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Banks defend meagre mortgage lending

[ Posted April 28th, 2009 ]

Bank mortgage lending has slumped to the lowest in four months and is wrecking hopes of a recovery in the housing market, according to figures released by the British Bankers Association.

Only 26,097 mortgages were given the go-ahead for homebuyers in March – down 7% on February and 25% on March 2008.

The BBA claims lending will fluctuate during the recession – but some major banks have promised lending will increase when statistics from the organisation that acts as their public voice clearly shows otherwise.

All mortgage lending indicators for March were down on February. Final lending figures for the month showed the banks lent £8.9 billion – the lowest since April 2001 and 47% on March 2008.

Remortgages were down to 26,831, just under 5% from February and 58% down year-on-year. The BBA attributes the fall in remortgages to homeowners switching to their lender’s standard variable rate as fixed rate and other discount deals end.

Many of these homeowners would remortgage if they could – but due to tightening of lending criteria, they can’t find another mortgage. The main two problems are:

  • Negative or low equity,which means borrowers can’t qualify the best mortgage rates because they need to borrow more than 75% of their property’s value.
  • Lenders have increased credit score requirements that mean people with unblemished credit records cannot get enough ticks in the boxes to pass the lender’s underwriting.

Surprisingly, the BBA statistics director claims lending to households continues to grow – but what he really means is that when you add other personal loans, credit cards and overdrafts to mortgage lending, borrowing is up.

The spin does not actually represent the reality of bank mortgage lending.

"Lending to households continues to grow as banks make funds available to for people who meet their lending criteria," he said. "The banks’ figures also show that it would be unrealistic to expect the mortgage market to recover in a steady and consistent way in the current economic environment."

The BBA is the leading UK banking and financial services organisation. Major banks account for about two thirds of all mortgage lending.

Further analysis of the UK economy by the International Monetary Fund does not bode well either.

The IMF says that despite Chancellor Alastair Darling’s optimistic Budget 2009 forecasts, the economy has still not hit rock bottom and the housing market is still in freefall despite property losing about 20% in value over the past year.

The IMF expects the recession to continue in to 2010 and not to pick up later this year, as the Chancellor related in his Budget speech.

Overall, the outlook is bleak for first time buyers and homeowners looking for the best mortgage deal.

If you are looking for a home loan – then a mortgage comparison site like ours is a good place to consider starting your search. In minutes, you can find out what the best mortgage rates are and whether your deposit or equity matches a lender’s requirements.

Comparing the best mortgages for you

[ Posted April 24th, 2009 ]

Finding the best mortgage deal is a nightmare with so many competing banks and building societies offering their own best rates.

With thousands of banks, building societies and brokers offering advice, it’s important that you understand the market so you know you are getting the best mortgage deal.

Take the new launch of HBSC mortgage advisor service. The bank says they will compare your mortgage to all the other deals on the market and tell you which is the best.

But this comes with some conditions:

  • The bank can only advise you about their own products
  • You have to make a decision whether the bank’s products are better for you than one from another lender

The risk is the bank is cherry-picking the best mortgage customers for their own products and the mortgage service is just an exercise in gaining publicity for the bank.

The spin is that the bank will try and help you, but if they can’t they’ll suggest someone else who might.

As a mortgage customer, the bank’s service gives you no advantage because the information they are passing on is freely available on the web anyway.

Finding the best mortgage deal is hard enough as it is, and services like this are only marketing initiatives to get you through the bank’s doors.

The other issue is the bank will no doubt try and sell you their life insurance and mortgage protection cover as part of the package- and often the high street lenders load the premiums with huge commission.

Shopping around for a mortgage and related products from an independent broker is likely to save you money because they are not tied in to offering a limited range of products.

As a mortgage seeker, you have to remember that the lenders all borrow from the same wholesale money markets and pay roughly the same rates for their borrowings.

The different mortgage packages offered are variations on a theme — a fixed rate may save you money in the short term, a tracker may save you money in the long term but overall, they will both probably cost you about the same over the life of the mortgage.

The choice of how you want to take that discount is yours, but the wrapper is the honey trap the lender baits their honey trap with to get you through their doors instead of their rivals.

To find the best mortgage for you, consider looking at a free mortgage comparison web site like ours.  Filling in a simple form will return a search of the market in minutes and if you do decide to take up the bank’s mortgage service, you’ll have the information at hand to check their claims.

Finding a mortgage may be easier for homebuyers

[ Posted April 21st, 2009 ]

Banks and building societies plan to open their coffers and lend more money to homeowners in the coming months, according to the Bank of England.

With lenders and the Royal Institute of Chartered Surveyors both reporting inquiries for loans and viewings up, they claim this is not a sign of revival in the housing market but just a seasonal blip that occurs every year around Easter.

The Bank of England’s first Trends in Lending report says lending at more than 90% loan-to-value has gone as lenders consider such mortgages too risky while house prices are falling.

The report also notes that second loans and remortgages have virtually disappeared from the market as well, which is not good news if you arelooking for a mortgage.

The report also explains that interest rates do not necessarily reflect the true costs of a mortgage and that lenders have been pushing up arrangement fees and other related mortgage costs for about two years – adding up to £2,000 to the costs of an average mortgage.

Another factor little publicised is that lenders have also tightened up credit scoring that has had the result of locking millions of people with excellent credit records out of the mortgage market.

The Government announced earlier in the year that Northern Rock would have to increase mortgage lending, as will other banks with public shareholding like the Royal Bank of Scotland and Lloyds TSB.

To be fair, the banks seem to be chasing their own tails – they claim lending is down because of a slump in the housing market, but other housing professionals say the banks turning off the lending tap caused the slump.

Despite apportioning blame, many people want to get on the housing ladder or move house but can’t because they don’t know where to get a mortgage.

Our advice is consider a site like ours to find what is available on the mortgage market and be realistic about what you can afford to buy because interest rates will inevitably rise at some time in the future.

Using a mortgage comparison site like ours makes life easy for homebuyers – all you have to do is complete a simple form and we report back with all the mortgage deals currently on the market that fit your needs.

Just because your bank has knocked you back for a mortgage does not mean every lender will refuse an application.

Our mortgage comparison site shows all the best mortgage rates and loan-to-value deals available.

It’s also a good idea to check the site regularly as some mortgage offers are limited and the rates and conditions can change quickly.

Nevertheless, reading the reports from official sources like the Bank of England in detail, it’s apparent that although the Government and the Bank are pressurising lenders to lend more money to homeowners, the lenders are resisting and concentrating on rebuilding their own balance sheets with public money before going back in to the markets.

The only certainty in the current market is no one can predict if and when house prices will stop falling.

Negative equity locks 1-in-6 out of remortgaging

[ Posted April 17th, 2009 ]

Millions of homeowners are locked out of remortgaging because of the house price crash, according to the Council of Mortgage Lenders.

Homeowners with mortgages have several problems, say the CML:

  • A million households are in negative equity – which means they owe more to their lenders than their homes are worth
  • Another million households are teetering on the brink of negative equity because they owe up to 90% of their home values to a bank or building society
  • Millions more can’t remortgage because they don’t meet lenders minimum criteria for getting a new loan

The CML estimates almost 12 million homeowners have mortgages – this doesn’t necessarily mean 12 million mortgages on 12 million homes, because some will have second mortgages or further advances or mortgages on second homes.

That means if two million homeowners can’t get a remortgage 1-in-6 people are locked in to their current deals.

If you are in negative equity or cannot find a remortgage deal, sit tight and wait for the market to level out and eventually start to rise. As long as you can keep up with your repayments, trhe fact your home is worth less than the loan doesn’t matter unless you need to sell.

Government watchdog the Financial Services Authority reckons 2.5 households could slip in to negative equity over the next 12 months – which means the amount of homeowners who can’t remortgage could be as high as 1-in-4 in 12 months time.

Latest figures from Nationwide Building Society show house prices have dropped 17% in the past year.

If you have equity in your home, use a mortgage comparison site like ours to search the market in minutes to see if any of the best rate remortgage deals suit your needs.

How much cash you need to get a mortgage

[ Posted April 14th, 2009 ]

Banks and building societies are just like any other business – their advertising is aimed at grabbing your attention, so many set a ‘best mortgage rate’ deal to bait the honey trap.

Then, when you apply for the headline rate, you find that only few customers qualify for the red carpet treatment and you are pushed to the tradesman’s entrance for slightly less spectacular deals.

As a guideline, we’ve worked out the cash deposit you need as a buyer to hook a best rate mortgage deal – or how much equity you need as a homeowner for a best rate mortgage deal.

The table is based on January’s house price figures issued by the Land Registry and mortgage loan-to-values – the cash or equity in your home – you need to hit the best rate mortgage thresholds.

To give you some idea, independent financial information providers Moneyfacts – who do a similar job to the Which magazine for consumers – say banks and building societies are currently offering 1,485 home mortgage products.

Of these, more than two thirds – 68% or 1,009 mortgage products – need a cash deposit or equity of 25% of your home’s value. That means 32% or 476 products are available for a deposit of 25% or less.

That’s only part of the story because the headline offers need 35%- 40% cash or equity to season the deal.

According to the Council of Mortgage Lenders (CML), in January 2009, the latest month statistics for which statistics are available, 67,400 mortgages were offered – 23,400 to first time buyers and movers and 44,000 as remortgages.

The average deposit for home movers was 35%, according to the CML – the figures are highlighted in the table.

You can use this table to get some idea of much you need to go to a lender for a mortgage – and to find a mortgage that suits your needs, you can use our mortgage comparison service.

 House type  Cost Deposit – your cash or equity required  to obtain mortgage or remortgage
    40% 35% 25% 15% 10%
 Detached  £235,363 £94,145 £82,377  £58,840 £38,004  £23,536
             
 Semi  £145,237  £58,094 £54,332 £36,309  £21,875  £14,523
             
 Terraced  £118,885  £47,554  £41,609  £29,721 £17,832  £11,888
             
 Flat £144,701 £57,880 £50,645  £36,175 £21,705 £14,470
             
 All  £153,862 £61,544 £53,851  £38,465 £23,079 £15,386
             

How rate cuts make mortgages more expensive

[ Posted April 9th, 2009 ]

Rate cuts are not necessarily making mortgages cheaper because many headline grabbing ‘best fixed rate’ mortgage deals promoted by banks and building societies come with conditions in the small print.

For instance, you may have to open a bank account that charges a monthly fee or pay an ‘administration’ fee to the lender for arranging the loan.

Some of these conditions mean it might be cheaper to take a no-strings attached mortgage at a higher rate, but with an overall cheaper repayment each month when all the add-ons are considered.

One of the best ways to compare these mortgage costs and benefits is to use a mortgage comparison site like ours.

Just fill in a simple form and our site searches the web for you and comes back with a list of the best mortgages to suit your needs.

Mortgage borrowers are benefitting from mortgage interest rates that have wound back the clock more than five years.

The average rate of a two-year fixed rate mortgage in February was 4.01% – the lowest since July 2003, when the rate was 3.87%, according to the Bank of England.

The fall is attributed to the six successive interest rate cuts – and the Bank of England feels that further cuts will not make any difference, so at the Monetary Policy Committee meeting today, the rate was left at 0.5%.

Other mortgage rate figures issued by the Bank of England show:

  • Five-year fixed-rate deals with up to 75% loan-to-value showed a minute movement – from 4.97% in February to 4.96% in March
  • 10-year fixed-rate mortgage costs increased to 5.65%, up from 5.55% in February for borrowers looking for a 75% mortgage.
  • Standard variable mortgage rates  – those set by individual banks and building societies – dropped to the lowest in 14 years, to 4.03% in March from 4.38 % in February.

Despite the apparent drop in mortgage rates, they are still higher than they might be had the banks stuck to the same profit margin as they were charging last year.

The margins lenders charge have rocketed from an average of 0.59 points above base in October last year to 3.2 points above base today, according to research from Moneyfacts.co.uk, the financial website.

The ‘margin’ is the lenders gross profit on the mortgage. The bigger the margin, the more you are contributing towards the lender’s profits.

Remember, like we have said many times before, lenders are not your friends and helping you buy a home or remortgage is not a favour but a way of making profits for their shareholders.

To reiterate the point above, that’s one good reason why you should always consider a mortgage comparison web site likes ours to research the market for the best rates and loan products to suit your needs.

Lenders snatch £500m profits on fixed rate mortgage deals

[ Posted April 7th, 2009 ]

Borrowers looking for the best fixed rate mortgage should watch out for lenders trying to boost their profits from the deal as banks and building societies are taking almost £500 million of your money for nothing this year by profiteering on fixed rate mortgages.

Instead of passing on wholesale lending rate cuts to borrowers, lenders are pocketing the difference and charging the mortgage out at a higher rate.

For a first time buyer or a homeowner looking for a remortgage with a loan of £120,000, the lender is picking up an extra £1,225 in interest over the most popular fixed rate term of two years.

As 33,000 fixed rate mortgages are granted each month, that adds up to £485 million a year.

The current average best fixed rate two-year mortgage is around 4.75%. based on the profit margin the lenders applied a year ago when rates were higher, the rate should be much lower at around 3.75%.

The lenders have simply made their mortgages less competitive by increasing their profit margins between the cost they are paying the wholesale money markets for the cash to lend and what they are charging out to customers.

So the banks and building societies are winners both ways:

  • Savers are receiving virtually nothing back because the banks and building societies say they can’t afford to pay a decent return because of the state of the markets
  • Borrowers are paying more than they might as lenders increase their margins – and you guessed it, because of the state of the markets.

A big lesson is the banks and building societies don’t seem to care about their customers, just how to manipulate them to make profits.

By the way. although it’s churlish, didn’t the banks make the markets in the state they are in anyway?

One way of fighting back is tracking down a mortgage with a free mortgage comparison site like ours.

By filling in a simple form, in minutes you will have broad pictures of the current best fixed rate mortgages and best remortgage rates. You can then opt for a lender who is less likely to target your cash with artificial high rates to make extra profits at your expense.

The signs are that lenders have cut mortgage rates as far as they are prepared to go, so it’s unlikely mortgage rates are going to get cheaper.

In fact, wholesale mortgage costs where banks and building societies source the money they borrow may even increase, that will mean lenders will have to push up their best rate fixed rate and best remortgage products.

How to save money on your mortgage

[ Posted April 3rd, 2009 ]

Complacency is one of the main reasons why borrowers don’t have the best mortgage interest rates.

Year after year, borrowers tend to stick with the same lender instead of shopping around for a better deal.

Homeowners will spend hours scouring the web to save a few pounds on car or home insurance, but few bother to spend the same amount of time that could save them thousands over the years with the best mortgage rate.

Many borrowers have fixed rate and other incentive deals coming to an end over the next few months, and will meekly accept the rate the lender offers them.

Lots of these mortgage borrowers might not be able to switch their loans at a better mortgage rate because the loan-to-value, or amount the have outstanding as a loan against their home is too high.

Few lenders are offering their best rates to lenders who have loans of more than 75% of the value of their homes.

But what the lenders won’t tell you is you can still be a winner in the interest race – because it makes them money.

If you have an old incentive scheme coming to an end, it’s likely the interest rate you are paying from two years or so ago is higher than your bank or building society’s standard mortgage rate today.

For instance, a lot of fixed rate schemes were between 5% and 7% and now, the standard rate is about 4% for many lenders.

To save yourself cash in the long term, you have two options:

  • Keep the mortgage term the same but instead of paying the reduced amount, overpay the difference between what you are paying now and the new repayment figure.

Check whether you lender calculates interest daily or annually – if it’s daily pay a bit off every month, if it’s annually, put the money in a savings account and pay at the end of the year.

  •  A variation on the theme is finding the best rate remortgage but continuing to pay your mortgage at the same rate as you are now but over a lesser term.

Your bank or building society often won’t tip you off about how to pay less because it’s not in their best interest.

It’s easy to use a mortgage comparison site like ours to find the best mortgage rate – and our consultants will help you cut a fortune off interest you could pay on your mortgage loan by manipulating the payments and terms.

First time buyers need £38,000 deposit to claim best mortgage rates

[ Posted April 1st, 2009 ]

First time buyers were putting down an average deposit of 24% on their new homes in January to get the best mortgage rate, according to the Council of Mortgage Lenders.

With the average price of a terraced house at £160,000 and flats at £183,000, that means they need to have cash in the hand of between £38,400 and £43,920 to secure a home purchase.

The good news is that with house prices still falling, the amount of deposit needed is dropping as well, but it’s still an awful lot of money to put together, with banks and building societies paying such poor interest on savings.

Putting down such a large deposit gives the lender confidence that even if prices continue to fall, they are exposed to minimal risk, so can offer the best mortgage rate to borrowers with the largest deposit.

Even so, the Council of Mortgage lenders confirms less than 10,000 first time buyers were given a mortgage offer in January – and having an offer does not mean that the deal will complete.

Less loan-to-value mortgages are open to first time buyers – but the less cash available as a deposit, the more the interest rate rises – up to almost 7% on an 85% loan-to-value product, which still needs a deposit input of £24,000 for a terraced house or £27,450 for a flat.

‘Loan-to-value’ is mortgage jargon for the amount of money the lender and the borrower have to put in to buy a house – for example 75% loan-to-value means the lender puts in 75% of the property value and the borrower 25%.

Many banks and building societies are recognising that specialist mortgage brokers offer excellent help in obtaining a mortgage.

HSBC bank is starting a pilot scheme of teaming with brokers to offer borrowers better mortgage deals from across the market instead of just their own products – at a consultancy cost of £150.

Mortgage comparison sites like ours offer better value for money for first time buyers because the service is free. By completing a simple form, you can see the costs, benefits and features of dozens of mortgages.

You can then contact one of our advisors who will help you through the application process step-by-step.

Best of all, you can access our site 24/7 and not just during bank opening hours.

Our service is also for homeowners who are looking for the best remortgage rate and business people seeking commercial finance.

Again, remortgages and business finance are available at competitive rates to borrowers with significant equity in their properties.

‘Equity’ is another mortgage term for the proportion of the value of your property that is free of any loans. So, if you have a £300,000 and a £200,000 mortgage, your equity is £100,000.

Whether you are a first time buyer, moving, remortgaging or in business, our site will try and find the best mortgage rate to suit your personal financial circumstances.

 
 
 
 
mortgagerates123.co.uk aims to provide every client with cheap, affordable and best mortgage loans in the UK market, however the actual mortgage rate available will depend on client's financial circumstances and credit history. Although, mortgagerates123.co.uk has made every effort to ensure that the mortgage rates listed are correct, it bears no responsibility in case of an error. 
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