Entries Tagged 'mortgage news' ↓

The credit crunch takes another victim, The Bradford and Bingley. Bradford and Bingley was formed in 1964 after a merger between the two  building societies both founded in 1851 - Bradford Equitable Building Society and Bingley Permanent Building society.

Why Bradford and Bingley Needed Bailout

Since becoming a bank in 2000, it changed its business model from the traditional lender into an aggressive commercial bank.

1. It was happy to lend to ‘risky’ customer, self certification, buy to let e.t.c. It is these customers most exposed from the current decline in the housing market.
2. It also raised money for mortgage finance on the international money markets. This allowed it to expand quickly - becoming 8th largest mortgage lender.

It is this second aspect of its business plan which caused into run into great difficulties. This year, it has struggled to raise enough finance because of the tightening of the credit markets (a similar problem faced by Northern Rock). The reluctance of other banks to lend to Bradford & Bingley was increased when its credit rating dropped.

This year, June, it launched a share rights issue to try and raise finance, but, it was under subscribed leaving the company looking vulnerable and exposed. Its decline in the share price has been dramatic

The government has decided to nationalise the bank, it will sell off the savings section, leaving it in control of the mortgage sector. This leaves a balance sheet of £50 billion in mortgage loans.

If Bradford and Bingley is merged with Northern Rock, the government (and therefore taxpayer) will be liable for a total of £150bn mortgages. It will make the government ’super bank’ or ‘toxic debt bank’ as the second biggest mortgage lender.

Top 5 Mortgage lenders

Top 10 Mortgage companies (will need updating at end of credit crunch)

The number of defaults on UK mortgages has more than doubled in the past year to 77,000 households.

Part of the problem is that housing costs have been taking a bigger % of people’s disposable income in the past few years. According to the consumer credit counselling service housing costs have risen from 33% of disposable income to 44%.

Why Mortgage Defaults has increased

• People stretched themselves to get on property ladder.   (house prices trebled in 1996-2007
• Increasing Council Tax
• Rising levels of unemployment. Unemployment rates are forecast to rise sharply over next 12 months as recessions takes hold
• Interest rates still higher than 2005, 2006
• Higher levels of other debt such as credit card debt.
• Falling house prices, leaving investors exposed

This increase in mortgage defaults is likely to cause a rise in the UK sub prime market, even though their are concerns the UK housing market could be mirroring the US housing market.

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There are worrying signs that the problems in the mortgage sector continue to worsen. These are some of the major problems facing the mortgage industry at the moment.

Shortgage of funds on the money markets. This is the biggest problem facing mortgage lenders. Most lenders do not fund mortgages just out of savings account. They fund mortgages by reselling the debt bundles in forms such as CDOs. However, since the subprime defaults in America nobody wants to buy these CDOs. Any kind of mortgage lending is seen as high risk, therefore the funds have started to dry up. This has led to big name lenders closing mortgage accounts and refusing new customers. Recently, First Direct said that it will stop mortgage lending. Other big names such as Nationwide, HSB, Halifax and smaller building societies have all said removed certain types of mortgage products. Continue reading →

2007 saw another record year for UK Mortgage lending. The Council of Mortgage Lenders (CML) show that banks lent a total of £362 billion in 2007, this is unsurprising given the increase in house prices, which has necessitated more expensive mortgages.

However, whether 2008, will see a record year is uncertain. With house prices falling at the end of 2007, and the global credit crunch making mortgages more difficult to secure, 2008 may see a fall in mortgage lending or at least very slow growth.

Despite a consensus showing monthly house price falls, there is also evidence of increased activity in the housing market. Rightmove suggest that many homeowners have been galvanised by falling prices making house prices appear more affordable (link Times article)

There is also evidence that the November and December house price falls may have been due to the rush to get properties on the market before the compulsory introduction of HIPS on the 14th December.

According to Rightmove house prices fell in the 5 weeks upto January 15th by 0.8% to £230428.

It seems Britons are more interested in spending time on planning a holiday than maximising the savings from a mortgage. A study by Fool.co.uk found that:

• 36% of customers spend more than 10 hours selecting a holiday. Only 21% would spend more than 10 hours selecting a mortgage.

• 41% of customers do not shop around for the best financial products because they don’t have enough time.

This is despite the fact that looking for the best deal online and on the high street only needs to take a couple of hours. For a couple of hours work, the savings on a large mortgage can be up to £2,000. For 10 hours, a £2,000 saving equates to an hourly rate of £200 an hour. (If people are too busy they must have a good job) Reports show that many homeowners never remortgage and end up on their lenders Standard Variable Rate SVR. By remortgaging they could take advantage of lower interest rates and very significant savings

Men are more likely to shop around than women. 55 per cent of women say they do not shop around compared to just 35 per cent of men.

One significant factor is that women get overwhelmed by the choice of financial products on offer.

•  Getting Best Mortgage Quote deal
• Best way to Pay off a Mortgage

• Fool.co.uk 

Research, undertaken by the Yorkshire Building Society, suggests that 95% of consumers will use the internet, at some stage, when taking out a mortgage. At the moment, 20% of respondants suggest that they are willing to complete a full online mortgage application. However, the number of people taking a mortgage out online is likely to increase in the future. 70% of respondents say they will consider taking out the full mortgage product on the internet.

This research confirms the current mortgage lending of Yorkshire Building society. They say 20% of mortgages are completed online; they also expect this % to increase in the future. Continue reading →

A study by the FSA has revealed that 25% of mortgage lenders are giving poor advice.

In particular the FSA was critical of self certification mortgage lenders. Quite a few were willing to proceed with lending despite the uncertainty of the income for borrowers.

10 of these (mainly) self-certification lenders now face sanctions from the FSA. These sanctions could include a ban on trading until the relevant criteria are met. Another 65 companies are being considered for possible referral

The FSA were keen to point out that the majority of lenders were sticking to agreed FSA rules about borrowing and advice for lenders. The surveys were taken out between June and September of this year. Since their review the issue of unconventional mortgages has gained greater importance due to the sub prime crisis in America.

The council of Mortgage Lenders welcome the FSA review, although they requested that the FSA should be clear about all the rules.

Regulators criticised by FSA

The number of new mortgages approved in the UK fell from 54,000 in September to 44,100 in October. This is a fall of 37 per cent slump on October last year. This reflects the weakness in the housing market and could be a prelude to falling house prices.

The decline in the number of mortgage approvals is blamed on:

• Government’s controversial home buyers package, which makes it more bureaucratic to put your house on the market
• A stagnating market - less houses are being put on the market
• Declining confidence following the problems of Northern Rock.
•  Global credit crunch leading to less mortgages being made available e.g. Kensington Mortgages withdrawing sub prime mortgages
• Recent interest rate rises having an increasing effect on reducing consumer spending

• Will UK House Prices fall? - have your say

Research suggests that the top 10 Biggest mortgage lenders offer amongst the most expensive mortgage deals in the UK. The council of mortgage lenders made a list of the best 250 mortgage deals and then worked out what % of these deals were offered by the big companies.

The top 10 lenders offered only 11% of the best 250 mortgage deals. This is despite the big 10 having more than 60% of the market. Many of the best deals were from smaller building societies, who haven’t demutualised. (see top 10 building society lenders)

One of the worst performers was HSBC, which had no mortgage deals amongst the best 250.

This suggests that high profile brand names are able to exploit consumer loyalty and charge higher premiums. However, there is no reason to avoid getting a mortgage with a lesser known building society.

Switch to the smaller building societies and potentially benefit from significant savings.

See also:

• Getting Best mortgage quote deal
  
• Guide to Remortgaging
• Top 6 Mortgage Lenders in UK

100% mortgages have become more popular in recent years for several reasons:

• Rising house prices means that it is more difficult to save up a suitable deposit.
• Rapid rise of house prices - If you saved £3,000 a year towards a deposit, you may find that house prices have risen by £10,000, meaning that you are still far away from actually buying a house.
• It was felt that in an era of rising house prices your 100% mortgage would soon become a 95% mortgage, because the rise in house prices would effectively give you a deposit.
• Banks were more willing to give 100% mortgages.

Dangers of 100% Mortgages.

The main problem of a 100% mortgages is in a period of falling house prices. basically this means that the house is worth less than your mortgage. If a £200,000 house fell by 10%. The house value would now be £180,000, but, your mortgage debt would be £200,000. This is a real problem for those who wanted to sell their house. It could mean that people with 100% mortgages are tied to their house for many years until house prices recover.

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