Finance Matters

Posts Tagged ‘CML’

Paula John, the editor-in-chief of Your Mortgage magazine, has advised first-time-buyers to consider paying for their home through an offset mortgage.

Offset mortgages are “the way forward” she said, suggesting they are “the most tax-efficient way of using any excess income”.

However offset mortgages are only suitable for potential house buyers who have a significant amount of savings, as they take into account the amount of savings a borrower has, and ‘offset’ the mortgage loan against it.

If a house buyer has £15,000 in savings and a mortgage of £100,000, for instance, the interest on the mortgage would only be payable on £85,000.

Monthly repayments are based on the full amount but the reduced interest payments mean that the mortgage is paid off more quickly.

With the base rate at 0.5% and savings earning very little interest, offset mortgages can be a good way of making the most of a nest egg.

Ms John said: “I am staggered by how few people in this country take advantage of offset mortgages; they certainly are the way forward and everyone I know in the mortgage industry has got one themselves.”

The latest figures from the Council of Mortgage Lenders (CML) suggest that the first-time buyer market is improving.

The number of mortgages agreed for first-time house buyers increased to 18,700 in December, 7 per cent more than the previous month, and a 14 per cent increase compared with December 2010.

The CML attributes the increase to a race by first-timers to buy a property before the end of the stamp duty holiday.

The government temporarily suspended the 1% stamp duty rate for first-time buyers, on properties worth between £125,000 and £250,000, but it is due to be reinstated in March 2012.

In contrast, there was a 6 per cent fall in the overall number of mortgages agreed, with just 509,500 mortgages approved last year.

The number of UK homes repossessed fell to 36,200 in 2011, significantly below the Council of Mortgage Lenders’ forecast of 40,000, and lower than 2010 when 37,100 homes were repossessed.

With interest rates remaining low and lenders adopting a sympathetic attitude to customers in financial difficulty, repossessions fell to their lowest level since 2007.

However, with unemployment in the UK reaching 8.4% in January, its highest level since 1994, the number of repossessions is expected to rise this year.

The number of mortgages with arrears equivalent to 2.5% or more of the mortgage balance fell to 159,400 at the end of last year, a decline of 7.5% compared with the end of the previous year.

The CML’s director general Paul Smee said: “Anyone worried about their finances should talk to their mortgage lender and take advice on their other debts as soon as possible.

“This will give them the best possible chance of staying in their home even if they have a spell of financial difficulty.”

The number of buy-to-let properties being repossessed increased by 25% to 5,900 in 2011, compared with 4,700 in 2010.

Housing minister Grant Shapps has announced a £20m ‘Preventing Repossessions Fund’ which will help people at risk of losing their homes.

Councils will receive £19m in cash to offer interest-free loans of up to £5,000 to homeowners who are unable to meet their mortgage payments.

Meanwhile, the demand for rented properties has soared to record levels according to a new survey by estate agency Countrywide.

Over 275,000 new tenants registered for private rental accommodation with Countrywide in 2011, 24% more than in 2010.

In August the estate agency received the highest number of tenancy enquiries since its records began.

The figures revealed that a growing number of families are entering the private rental market, especially in the North and South East of the UK.

Norwich & Peterborough Building Society (N&P) has launched a low rate, low fee mortgage to attract buyers who plan to stay in their property for a longer period of time.

The ten-year fixed rate mortgage offers an interest rate of just 3.99 per cent APR, making it one of the cheapest deals on the market.

It is available to borrowers with 75 per cent loan-to-value ratio and the fee is just £295.

Borrowers will receive a free valuation and either free legal fees for remortgages or £200 cashback.

N&P product manager, Richard Barker, said: “We know that this competitive rate will be welcome news for those who wish to fix for a longer period of time giving them the certainty of what their monthly payments will be for the duration of their loan”.

Earlier this month, Nationwide Building Society launched a two-year fixed-rate mortgage with a loan-to-value ratio of 90 per cent for low-deposit buyers.

Borrowers willing to pay a £900 fee will receive a rate of 5.29 per cent or the mortgage is available with no fee at a rate of 5.69 per cent.

For those with a bigger deposit, a rate of 2.99 per cent is available at 60 per cent LTV with a fee of £900.

Despite the flurry of new offers in the market place providing welcome competition, the Council of Mortgage Lenders (CML) warned that the uncertainty created by the ongoing eurozone crisis makes it difficult to predict how the mortgage market will develop in 2012.

In December 2011 gross mortgage lending totalled £11.7bn, 12 per cent higher than December 2010, but a 12 per cent decline compared with the previous month.

Some analysts are predicting that house prices could fall by up to 10 per cent in 2012.

December marked the fifth consecutive month of year-on-year growth in mortgage lending, with a 12 per increase, according to the Council for Mortgage Lenders (CML).

Gross mortgage lending in December was an estimated £11.7 billion, while for the whole year it totalled £140 billion, £2 billion higher than the CML’s expectations.

December’s figures represent a 12% drop from November 2011, but this was partly due to the smaller number of working days in December.

November’s figures were also boosted by a substantial increase in the number of house-buyers taking up fixed-rate deals

In a strong end to the year, mortgage lending for the final quarter of 2011 totalled £37.3 billion, a year-on-year increase of 11 per cent.

However in the face of continuing economic uncertainty, a weak 2012 first half is expected for the housing market, with demand from buyers slowing as lenders increase mortgage rates.

Bob Pannell, the CML’s chief economist, said: “The closing months of 2011 saw stronger mortgage lending activity and housing transactions, despite the fact that short-term economic prospects are challenging.

“There is a glimmer of light ahead for households in that real incomes could stabilise and perhaps even start rising by the end of the year.

“But, continuing eurozone problems mean that mortgage funding prospects are uncertain, so overall UK mortgage market conditions for the year ahead remain difficult to call.”

The CML is also reminding property owners that they should take out rent protection insurance, as the ongoing economic uncertainty is expected to lead to an increase in repossessions.

Rising unemployment and other pressures on incomes are likely to see more people falling in arrears with their rent and mortgage payments in 2012, the CML warned.

Rent protection insurance protects a landlord for a specified length of time if a tenant is unable to pay the rent.

The FSA’s report into lending, due to be published next week, is expected to include proposals to help home owners in negative equity.

The Council of Mortgage Lenders estimates that one in 12 homeowners are in negative equity, with their home now worth less than the price they paid for it, making it impossible for them to move house.

This can be a serious problem for growing families or for people who need to move because they have secured a new job outside their area.

Under the FSA’s new guidelines, homeowners would be able to remortgage to buy another property without having to immediately pay off the balance they owe on their current home.

In effect, this would mean they could move their negative equity to their new mortgage.

However, it is believed that this option may only be open to homeowners who have kept up to date with their mortgage payments.

It is hoped that relaxing the rules would ease the current shortage of first-time buyer properties and help to get the housing market moving again.

The FSA’s report, which follows a two-year inquiry, is also expected to include some tougher regulations on lending, designed to stop a repeat of the lending practices that led to the credit crunch in 2007.

Before the financial crisis, it was easy for house purchasers to borrow up to 125 per cent of the price of the property; in contrast buyers now usually face a minimum mortgage deposit of 5 per cent, while deposits of up to 20 per cent are not unusual.

In related news, Datamonitor’s latest research suggests that gross annual mortgage lending will fall from an estimated £138.5 billion in 2011 to just £127 billion in 2012.

However, gross mortgage lending is expected to increase in 2015 to £182 billion.

The research also suggests that more people will consider building their own properties, with mortgage advances for self-build properties expected to increase by 141 per cent, from £790 million in 2011 to £1.9 billion by 2015.