Lenders Demand High Deposits
Mortgage lenders are still demanding high deposits from buyers as the number of deals expands.
More than two-thirds of the 1,485 mortgage deals on offer require the customer to put up a deposit of at least 25%, according to Moneyfacts.
This crept up slightly to 68% of home loans on 6 April compared with 66% a month earlier.
Some recent figures have suggested that the moribund housing market may have started to show some signs of life.
Deposit demand
The number of mortgage deals on offer has increased slightly from 1,398 to 1,485 over the last month, according to financial information service Moneyfacts.
The number of mortgages available at 90% of the value of a home has dipped, down from 101 at the start of March to 93 on 6 April. Deals with a loan-to-value rate of 85% have risen, up from 237 to 258.
David Hollingworth of London and Country Mortgages suggested that this might be because lenders were still being cautious about their lending criteria.
“The increase in deals with a 15% deposit could be due to lenders reducing the number of, or withdrawing altogether from, deals with a 10% deposit,” he said.
However, he added that some mortgage providers were offering 90% mortgages again through brokers – their primary source of custom.
Interest rates on these mortgages were not as attractive, or falling in the same way, as those with a loan-to-value of 60% or 75%.
The number of deals in this range is also growing, up from 921 at the start of March to 1,016 a month later.
Survey results
The figures come after a recent set of contrasting results from house price surveys.
The Nationwide Building Society reported that property prices rose by 0.9% in March compared with the previous month. The following day, Halifax, now part of the Lloyds Banking Group, said that prices fell by 1.9% during the same period.
Recent surveys from the Royal Institution of Chartered Surveyors (Rics) have shown rising interest from prospective buyers.
Mr Hollingworth said there was anecdotal evidence that increasing numbers of potential buyers were “scoping out” the mortgage market to see what deals they could get before making offers on properties.
It Getting Ever More Tougher to Find The Right Mortgage Deal
Mortgage lenders are continuing to demand bigger deposits as they ration home loans to their customers.
In the past month the percentage of new mortgage deals requiring at least a 25% deposit has risen, from 54% to 60%.
And 25% of all deals on offer in fact require a 40% deposit, according to the information service Moneyfacts.
The Bank of England announced last week that banks and building societies expect to rein in their lending even more in the coming months.
“The number of deals available for those with a deposit of 25% or more continues to increase as the lenders are looking to cherry pick the best customers, said Michelle Slade of Moneyfacts.
“Worries over falling house prices and the potential of customers getting into negative equity has caused the number of deals for customers with just a 10% deposit or less to fall to an all-time low.”
Larger Premiums
There are now just 21 mortgages available with a deposit of 5% or less, compared with the position at the beginning of last February when there were more than 1,200 on offer.
The credit crunch and subsequent shortage of mortgage funds has produced a similar collapse in the number of home loans where lenders ask for a 10% deposit, once the traditional down payment.
These have fallen from nearly 1,200 at the start of February 2008 to just 148 now.
At the other end of the scale, the number of deals that need a minimum 40% deposit has shot up from just 24 to 341.
Ray Boulger, of mortgage brokers John Charcol, said life had become much tougher for people who could only put down a small deposit.
“The spread between the interest rate you pay if you have a small or a big deposit has widened considerably,” he said.
“Someone with a small deposit has to pay a much bigger premium on their interest rate and they are also shut out from some of the most attractive deals, such as tracker deals,” he added.
Prices Fall
The UK property market shrivelled in an unprecedented fashion during 2008, as the dearth of mortgage funds shut off the flow of buyers and pushed down sales and prices.
Sales volumes are currently about 60% lower than a year ago while prices, according to a Halifax survey, fell by 16% in the course of last year.
And the number of new mortgages approved for house buying in November was 67% lower than a year ago, according to the Bank of England’s latest figures.
As such they suggest that sales will fall further in the coming months.
And all experts and commentators are united in their view that prices will also keep on falling for the time being, possibly lasting into 2010.
So far there is no evidence that any recent government attempts to inject fresh funds into the banking system have yet fed through to mortgage lending.
The chancellor Alistair Darling is considering a proposal put forward by Sir James Crosby, the former boss of HBOS, that the government should agree to guarantee £100bn of fresh mortgage lending by the banking industry.
But no decision on that plan is expected until the next budget.
New Rules to Combat Mortgage Fraud
New rules have come into force to stop mortgage lenders becoming the victims of over-inflated property valuations.
From now on, developers and builders must reveal if they have offered incentives, such as cash-backs, fitted kitchens or paid-for legal fees to buyers.
Lenders are worried these incentives have led to some properties being sold for more than they are actually worth.
In particular they have been worried about newly built city-centre flats, whose prices have now slumped.
The new rules for the conveyancing industry have been issued by bodies such as the Council of Mortgage Lenders (CML) and the Royal Institution of Chartered Surveyors (Rics).
They have also been supported by the Law Society of England & Wales, the Home Builders’ Federation, Homes for Scotland and the Construction Employers Federation.
Builders or developers of any newly-built, converted or renovated properties will have to complete a 12-question form, revealing to lenders and surveyors any incentives they may have given to buyers.
Buyers, lenders and valuers have all been victims of the non-disclosure of incentives by developers with many buyers left with a mortgage worth more than the property’s real value,” said Barry Hall of Rics.
The CML said this would ensure that any mortgage was granted on an accurate valuation of a property, not one that was fraudulent.
“If developers ensure that they are transparent, and disclose any discounts or incentives on offer to buyers, lenders’ confidence should start to return,” said Michael Coogan of the CML.
The issue was first raised by the CML in February this year as the slump in mortgage lending started to grip the property market, leading to a sharp fall in values.
It said at the time it was worried that lenders were being duped into lending too much money by headline valuations that disguised the fact that the buyer might have been receiving thousands of pounds worth of incentives from the developer.
Some lenders now no longer lend to people who wish to buy newly built city-centre flats.
In some parts of the country, such as Manchester, Birmingham, Leeds and Nottingham, this has led to a highly visible glut of properties which can no longer find a buyer at their original price.
The government’s own house price index, published by the Department for Local Government and Communities (DCLG) said that the price of flats in the UK had fallen by 3.6% in a single month between May and June.
Overall property prices are now down by 10% since the start of 2008 and widely anticipated to fall much further in the next 18 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.
