Finance Matters

Posts Tagged ‘Mortgage News’

In the last year around seven million UK house buyers have been forced to use payday loans or unauthorised overdrafts to meet their mortgage repayments, according to housing charity Shelter.

With both of these sources of finance potentially carrying extremely high interest rates, this represents one in seven Britons who could be at risk of falling into a “spiral of debt” and losing their homes, Shelter warned.

Payday lenders may charge interest as high as 4,000% APR on short-term loans.

Around 2% of people have turned to payday loans to fund their rent or mortgage in the last year, Shelter said.

Campbell Robb, chief executive of Shelter, said: “These shocking findings show the extent to which millions of households across the country are desperately struggling to keep their home.

“Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable.

“It can quickly lead to debts snowballing out of control and can lead to eviction or repossession and ultimately homelessness.”

The situation is likely to worsen this month after Government caps on housing benefits took effect on 1 January.

The changes mean that people aged between 24 and 35 who live alone could lose up to £40 a week in housing benefit.

In related news, Finnish payday loans firm Ferratum said today that it expects rapid growth in Britain this year.

The company opened for business in the UK in July and gained several thousand new customers in December, as people took out short-term loans to fund their Christmas spending.

Across the industry, Ferratum expects the number of payday loan applications in Britain to increase to 3.5 million in 2012, compared with 2 million in 2011.

52,854 mortgage loans were agreed in principle in November according to the latest figures from the Bank of England, just 68 higher than the previous month.

Although mortgage lending in November 2011 was 12% higher than in November 2010, there has been no significant improvement for four months.

Mortgage approvals remain at half their 2007 level, before the onset of the banking crisis.

Since the recession many first time buyers have been unable to raise the deposits demanded by lenders, which can be as high as 25 per cent.

With household incomes under pressure from high levels of unemployment and inflation the outlook for the housing market remains weak with house prices expected to fall by up to 10 per cent.

The number of approvals for remortgaging also fell in November to 31,154, compared with an average of 32,448 for the previous six months.

In contrast, mortgage lending by building societies and mutuals increased to £2.5 billion in November 2011 compared with £2 billion in November 2010.

Gross mortgage lending in the first 11 months of 2011 grew by 16% to £21.5 billion compared with £18.6 billion in the first 11 months of 2010.

This represents the highest level of gross mortgage lending since Building Societies Association (BSA) started reporting on the current basis in January 2010.

Adrian Coles, director-general of the BSA, said: “Mutuals have shown their resilience in the face of tough market conditions over the past year and have continued to see their new mortgage lending increase.

“Mutuals lent 16% more from January to November 2011 compared to the same period in 2010, whilst lending across the mortgage market as a whole has remained broadly flat”.

“These are encouraging trends against rather discouraging developments in the wider economy”, he continued.

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.

The Council of Mortgage Lenders (CML) expects the number of house repossessions to increase by 21.6 per cent from 37,000 this year to 45,000 in 2012 due to an increase in unemployment and falling household incomes.

The CML also expects housing transactions to fall next year, with 825,000 homes expected to be sold compared with an estimated 852,000 this year.

This would represent the lowest level of property sales since records began in 1978.

The CML has reduced its forecasts for gross mortgage lending to £138 billion for 2011, from a previous forecast of £140 billion.

It has also cut its forecast for 2012, from £150 billion to £133 billion due to increasing economic weakness.

Mortgage lending, especially to first-time buyers has fallen substantially since 2008, and with banks finding it increasingly difficult to raise funds, the CML warns that it may become even more difficult to secure a mortgage.

The government is hoping its planned mortgage indemnity scheme will help first-time buyers secure mortgages, but reservations have been expressed about how effective it will be.

Bob Pannell, chief economist at the CML, said: “Despite the fact that activity levels have already been subdued for several years, we have pencilled in a broadly flat picture, for both mortgage lending and property transactions, at least until real incomes show signs of stabilising as inflationary pressures recede.”

The latest figures from the Financial Services Authority (FSA) show a 5.8 per cent increase in the number of homes repossessed by lenders, from 9,134 in the second quarter to 9,670 in the third quarter of this year.

However mortgage arrears cases fell by 2 per cent to 34,900 in the third quarter, representing a year-on-year decline of 9 per cent, according to the FSA.

October was a difficult month for first-time buyers according to the latest figures from the Council of Mortgage Lenders (CML).

Ten per cent fewer home loans were offered to first-time buyers compared with September and the average deposit they had to find was a hefty 20 per cent.

In the current economic climate and with many prospective house purchasers living in expensive rental properties, finding this level of deposit is out of reach.

Just 16,400 first-time buyer loans were approved in October.

The total number of home loans approved for all groups fell 8 per cent compared with September, to 44,500.

On a year-on-year basis, home loans were down 5 per cent overall in October, and down 1 per cent for first time buyers.

The CML expects the number of first-time buyers seeking mortgages to increase early next year, as they rush to avoid having to pay stamp duty.

Until 25 March 2012 first-time buyers of residential property can apply for exemption from stamp duty on properties valued at £250,000 or less.

Paul Smee, CML director general, said: “Despite the fall in lending in October, it is possible that we will see signs of increased activity by first-time buyers in the early months of next year, as we approach the end of the government’s stamp duty concession at the end of March.”

The CML also delivered some good news for house purchasers with its figures showing that mortgages are at their most affordable level since 2004.

Although mortgage deposits remain high, monthly interest payments have shown a downward trend.

Mortgage interest accounted for 12 per cent of income in October, its lowest level since January 2004.

The government is trying to help first-time buyers struggling to find high deposits, through a proposed mortgage indemnity scheme.

This aims to encourage lenders to offer mortgages of up to 95% of a property’s value by guaranteeing that they will not lose money if the house-buyer defaults on their mortgage payments.

The government and participating house builders will contribute a certain percentage of a new-build property’s value into a loan guarantee fund through which lenders will be able to recover losses if a property falls into negative equity and is repossessed.