Abbey reveals now is a great time to get a fixed-rate mortgage
21/02/2008
Since the monetary policy committee's decision to cut the base rate from 5.5 per cent to 5.25 per cent at the beginning of the month, many lenders have slashed fixed-rate mortgage rates. As a result, Abbey is now advising customers to take advantage of lower rates while they last.
The lender has lowered the rate on its two-year fixed rate mortgage deal by 0.2 per cent to just 5.39 per cent with a £1,499 fee. “In the current market, certainty seems to be what a lot of people want, so we’re driving down the costs on our fixed rate deals," says head of Abbey Mortgages, Nici Audhlam-Gardiner.
Changes to its remortgage deals have also been introduced. Its three-year fixed rate remortgage deal is currently being offered at 5.62 per cent, the same rate as the core product, so that customers receive legal and valuation services for free.
According to Abbey, longer-term fixed deals – recently endorsed by Chancellor Alistair Darling – also appear strong. Its five-year mortgages have stayed at the reduced rate, 5.63 per cent with a £499 fee, introduced earlier this year. Meanwhile, its 10 and 15 year fixes start from 5.59 per cent.
However, in line with several other mortgage lenders, the group's tracker mortgages have risen in price by between 0.20 and 0.25 per cent. Its best tracker deal as of February 22 will be 5.74 per cent with a £999 fee. The company will also end the pilot of its 100 Plus mortgage product on February 22 in order to evaluate the results of the scheme.
A recent survey from fairinvestment.co.uk found that more than half – 57 per cent of people in the UK – would choose either a short- or long-term fixed-rate deal if they were to take out a new mortgage. With continued instability in the financial markets, it appears that fixed deals are increasing in popularity, particularly following the two rate cuts implemented in the last three months.
House prices up 3.2% due to property shortage
18/02/2008
The average asking price for properties in England and Wales rose 3.2 per cent, or £7,426, in February, according to property agent Rightmove.
This has been linked to the dearth in available properties, with estate agents competing for just 132,000 properties compared with 144,000 in February 2007 and 155,000 in February 2006.
Average prices reached £237,856 in February compared with £230,428 in January, when prices fell 0.8 per cent. Compared with February 2007, the average asking price was 5.8 per cent higher, while January prices rose just 3.4 per cent year-on-year.
According to Rightmove, it is normal for asking prices to be higher at this time of year. "Most sellers obviously want to achieve as much as possible for their property, and traditionally they choose to test a more ambitious price early in the year as they have plenty of time to adjust it down later," says commercial director, Miles Shipside.
Meanwhile, new listings were at their lowest level since February 2005, prompting the rise in prices. The decline has been attributed to the December deadline for home information packs (HIPS), following which there have been fewer one and two bedroom properties on the market as people prove reluctant to pay the associated fees.
However, prices have actually remained fairly flat over the last eight months, with prices down just 0.6 per cent between June 2007 – before the introduction of HIPS – and February 2008. Rightmove predicts that prices will remain more or less static for the rest of the year.
Mr Shipside warns: "Fresh stock always creates initial interest when it is launched onto the market, and if the property is desirable you can get away with pitching the asking price a bit higher. However, if there are several similar unsold properties on the market nearby, then it can damage your long-term sale prospects as you lose the initial impetus of prospective buyers running their eye over its suitability.
"The market is now highly transparent with every property easily visible on the internet, so it’s very easy for prospective buyers to see what’s priced too high, what’s sticking and what’s a bargain."
Those looking for mortgage deals should be ultra careful as several major lenders, including Halifax and Cheltenham and Gloucester, have recently raised tracker rates. Lenders are now being accused of profiteering as prices continue to rise despite the two interest rate cuts in the last three months.
Up to 25 jobs to go at InterBay
Specialist commercial lender InterBay has revealed that up to 25 jobs will be axed.
Although the firm has seen record levels of business over the last month, it says that worsening market conditions in the UK have led to the decision.
Staff found out this morning about the job losses and they will now enter into a 30-day consultation period.
The cuts will be made across the company and all departments are expected to be affected.
Colin Bell, managing director at InterBay, says: “It’s not an easy thing we’re having to do at InterBay.
“But what we now want to do is protect the business for the long term. To do that we have to make a number of changes. Regretably that is likely to lead to staff reduced by up to 25 people.”
The firm is also looking to slam on the brakes and reduce business volumes. A tweaked product range will be revealed at the end of the week. All pipeline business will be honoured.
Bell says of the new range: "It's not about turning to borrowers and brokers and saying we’ll have to charge you more. It’s not about taking advantage. It's about making sure we can be a really great lender when the market returns."
Buy-to-let increases market share
By Delphine Strauss
Published: February 26 2008 11:37 | Last updated: February 26 2008 11:37
Buy-to-let landlords are showing few signs of cutting back borrowing in the face of tighter credit conditions, judging by figures showing the sector increased its share of the overall mortgage market in the fourth quarter of 2007.
The Council for Mortgage Lenders said on Tuesday that buy-to-let lending totalled £11.6bn on gross advances number 84,800 in the last three months of the year, slowing from 94,300 advances totalling £12.5bn in the previous quarter.
At the end of 2007, lenders on average required landlords to put down a deposit of at least 15 per cent of the property’s value, with rental income amounting to 120 per cent of the mortgage payment, the CML said.
However, tighter credit conditions appear to be affecting buy-to-let investors less than the wider mortgage market – despite fears that those with highly geared investments could pull out of the market in droves. Instead, the proportion of loans granted to buy-to-let landlords has increased steadily. The CML’s figures showed that the buy-to-let sector now accounts for 10.3 per cent of outstanding mortgages and attracted 13.3 per cent of gross advances by value last quarter, up from 12.7 per cent in the previous quarter.
“Tenant demand for private rented property remains strong,” said Michael Coogan, the CML’s director general. Although many buy-to-let mortgages were linked to interbank rates, so that repayments rose sharply in line with Libor in the summer and autumn, these would now be returning to lower levels, he added.
The CML also said levels of arrears and reposessions were lower in the buy-to-let sector. In the wider market, 1.1 per cent of mortgage borrowers were in arrears at the end of 2007, compared with 0.73 per cent of buy-to-let loans
Nationwide raises riskier loans rates
By Sharlene Goff
Published: February 26 2008 03:02 | Last updated: February 26 2008 03:02
Nationwide has pushed up mortgage rates for borrowers with cash deposits of 25 per cent or less, in the latest sign that lenders are distancing themselves from riskier loans.
The building society said new customers would only be able to secure its most competitive deals if they were borrowing a maximum of 75 per cent of a property’s value. Nationwide is one of a number of lenders that have become increasingly reluctant to lend higher loan-to-values, especially as house price growth starts to stall.
“It is a case of the less you need to borrow, the better deal you are going to be offered by lenders now,” said Sean Gardner, chief executive of MoneyExpert.com. “Many lenders are now concerned about borrowers overstretching themselves and not being able to pay them back,” he added.
Last week a number of lenders pulled mortgage products that had offered 100 per cent or more of a property’s value. Northern Rock, Alliance and Leicester, Birmingham Midshires and Abbey were among those that said they would no longer lend to borrowers unless they had some form of cash deposit. Scottish Widows on Monday scaled back the maximum it will lend on its “Professionals” mortgage from 110 per cent to 100 per cent of a property’s value.
Nationwide has introduced a new pricing structure for its mortgage range. Homebuyers who want to borrow between 75 and 90 per cent of a property’s value can expect to pay 0.2 percentage points more than those with larger deposits. Those borrowing more than 90 per cent can expect higher rates.
Matthew Carter, director of mortgages at Nationwide, said: “At present the costs of funding in the market are high, house prices are stabilising and it is therefore appropriate for lenders to price for the additional risk attached to higher loan-to-value loans.”
Lenders have been happy to provide loans equal to or more than a property’s value in the past few years as rising house prices have eradicated shortfalls. But with faltering prices, lenders are turning away riskier business or charging a premium.
UK mortgage lending rises in January
By Norma Cohen, Economics Correspondent
Published: February 25 2008 15:40 | Last updated: February 25 2008 15:40
Overall UK mortgage lending rose slightly in January, boosted by refinancings, but the number of new loans to homebuyers - considered a better guide to future housing demand - were down 31.3 per cent year on year, according to the latest data from the British Bankers’ Association.
The BBA, which represents roughly two-thirds of all UK mortgage lending, said that net mortgage lending - borrowing minus repayments - rose by £5.2bn, up from a rise of £4.9bn in December and in line with the trend of the previous six months.
However, the number of loans extended was inflated by a sharp rise in remortgaging - up 39 per cent year on year - at £79bn, up from £67.5bn in December. House remortgages accounted for 49 per cent of all approvals. BBA data show that remortgages have risen sharply and steadily from around September 2007.
New loans for equity withdrawal and other purposes have fallen year on year by 23.6 per cent but at less than the rate at which new mortgage approvals are declining. Some 39,999 of these loans were approved in January, up from 37,867 in December.
Meanwhile, credit card net lending was broadly flat in January compared with the same month a year earlier, with repayments in January at £7.6bn slightly outstripping the rate of new spending of £7.3bn. “Despite strong volumes of retail sales, card transaction volumes were little changed and spending was more than offset by repayments. Overall consumer credit remained subdued,” said David Dooks, BBA statistics director.
Meanwhile, signs of greater caution among consumers emerged with a rise in personal deposits, now broadly in line with the long term average. BBA data show that deposits have been rising since September 2007.
In company finance, lending to the non-financial sector consisted almost entirely of new loans to real estate of £1.3bn against a previous six-month average rate of £2.0bn. The rise comes amid some of the worst indicators for commercial property performance since the early 1990s.
However. Mr Dooks said the rise in borrowings may simply reflect drawdowns on existing credit facilities arranged months or years earlier by developers rather than a positive sentiment towards the sector
Lenders axe 100%-plus home loans
By Sharlene Goff
Published: February 23 2008 01:35 | Last updated: February 23 2008 01:35
The death knell for the 100 per cent plus mortgage was sounded on Friday as Birmingham Midshires became the last of the six UK lenders that offered loans exceeding a property’s value to withdraw the product.
The move came at the end of a week that had seen five other banks, including Alliance & Leicester, Abbey and Northern Rock, exit that market amid jitters over falling house prices.
Denise Harvey, mortgage analyst at Moneyfacts.co.uk, said: “Following the credit crunch and with property prices expected to remain stagnant or decline throughout 2008, these mortgages are no longer on the menu.”
Thousands of borrowers who have already taken out high loan to value mortgages could be forced to stay with their current lender, since such a large mortgage will no longer be available elsewhere. That could leave them facing steep price rises.
In addition, several large lenders have stopped offering loan-to-values of 100 or 110 per cent.
The disappearance of such loans will increase pressure on new buyers. Mortgages of at least 100 per cent had become extremely popular since they offered a safety valve for those who did not have savings. Borrowers could use the extra funds to pay legal and tax costs. Banks were happy to lend more than a property’s value when prices were rising fast. But as they have stalled, the risk that buyers would remain in negative equity for longer has increased.
Ms Harvey added: “It seems no one is prepared to stand out from the crowd in the current environment and accept the additional risk a 125 per cent mortgage poses.” Two lenders, Scottish Widows and Dunfermline Building Society, remain in the 100 per cent plus mortgage market, though only for borrowers such as professionals or graduates. However, brokers predicted these were also likely to vanish.
Anyone who took a high loan-to-value deal two years ago and is looking to remortgage should find that the equity in their homes has increased sufficiently.
But those who owe more than the value of their property may have to stay with their existing lender at a significantly higher interest rate.
Alliance & Leicester, West Bromwich, Britannia and others have reduced their maximum loan-to-value in the past month from 95 to 90 per cent. Other lenders are expected to follow.
Bank mortgage approvals drop to 10-year low
By Delphine Strauss
Published: January 24 2008 11:21 | Last updated: January 24 2008 11:21
New mortgage approvals by UK banks fell to a 10-year low last month as tighter lending standards and uncertainty over house prices hit demand, the British Bankers Association said on Thursday.
The number of mortgages approved for house purchase fell from 43,944 in November to 42,088 in December, nearly 40 per cent below their level a year earlier and the lowest since the BBA’s records began in 1997.
“This confirms that demand for, and supply of, mortgages has been severely affected by falling buyer confidence and the prolonged effect of the credit crunch,” said Brigid O’Leary at Capital Economics, noting that mortgage approvals in the last quarter of 2007 were 40 per cent below the previous year.
Net mortgage lending also remained weak at £4.7bn ($9.3bn), compared with November’s £4.6bn and a previous six-month average of £5.2bn.
Oliver Gilmartin, economist at the Royal Institution of Chartered Surveyors, said weaker lending was unsurprising. “Banks have sought to rebuild profit margins by raising borrowing costs, whilst the supply of loans from specialist lenders has fallen dramatically,” he said.
“Even the few undeterred by market conditions will need to find even larger deposits to take their the first step on the property ladder.”
The BBA measures mortgages approved by banks only, accounting for about 60 per cent of the total, but its figures corroborate data released last week by the Council of Mortgage Lenders showing gross mortgage lending fell last month to its lowest level since May 2005.
Allan Monks, economist at JPMorgan, estimated that the Bank of England’s more detailed figures, which will be published next week, would show that total mortgage approvals had declined to about 79,000 in December, close to the trough reached in late 2004.
Michael Saunders, economist at Citigroup, said: “With stretched house values, widening lending spreads, tighter lending standards and very gloomy survey readings ... housing activity is likely to continue to weaken in the next few months.” This meant “significantly more weakness in retail sales and consumer spending will also emerge in coming months”.
The BBA said approvals for remortgaging rose slightly as customers looked for better deals, while loans for equity withdrawal continued to decline gently. However, consumers remained cautious about taking out new unsecured loans. Inflows of deposits to bank accounts strengthened slightly, suggesting people were starting to prepare for tougher times.
Repayments of credit card debts continued to grow faster than new spending.
Many new mortgages dubbed subprime
By Norma Cohen
Published: January 12 2008 01:21 | Last updated: January 12 2008 01:21
Almost one in five new mortgages written in 2007 was either dubbed “subprime” by the bank that loaned the funds or was made to a homebuyer who offered no proof of income, according to an industry trade association.
The Intermediary Mortgages Lenders Association – mortgage brokers that sell almost all the subprime and self-certified loans in the UK – said the first category accounted for 8 per cent of loans and the latter a further 10 per cent.
Those two markets accounted for £20bn ($39bn) and £30bn in loans in 2005, and are presumed to have since risen further in value.
The IMLA disclosed the data as it warned against reading too much gloom into the housing picture, however – a view bolstered by surveys showing the average household owns far more equity in bricks and mortar than debt used to buy it.
Housing lender Halifax estimates that private housing stock is worth £4,000bn – a rise of 9 per cent in 2007 and a sum 3.4 times the aggregate value of outstanding mortgage debt.
“Housing assets have increased by more than mortgage debt levels in each year since 1995,” Halifax said. Martin Ellis, chief economist at Halifax, said the figures should help to put in perspective the anxiety about potential for a US-style collapse in house prices and a rise in defaults. “The UK balance sheet is very strong and stronger than it was 10 years ago,” he said.
Others, though, have begun to question just how immune the economy remains to a bout of US-style house price deflation.
Financial sector analysts at Dresdner Kleinwort, in a report on UK property and banking, said there were sufficient reasons to think that a slowing of the housing market, with a knock-on effect on banking, might lie ahead.
“We think current funding tensions and the untested performance of the buy-to-let segment during periods of stress are key considerations in gauging the potential severity of a housing correction,” the report said.
Peter Williams, executive director of the IMLA, agreed that non-traditional mortgage lending in the UK was relatively recent and untested in a recession.
“We didn’t really have a mortgage market for the credit-damaged in the 1980s,” he said, because people with county court judgments against them or who had declared bankruptcy could not obtain mortgages.
However, in the mid-1990s, sophisticated software helped lenders “slice and dice” the population with poor credit histories, allowing banks to sort out those who, despite a poor history, were likely to make good on their debts.
The number of self-employed people with self-certified loans has leapt since the last property recession, while buy-to-let investing has soared. The likely fate of these borrowers has not been tested in a recession.
Data from the Council of Mortgage Lenders offer a mixed picture of housing affordability. The average mortgage for all house purchasers in November was 3.14 times income, against 2.26 times income in 1990 when housing prices collapsed. For first-time homebuyers, the average mortgage was 3.39 times income – the highest multiple on record and well above multiples in the late 1980s. At the same time, the maximum sum lenders would extend to buy-to-let investors rose sharply to £2.5m at the end of 2006, up from £1.5m the year before.
However, because interest rates are now much lower, higher loan-to-income ratios do not necessarily mean mortgages are less affordable. CML data show that monthly interest charges were 15.6 per cent of income for all buyers at the end of 2006 and 16.8 per cent of income for first-time buyers – down sharply from levels just before the collapse of house prices in the 1990s.
Slow take-up of Islamic loans
By David Oakley, Capital Markets Correspondent
Published: November 28 2007 20:09 | Last updated: November 28 2007 20:09
The Islamic “mortgage” market has failed to grow as fast as expected as many Muslims remain unaware or suspicious of products that enable them to raise money to buy a house without flouting strict religious laws.
The Financial Services Authority, which on Wednesday published a document on Islamic finance in the UK, said there had been expectations of much faster expansion in the market when the first banks began offering the products four years ago.
The market has grown to only £500m, dwarfed by the £1,100bn value of mainstream mortgages, according to the FSA. However, the City regulator believes there is potential for the market to grow as banks open more branches offering a wider variety of Islamic-compliant products, where payments are in the form of rent instead of interest, which is banned in the Koran. A customer pays rent to a bank, which owns 100 per cent of the property on day one. A slice of this rent goes towards a share in the property until it is finally owned by the customer.
Michael Ainley, head of wholesale banks and investment firms at the FSA, said: “The Muslim community is still unfamiliar with the product. There are only a small number of banks offering these mortgages and the types of products are limited.”
Ali Ravalia, part of the capital markets team at the FSA, added: “The potential is there for this market to grow. Originally, it was thought that this market could take off very quickly. It hasn’t, but it has the potential to do so.”
The FSA stressed Britain was at the forefront of developing this market both on the high street with retail products and in the capital markets with the growth of Islamic-compliant bonds or sukuk, which are structured to pay investors profits from an underlying business rather than interest.
It is the only country in Europe that offers Islamic retail products, in spite of large Muslim populations in France and Germany. London is the only European centre where sukuk is listed. The London Stock Exchange has £4bn worth of sukuk registered on its books.
The global sukuk market has grown dramatically in the past five years to about £80bn in new issuance this year, a 40 per cent increase compared with the whole of 2006.
Lenders fail to pass on rate cut to borrowers
By Sharlene Goff and Daniel Thomas
Published: December 22 2007 02:48 | Last updated: December 22 2007 02:48
Only half of all mortgage lenders have signalled that they will cut interest rates in the wake of this month’s quarter-point base rate reduction, according to research by financial comparison site Moneyfacts.co.uk.
Some of the biggest lenders, including Halifax, Nationwide and Abbey, were quick to pass on the base-rate reduction to borrowers. But large numbers of smaller lenders have so far failed to follow suit.
Around a quarter of lenders that have reduced rates have not passed on the full cut. Northern Rock reduced its variable rates by 0.15 per cent and Cheshire Building Society by 0.2 per cent.
A fifth of the lenders that have announced changes have delayed implementing them until the new year.
Moneyfacts said that some of the lenders that have made changes do not actually offer many loans linked to their standard variable rate (SVR).
“Many of the larger lenders have been quick off the mark to drop their rates by the full 0.25 per cent,” said Julia Harris, an analyst at Moneyfacts. “If you look a little more closely, you will discover that many of these don’t currently offer many new products linked to SVR.”
Ms Harris said Halifax, Nationwide, Cheltenham and Glouc¬ester and Northern Rock did not offer any products linked to their own SVR rate.
Lenders that offer a larger range of SVR-linked mortgages, such as Leeds Building Society and Norwich & Peterborough, are yet to announce rate cuts.
Melanie Bien, a director at Savills Private Finance, the mortgage broker, said: “With lenders struggling to improve margins on the back of the liquidity crisis and the fact that the rate at which they borrow from each other is much higher than base rate, it is no surprise that not all have passed on the rate reduction in full.”
Fixed mortgage rates have so far shown little sign of coming down.
Lenders have also continued to tighten lending criteria. Woolwich will no longer allow borrowers to add arrangement fees to their mortgage if they take 90 or 95 per cent loan-to-value packages.
Scottish Widows has tightened the loan-to-value on its popular graduate mortgage to 95 per cent from 102 per cent, while Edeus this week moved to link rates in its subprime mortgage range to Libor – the inter-bank lending rate – rather than to base rate. Ray Boulger, of broker John Charcol, said that this would see borrowers directly take the risks of the volatile rate on the wholesale cash market.