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These suggestions may be an indicator for whether you are entitled to a refund, or at least partial refund. It is helpful if you can have to hand a copy of the initial agreement. If it has been lost, ask your bank for another, dated from when you took it out.

This is a template of a letter that can be used to claim a refund 

These suggestions may also be relevant for other financial services.

Mis Selling Loan Insurance

1. Not told all details.

Were you told about exemptions and small print? Some of these small print may be important for your case. For example, would your long term illness be included in an insurance payout? Probably not.

2. Were You told the full cost?

Sometimes you may have been sold a monthly figure of £10 a month. But, were you told the final cost? E.g. some loan insurance protection can cost upto £3,000 for a £7,500 loan

3. Does Your Company have a record for Misselling?

If your company has been fined by the FSA for misselling loans then it is likely that your case is stronger. If it has already been proved that the company has missold to others it is likely it has missold to you. The FSA has already fined HFC and Capital One Bank Continue reading →

According to the Institution of Chartered Surveyors House Prices fell in December at their fastest rate for 15 years. (This suggests recent data from the Halifax showing rising house prices may have been unreliable.)

The study shows 49.1% more surveyors reported a fall than a rise. November’s level was 40.6%. Falling house prices were reported across the country with only the Scottish Housing Market showing any resistance to falling house prices.

The Institute of Chartered Surveyors said it was important to have an immediate cut in interest rates to boost confidence in the economy in the housing market.

The news came on a bad day for UK Finance. The Stock Market fell 3% on further fears over the global credit crunch. The government also appeared to be gearing up for the idea of nationalising Northern Rock.

Although house prices may fall in 2008, the Institute of Chartered Surveyors said that economic fundamentals are different compared to 1992 (when house prices fell by 30%) interest rates and inflation are relatively lower and there is scope for cutting interest rates. A collapse in prices is unlikely at the moment.

Halifax have announced figures to show that in December house prices rose by 1.3%, cancelling out the previous month’s fall. This shows that the doom and gloom surrounding the UK Housing Market may be slightly exaggerated. However, some people question how reliable the data is. For example, other statistics such as mortgage approvals show definite signs of weakening.

Annual House Price inflation 2007

Despite the rebound in December, the Halifax figures show a fall in house price inflation to 5.6%. This means that the average house price increased by £11,759 in 2007, to just below £200,000. - £197,031

This is one of the slowest rates of house price inflation for several years; it is below the long term house price inflation average of 8%. In the past decade house price inflation has been even more extreme. - In the past 10 years alone, house prices have increased by 187% Continue reading →

Recent evidence of a slowing UK housing market emerged.

Number of Mortgage approvals fell. According to the Bank of England, the number of mortgage approvals by UK banks fell to 102,000 per month. This is the lowest rate for over 2 years. see more at Bloomberg

House repossessions forecast to rise. The council of mortgage lenders forecast that the number of home repossessions would rise by 50% in the UK. This is due to rising interest costs and a fall in house price growth house repossessions at the Guardian

Prospects of Negative Equity - with house prices starting to fall and the number of home repossessions rising, first time buyers were warned about the prospects of negative equity. Negative equity is when the value of a house is less than the mortgage. In particular, first time buyers were warned about 100% mortgages and borrowing very high income multiples. between January 2006 and August 2007, 33,000 first-time buyers will have taken out 100% or more mortgages. the Guardian

The number of prospective mortgage applicants who have been refused a mortgage, has increased by 60% since the northern rock problems.

The reason for an increase in the number of mortgage refusals is:

1. Many US mortgage lenders went bankrupt.

Therefore, mortgage lenders are wary of taking on more sub prime debt. UK mortgage lenders are also becoming more cautious

2. Credit Crunch.

Many mortgage companies specialise in selling mortgages, but, then sell the mortgage debt to another company. This gives them the opportunity to sell more mortgages. (The traditional model is for building societies to finance mortgage debt out of savings). However, with many sub prime mortgage lenders going bankrupt, other financial institutions are increasingly reluctant to buy the bundles of mortgage debt. No body wants to touch the debt and so the mortgage companies have to be much more selective in who they lend to. This global credit crunch is also causing interest rates to rise on mortgage debt.

3. Re-evaluation of unconventional mortgages.

Unconventional mortgages such as interest only, mortgages 6 times income e.t.c. are becoming increasingly popular. There has been a significant increase in banks willingness to lend higher mortgage multiples. But, with a change in the climate of the housing market and mortgage industry they are much more cautious about lending.

• What to do if refused a mortgage 

News items on Mortgage refusals

• Mortgage refusals rocket 60%

House prices in the UK have fallen for the second consecutive month.

According to the Royal Institution of Chartered Surveyors, 14.6% more chartered surveyors were reporting that house prices were falling. This is a bigger % than the 3.3% more who reported falling house price in August.

It is worth noting that this is not the only statistic on house prices. Quite often groups offering house price statistics can disagree on the actual statistics. (At the moment there is a curious lack of any official government house price statistic)

However, it confirms a general trend in the downward movement of the UK Housing Market.

Most worryingly was the marked drop in demand from first time buyers. This is unsurprising given the rise in house price to income ratio. Furthermore this trend has become more significant with the change in attitude to mortgage lending.

Previously, banks were willing to lend unconventional mortgages, such as interest only, 100% mortgages, and self certification mortgages. However, with a global credit crunch, selling on these mortgage have become more difficult. Therefore, banks are much more cautious in lending mortgages to first time buyers.

Continue reading →

An investigation by BBC panorama found that there are many instances of mortgage fraud in the UK. This fraud is centered on the sub-prime or adverse credit market.

Mortgage Fraud Includes

• Selling Mortgage products to people without making very clear the increase in costs after the introductory period is over.
• Encouraging council tenants to exaggerate their income, to be able to take part in the “right to buy scheme”
• Exaggerating income for the purpose of self certification mortgage
• Selling mortgage products that companies know they can sell on, before they start to default.

Although repossessions in the UK are relatively low, there are concerns that they may increase if the practise of mis selling mortgages is not curtailed.

Panorama provide a rather disturbing case of Emmanuel, who with a bad credit history, got a sub-prime mortgage for £300,000 with the Alliance and Leicester. He only earns between £25,000 to £30,000.

Effects of Mortgage Fraud on the Rest of the Economy

1. It makes the housing market more volatile. For example, a small rise in interest rates can make mortgage repayments unaffordable for many who stretched themselves to be able to buy.
2. Rising defaults may cause house price falls. If the number of defaults increase, it could be a trigger for falls in house prices.

Related

• What Can we learn from the US sub prime crisis 

• Struggling to pay mortgage? 

• Sub Prime suspect at BBC - It is possible to watch an episode of panaorama at BBC website

In the wake of the Northern Rock crisis many banks have tightened their mortgage lending criteria. However, one bank stands out for refusing to buckle under the pressure of the financial crisis. Northern Rock, who precipitated the crisis by borrowing emergency funds from the Bank of England, has kept its same mortgage products which includes its: 125% mortgages, and mortgages upto 6 times income. So if you are looking for a £180,000 mortgage on a salary of £30,000 - Northern Rock may be the place to try.

People with Sub Prime Mortgages can expect to see their mortgage payments increase by 25% when they have to renegotiate their mortgage. This is in response to the increased risk attached to sub prime lending.

Payments on sub prime Lending at Times

The sub-prime sector refers to those borrowers who have a history of bad credit. This may range from a simple late payment, to several defaults and even bankruptcy.

In America the sub prime sector gained a bad reputation because many mortgage lending companies sold mortgages to people, even though the mortgages were often inappropriate. The problem was that mortgage salesman were getting commissions for selling products; therefore, they frequently sought to ignore issues of low affordability.

Many sub prime mortgages were targeted at first generation immigrants on low paying jobs. Another feature of sub prime mortgages in the US was that they often had very attractive initial periods of repayments. - For the first 2 years the interest rate was low, but, then it reverted to a much higher rate and people were tied in. But, at this rate they couldn’t really afford. - This is one factor that led to an increase in mortgage defaults.

With a small rise in US interest rates, many found they could no longer afford the repayments, especially those who had just come to the end of their introductory period.

With the rise in mortgage defaults, many of the leading sub - prime mortgage lenders went bankrupt.

The sub prime mortgage lenders usually sold most of there mortgage debt onto other banks. - This enabled them to raise money to fund more sub-prime mortgages. This is where many big banks have got burnt. Because the sub prime mortgage industry went bankrupt, the banks had to write off their losses. Banks are now much more cautious about buying this debt. After these bad experiences it has become much more difficult for banks and mortgage companies to sell their bundled mortgage debt. - Especially if it is sub-prime.

This is where Northern Rock experienced many problems. They relied on being able to sell these mortgage debt bundles in the financial markets. (Most other UK Mortgage lenders raise more cash through attracting deposits)

However, because of the crisis banks became unwilling to buy their mortgage debt. This left the Northern Rock with  a temporary cash flow situation and is why they had to borrow emergency funds from the Bank of England.

• What we can learn from the Sub Prime Crisis

On my Mortgage News blog, I have been posting articles about the difficulties that UK mortgage lender, Northern Rock has been facing.

•  What happens if your mortgage lender goes bankrupt?
  
• Why is Northern Rock facing difficulties
• Northern Rock customers withdraw savings - Should I sell shares in Northern Rock?
• What can we learn from the US sub prime mortgage crisis?