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Archive for the ‘Mortgage arrears’ Category
Monday, August 15th, 2011
Ratings agency says mortgage arrears and negative equity are more widespread in the north than the south, and public sector job cuts mean more northern households could fall behind
Mortgage borrowers in the north of the UK are more likely to be in arrears and negative equity than those in the south, and the divide is likely to grow as government spending cuts take affect, according to ratings agency Standard & Poor’s (S&P).
The agency said its analysis of 1.5m mortgage accounts showed homeowners in the north were 35% more likely to be at least 30 days behind on repayments in the first three months of 2011, and that the gap had widened since the last quarter of 2010 when the figure stood at 25%.
Since then arrears had fallen in the south, but increased in other areas. While in London the number of loans in arrears fell from 3.2% to 3%, in Yorkshire and the Humber it increased from 3.9% to 4.1%, and in Scotland it went up from 3.2% to 3.4%.
S&P said the difference was partly due to “more robust employment trends” in the south since 2007, when the recent downturn began, and that plans to cut government jobs meant more northern households could fall behind on repayments.
The report’s author, credit analyst Mark Boyce, said: “Given the north’s public sector jobs bias we anticipate that unemployment in those regions – and consequently arrears – could escalate. And mortgage risk in the north could diverge even further if the UK’s already fragile economic recovery falters.”
The research also showed a north-south divide in the number of mortgages in negative equity, where the property is worth less than the loan secured on it.
While the number of homeowners in negative equity increased across the UK as a whole, most of the upturn was focused in northern regions. In the first three months of 2011 8.5% of loans were in negative equity in northern regions – a jump from 6% in the last three months of 2010.
In the south the number rose from 1.5% to 2.5%, and S&P said northern regions accounted for about two-thirds of the overall rise in negative equity over the nine months to the end of March, even though the number of loans there accounted for only 40% of the sample being analysed.
Boyce said: “We believe the sluggish housing market in northern regions over recent quarters may be partly responsible for this rise.”
The S&P data puts the proportion of homes in negative equity at 16.2% in the north-east of England, but just 2% in the south-east and London. However, Scotland also has low levels of negative equity at just 3%.
Across the UK as a whole it put the proportion of mortgages in negative equity at 5%, up from 3.6% last summer. This is lower than the figure published recently by the Council of Mortgage Lenders, which showed 7% of borrowers owed more than the value of their property.
Posted in Blogposts, Borrowing & debt, Business, guardian.co.uk, House News, House prices, Housing market, Money, Mortgage arrears, Mortgages, Negative equity, News, Property, UK news | Comments Closed
Thursday, August 11th, 2011
Mortgage experts warn of lenders losing patience and threat of an interest rate increase
The number of homes being repossessed fell by 1% in the second quarter of the year to 9,000, compared with 9,100 in the first three months of 2011, according to the Council of Mortgage Lenders (CML). But some housing insiders claim the UK is set to experience an “arrears timebomb”, which will go off as soon as rates rise next year.
The three-month figure represents a 7% fall on the number of home repossessions recorded in the second quarter of 2010 and takes the total number in the first half of 2011 to 18,100 compared with 19,500 in 2010.
But the number of mortgages in arrears of between 1.5% and 2.5% of the outstanding balance edged up from 77,800 to 78,500 in the second quarter of the year, and the CML did not revise its total repossession forecasts for 2011 and 2012, which stand at a respective 40,000 and 45,000.
CML director general Paul Smee said: “Mortgage repayment problems have stabilised against a backdrop of stable employment and low interest rates. Despite current uncertainty in financial markets, we see no need to revise our forecasts. Anyone with debt worries should take advice and speak to their lender at the earliest opportunity, as most temporary financial problems can be resolved.
“It is clear from the low rate of repossession that lenders want to keep people in their homes, and are successfully doing so in the vast majority of arrears cases. Repossession really is seen as a last resort.”
Chris Gardner, director of mortgage broker Obligo, warned: “This year’s apparently modest figures could be the tip of the iceberg. They’re being kept artificially low by two important factors: the interest rate is at a historic low, and lenders have shown remarkable forbearance. Together they have created a fool’s paradise, where people’s mortgage payments are comparatively low and lenders are being especially tolerant of late payers.
“But lenders’ forbearance cannot last forever and if they change their approach the rug will quickly be pulled from under many late payers, leading to thousands more repossessions.
“While this week’s low growth forecast from the Bank of England is likely to mean an interest rate rise is still some time off, when – not if – the rate goes up there will be a big spike in arrears.
“The current low rate means that many who are just able to meet their repayments now will soon be swamped by even a small rate rise. Together they form an arrears timebomb, which will go off as soon as rates rise next year.”
The CML has also announced that the value of new buy-to-let loans increased by 21% in the second quarter of 2011, driven mainly by remortgaging. It said there were 32,000 buy-to-let loans worth £3.5bn taken out from April to June, the highest number and value since the last quarter of 2008.
David Whittaker, managing director of Mortgages for Business, said: “Landlords are basking in the glow of the BTL [buy to let] sector at the moment. Product numbers are up, yields are healthy and rents are in no danger of falling. Amid a backdrop of uncertain markets and social unrest, the BTL market is one of the few beacons of light in an otherwise depressing picture. Landlords and professional property investors are voting with their feet that now is a good time to be in the market and we expect this to continue throughout the rest of the year.”
However, the CML added that the BTL market is running at around one third of the levels seen at the peak of lending in 2007.
Citizens Advice has tips for homeowners struggling to keep up with mortgage payments, claiming it has dealt with more than 100,000 mortgage and secured loan arrears and stopped 5,000 people becoming homeless over the past 12 months.
Chief executive Gillian Guy said: “With the cost of living going up daily and incomes lagging badly behind, mortgage lenders and the government must focus on helping people stay in their homes. Repossession is a terrifying prospect and should always be the last resort.”
Citizens Advice suggests that if you fall behind you should make mortgage payments a top priority – you could lose your home if you fall behind – and let your lender know if you are having problems rather than simply stop paying or miss payments. Get free, independent advice as soon as you realise there’s a problem (don’t wait until you’re threatened with court action) and see if your lender will agree to reduce your monthly interest payments or make other adjustments.
You may also be entitled to benefits, tax credits and other help if you are struggling. Don’t ignore court papers and court hearings and, if facing repossession, find out if you qualify for the government’s mortgage rescue scheme, which may allow you to sell your house but continue to live in it and pay rent. Ask your local council for details.
Mortgage directive
In a busy week for the CML, the organisation also said it was concerned about a proposed European directive on mortgages that could have serious implications for mortgage and housing markets in many European countries. The European commission said it wanted to introduce measures that would reinforce responsible lending and borrowing.
The measures include: a “cooling-off” period for borrowers of at least 14 working days after a mortgage offer has been made; compensation for consumers if credit is rejected because a reference agency supplies an inaccurate report; the right for borrowers to make under- and overpayments without penalty, and for them to be able to draw down in the future any overpayments they have made; and a ban on arrears charges if payment problems arise that are beyond the control of the borrower.
The CML argued that, while some UK lenders already allow under- and overpayments, introducing it across the board would impose costs on lenders and could make all mortgages more expensive. It argued that the other measures could also result in added costs for mortgage providers as well as leading to uncertainty for firms, which may make it more difficult for higher-risk customers to obtain mortgage finance.
The CML said: “Measures seeking to protect consumers may not be in their wider interests if they result in exclusion from the market for large numbers of customers. Additionally, all customers could face higher costs to cover the provision of measures that are used only by a few.”
Posted in Borrowing & debt, Business, guardian.co.uk, House News, Housing market, Money, Mortgage arrears, Mortgages, News, Property, Repossessions, UK news | Comments Closed
Tuesday, June 28th, 2011
UKAR chief presiding over £80bn of bailed-out mortgages says ‘tough love’ would be fairer on those struggling with payments
Britain is facing a ‘tsunami’ of house repossessions as soon as interest rates start to rise, one of the country’s leading bankers has warned.
Richard Banks, the chief executive of UK Asset Resolution (UKAR), the body that runs the £80bn of mortgages bailed out by the taxpayer during the banking crisis, also said in an interview with the Guardian that the Labour government’s pleas at the start of the crisis for lenders to keep families in their homes was forcing some homeowners further into debt.
In a warning that the industry may have been too lenient with some of its customers, he said he believed a policy of “tough love” would be fairer to people facing long-term difficulty in keeping up payments on loans taken out when house prices were at their peak and personal incomes on the rise.
His warning came the day after the international bank regulator said the Bank of England, which has kept rates at 0.5% for more than two years, would have to raise rates shortly to curb inflation.
The Bank of International Settlements said the policy of the Bank of England, whose rate-setting committee is split over whether or not to increase borrowing costs, was “unsustainable”.
With 750,000 customers, UK Asset Resolution, set up to run the nationalised mortgages of Bradford & Bingley and parts of Northern Rock, is the country’s fifth largest mortgage lender. But 23,000 of those mortgage holders are more than six months behind with payments and Banks admitted the projections for the number of people falling behind on payments could get “scary” if lenders did nothing to prepare for higher rates.
“You can see if you don’t do something about it, you can see a tsunami,” he said. “If you don’t get into the hills you could get drowned by this. If you don’t manage this properly it could get very messy.”
He regards it is an industry-wide problem, albeit one that might be concentrated at UKAR as its customers include buy-to-let landlords and so-called self-certified borrowers – those without salaried income. UKAR, through three calls centres in Crossflatts, West Yorkshire, Gosforth, Newcastle, and Doxford, Sunderland, has begun cold-calling customers it believes are at risk of falling behind on payments in an attempt to keep their mortgage payments on schedule.
The bank is also trying to tackle customers behind with payments for six months or more and at risk of repossession.
His concern about a surge in repossessions is partly the result of moves by the industry early in the 2008 crisis to grant so-called forbearance to help customers stay in homes by, for example, reducing monthly interest payments. “We as an industry, as a kneejerk reaction in the emergence of the crisis, and because the government asked us to be forbearing to customers in the hope it would all go away, we have been too lenient with some customers.
“It’s a tough love approach,” he said. “It’s treating customers fairly, not nicely, because if you can’t afford your mortgage you are only increasing your indebtedness. If we allow you to increase your indebtedness, that’s not really fair to you.”
This month the Council of Mortgage Lenders forecast a rise in repossessions from 40,000 this year to 45,000 next. This figure would still remain well below the 75,500 peak of 1991. The remarks by Banks follow a warning last week from the new regulator set up to spot financial risks in the system – the Financial Policy Committee (FPC) inside the Bank of England – that warned banks may be providing a “misleading picture of their financial health” if they were not making big enough provisions for borrowers in difficulty.
Forbearance has been brought into play in up to 12% of mortgages, the FPC said.
It also noted that the most “vulnerable” households were concentrated in a few banks. It did not scrutinise UKAR but noted that the two other bailed-out banks, Lloyds Banking Group and Royal Bank of Scotland, had the largest exposure to customers whose mortgages were bigger than their value of their homes.
Last month, the Financial Services Authority issued a guide to handling forbearance in which it warned: “Arrears and forbearance support provided with due care by firms has a beneficial impact for both the firm and the customer … However, where such support is provided without due care or any knowledge or understanding of the impacts, it has potentially adverse implications for the customer, for the firm’s understanding of the risks inherent within its lending book, and in turn for the regulators and the market.”
Posted in Borrowing & debt, Business, Economics, House News, Housing market, Interest rates, Money, Mortgage arrears, Mortgages, News, Property, Repossessions, The Guardian | Comments Closed
Saturday, June 11th, 2011
Knowing which mortgage lenders loan to which type of borrowers is the starting point for securing that elusive deal
Many would-be mortgage borrowers who fail to meet lenders’ squeaky clean criteria are deterred from applying because they believe they will be rejected. First-time buyers, the ones who keep the housing market ticking over, are particularly affected. In its Generation Rent report, the Halifax said: “Many renters would love to own their own home. However, the fear of the mortgage application process and of having an application declined are stopping potential first-time buyers applying.”
Their worries are justified: although the Halifax accepts eight in 10 applications, many borrowers are falling at the first hurdle with other lenders.
The main problem is that although lenders base their decisions on whether they believe you can afford the loan you have asked for, they calculate affordability in different ways. Some will not touch interest-only borrowers, while others don’t like borrowers with a large number of dependents. Their websites or marketing literature, however, make no mention of this.
So how are you meant to know? The obvious answer is to ask a mortgage broker which lender is most likely to accept you. Ray Boulger of London firm John Charcol says: “There’s a very strong argument for seeing a mortgage adviser six months in advance [of applying] because there are small things you can do which will improve your chances of being accepted.”
So which lenders are best for which type of borrower? We asked Boulger and David Hollingworth of Bath mortgage broker London and Country.
? First-time borrower, 5% deposit, has worked for the same employer for two years, no debts
Hollingworth says there is little choice in 95% loan-to-value mortgages: Skipton building society is lending at 5.99% on a two-year fixed rate with a £195 fee; Yorkshire bank offers a three-year fix of 6.99% with a £599 fee; Nationwide building societywill offer 95% to those saving into its regular saver account for at least six months.
But Boulger points out that a borrower with no credit history — because they have no loans or credit cards — will struggle even with these lenders. Even a first-timer with a big deposit is likely to be rejected. “It’s good if a borrower has been working with the same employer for two years – or longer. But they will have more points on their credit score if they have borrowed and had no problems with repayments,” says Boulger. He advises taking out two credit cards, spending a bit on each and paying off the balance in full every month to build up a credit record.
Lenders often ask for three months’ bank statements. So if there is anything you don’t want the lender to know about – such as the three nights a week you spend in a nightclub – do not use your debit card to pay for it.
Alternatively, consider buying on a shared equity basis. Here you could put down a 5% deposit, while your local authority, developer or housing association might cover another 20%, meaning the lender is “at risk” on 75% of the property’s value. “The lender will feel more relaxed about lending 75% and you will have a better chance of being accepted,” says Boulger.
? Remortgage, 20% equity in home but has £20,000 in unsecured debts and £100,000 mortgage serviced with £40,000 income. Good credit record
Hollingworth says: “Santander can be quite flexible when it comes to its affordability calculation, and subject to everything else fitting can even offer as much as five times income for the right borrower (who has a high credit score and plenty of disposable income). Applying the above circumstances (£25,000 deposit, single applicant with £40,000 income) then Santander could certainly meet the £100,000 requirement and may even go as high as £160,000.”
This assumes the monthly repayments for the unsecured debt is about £400 per month with a high or medium credit score. But a low credit score could reduce the maximum borrowing to £141,666, and a monthly cost of £700 per month for the unsecured lending would cut it further to £102,393.
Santander offers a two year fixed rate of 4.19% up to 80% LTV with a £995 fee.
? Poor credit record
If you have a county court judgment or even inadvertently missed a credit card payment in the past year, you can forget being able to persuade a lender to take you on in the current economic climate. Boulger says: “That probably is going to be a no-no for most lenders, depending on how many misdemeanours you have made.” Some may consider you after a year of re-establishing a good payment record – including Precise, Kensington and Melton Mowbray building society (for those with a 20% deposit), he says – but you will probably pay a higher rate than other borrowers.
Hollingworth suggests Manchester building society, which has loans charging a 5.49% variable rate with a £595 fee and three-year tie in. It will accept borrowers with one missed mortgage payment more than six months ago. Precise is offering loans fixed at 5.84% for two years with a £1,995 fee. It will accept borrowers who have defaulted once more than three months ago, or unlimited times more than two years ago.
? Planning a family
Sort out your mortgage before you start pro-creating. Lenders will reduce the amount you can borrow if you have children or a non-earning partner because your outgoings are inevitably higher. ING Direct would lend a maximum of £126,408 over a 25-year term to a family of five where one adult is the sole earner of £50,000 a year. But a childless couple where one partner is earning £30,000 and the other £20,000 could borrow up to £225,000.
ING Direct offers some competitive mortgages, so Boulger suggests extending the term of the mortgage, possibly to as much as 40 years, to make the monthly repayment lower, and therefore be more acceptable to the lender. “You could then overpay your mortgage every month, which will effectively reduce its length without affecting affordability,” he says. Nationwide also reduces the amount it lends, but not by as much as some other high street lenders.
? Self employed, wanting 80% loan-to-value remortgage, good credit record
Hollingworth says someone who has been running their own business for three years should not have a problem as long as they have proof their income meets the lender’s affordability requirements. He suggests a loan from Furness building society fixed for three years at 3.99% with an £894 fee and free valuation and legal work.
It will be more difficult for someone made redundant recently, but Boulger says the application is more likely to succeed if the applicant is now self-employed in the same type of work that he or she did as an employee.
Hollingworth says that if the loan-to-value ratio is low, the accounts are up to date and a projection of earning is available for up to 18 months, then a lender like Leeds or Principality building societies might consider it. Alternatively, it is worth asking your existing lender, with whom you have a track record, for a deal. But this is unlikely to work for someone who needs tomove house and increase the mortgage or move the existing mortgage to a new house.
? Interest-only borrower
Most lenders will require you to show proof of at least one year’s saving into an endowment or Isa which you could use to repay the mortgage. Boulger says that most people applying for interest only are doing so because they need big mortgages, so saving sufficient money in an Isa or endowment can be even more expensive than taking out a repayment loan. And don’t think you can open an Isa and then stop saving after you’ve got your mortgage: Lloyds TSB says it may check from time to time that your repayment vehicle is still valid.
Hollingworth says the loan-to-value ratio you need is crucial: “Most lenders will cap interest-only borrowing at 75% LTV and almost all have tightened their criteria. Assuming there is an existing repayment vehicle in place but the LTV is beyond 75%, a lender such as ING or Skipton can offer a top-up for the remainder on a repayment basis with products available to 80% or 90% respectively. Nottingham building society can go to 80% on an interest-only basis.”
Posted in Business, Features, First-time buyers, House News, Money, Mortgage arrears, Mortgage rates, Mortgages, Property, The Observer | Comments Closed
Wednesday, May 25th, 2011
National Audit Office has criticised the government programme for helping half the number of households it promised to rescue
A government scheme to help struggling mortgage borrowers stay in their homes has been criticised by the National Audit Office for helping less than half the expected households at a cost of nearly £100,000 each.
The mortgage rescue scheme, introduced in January 2009 by the Department for Communities and Local Government (DCLG), helped 2,600 households in two years, less than half the 6,000 expected. It also exceeded the budget of £205m by £35m, meaning the average cost of each rescue was £93,000 compared to an expected cost of £34,000.
The scheme offered homeowners who were in imminent danger of repossession the choice of an equity loan to help reduce their monthly mortgage costs, or to have their home bought by a housing association and stay on as the tenant.
The NAO said the DCLG misjudged the levels of demand for the two choices, believing most households would choose an equity loan – the cheaper option for the taxpayer. In reality, nearly all households chose the more expensive route of selling their house to a housing association. This was possibly because they had no equity left in their homes to borrow against.
Amyas Morse, head of the NAO, said: “The department made assumptions about the level of demand for the mortgage rescue scheme and made the wrong call. Spending more than expected and delivering less means the department has not provided value for money.”
Housing minister Grant Shapps said: “One of my first decisions in government was to insist on better value for money from this £240m scheme. In the last government, ministers believed that all you needed to do was throw money at a problem. The great sadness is that more people could have been helped to stay in their homes had they spent the money more wisely.”
But a recent Council of Mortgage Lenders report said that while house repossessions were up by 15% in the first quarter of 2011, the mortgage rescue scheme helped 5,039 households receive help and advice from their local authority in the first three months of 2011.
Campbell Robb, chief executive of Shelter said: “When judging the success of this scheme it’s important to remember it encouraged almost 40,000 struggling homeowners to seek help and as a result many kept their home. Many of these people got advice from organisations like Shelter, and our research shows that over half of those who came to us via this scheme managed to keep their home as a result.”
Peter Tutton, social policy officer for Citizens Advice agreed: “The scheme was always going to be low volume and expensive, because it was designed for some of the most vulnerable people in the UK – those with children and disabilities – becoming homeless. It’s hard to criticise DCLG staff for what they did: they really pitched in to get solutions, and the very fact that the scheme existed meant lenders and courts showed more forbearance.”
Posted in Borrowing & debt, Communities, House News, Housing, Housing market, Money, Mortgage arrears, Mortgages, News, Property, Public finance, Repossessions, Society, The Guardian | Comments Closed
Thursday, May 12th, 2011
Council of Mortgage Lenders says house repossessions shot up in the last quarter but remain 10% lower than last year
The number of UK homes repossessed by mortgage lenders rocketed by 15% to 9,100 in the first quarter of 2011, according to latest figures from the Council of Mortgage Lenders (CML).
The figure is well up on the 7,900 homes repossessed in the final quarter of 2010, but is 10% lower than the same period last year and equal to the average quarterly number of repossessions throughout 2010.
The number of mortgages with arrears equivalent to 2.5% or more of the outstanding balance fell to 166,900 from 170,000 last quarter, and represent 1.47% of the 11.3m outstanding first-charge (original) loans. But the number of arrears exceeding 10% of the mortgage balance increased slightly from 27,400 at the end of 2010 to 27,700.
Howard Archer, chief economist at IHS Global Insight, said the quarterly rise in repossessions “highlights the fact that a significant number of homeowners are at risk, particularly if economic activity is muted and unemployment moves over the coming months as tighter fiscal policy bites.
“Any rise in interest rates would be liable to send a significant number of financially stretched people over the edge.”
David Birne, an insolvency practitioner at HW Fisher & Company chartered accountants, agreed: “The main reason the figures aren’t worse is the breathing space afforded to homeowners by the ongoing low interest rate environment. When this comes to an end it will be the end of the road for many overstretched households.
“Throw further public sector job cuts, a stagnant economy and the soaring cost of living into the mix and there is every reason to believe arrears and repossessions will spike towards the end of the year and on into 2012.”
Housing minister Grant Shapps said the figures “underline how the recession has brought difficult times for lots of people” and the government will “continue our efforts to tackle the record deficit to avoid the need for rapid increases in interest rates and keep the pressure off already stretched family budgets”.
The CML’s director general, Michael Coogan, said the financial position of many households is “likely to be stretched for some while, and some will inevitably find themselves in difficulty”.
He said lenders have a range of options to nurse borrowers through temporary problems and, if in doubt, consumers should “talk to their lender as they will want to help”, and take advice from Shelter, Citizens Advice or the National Debtline (0808 808 4000).
The Mortgage Rescue scheme, introduced in January 2009, helped 5,039 households receive help and advice from their local authority in the first three months of 2011, but only 2,621 homeowners have completed the full process since the scheme’s launch.
Posted in Borrowing & debt, Business, guardian.co.uk, House News, Housing market, Money, Mortgage arrears, Mortgages, News, Property, Repossessions, UK news | Comments Closed
Monday, April 4th, 2011
Borrowers cut their mortgage debt by £7bn between October and December, taking the total repayment for the year to £24bn
Households paid off their mortgages at a record rate in the final quarter of last year, according to Bank of England figures, reducing Britain’s debt mountain but slowing the prospects of an early economic recovery.
Borrowers reduced their outstanding mortgage debt by £7bn between October and December, taking the total repayment for the year to £24bn. The figures mark a dramatic turnaround from the housing boom years, when equity withdrawal was pumping about £50bn a year into the economy.
Equity withdrawal was typically used to fund new conservatories, cars and holidays in a borrowing binge that saw Britain’s households turn their homes into cash machines. But equity withdrawal went negative in mid-2008 and has been increasing in scale since.
At its peak, the money added on to existing mortgage loans was equal to nearly 9% of total personal spending. But the Bank of England said that households are now spending the equivalent of 2.7% of their income on paying the debt back.
In other housing market recessions, such as in the early 1990s, there were also periods of debt repayment but typically it was less than 1% of personal post-tax income. But since September 2008, it has been running at 1.5% to 2.8% of income.
Some are hailing the figures as evidence of a new-found prudence among Britain’s borrowers, but others say it is simply because the door has closed to people wanting to take on more debt. What is also emerging is a divided Britain where households in work and with tracker mortgages are paying down debt, while those losing jobs are pushing up default figures.
Ray Boulger of mortgage broker John Charcol said: “It is now much more difficult to get further advances on your home and lenders are more selective about what it will be used for. If it really is for home improvement, then that’s generally not a problem but if it’s for other things they will be more restrictive.
“Crucially, lenders used to be willing to advance extra sums which would take the mortgage up to a maximum of 90% of the property value, but now they are unlikely to go over 75%. They might also cap the total sum at £25,000.”
Many households are choosing to repay mortgage debt rather than build up savings because the rate of interest paid on deposit accounts is at historically low levels. Richard Sexton of chartered surveyors e.surv said: “Borrowers realise that with base rates still at a record low the best use of their disposable income is to pay off debt. They certainly aren’t keen to spend. Savings rates are so abysmally low meaning there is simply no incentive for people to tuck money away for a rainy day – it would lose value with inflation so high. People have seen the anticipated interest rate hikes on the horizon and have upped the ante of their repayments to take advantage of the lull before the storm.”
Lloyds Bank recently increased the maximum amount a customer can ‘overpay’ on their mortgage from 10% to 20% of the total amount outstanding in response to demand.
Nicholas Leeming of property search engine Zoopla said: “With a potential interest rate rise round the corner and uncertainty over the future of the economy many people have accelerated their plan to pay off as much as possible before their monthly payments go up and this will continue every month rates are held at 0.5%. Despite the record levels of repayment, lenders are showing little sign of increasing their lending activity. Another year of stagnation will do nothing to benefit the wider economy. With so much money being paid back by borrowers it’s high time lenders injected this cash back into the property market to get the sector moving again.”
But while low interest rates, particularly for those on tracker mortgages, has freed up cash to be repaid, worsening unemployment is forcing others into default. The separate Credit Conditions Survey, published by the Bank of England last week, found that in the first quarter of 2011, mortgage default rates “increased unexpectedly over the previous quarter, and was expected to increase further over the next three months.” Losses on credit cards also worsened and are expect to increase in the coming quarter.
Posted in Borrowing & debt, Business, Consumer spending, Economics, House News, Housing market, Interest rates, Money, Mortgage arrears, Mortgages, News, Property, The Guardian, UK news | Comments Closed
Monday, April 4th, 2011
Amanda Copeland was facing life in a homeless shelter with her three children when her support was slashed last October and she couldn’t meet the mortgage payments
Last Saturday my children (aged three, six and eight) and I travelled to London to attend the anti-cuts demo. This was an important event for us, as it was an opportunity to take part in a protest against the brutal cuts that had already had such a huge impact on our lives since they were rushed through last October.
In June 2010, I made the difficult decision to give up work. Having separated from my children’s father, who was not able to contribute financially, I tried working, first full-time and then part-time (I am a qualified and experienced nurse), but could not earn enough to cover the costs of childcare or our interest-only mortgage. It was a desperate time. I was working long hours, but still not managing financially. The kids were unhappy about my separation from their father and having to spend most of their time in nursery and after-school clubs.
As someone who has always been hard-working, resourceful and self-reliant, I found it very hard to accept that I couldn’t combine the long hours with the responsibility of being a single parent. I lost a lot of weight, became physically and mentally exhausted and finally had to face the fact that I couldn’t provide financially for my family and care for them or myself adequately. At this point, I handed in my notice at work.
From June to October I settled into being a full-time mother. I managed better financially on subsistence benefits than I had done for months on a nurse’s wage with huge childcare bills and monthly outgoings. The children began to thrive again, and, surrounded by the love and support of family and friends, I began to breathe a sigh of relief. We were going to be OK: in my hour of need the support was there, and I didn’t feel ashamed to accept it.
Since the age of 17 (I am now 37), I had worked hard, paid my taxes and never claimed benefits. As well as working full-time as a nurse, I had studied in my spare time, obtaining an undergraduate and a masters degree and a qualification in psychology. I had done, and continue to do, voluntary work supporting others.
So I felt entitled to the support I was receiving, as I had been a valuable member of society who had contributed and would do so again in the future. I believed that for a couple of years until my youngest started school this was my time to accept help from others, that I didn’t have to go it alone, that I could rebuild the security and stability that my children had lost when I separated from their father.
But in October, my world collapsed. With three weeks’ notice I received a letter informing me that the support I was receiving to help pay the interest on my mortgage was being cut. This meant that I would only receive £550 a month towards the £950 I paid monthly on an interest-only mortgage.
Suddenly, we were thrown back into a financial crisis: almost immediately the mortgage company announced that if I didn’t pay the full £950 a month, the house would be repossessed. By Christmas they began legal action and my children and I prepared to lose our home.
This was a devastating turn of events. We loved our home: my youngest had been born there and my older children adored their school and were very settled. Knowing that the alternative would probably be a homeless hostel (as very few social housing options exist even for families), I was panic-stricken and distraught. Everyone I contacted, Citizens Advice, my MP, Shelter, all informed me that this was a reality that I could do nothing about: according to the new government who had made these cuts, I was no longer eligible for the support I had been receiving.
Hearing this made me feel worthless, devastated and alone. Once again life for me and my children became extremely stressful. I cannot find words to say how let down I felt that I was unable in my hour of need to receive adequate support to keep a roof over my children’s head.
Desperate, I agreed to do an interview with the Observer via my contact with Shelter, and amazingly I then received enough support and encouragement from some of the readers who contacted me, and from Shelter, to cope. This support has been life-changing, and I know I am incredibly privileged to be on the receiving end of such kindness. I have managed to pay the shortfall on the mortgage and although my children and I live on little, we feel blessed to have received such kindness and generosity from the people who have helped us.
Our attendance at the anti-cuts demo gave us a chance to hold our heads high and to stand up for what we believe in. The sad reality is our government let us down. I am not a “benefit scrounger” who is happy to let others provide for my family. I am a hard-working, educated and committed member of society, and a caring, devoted mother. That someone like me could be treated so shamefully by the welfare state in a time of genuine need gives me grave concern for the future of this country and for the plight of other people who are vulnerable.
Events over recent months have made me realise the government doesn’t care about people like me and my children. But many do care: the march last Saturday was a demonstration of that, and it will mean as much to others as it means to us.
Posted in Borrowing & debt, Features, Homelessness, House News, Money, Mortgage arrears, Mortgage rates, Mortgages, Property, Repossessions, The Observer | Comments Closed
Thursday, March 31st, 2011
Bank of England credit report shows mortgage lenders suffered increased losses from defaulted loans in the first quarter
The number of households defaulting on mortgage loans increased “unexpectedly” in the first three months of the year, and is expected to rise further, according to the Bank of England. There was also an increase in the number of higher loan-to-value (LTV) mortgages on the market between January and March.
In its latest quarterly credit conditions survey of lenders, the BoE reports that mortgage providers suffered increased losses from defaulted loans in the first quarter of the year, and these losses “were expected to increase a little further” in the second quarter.
But mortgage lenders have become more willing to lend to first-time buyers with higher LTV mortgage products because they were not making enough money from less risky lending. The report said: “Lenders commented that risk appetite towards borrowers with high LTV ratios (greater than 75% LTV) had increased as competition had limited margins on lending to borrowers with low LTV ratios.”
According to Andrew Hagger of moneynet.co.uk, there are 1,090 mortgages on the market with a LTV greater than 75% – a marked improvement on conditions at the end of last year. “Availability has gradually edged up, but even though the rates are out there, for borrowers to be accepted they have to have an exceptional credit record and meet the criteria quite comfortably.
“The problem is that lenders have to set aside more in capital reserves to meet their liabilities should the worst happen, so they need big pockets to increase the availability of products for first-time buyers. So even though LTVs are coming down, it’s still a big struggle for those trying to get on the ladder. Most lenders require at least a 10% deposit, and many 15%.”
The report also stated demand for mortgages had fallen markedly over the previous quarter “in line with expectations”. It marked the second successive fall in household demand for secured credit, the Bank said.
But it showed that remortgaging, which lenders had expected to remain unchanged, had increased “notably” in the first three months of the year linked to households’ fears of a rise in the Bank base rate leading to vastly increased mortgage repayments on variable or tracker mortgage products.
Lenders told the Bank they are also worried about the potential impact of increases in the Bank base rate on the number of defaults they will incur on home loans. “Some lenders commented that they expected falling house prices to exert upward pressure on losses given default in the coming quarter,” the Bank said. The number of small businesses defaulting on secured loans had also increased in the first quarter of 2011.
The report acknowledged that there are “weak prospects for house prices”, but the increase in higher LTV mortgages seen during the first quarter had increased the availability of products for first-time buyers. Demand for buy-to-let lending “unexpectedly rose a little” during the quarter as a result of rising rents and a limited pool of first-time buyers.
But demand for credit card lending was unchanged over the previous three months and demand for non-credit card lending (including personal loans) fell for the second consecutive quarter, but was expected to increase in the next three months.
Posted in Borrowing & debt, Business, guardian.co.uk, House News, Housing market, Money, Mortgage arrears, Mortgages, News, Property, UK news | Comments Closed
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