is still the impact from £10bn of postal accounts to be taken into account.

Shares in the bank have fallen 40% over the last few days. Shares in other banks, such as Bradford and Bingley and Alliance and Leicester, have also fallen.

The share price currently stands at 291p, down from 438p on Friday.

Chancellor Alistair Darling and Prime Minister Gordon Brown are meeting US Treasury Secretary Hank Paulson today to discuss the ongoing financial turmoil around the world.

Lloyds TSB were on the verge of buying out Northern Rock but pulled out due to the difficulty borrowing money at the current time. The lower Northern Rock shares fall the most susceptible they are to a take over.

There are currently two banks interested in acquiring the firm but they are wary of doing so with the turmoil in the money markets at the moment. The Chancellor confirmed emergency funds given to Northern Rock would be transferred to any new owners. However once the facility expires there’s no guarantee it will be extended for the new owners.

Northern Rock’s board realised selling the company under current markets conditions would be impossible and hence why they approached the Bank of England for help.

Northern Rock Shares Plummet

Article 2007-09-14, 06:16:00

Shares in Northern Rock have dropped by 20% following the Bank of England’s decision to offer them emergency funding.

However, experts have said there is no chance of the company, which has £113bn of assets, going bust. The bank has struggled to raise money to finance its lending since the money markets slowed over the summer.

Shares in Alliance and Leicester and Bradford and Bingley fell by 5% and 6%, while those in HBOS and Barclays fell by roughly 2.5%.

Northern Rock announced its profits for 2007 will be hit, but that it remains solvent. Shares fell by 24% on Friday before a mid-morning rally to reduce that figure to 20%.

Northern Rock is built around its mortgage business. Unlike most other banks who get their money from customers making deposits in savings accounts, they raise money by borrowing from banks and other financial institutions.

Chancellor Alistair Darling said: “The problem here is there is a lot of money in the system but they are reluctant to lend it to each other at the moment.”

“In order to make a stable banking system, the Bank of England steps in and it makes facilities available to Northern Rock.”

“Northern Rock can draw on them when it requires, but it means it can carry on trading, people can use their accounts in the normal way, they carry on making their mortgage payments in the usual way, Northern Rock will be able to carry on its business.”

Angela Knight, chief executive of the British Bankers Association, had the following to say: “I think that anyone who is waking up this morning who is either a saver with Northern Rock or has a mortgage can be absolutely confident that they have got their money with or they have borrowed from a very sound financial institution.”

The emergency lending facility to Northern Rock was agreed by Mr Darling, on advice from Mervyn King, director of the Bank of England. However, Adam Applegarth, chief executive of Northern Rock said they had not yet borrowed any of the ‘unlimited’ funds available. Mr Applegarth also insisted it was ‘business as usual’ and urged customers to remain calm.

The decision for the Bank of England to become the “lender of last resort” is extremely rare and only comes after consultation with the FSA. It is an unlimited facility where interest is charged at 1% above the Bank base rate. Northern Rock will have to deposit some of its customers mortgages as collateral.

Citizens Advice Bureau announces debt worries are main reason citizens seek advice

Article 2007-09-11, 08:10:00

The consumer credit boom is leaving a rising toll of casualties in its wake - and the worst is yet to come

Debt problems have for the first time become the largest source of inquiries at Citizens Advice, according to figures yesterday from the free advice charity.

An increase of about 20% over last year meant Citizens Advice dealt with 1.7m inquiries about debt, putting it ahead of welfare rights and other long-standing issues, the charity said.

The situation is expected to get worse over the next few months as homeowners continue to wrestle with the impact of five interest rate rises in 18 months and holidaymakers add up the bills from their summer spending.

Citizens Advice Bureau, Britain's largest provider of free debt advice, said debt accounted for one in three of all inquiries, and its advisers around the country were dealing with more than 6,600 debt problems each working day.
The charity said: "The figures confirm there is no let-up in the rising toll of casualties from an unprecedented consumer credit boom and recent sharp increases in the cost of living, making mortgages, council tax and utilities more expensive for many people."

Inquiries about bankruptcy jumped by 50% on last year. The consumer boom of the past 10 years has brought with it some unexpected new victims as people with serious spending habits find they cannot afford to repay debts.

Traditionally, serious debt problems are triggered by life-changing events, such as divorce, unemployment or the death of a near relative. Though they have remained important factors, the steep rise in personal insolvencies - to 107,000 last year from 28,000 in 2005 - can be largely blamed on over-spending.

The Consumer Credit Counselling Service (CCCS), a free debt advice charity, said it had seen a marked rise in the number of people aged over 65 who were using personal loans to boost their retirement income. Many of them were unable to repay loans from their fixed income and were forced to file for bankruptcy. Women in their mid-30s who lived in rented flats were also advised to file for bankruptcy in ever greater numbers. In cases where they have few assets other than their wardrobes, advisers have recommended bankruptcy as the obvious route to escape creditors.

The group with the most unsecured debts were couples in their early 30s who had bought a home and started a family. They had the most credit cards with large balances and the most personal loans, many of them used to subsidise monthly mortgage payments.

Lower-income groups were as prone to over-extending their spending as much as middle-income groups. But whereas incomes of more than £30,000 were once sufficient to repay interest and keep the family finances afloat, the rising cost of gas and electricity, mortgage interest rates and other costs of living have meant middle-income groups are increasingly vulnerable to becoming insolvent.

Many bank customers have found that a few missed overdraft repayments can quickly escalate into a major problem. Which?, formerly the Consumers Association, has warned of the huge rise in debts from escalating bank charges and mis-sold financial products. The Which? book Managing Your Debt, published last week, highlights how credit card and bank customers have seen their unsecured debts soar by a third or more when they buy payment protection insurance. The insurance, which has come under fire from the Financial Services Authority, the chief City regulator, and is under investigation by the Competition Commission, generates a 70% or more profit margin for the seller. More than 18m policies are believed to be live, mostly giving cover for monthly payments on mortgages, credit cards and personal loans.
Which? estimates that bank charges and fees totalled £5bn last year, with many customers facing bills of more than £1,000.

According to Citizens Advice, one in four of all debt inquiries over the past year concerned credit and store cards. It said consumer credit debt problems of all kinds, including credit cards, increased by 14%, while problems with overdrafts and unsecured personal loans increased by more than 18%.

Debt on credit cards recently levelled off as providers restricted introductory offers, increased fees for balance transfers and raised interest rates. However, that left thousands of so-called rate tarts, who enjoyed a decade of almost free loans by switching from one zero-interest credit card to another, struggling to repay loans at rates of 18% or more.

The CCCS chairman, Malcolm Hurlston, said that though problems related to unsecured lending on credit cards continued to grow, he detected a shift in lending by consumers to second mortgages. "The biggest problem today for consumer borrowers is no longer the ubiquitous credit card," he said. "Rather, it will come from secured borrowing and the rising cost of mortgage debt." He said secure loans that acted as a second mortgage on a home were beginning to cause problems for homeowners who used them to consolidate debts from personal loans and credit cards.

Daytime television ads fronted by TV personalities encourage borrowers to consolidate their debts in a single loan. Critics, including MPs such as the Liberal Democrat Stephen Williams, have called on celebrities to reconsider whether they should take part in adverts for "debt-consolidation" loans.

"Adverts for these products are now commonplace on television and often use celebrities - such as Carol Vorderman - to persuade people that such loans are an easy everyday option, rather than a last resort," Williams said.
Vorderman fronts ads by Firstplus, a Barclays subsidiary that specialises in secured loans.

Citizens Advice said people reached for loans because they were often struggling to meet their day-to-day living expenses. Gas and electricity debt problems shot up by a third (33%), while council tax debt inquiries went up 25% and telephone debt problems by 19%.

"These figures are worrying evidence that, while many have enjoyed the benefits of the credit boom, a large and growing number of people continue to pay the price, becoming overwhelmed by serious debt that can have a devastating impact on their lives," said David Harker, Citizens Advice chief executive. "Even more worrying are the signs that people are struggling not only to repay credit but also to afford day-to-day essentials."

The growth in personal debt in the UK can be traced back to the mid-1990s and the beginning of the housing boom. As prices rose, so did the level of debt carried by individuals. A block on council house building, continued by the Labour government, emphasised the shift.

As the house price boom continued, banks and building societies loosened lending criteria. Rising prices made lenders believe they could recover their money if problems arose.

Increasing wealth brought US credit card firms such as MBNA into an arena previously dominated by the retail banks. Offers of interest-free deals became commonplace.

Home improvements, new cars and foreign holidays became increasingly affordable - on credit - as lenders' soaring profits encouraged them to downgrade the risk of defaults.

Sophisticated credit scoring replaced face-to-face interviews with borrowers, who told lenders their income and address, and little more. Many lenders now offer "instant loans", agreed with minimal information.

Other factors were the mis-selling of financial products, which critics argue increased personal debts, and student loans, loading a generation with years of debt.

• Managing Your Debt, a Which? essential guide by Phillip Inman, can be ordered on 01903 828557 (£10.99, p&p free) or at www.which.co.uk/books

House price inflation defies rate rises again

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

In the UK, prices grew by 12.4% over the year to the end of June.

Annual house price inflation reached its highest rate in more than two years during July, government figures showed today, showing buyers have not been put off by rising interest rates.

Across the country, prices grew by 12.4% over the year to the end of June, up from 12.1% in June, marking the highest rate of growth since March 2005, according to figures from the Department for Communities and Local Government (DCLG).

This is despite five interest rate rises between August 2006 and July this year, which have added 1.25% to the base rate and increased mortgage costs considerably.
In July, the average price of a home in the UK reached £218,479, compared with £194,273 in July last year.

Howard Archer, chief UK economist at consultancy Global Insight, said the DCLG data suggested the market was resilient to higher interest rates.

"However, it must be borne in mind that the DCLG tends to provide lagging evidence on house prices, as the office calculates its index at the time when mortgages are completed," he added.

"Furthermore, the DCLG data are for July, and there is data and survey evidence available for August (including from the Nationwide and Halifax), which suggest overall that house prices have peaked, although they are still relatively robust.

"We expect house price growth to trend gradually and erratically lower over the coming months and then settle down into an extended period of very modest rises."

Mixed Views on IVA’s

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

A recent survey by moneysupermarket.com has shown more than half of Britons would consider and Individual Voluntary Arrangement if they were in serious debt.

40% said they would consider and IVA as a last resort, but 11% said they thought IVA’s were perfectly acceptable. 9% said they though IVA’s helped ease debt and should be made more widely available, while 17% said they were a good alternative to being made bankrupt.

However, 49% said they were unsure what an IVA was. An IVA is a form of insolvency. Lenders agree to freeze interest payments and in return receive a monthly payment each month to repay the current debt. An IVA can write off up to 75% of all current debts and usually lasts 5 years.

Tim Moss, head of debt at moneysupermarket.com, said: “For people suffering from spiralling debts, an IVA might seem like an ideal escape route.

“However, an IVA is not something that should be entered into lightly and without considered thought.

“It is a serious financial agreement with creditors that will typically last five years. Once entered into, it will make obtaining any forms of credit, even for such everyday items as a mobile phone contract, almost impossible.”

The research did, however, find that 16% of people thought an IVA was unacceptable solution to debt problems. 9% said that although IVA’s served a purpose, they were too readily available and should not be advertised as heavily as they are. 12% added that they though IVA’s encouraged people to get into debt.

Spain and UK leading European property boom

Article 2007-08-31, 09:36:00

The average cost of a Spanish home has doubled in the past five years alone

House prices in Spain have risen at a faster pace than anywhere else in the eurozone over the past five years, outstripping even the UK market, figures released today showed.

Research by mortgage lender Halifax found the cost of a Spanish home had doubled between 2001 and the end of 2006, leaping by an astounding 57% in the past two years alone.

Over the same five-year period, prices in the UK were up 90%, more than double the 40% average across Europe as a whole.

Austria and Portugal recorded the lowest price inflation over five years, with prices increasing by just 6% and 7% respectively, while in Germany prices fell by 5%, Halifax said.

Interestingly Spain has a higher percentage of homeowners than any other European nation, with 82% of its inhabitants being owner-occupiers, compared with 55% in the Netherlands and 45% in Germany. In the UK however, the owner-occupier rate is 70%.

Despite the 100% increase in prices over the past five years, Spain is not the most expensive European country in which to buy property.

That title goes to Ireland, where the average house price reached £209,300 last year. This compared with an average of £190,900 in the Netherlands, £187,100 in the UK and £150,200 in Spain.

The cheapest properties in Europe are to be found in Finland, where the average house price was £92,300.

Tim Crawford, group economist at Halifax, said: “Ireland's house prices had been driven by the country's strong economy, immigration and the creation of a large number of new homes”.

He added that: “Prices in Ireland were now on a par with those in the south-east of England, with Dublin as expensive to live in as London”.

However, he also said: “It was unlikely that prices in either area would sustain this level of growth over the coming years”.

The low interest rates and economic strength that have driven Spain's housing market boom are subsequently pushing prices up in France and Belgium.

Fixed rate mortgages Increase in Popularity

Article 2007-08-24, 07:50:00

Latest figures from the Council of Mortgage Lenders shows 90% of first time buyers took out fixed rate mortgages in June.

Fixed rate mortgages ensure monthly payments stay at the same level for the contracted time. This figure is up 83% from the same period last year. The same was true for home movers, 76% of them also chose to take out a fixed rate deal. This figure is also up from the equivalent month last year, 63% in this case.

The Bank of England has increased the base interest rate five times over the last year to keep a lid on inflationary pressures. However, this has also increased the pressure on borrowers who have a variable rate or tracker mortgage.

On a £100,000 mortgage, each 0.25% rate rise increases monthly payments by £18 on average. Estimates also show hundreds of thousands of homeowners who took out short term fixed rate mortgages over the past few years are coming to the end of their deals, hence facing hefty price increases on their monthly payments.

Record Amounts Borrowed in July

Article 2007-08-22, 05:03:00

Fears that interest rates could rise again has prompted people to re-mortgage, leading to record amounts been borrowed last month. Lending rose by £5.7bn in July, up from £5.4bn in June, despite five interest rate rises in the last year. Mortgage lending reached a record £34.4bn in July.

Although many economists have reduced their expectations that the Bank of England would raise interest rates to 6% following the turmoil in the financial markets last week, a small number think a rate rise is still on the cards. Property website Rightmove recently revealed annual house price inflation has risen to 12.8%, indicating a rate rise could be on the horizon.

Lenders Withdraw Sub Prime Mortgage Products

Article 2007-08-21, 07:40:00

UK homeowners who have adverse credit are finding it increasingly difficult to get mortgages as lenders tighten their loan specifications.

At least 7 sub prime lenders have recently withdrawn or modified their mortgage products following the liquidity crunch in the financial markets. Mortgage defaults in the US sub prime market has caused a massive slow down in the housing market.

Sub prime lenders provide finance for people with poor credit ratings. Money Marketing magazine has reported GMAC-RFC, Unity Homeloans, Infinity Mortgages, Mortgages plc, Preferred, and DB Mortgages have all either raised their borrowing rates or removed their mortgage products all together. Infinity has decided to postpone the re launch of its mortgage products, which should have taken place on 20th August.

Sub prime mortgages currently account for about 10% of the UK mortgage market. The customers who will be find it the most difficult to get a mortgage are those with large amounts of adverse credit.

Up until now it has been possible to get a mortgage in all circumstances, the only exception been if you were bankrupt. However this is changing, with lenders putting in place stricter criteria’s and charging higher fees.

The Council of Mortgage Lenders recently published research showing lending within the UK sub-prime has been much less risky than that within the US sub prime market. However, these customers are still going to be paying more for their mortgages, if they can get a mortgage at all.

London House Prices Fall For First Time in 12 Months

Article 2007-08-20, 10:38:00

Property website Rightmove has released housing market data showing house prices in London have fallen for the first time since August 2006. However, house prices nationally rose for the fourth month in a row, this time by 0.6%. That gives a year on year rise as 12.8%.

Housing prices are currently rising at less than 1% per month. If this continues housing price inflation would come more into line with annual wage inflation, which currently runs at between 3% and 4%.

Current trends could lead to a sustainable market without the need for further interest rate rises, although many buyers will still face affordability problems.

House prices in London have risen by 2% per month on average over the last 12 months. The annual rate of increase is 23.4%, nearly double the national average. The strength of the London market is one of the main reasons for the rise in national average prices.

The fall is the first for quite a while and shows that even the strong London economy is susceptible to market forces. However, London’s international status means prices are more likely to be resilient in the long term, unless the current financial unrest weakens employment and wealth creation.

Another indication of slowing prices is that the typical property has been on the market for 85 days this month, compared to 80 days previously.

Mortgage Advice

Article 2007-08-09, 11:16:00

With the house prices rocketing out of reach first time buyers are finding it increasingly difficult to get on the property ladder. When the option to buy does become available the temptation is to purchase the best possible house. Homeowners are considering taking out interest only mortgages so they can borrow more and boost their buying power.

Although this is a risk, more and more borrowers are choosing to go down this road. Ten years ago first time buyers mortgage payments were 10.8% of their salaries. This figure has now risen to 19.1%.

25% of homeowners now have interest only mortgages and many have no plans of paying off the debt. The risk here is that people will become used to the lower monthly payments and will not set aside any money to pay back the outstanding balance. Things could become even worse if the property value decreases and you have not paid back any of the original outstanding balance. You will end up having negative equity making it almost impossible to move house.

For borrowers who are on interest only mortgages the easiest way to pay back the outstanding balance is to make overpayments. Most lenders allow payments of up to 10% of the loan value each year. This money could be sourced from selling shares, cashing in savings or inheriting a lump sum. However most people start repaying their mortgage after a few years when their income has increased.

Getting Onto the Property Ladder

Most lenders will only let first time buyers borrow up to four times their salary. The average amount first time buyers borrow is £117,000, meaning you need to be earning nearly £30,000 per annum. With the average house value now being nearly £200,000 what options are there to get on the property ladder?

One option is to buy a property between a group of friends. Lenders usually treat friends borrowing together in the same way they treat a couple. However, it is harder for larger groups, but lenders such as HSBC and C&G do deal with people in these circumstances. It is sensible to draw up a legal agreement outlining what will happen if one of you loses your job, has to move out and how the proceeds will be split when the property is sold.

Another option is to buy property abroad. In some Eastern European countries a good property can be bought for as little as £50,000 and the prices are rising rapidly. This can be used to your advantage by using the profits to buy a property back here in the UK. However, there are risks such as the foreign property market might crash or the local currency could fall against sterling, hence decreasing the value of your property.

If you cannot afford to purchase a property in the area you currently live in but you can afford to buy elsewhere in the UK then it can be wise to invest in a buy-to-let property. As long as the rent is covering the mortgage, any rise in the properties value will be profit. Picking the right area is essential as many rental markets are already saturated. Buy-to-let is considered to be a long term investment and therefore will not product short term profits.

Another option to help you get on the property ladder can be to borrow a large sum of money from your parents. They could do this by re-mortgaging their own property and lending you the money or by the way of a formal loan. They would get this money back once the property is sold. Parents who cannot provide large sums of money can help in other ways, such as acting as guarantors. This is when the parents agree to pay the mortgage if their son or daughter fails to make the payments.

Shared ownership is another option to get on the property ladder. Depending on where you live and your occupation, shared ownership with the housing association is worth considering. Shared ownership allows you to buy part of the property, and you rent the other part form the housing association. You can then buy the other section of the property when you income allows.

Finding the Best Mortgage Deal

Searching the hundreds of mortgages available in the market place has become much easier over the last couple of years thanks to comparison websites such as moneysupermarket.com, however this isn’t always the best option to take.

Websites compare mortgages that are available to the average customer, they don’t take into account personal circumstances. Another problem with websites is that they don’t help you get the mortgage, they just point you in the right direction.

Brokers, on the other hand, help you get the best deal available for your personal circumstances and handle the whole application for you. Brokers will look at your personal circumstances and only make an application to lenders who will deal with you. If you apply yourself and are turned down it can be extremely demoralising as well as damaging your credit rating, hence why using a broker who knows the market is a sensible option.

Whether you use a broker or not you will still need to pay a booking fee. Different brokers charge different amounts, some charge commission, others charge a flat fee and some charge no fee whatsoever. Whether it’s worth paying the fee depends on cost and convenience. If the broker is able to find a good deal, or you don’t have time to hunt around, then it’s worth paying a fee.

If you are required to pay a broker fee, never pay it upfront, it should only be paid on completion. Also, check how many companies the broker works with, for some its hundreds others it’s only a handful.

Changing mortgage providers every couple of years can turn out to be a costly option, especially when some fees are £1,500 or more. The money you save with the lower interest rates of the new deal can be lost due to the hefty fees.

Two options are either a long term fee-free mortgage deal, or a long term fixed mortgage. Woolwich offers the first option, currently charging 5.92%. Although it’s not the cheapest mortgage, there are no fees or penalties to pay and you are free to change providers at anytime. Halifax have recently launched a 25 year fixed rate deal. Although the rate is high, at 6.39%, there are no ties after 10 years and the mortgage has some flexible features.

Releasing Equity from Your Property Once Retired

Research last year found that 13 million people planned to put money from their property towards their retirement.

Re-mortgaging is the easiest option, you keep complete control of your property and receive a lump sum. You can then use your pension to pay the mortgage payments.

There are also two types of equity release schemes. The first type, called house revision plans, allow you to stay in your property but you sell part or all of it to a company in return for regular cash or a lump sum. The other type is a lifetime mortgage, which allows you to raise money without paying monthly bills. The interest builds up and is paid when you sell the property (or is sold after your death). Both schemes eat into your inheritance, as the provider needs to make a profit.

The easiest way to raise capital is to sell your property and purchase a smaller one. Although this will be a big operation, you wont have to pay interest on the lump sum you generate and a smaller property will prove cheaper to run, therefore also saving you money in the long run.

Unsecured Debts Rise by 30%

Article 2007-08-02, 08:20:00

More than 8 million Britons, 18% of the adult population, have over £10,000 of unsecured debt, with a quarter regularly struggling to meet their monthly payments.

The number of people with large amounts of debt on credit cards, store cards, loans and overdrafts has increased by 30% since this time last year.

25% of Britons owing more than £10,000 admitted they regularly miss their monthly payments. This figure has dropped from its peak in October when it was 30%.

The research showed men generally owe more than women, with 13% owing more than £15,000, compared to only 11% of women. However, only 24% of men struggle with their repayments, compared to 27% of women.

The high levels of unsecured debt are linked to the rise in interest rates and property values in the last 12 months. They are also leading to a growing difference between salaries and mortgage payments.

30,075 people went bankrupt or entered an IVA in the first quarter of this year. Tomorrow the government will publish the official figures for the second half of the year, with the numbers expected to rise again.

Interest rates have risen twice in the last three months, which will have put further pressure on borrowers with variable interest rate deals and could lead to the increased numbers of bankruptcies and IVAs.

However, the Customer Credit Counselling Service, CCCS, claims that although there will be an increase in the number of bankruptcies they expect the number of IVAs to decrease due to customers dissatisfaction with profit making IVA firms.

House Prices Continue To Rise Despite Interest Rates Increases

Article 2007-08-01, 08:56:00

HBOS revises house price growth forecast

Today the country's largest mortgage lender HBOS, which produces the closely watched Halifax monthly house price survey, revised up its 2007 house price inflation forecast to 6 percent from 4 percent.
This year house prices have recorded robust growth despite rising interest rates and affordability constraints as hot spots in areas such as London and Northern Ireland continue to drive headline inflation higher.
"This revision largely reflects the greater upward movement in prices than expected during the first four months of the year," HBOS said in a statement.
However, evidence is starting to emerge that five interest rate rises in less than a year are starting to dampen demand in the market as we have already reported earlier in the week.
"An increase of 6 percent would be one of the smallest rises in house prices since 1995 and would be below the long-term average of 8 percent per annum recorded since 1983," HBOS said.
The bank said it would release its eagerly awaited growth forecast for 2008 in December.
In contradiction to the HBOS statement the Council of Mortgage Lenders Director General Michael Coogan told Reuters earlier this week he expected prices to rise between just 2-3 percent as higher borrowing costs bite.

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Article 2007-08-01, 06:12:00

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Britons’ Assets Worth ‘Four Times Their Debt’

©2007 Discovery Re Mortgages UK