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FSA Proposes New Rules on Mortgage Arrears

[ Posted January 27th, 2010 ]

The Financial Services Authority recently put forward new regulations designed to protect those mortgage holders that have fallen into arrears. The FSA has stated that the measure are an attempt to ensure that mortgage borrowers are  fairly treated – particularly if they have borrowed through specialist lenders in the hopes of receiving a quality bad credit mortgage. The Authority aims to make sure that any repossession act is taken as a very last resort, and also that mortgage borrowers facing arrears do not face any extraneous and unfair charges.

The Council of Mortgage Lenders, however, responded by referring to one of the Association’s proposals as ‘heavy-handed’, despite the fact that the FSA’s determination to review the current working methods of the mortgage market, as well as underlining the standards and criteria that all mortgage lending firms must meet. The measures are aimed at ensuring that all homeowners in difficulties are treated fairly, according to  the FSA’s Lesley Titcomb. The proposals are also aimed at underscoring the obligations of lenders to their customers – especially those facing financial difficulties – and that lenders do not and should not afford lenders an opportunity to make further profits.

Figures from the FSA indicate that, as of the end of September last year, there were just under 195,000 mortgages in arrears, and all were in arrears by 2.5% or more of their outstanding balance. The FSA had also earlier in the year commented on the aggressive attitude of some lenders towards their borrowers that were in arrears, stating that it was a definite problem. The Authority stated that they uncovered a high number of mortgages being pushed straight to arrears, indicating possible breaches of the rules of responsible lending. As a result they proposed that firms should not put additional early repayment charges on top of any arrears charges, and that they must not apply a monthly arrears charge if both the lender and customer have agreed upon a strategy and time-scale for repayment of arrears.

They also proposed that repossession should only be used as a last resort when all other options and possible measures have been exhausted, and that payments made by borrowers in difficulties  should first go towards clearing the arrears, particularly for those with commercial mortgages, leaving arrears charges to be paid at a later point. They further proposed that all telephone correspondence and records regarding borrowers’ arrears should be held for three years. The plans were warmly welcomed by the Citizens Advice Bureau.

Increase in Low Loan to Value (LTV) Products for Buyers

[ Posted January 26th, 2010 ]

Reports indicate a growing number of low loan to value (LTV) mortgage products hitting the market in 2010 over December figures, showing a growing number of beneficial options for prospective home owners with less available capital to spend on a home. Specifically, the reports show an increase of 22% for those with an initial deposit of 15% of a home’s value and a 11% growth of products with a mere 10% initial deposit. This means a growth of 384 and 165 products, respectively, for each loan type over figures just one month previous at the end of 2009.

Interest rates on a number of higher LTV products have also seen a decline over the past few months with mortgages holding 80% of the home’s value showing a marked reduction of 0.77% compared to what was seen available as late as October last year, meaning some of the best mortgage rates for homes are now available for many individuals seeking to purchase with less available cash on hand.

These numbers are particularly good news to many first time buyers who have been having a particularly difficult time as of late edging their way into the highly competitive property market where constantly shifting conditions have led to many less-than-desirable situations for many people. Those looking to re-mortgage their home for slightly less than its full worth may also find these numbers helpful as it could mean the ability to pay off other residual debt by utilising their current home’s residual value more effectively immediately rather than trying to balance out multiple debt holes at once.

For those who find this information still less than inspiring should they have little to no flexible money for deposits many mortgages with even a 5% initial deposit have shown a marked interest rate decrease, dropping by as much as 0.71% since October as well. The only concern at this point is how long this decline will last and whether or not interest rates will climb in the future given recent inflation increases and many banks limiting available grants on some loans, so prospective home owners are encouraged to take advantage of these low rates while they can and keep a close eye on the market in the coming months in order to ensure that they are getting the best possible value for their money.

Large SVR Hike by Lender Squeezes Homeowners

[ Posted January 21st, 2010 ]

Action by one of Britain’s leading building societies may see thousands of homeowners paying more for their mortgages. The Skip-ton Building Society was forced to hike its standard variable rate from 3.5% to 4.95 %, even though the Bank of England has kept the base rate untouched since March 2009. The rise may well see many of the 125,000 mortgage borrowers at the society looking at increases of around £120 per month in order to meet the repayments for typical rates on a 150,000 loan. This could see an annual increase in mortgage bills of around £1,500 for many, and it comes at a time also when many are already struggling with home loans and rising costs such as bills. This has also stoked worries that many more homeowners at other cash-strapped societies could also be looking at similar hikes, an occurrence which could see hundreds of thousands of mortgage borrowers similarly affected, particularly those who have sought out bad credit mortgages over the past year. The rate hikes have been precipitated largely due to the market fact that the building societies are simply unable to compete with the newly-nationalised banks, which have been re-floated by taxpayer bail-outs and have, as a result, been able to offer attractive savings deals. Conversely, the building societies are reliant on raising funds from high street savers in order to fund lending to house buyers.

Analysts state that the chances of other societies following suit and hiking rates is fairly good, due to the historically low interest rate level, leaving the societies holding thousands of low-rate mortgage plans that are no longer making money for them. This is exacerbated by the fierce competition that now exists in the market. It appears that hiking SVR rates is the only option left to he building societies in order to generate funds, and this move will only harm their existing customers. Skipton itself cited ‘exceptional circumstances’ in raising the rate and breaking the promise to homeowners. They also issue a promise that their SVR would never be more than 3% over the base rate, which currently stands at 0.5%. Skipton’s chief executive, David Cutter, also pledged that the society would attempt to re-introduce the old 3% cap if and when the market improves. The new rate raise will kick in on March 1st, with those currently locked into deals being able to leave the society at no charge, or move to a new rate and potentially fixed rate.

UK Repossessions Less Severe, But Lender’s Too Hasty

[ Posted January 20th, 2010 ]

A recent report published by charities has criticised mortgage lenders for neglecting to explore all possible means of keeping people living in their homes in at least one-third of repossessions. According to legal rules in the UK, mortgage lenders should only use repossession as a last resort; however, according to the recent study published by Advice UK, Citizens Advice and Shelter, judges do not always get involved in order to see that the protocol is observed.

The report did also indicate that there were certain support packages available that were having an effect for struggling homeowners. Another factor that has kept the repossession rate down is the continuation of low interest rates.

During November 2009, the Council of Mortgage Lenders reduced its forecast for the number of properties likely to face repossession this year to just under 50,000, having previously predicted that home repossessions would climb steeply to around 75,000.

The charities concluded that the sub-prime lenders, who tend to specialise in packages for riskier borrowers, were, in general, taking legal action for repossession earlier than the mainstream mortgage lenders.

The two most common factors cited for going into mortgage arrears were unemployment or a drop in income level, with low-income families being the most vulnerable to the spectre of repossessions, according to the charities’ figures.

They did cite certain government packages aimed at helping with mortgage interest bills, with one such scheme being the Support for Mortgage Interest scheme (SMI). The scheme is directed at those who have been made unemployed, and becomes available 13 weeks after the claim is made for mortgages of up to £200,000.

The charities say, however, that a lot of mortgage borrowers ending up in court tend to be paying higher monthly interest rates than could be covered by the payments under the SMI scheme. They also stated that evidence existed showing a shortfall in those applying for this particular form of benefit. Homeowners are instead encouraged to lock-in a relatively low interest fixed rate mortgage if possible in order to take advantage of the benefits available to them now rather than risk a higher interest mortgage that may put them out of a home later, even if it may offer them greater monetary gain initially.

Also, recent date published by the FSA illustrated that, in the third-quarter of 2009, the number of repossessions actually increased when compared to the past three months, with the number of new repossessions reaching 14,000, marking a 2.8% increase on the past three month. This was, however, still 5% below the apex at the beginning of 2009, and the figure continued to fall by 10% from July to September when compared to the previous quarter. The figure stood at 46,000.

Soaring Inflation Likely to Hit Mortgages

[ Posted January 19th, 2010 ]

Official figures released on January 19th indicate that the Consumer Price Index jumped by 2.9% during December 2009, compared to the 1.9% rise seen in November 2009. The latest figure is also significantly higher that the 2.4% figure previously predicted by economists. Analysts have put the latest rise down to the fact that retailers are not discounting, the general state of the economic recovery, as well as the fact that the price of crude oil has doubled during the past year.

The Consumer Price Index now sits well above the target set by the Bank of England of 2%, the first time this has been the case since May 2009. Analysts also believe that the statistics for January 2010 as liable to record inflation cracking the 3% mark, largely due to the fact that the discounted rate of VAT, 15%, returns to its full 17.5% rate in January. This will precipitate the need for Mervyn King, Governor of the Bank of England, to write to the Chancellor of the Exchequer to explain why the CPI is not on target. All of these factors make it more likely that the Bank of England will put interest rates up soon as a means of getting inflation under control – thus bringing an end to perhaps some of the best mortgage offerings to date that have been found lately.

This would be at odds with the forecasts proffered by some economic forecasters that the Bank Base Rate could stay at the current historically low level of 0.5%-at least until the end of the year-and perhaps even stretching into 2011. This latter scenario is now appearing less likely. Michael Saunders, the chief economist for the western Europe region at Citigroup, said that the Bank of England has not been as preoccupied with inflation during the time the economy has been in deep recession, but that it would now become an increasing concern. Mr Saunders stated his belief that the BOE would raise interest rates in either the second or third quarter, and that the latest inflation figures would most likely end the existing ‘rate complacency’ displayed by borrowers, especially those banking on the current low interest rates or those on variable rate mortgages-which will be hit significantly by a rise in interest rates, handing higher monthly mortgage repayments to this set of borrowers and making those who have been struggling with bad credit mortgages particularly hard. He added that those borrowers looking at fixed rate mortgages should act quickly, as the previously low prices seen are likely to shoot up as a result of the latest CPI figures.

Mortgage Lending Drops by 10%

[ Posted January 18th, 2010 ]

Recently released figures for mortgage lending in November 2009 showed that mortgage lending dropped by 10% from October 2009 to reach trough figures not seen since May of the same year, according to lenders. During November 2009, gross lending for mortgages reached a total of £12 billion, a figure down 14% on the previous November, according to the figures from the Council of Mortgage Lenders (CML). The Council stated that, previously, lending for home loans has seen a steady rise throughout the autumn of 2009, and that November’s month-on-month drop was not only due to seasonal factors. The Council explained that a slight seasonal decline from October to November was quite usual, however the seen 10% fall was greater than normal and greater than had been expected.

Paul Samter, an economist with CML believes that despite the blip the watchword for the long-term was stability and this should not be affected by the end of the holiday on stamp duty which will happen soon.

Britain’s Chancellor of the Exchequer, Alistair Darling, announced in the recent pre-Budget report that the 1% stamp duty would kick in for properties fetching more than £125,000 from the end of the year. Mr Samter believes that market conditions and figures suggest that we can expect little underlying change in the coming months, with the only possible changes being a slight drop in underlying house buying in the first part of 2010 as a result of the end of the stamp duty holiday.

Mr Santer also suggested that the market shows very little encouragement for first-time buyers, who will still be required to hand over large deposits in order to get their feet on the property ladder.

Despite the recent slight increase in mortgage credit availability, including several higher loan-to-value mortgage products coming back onto the market. There appears however to be no rapid recovery with respect to lending volumes, as re-mortgaging levels look likely to stay subdued due to continuing low interest rate levels.

The National Association of Estate agents also announced recently that the ratio of first-time buyers coming into the housing market is at a year’s low. Analysts described the housing market as a principle factor in terms of economic recovery in the UK, and that the unchanged squeeze on lending, as well as the probability that prospective buyers would be unlikely to make major purchases as a General Election looms make a continued subdued housing market most probable during 2010.

Over Half of NR Repos are on 125% Mortgages

[ Posted January 13th, 2010 ]

It has been revealed that two out of every three properties that have been repossessed by the State-owned lender Northern Rockwere funded by one of the lender’s own-and much criticised-Together Mortgages. Gary Hoffman, Northern Rock’s chief executive, addressed Members of Parliament on January 11, confirmed that his company’s Together Mortgage packages, which enabled borrowers to assume mortgage loans worth in excess of 125% of the total value of their properties, did indeed account for the larger-than-usual number of loan arrears and cases of repossession currently being experienced by the bank.

Mr Hoffman went on to state that 4.11% of all Northern Rock related borrowers were found to be three months in mortgage arrears as of September 2009, particularly those who have had bad credit in the past or were looking for a higher rate on their home through a re-mortgage, compared with the Council of Mortgage Lenders’ industry average figure of 2.5%.

The bank’s arrears, now positioned within Northern Rock Asset Management (NRAM), actually stabilised during the second half of 2009. NRAM is the so-called ‘bad bank’ that was created when Northern Rock was divided as the extent global banking crisis in the UK began to come to light.

Mr Hoffman stated that the level of arrears came as no surprise, ‘given what the book is’, and that the company’s Together package had been fully discussed and evaluated. He said that, in total, Together’s arrears stand at 6.89%, and, as it result, it was clear that Together was the factor driving the high figure.

Mr Hoffman also insisted that Northern Rock has worked stringently in order to improve the number of mortgage defaulters able to remain in their properties (known as ‘forebearance’), as well as striving to improve debt management. Mr Hoffman informed the Treasure Select committee, in frot of whom he was appearing, that currently 90% of all mortgage accounts held within Northern Rock Asset Management are performing well, arguing that Northern Rock is happy for those customers in arrears to keep their current mortgages with the company, and that although NR might not be the most affordable choice with respect to mortgage costs it was also by no means the most expensive.

UK Sees Number of Mortgage Fraud Cases Jump in 2009

[ Posted January 12th, 2010 ]

According to end-of-year figures, losses incurred from mortgage fraud jumped significantly to £375m in 2009. The accounting firm, BDO, that released the figures, stated that this is a substantial increase on previous years and that the figure is also set to increase in the near future.

The head of BDO’s Fraud Services Team, Simon Bevan, commented that the majority of reported mortgage frauds to date are linked to residential homeloans, but he indicated that real estate lenders in the commercial sector were more than likely to discover similar indiscretions.

Mr Bevan stated that the greater part of the cases would likely be a torrent of fraudulent borrowing-much of which has only just come to light-a result of over-valuing properties as securities for loans during the boom-time in the property market.

Mr Bevan added that many of these cases of fraud have yet to be recognised by the banks, most of which have marked the loans out simply as “non-performing loans” resulting from the wide-spread bad credit mortgages that were issued earlier in the year.

The report, which is the first time that mortgage fraud has been put in the spotlight in the BDO’s more wide-ranging report of fraud in the UK, goes a long way to illustrating just to what extent wrongdoing in the mortgage sector has risen. The report concluded that mortgage fraud accounted for 28% of all instances of fraud in 2009.

The report also states that total losses from all instances of fraud increased dramatically during 2009, rocketing by a huge 75% to almost £2.1bn. This figure totally eclipses the previous record of £1,73bn seen in 2006. IT also showed that, during last year in the UK, there were 363 cases of fraud, rising from the 285 cases recorded during 2008.

As previously stated by Mr Bevan, the vast majority of these mortgage fraud cases are instances of fraudulent activities that originated during the property market’s boom-time that are just coming into focus as cash-strapped, nervous companies urgently assess their expenditures and incomes.

It is also expected that the number of cases will increase as businesses and individuals in the UK struggle to stay afloat during the fallout from the economic downturn.

The majority of fraud cases were cases of management fraud from issuances and remortgages, which accounted for 24% of all losses, while London and the Southeast saw the majority of cases, mainly due to the fact that the area is the very centre of the UK’s financial services industry.

Credit Cards – The New Mortgage Payer?

[ Posted January 11th, 2010 ]

A recent poll by the housing charity Shelter England recently discovered some rather unsettling news for the housing market. According to the report, roughly 1 million home owners across the UK are using their credit cards to pay for their monthly mortgages.

This figure is drawn from the result of a survey where 6% of all respondents stated that sometime in the past 6 months they have used their credit card for a mortgage payment, meaning that roughly one in every 12 Londoners are paying their monthly housing costs by credit card – simply differing one loan to another rather than taking care of the problem. Most responses admitting to doing this are from working-class professionals (about 8% of all those who responded to the survey) yet even upper-class households are facing the problem with 4% of residents also stating that they have used credit cards for their payments as well.

This is troubling news for the UK now as the country’s economy is finally beginning to recover after the extreme economic hardships of 2009, yet judging from this the housing market still has quite some ways to go before a solid recovery on their part.

This practice is particularly dangerous for home owners who are in danger of losing their homes to a regular lending company, particularly those who are using credit cards to pay for fixed-rate mortgages or even variable rate re-mortgages on their homes. Not only are credit card rates generally significantly higher than any possible rate a mortgage company may offer at the same time credit card companies are not restricted to the same regulations other housing lenders are. For example, while a resident can successfully negotiate and defend a repossession of their home in court for quite some time credit card companies can force home owners to sell their homes in order to pay off their debt.

This means that many home owners who could potentially find some alternative funding means to pay for their home’s mortgage are actually putting themselves into a more and more dangerous situation that will simply dig themselves deeper into debt than they currently are. If you are considering doing this practise to pay for your own home then bear in mind the consequences of such actions and be prepared for what may come in the not-so-distant future.

Mortgage Demand Rises, Banks Move to Support

[ Posted January 5th, 2010 ]

2009 saw the largest increase in home loan dispersal since March of 2008 according to recent studies of last year’s trends, with fourth quarter 2009 holding the largest increase throughout the entire year. November alone saw more than 60,000 home loan applications approved with over 1.5 billion dispersed to home owners throughout the country.

These trend has helped spur on some of the best mortgage deals that have been seen in quite some time, covering the whole gamut from first time buyer mortgages to even re-mortgages as lending agencies compete with one another more and more in order to attract more customers. This is seen as quite optimistic news by many experts analysing the economic trends and many people believe it is a strong indication that the economic recession is drawing closer to a close, however at the same time predictions for house prices going into 2010 are still unclear with many experts disagreeing on home prices falling up to seven percent to even raising seven percent.

Nevertheless the current trends are still seen as strong positive signs by most, and with mortgage lending options now able to provide home owners with up to 75% of their home’s value in equity many people are able to obtain more funds to help them in times of need than previously possible. Additionally the highly competitive market has also brought about many newer loans that are able to provide borrowers with funding even if their credit history has been less-than-desirable, meaning many families are better able to get back on their feet after a long time of difficulties since the recession began.

While most banking experts tend to agree that additional improvements to the lending environment will most likely be seen in the coming months as conditions stabilise more the trend is, unfortunately, unpredictable still at this time and is not certain. For most now may be as good a time as any to try and get the financial support needed to get either into a home for the first time, get back into a home or simply consolidate bills as a more promising scenario may potentially come in the near future however this is far from guaranteed.

 
 
 
 
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