Posts filed under ‘Finance’
Mortgage lending jumped to a six-year high in July as the market remained resilient in the face of regulatory change, figures showed today.
A total of £19.1bn was advanced during the month, 7 per cent more than in June and the highest figure since August 2008, according to the Council of Mortgage Lenders.
The group said mortgage activity appeared to have remained robust, despite the tough new affordability criteria introduced under the Mortgage Market Review earlier this year.
But it cautioned that the eventual impact of the regulatory change remained uncertain.
July was the third consecutive month during which lending levels have increased, following a slight dip in March ahead of the introduction of the MMR.
Caroline Offord, CML market and data analyst, said: “Property transactions in the first half of the year showed a 25 per cent increase compared to the same period a year ago, but we expect that intensifying affordability pressures could start to dampen this upwards trend.”
The figures came as minutes from the Bank of England’s Monetary Policy Committee suggested a hike in interest rates could be closer than previously expected.
The minutes showed that two members of the committee vote to raise the Bank Rate from its current record low of 0.5 per cent to 0.75 per cent in August.
It was the first time that the MPC has been split on what the official cost of borrowing should be since July 2011.
External MPC members Martin Weale and Ian McCafferty argued that although wage growth remained weak, it was a lagging indicator of the amount of slack there was in the economy, and rates should begin rising before that slack had been used up.
News of the vote prompted speculation that interest rates could start rising before the end of the year.
But Samuel Tombs, senior UK economist at Capital Economics, pointed out that data released since the MPC’s meeting showing a fall in inflation to 1.6 per cent in July and slower growth in employment, eased the pressure on the Committee to raise rates quickly.
He said: “We still expect the first hike to come in February 2015.
“But, even if the Committee decides to get on the front foot and raise interest rates before the end of the year, low inflation should ensure that the pace at which they rise is extremely gradual by historical standards.”
A 0.25 per cent increase in interest rates would add just over £20 a month to repayments on a £150,000 variable rate mortgage, which moves up and down in line with changes to the Bank Rate.
Meanwhile, the Bank of England’s Agent’s Summary of Business Conditions, also released today, built on previous indications that the housing market is beginning to slow down.
The report said housing transactions had eased in recent months due to a shortage of homes on the market and the introduction of the MMR, which had lengthened the mortgage application process.
It added that there were also signs of an easing in house price inflation, concentrated in the South, with some prices lower than they had been a year earlier, while there were also fewer cases of sealed bids and offers being made over the asking price.
But recent survey data has pointed to a slowdown in growth as more homes have been put on the market and buyers have started to bulk at high asking prices.
Nationwide Building Society said property values inched ahead by just 0.1 per cent in July, while surveyors questioned by the Royal Institution of Chartered Surveyors predicted prices in London, which has been the driving force of the market recovery, would rise by just 1.9 per cent during the coming 12 months.
If you’re mulling over a potential split from your partner, you might want to check how deep your pockets are first as new figures suggest it could cost almost £44,000.
The cost of splitting from a former loved one has rocketed by 57 per cent during the past eight years, according to insurers Aviva.
The last time it carried out the survey, the cost was £28,000 per couple.
The study takes into account the core costs in a divorce as well as added extras that many people treat themselves to following a separation, such as post-split holiday and a new gym membership.
One in eight people said they took a holiday to celebrate their newly-single status at a typical cost of £1,925.
Four out of 10 said they were financially worse off following the separation and more than half of couples said the process took more than two years.
Financial experts urged separating couples to keep a close eye on their money as lenders will be examining their outgoings with a fine tooth comb if they need a mortgage to fund a new home.
Jonathan Harris, of mortgage brokers Anderson Harris, said: “Divorce can be an expensive business but if you need to get a mortgage afterwards, lenders will want to see evidence that you can afford it.
“Reduce or remove any unnecessary expenditure as lenders will closely scrutinise all your outgoings.
“Pay down any debt where you can as this will also affect how much you can borrow.
“The biggest problem is being able to split the mortgage liability. Lenders will not release one party until they are happy that the mortgage can continue to be serviced, so seek independent mortgage advice from a broker. If this can’t be done, it could be immensely frustrating to the splitting couple as they cannot be free of their situation until the loan is repaid or other arrangements are made.”
The survey found the hidden cost of divorce to be £21,979 per person or £43,958 per couple, with the typical age when the split took place being 38 years and two months.
Those who took part in the survey were with their partner for an average of 10 years and eight months before separating. although one in 10 were together for less than two years.
Aviva’s Louise Colley said: “Two thirds of couples who are married or co-habiting have some shared finances, so these arrangements can take some time to unravel if a relationship unfortunately breaks down. Beginning again following a separation can be a daunting time, not to mention a busy one, but it’s crucial that newly-single people review money matters when their circumstances change.
Latest official figures from the Office of National Statistics show 118,140 marriages and 794 civil partnerships ended in England and Wales in 2012.
Meanwhile, 9,700 marriages and 67 civil partnerships ended in Scotland in 2012/13, according to latest figures for Scottish civil law cases.
It equates to 128,701 divorces and dissolutions annually, relating to 257,402 people.
Long-term fixed rate mortgages hit the news this week with the launch of a new seven year deal.
The Skipton Building Society loan, starting at 3.99 per cent, is the only seven year fixed rate mortgage currently available on the market.
The society, which last offered a seven year fix 18 months ago, said it had decided to bring the mortgage back to offer homeowners more security in the face of rising interest rates.
Only a handful of lenders currently offer fixed rate deals of more than five years, with Norwich & Peterborough Building Society, Newcastle Building Society and the Woolwich all offering 10 year loans.
But with the Bank of England warning that interest rates could start rising sooner than markets expect, many homeowners are likely to be wondering if fixing for the long-term makes good financial sense.
On the one hand, the deals offer people the security of knowing that their mortgage repayments will be fixed for 10 years.
But the loans do come with significant redemption penalties for people who want to end them early, while it is difficult for homeowners to be certain what their circumstances will be 10 years down the line.
The rates also tend to be significantly higher than for five-year fixed rate deals.
Rachel Springall, of financial information group Moneyfacts, said: “The fact that there are only a handful of 10 year fixed rate deals shows that there is no current appetite for these long term options.
“Borrowers will need to alter their mindset and see longer deals as a safeguard rather than something they are tied down to, and be mindful of any high penalties if they do decide to move their deal during the term.”
But despite some of the downsides of the mortgages, Norwich & Peterborough Building Society said its 10 year fixed rate loan was “popular” with borrowers.
Ray Boulger, of mortgage brokers John Charcol, suggests people should look at the pricing of 10 year fixed rate deals when deciding if they represented a good option for them.
He said the current best buy 10 year fix was offered by the Woolwich, and had a rate of 3.99 per cent, which he said was significantly higher than the best five year deal on the market of 3.05 per cent.
He said until 10 year rates came down a bit, he did not think they offered good value.
But he expects rates to fall soon, as the gap between five-year and 10-year swap rates, upon which the deals are based, has halved during the past year from 105 basis points to just 52 basis points.
He said: “If interest rates [on 10 year fixes] came down to 3.75 per cent they would start to look attractive.”
Another significant consideration with the deals is early redemption penalties.
These penalties can be as high as 7 per cent of the initial amount borrowed in the early years – a massive £10,500 on a £150,000 mortgage.
Some lenders charge customers early redemption penalties for the entire period of the loan, but others, such as Newcastle Building Society only charge them for the first five years.
Many of the loans are portable, meaning consumers can switch them to a different property if they want to move home.
But Boulger warned that homeowners would only be able to move their loan if they still met their bank’s lending criteria.
He said longer-term fixed rate mortgages often made sense for people with smaller outstanding loans of £50,000 or less, as the cost of remortgaging every two years was proportionately more expensive on loans of this size.
But although fixed rate mortgages are still seen as being a somewhat niche product, Boulger expects more lenders to launch them in the coming months.
He said: “I would advise people thinking of taking one out to hold off for a bit as better rates are likely to become available.”
The cost of fixed rate mortgages are continuing to rise as both lenders and borrowers brace themselves for interest rate hikes.
The average cost of a two-year fixed rate deal now stands at 3.71 per cent, up from 3.61 per cent in June, according to financial information group Moneyfacts.
The typical rate charged for a three-year fixed rate deal has also risen in recent weeks, rising from 3.75 per cent to 3.79 per cent.
Five-year deals are now around seven basis points more expensive than they were a few weeks ago at an average of 4.21 per cent.
The driving force behind the higher rates are increases to swap rates, upon which fixed rate deals are based.
Two-year swap rates have soared from 1.13 per cent in June to 1.37 per cent now as markets price in future rises to the Bank of England Bank Rate.
But other factors are also likely to be driving up costs, including the end of the Bank of England’s Funding for Lending scheme, which was partially credited for driving mortgage rates down to their record lows.
The introduction of tougher new lending rules under the Mortgage Market Review is also likely to have played a role, as the rules are thought to have had an impact on the volume of business lenders are able to complete.
Rachel Springall, of Moneyfacts, said: “Funding for Lending got withdrawn in January and most of the money from this scheme has now dripped away.
“This factor, along with rising swap rates is why fixed rate pricing is going up.
“With the introduction of the MMR it may also be the case that some lenders cannot push loans through as fast as they would like, and they may have to think about the amount of mortgages they can get through the application process.”
But she added that some of the increase was also likely to have been driven in part by consumer behaviour.
She said: “A lot of consumers want to take out a fixed rate deal in anticipation of a Bank Rate rise.”
As a result, lenders are no longer having to compete for fixed rate business as aggressively as they previously did.
Meanwhile, the cost of variable rate deals has actually fallen, with the average two-year tracker mortgage dropping to 2.66 per cent, down from 2.78 per cent in June.
But despite the rise in the cost of the average fixed rate loan, there are still good deals available.
Norwich & Peterborough Building Society has a two-year fixed rate loan of 2.09 per cent, with a £345 fee, for people borrowing up 65 per cent of their home’s value.
For those with just a 20 per cent deposit, HSBC has the most competitive rate of 2.49 per cent with a £499 fee.
The leading mortgage for homeowners who want the security of fixing for five years is offered by The Coventry at 3.15 per cent, for those borrowing up to 65 per cent of their home’s value. The deal hasa £999 arrangement fee.
If you’re a first time buyer, you may be feeling a little overwhelmed by the sheer volume of decisions required to take the first step onto the property ladder. One of the first choices you’ll undoubtedly need to make is about finance. But which mortgage should you choose?
As a first-time buyer, it is unlikely that you’re a cash buyer and so you will need to arrange finance to make your purchase.
There are hundreds of different mortgage products to choose from, depending on factors such as the size of your deposit and how much you can afford to pay out each month on your mortgage repayments.
It is not just a question of choosing the cheapest rate (although this is a big factor), which is why it is worth speaking to a mortgage broker.
Jonathan Harris, director of mortgage broker Anderson Harris, says: “There is more choice of mortgages at higher loan-to-values for first-time buyers than at any time in the past several years, but the new mortgage market rules have added a level of difficulty.
“Lending criteria are stricter with lenders checking you can afford your mortgage both now, and when interest rates rise. To make matters more confusing, lenders have interpreted the new guidelines in different ways so using an independent mortgage broker will help you navigate this minefield.”
Here are a few suggestions of mortgages for first time buyers from mortgage brokers Anderson Harris:
- Mortgage deal for a first-time buyer couple with a 25 per cent deposit and earning a joint salary of around £90,000. For a property with a purchase price of £360,000 and a loan of £270,000, we would recommend a two-year fix with Chelsea Building Society at 2.69 per cent with a fee of £345.
- Mortgage deal suggestion for a first time buyer looking to use Help to Buy as they only have a 5 per cent deposit and a single salary of £35,000. For a purchase price of £140,000 and a loan of £133,000, a two-year fix with Lloyds Bank at 3.98 per cent and no arrangement fee.
- Mortgage deal suggestion for a first time buyer looking to buy with the help of the Bank of Mum and Dad as guarantors. Most lenders will shy away from guarantors, with only a very small handful of small building societies now providing them. Halifax has the cheapest HTB 95 per cent deals on the market and is flexible with applicants who have just started in a new job, perfect for the recent graduate moving to new city for a job and getting a deposit from Mum and Dad. Its two year fixed rate has a rate of 5.19 per cent.