Mortgage Lending Slump Continues Throughout July
The slump in mortgage lending continued throughout July, according to the latest figures from the Council of Mortgage Lenders (CML).
Total lending stood at £24.8bn, up slightly by 5% from June, but still 27% lower than the same period last year.
Lending to homeowners has slumped dramatically in 2008, because the credit crunch has dried up the supply of funds available to banks.
House sales have dropped by 50% this year and will probably fall further.
“While there was a small month-on-month increase in activity, it represented a notable decline from a year ago,” said Bob Pannell of the CML.
“This continues the weaker picture seen in June and points towards the more subdued levels of lending we are likely to see in the second half of 2008,” he added.
The bulk of mortgage lending this year has been to people who are not, in fact, moving house.
Previous figures from the CML have shown that so far in 2008, only 29% of mortgage lending has been to house buyers.
The rest has been to people staying put but moving to new mortgage deals, such as former customers of the Northern Rock, or to people borrowing extra sums against the value of their homes. A marked contrast to the situation year ago.
In the course of 2007, lending to home buyers was a much higher proportion of total mortgage lending, at 43%.
The slump in home buying in the past 12 months is highlighted by the fact that in June this year, loans for home buyers were less than half the number seen in June 2007.
“Even though the base rate has come down by 0.75% since August 2007, those without higher deposits have seen little benefit with many first time buyers effectively shut out of the market,” said Oliver Gilmartin of the Royal Institution of Chartered Surveyors (Rics).
“Despite the prospect of further interest rate cuts as the economy slows sharply into 2009, tighter lending standards look set to stay,” he warned.
Lenders are continuing to shave the interest rates on their mortgage deals, as the cost of funding has come down in the past month or so.
“In the past few weeks, some lenders have returned to the market,” said Andrew Montlake of mortgage brokers Cobalt Capital.
“The Abbey, Nationwide and HBOS have been having a bit of a battle to get more business in,” he added.
Tomorrow the Abbey is cutting the rates it charges on its two-, three- and five-year mortgage deals, for borrowers who can put down a 25% or 30% deposit.
But these are aimed at customers of other lenders who are seeking a better deal, not at people who are moving house or trying to buy a home for the first time.
“They only have two fixed-rate deals for people with deposits of less than 25%,” said Aaron Strutt of mortgage brokers Chase de Vere.
“Their most competitive deals are for people with at least 25% to put down,” he added.
British Chamber of Commerce Is Warning Recession In UK Is Only Months Away
The British Chambers of Commerce is warning Recession looms in the UK over the next six to nine months as firms face a difficult and risky financial climate.
UK growth will be slightly negative or zero in the next two or three quarters, but a full scale recession is unlikely, the BCC says in its latest forecast. However prospects will be worse if interest rates are not cut soon, it adds.
The BCC predicts UK unemployment will rise by between 250,000 and 300,000 in the next 18 months to two years.
That could take the jobless total to more than two million for the first time since Labour came to power in 1997.
“Over the next two or three quarters, we expect UK GDP growth to be slightly negative or zero, satisfying the conditions of technical recession,” the BCC says.
“But the bigger danger of a major UK recession can and must be prevented,” it adds.
“Our central scenario envisages that UK Bank Rate would be cut to 4.75% in [the fourth quarter of] 2008, followed by an additional cut to 4.5% in [the first quarter of] 2009.
“But if [the Bank of England's Monetary Policy Committee] decides not to cut rates in the next three to six months, growth prospects would be worse.”
BCC director general David Frost told the BBC that the “full impact of going into a major recession as we did in the early 1990s could be avoided now”.
Mr Frost said the UK needed “to get back to a a path of steady growth” as nobody wanted to experience the “major dislocation and major problems emerging from a deep recession”.
Confidence falling
Whatever happens to interest rates, the BCC says, “a marked slowdown in UK activity is highly likely over the next 18 months”.
This would be mainly caused by “a very sharp decrease in consumer spending growth, in reaction to falling house prices and the major squeeze on household disposable incomes”.
At the same time, a new survey of 200 firms by Lloyd’s TSB bank indicates that nearly two out of three companies are more pessimistic about the state of the economy than they were three months ago.
One in five of them predicted that the level of activity in their business would decline over the next 12 months.
And the Institute of Chartered Accountants in England and Wales (ICAEW) has added to the gathering economic gloom with a survey showing another sharp fall in business confidence.
Its Business Confidence Monitor (BCM) index, covering the period from 24 April to 24 July, produced a reading of -25.7, compared with -19.7 in the previous three months.
UK Home Repossessions Rise By Almost 50%
The number of homes repossessed by mortgage lenders in the UK has risen by 48% in the past year.
The Council of Mortgage Lenders (CML) said there were 18,900 repossessions in the six months to June, up from 12,800 in the same period last year.
The sharp rise was due to the economic slowdown making it harder for some homeowners to repay mortgages.
Repossessions have been rising since the second half of 2004 but have now begun to accelerate.
The number of mortgage holders behind with their payments has also gone up.
They rose by 29%, up from 120,800 in the first half of 2007 to 155,600 in the first half of this year.
The CML had previously predicted that repossessions this year would eventually rise to 45,000.
Its director general Michael Coogan said the latest figures were not a surprise, and are likely to get worse.
“While both have increased from their low base as expected, the overwhelming majority of the UK’s borrowers continue to pay their mortgages in full every month, and will continue to do so,” he said.
“The CML is sticking with its forecast of 45,000 total possessions and 170,000 mortgages in arrears of more than three months by the end of 2008.
“while on paper the figures look bleak these numbers remain extremely small when seen in the context of the 11.74 million mortgages in the UK,” he added.
Compared to the second half of 2007, the latest figures represent a rise of 41%.
The CML argues that sub-prime borrowers – those with poor or non-existent credit histories – have been the ones hardest hit by repossessions.
“In general terms, while arrears and possessions rates have risen across the industry, the impact of the credit crunch has hit the adverse credit sector harder than most of the mainstream market, which continues to perform well,” it said.
Caroline Flint, the housing minister, argued that people’s experiences now were nowhere near as bad as those in the last recession in the early 1990s.
“In the 1990s the problems people faced were high unemployment and high interest rates,” she said.
But shadow chief secretary to the Treasury, Philip Hammond, said the rising number of repossessions was down to the government’s “economic incompetence”.
“Faced with stagnant earnings, rocketing living costs and soaring mortgage bills, the weight of debt is taking its toll on thousands of hard-working Brits who stretched themselves to the limit to get on the property ladder, and are now finding they can no longer make ends meet,” he said.
The CML pointed out that 0.16% of all mortgages had been taken back by lenders in the first half of the year, up from 0.11% throughout the whole of 2007.
It said this rate was similar to that of the late 1990s, and was less than half the rate seen in the early 1990s.
Earlier this week the Financial Services Authority (FSA), warned lenders to treat their customers “fairly” if they were running into financial difficulty.
It said that repossession should be the very last resort if someone was having trouble repaying their home loan.
Homeowners facing repossession been warned not bury their heads in the sand.
Sue Edwards of the charity Citizens Advice said lenders were still being too aggressive.
“In too many cases lenders are still not doing everything they can to help borrowers in trouble, piling on extra charges, not negotiating with borrowers to come to a workable solution over repayment arrangements and preferring to use court action as a first rather than a last resort,” she said.
One of the most vigorous repossessors has been the now state owned the Northern Rock bank.
It revealed this week that its own repossessions had risen by 67% in the past year, from 2,215 to 3,710.
The Ministry of Justice will Next week publish figures on the number of repossession orders granted by the courts.
Normally these do not actually lead to someone losing their home because the courts are very reluctant to sanction eventual eviction.
Instead, borrowers usually come to some sort of arrangement with their lenders.
The last set of figures, published in March, showed that repossession orders in the first three months of the year were up by 17% on the first quarter of 2007, at 27,530.
FSA Issues Warning As Mortgage Arrears Rise
The UK’s financial watchdog has said Mortgage firms should treat customers fairly as the number of homeowners facing arrears and repossessions rises.
The Financial Services Authority’s comments came as it reported a 40% rise in new cases of repossessions in the first quarter of 2008 to 9,152.
In the same period the number of home loans in arrears rose by 15%.
The watchdog warned a flexible approach was needed from lenders when recovering these arrears.
“More people are struggling to meet their mortgage payments and it is vital that firms treat them fairly,” said Lesley Titcomb, of the FSA.
“This means paying attention to their individual circumstances and not repossessing their homes when there may be an alternative solution. Repossession should always be the last resort.”
Mortgage squeeze
The figures, drawn from data provided by regulated mortgage lenders and administrators, also gives more evidence of the squeeze on the availability of mortgages.
New lending peaked in the third quarter of 2007, but the share of new lending being used for loans for house purchases has fallen since then, the data shows.
The proportion of mortgages where homeowners borrowed more than 90% of a home’s value fell from a peak of 15% of new lending in 2007 to 10% in the first three months of 2008.
But the percentage of borrowers with a poor credit history has fallen.
“We believe these new figures paint a terrifying picture showing real people – hard-working families, young first-time buyers and even renters – all living in the shadow of repossession and ultimately homelessness,” said Adam Sampson of charity Shelter.
The FSA should tackle “merciless mortgage lenders”, he added, as there was concern that some lenders might try to pursue a repossession rather than try to work out a solution.
‘Fair treatment’
It is the first time that the FSA has published figures in this way.
It has asked specialist lenders not to operate a “one size fits all” approach that was too focussed on recovering arrears without taking account of the borrower’s circumstances.
It added that some were too quick to take court action and needed to improve training on dealing with mortgage arrears.
The watchdog also followed up on a review of 250 firms offering mortgage advice.
More evidence of whether customers were able to afford repayments was needed, the FSA found.
Seven small mortgage advisers are also likely to face enforcement action after the review.
Repossessions
The Council of Mortgage Lenders (CML) says that there are 11.8 million mortgages in the UK that are currently being paid off.
However, it has predicted that, with more of us feeling the pinch due to the credit crunch, there will be 45,000 repossessions in 2008, up from 27,100 in the previous year.
The growing numbers are partly the result of rising house prices in recent years, which gave lenders an interest in encouraging people to sell.
With high mortgage repayments, and rising household food and fuel bills, the number of people missing payments on their home loans is rising.
The Ministry of Justice said in May that the number of people facing repossession orders – an early stage of the repossession process – rose by 17% in the first quarter of the year.
There were 27,530 orders in the quarter, up from 23,438 during the same period in 2007.
The government said it was doing more to help those in financial trouble, such as extending free debt advice services and free legal representation at county courts.
“The rate of repossessions is not on the same scale as in early 90s. But that doesn’t mean we don’t recognise the problems that some borrowers are facing because of global economic pressures,” said a Department for Communities and Local Government spokesman.
There was also some better news for new borrowers as a number of the major lenders have also cut their interest rates for new fixed-rate mortgages in recent days.
Upto 1.7 Million Brits Could Be Facing Negative Equity
About 1.7 million britans could be pushed into negative equity in the next year should house prices keep falling at their current rate, a report claims.
The credit ratings agency Standard & Poor’s (S&P) says house prices could still fall by a further 17% in the coming year.
That means 14% of all mortgage holders in the UK would find their homes were worth less than their mortgages.
House prices have been falling amid a credit crunch that has seen lenders cut the number of mortgages they offer.
“The downward trend in UK house prices now seems well established, and we expect prices to continue falling in the near term,” said S&P.
Downward trend?
Analysts at the ratings agency specialise in assessing the credit worthiness of organisations trying to raise money by issuing bonds.
They looked at a sample of two million outstanding mortgages and estimated that the average borrower has a loan worth 54% of their property’s value.
But about 70,000 households, or 0.6% of all UK borrowers, are already in negative equity.
S&P expect that number to rise sharply if prices keep on falling.
The sort of borrowers who are most at risk, the ratings agency believe, are those who have borrowed to become landlords in the buy-to-let market, or who were sub-prime borrowers, before lenders stopped lending to them altogether.
Sub-prime borrowers are people who have poor or non-existent credit histories.
In June, the investment bank Morgan Stanley said that two million households were at risk of owing more than the value of their homes if house prices fell 20% by 2010.
