Posts tagged ‘mortgage’
Homeowners could be hit with new punitive mortgage restrictions this week that would ‘push them back into negative equity’, prompting experts to call for their introduction to be delayed.
The Bank of England has been given new powers to cap mortgage lending, which could be applied by its Financial Planning Committee as early as this Thursday.
It could see borrowers being restricted to a maximum mortgage of three and a half times their annual income.
But mortgage experts say such measures – aimed at addressing fears of an overheating property market – would be “premature” and could push people back into negative equity, where a borrower’s mortgage is more than the value of their property.
For those on an average income of £26,000, it could mean being able to secure a maximum mortgage of £95,000
Ray Boulger, of mortgage brokers John Charcol, said: “Outside of London, and to a lesser extent, the South East, house prices in most other parts of the country have at best only just got back to the levels of seven years ago and in many places still below those levels.
“Any action to curb mortgage lending, which risked pushing people who have just come out of negative equity back into it, would not be sensible.”
Several high street lenders have already announced restrictions, with Halifax – Britain’s biggest lender – imposing a four times income multiple on all home loans above £500,000. Lloyds, RBS and Natwest have also applied the same restriction.
For those on an average income of £26,000, it could mean being able to secure a maximum mortgage of £95,000. This is considerably lower than the Office for National Statistic’s average house price of £260,000.
Other mortgage restrictions imposed by lenders include Nationwide – Britain’s biggest building society – only allowing first time buyers to apply for the equity loan part of Help to Buy.
It follows the introduction of the Mortgage Market Review in April – regulations ensuring borrowers can afford to repay their loans.
Brokers have blamed the regulation on the recent fall in mortgage lending, saying the extra paperwork involved means a mortgage offer can now take as much as a fortnight longer to process.
Boulger suggested the London market is now “cooling”. He added: “By the time of the September Financial Planning Committee meeting the impact of the MMR will be much clearer, and the house price indices will be reflecting the slowdown in London. By then it will be much easier to make a sensible judgement on whether any action is required.”
The housing market showed signs of cooling during May as tough new lending conditions came into force, research showed today.
The number of homes being put up for sale fell for the fifth month in a row, but demand from potential buyers also eased, taking some of the pressure off prices.
The Royal Institution of Chartered Surveyors said the shortage of homes on the market, combined with the introduction of tough new lending rules appeared to be “stemming the tide” of perspective buyers.
Across the country, new buyer enquiries rose at their slowest rate since February 2013.
The group added that in London, where there has been most concern that a bubble may be building up in the market, demand from buyers actually fell for the first time since June 2012.
May was the first full month since the Mortgage Market Review, under which lenders impose tighter affordability criteria on borrowers, came into force.
RICS said it was hard to “disentangle” the new rules from other factors that were impacting the market and to know whether they were simply having a temporary affect while lenders adjusted to the new environment.
“In particular, we’re seeing the London market level off”
But it added that respondents reported that banks were lending less, with average loan-to-value ratios among first time buyers dropping to 85.3 per cent from 86 per cent in April.
Unsurprisingly, the fall in demand impacted on surveyors’ expectations for prices, with them now anticipating growth of 3.6 per cent during the coming 12 months – the lowest level since December 2013.
They are also expecting a significant slow down in activity, with only 29 per cent more surveyors in the South East predicting greater activity in the coming three months, down from 66 per cent more six months ago, while in the South West the balance dropped to 48 per cent from 93 per cent.
RICS said the tightening in mortgage lending conditions even led to a modest pick up in demand for rental property, with average rents now expected to rise by 2.5 per cent during the next 12 months, and at an annual rate of 4 per cent during the coming five years.
Simon Rubinsohn, RICS chief economist, said: “What we are really seeing is some of the very strong upward momentum starting to come off the housing market, as a lack of supply, higher prices, more prudent lending measures and some of the talk from the Bank of England are creating a level of caution among sellers and buyers.
“The most visible indicators of this are the revised downwards price expectations for the next 12 months and the flatter picture regarding new buyer enquiries. In particular, we’re seeing the London market level off.”
If you want to buy a home, it may be a good time to step on the housing ladder, suggests the Money Advice Service. Interest rates are at a record low – although they may rise in the future – unemployment is falling and summer is on the way, who could ask for anything more?
Traditionally, property’s been seen as a good investment – all you need is to save enough to get a deposit and be able to pay your mortgage, right?
Wrong. New rules require lenders to ensure borrowers can afford to meet their initial and on-going mortgage payments on time, and ensure that borrowers don’t run into financial difficulty running and maintaining their new home. This may sound scary, but need not be.
Time to buy?
The Bank of England Bank Rate is currently 0.5 per cent – a record low, meaning there could be great mortgage deals up for grabs. Of course, borrowers should remember to consider any arrangement or products fees when choosing a mortgage, which when added to the mortgage will mean paying interest on those fees for the entire term of the mortgage. It would make strong financial sense to pay those fees separately if possible to do so.
Right now though, variable mortgage rate deals of around 2 per cent are available to individuals with a good credit record and a 20 per cent deposit to put down towards a property
So far so good, but with the new rules on mortgage lending coming into effect on April 26, borrowers will also assess the impact of foreseeable changes in circumstances, such as if they’re expecting to be made redundant or are planning to start a family.
According to the Money Advice Service, the average first time buyer is paying 3.4 per cent interest on their mortgage payments – around 3 per cent above the Bank of England Bank Rate. This is good news for many potential homebuyers, yet there is always the chance that interest rates may rise. To safeguard against this, the new rules also assess a borrower’s ability to meet mortgage payments in the event that interest rates rise in the future.
Can you afford to buy?
Money Advice Service research suggested one in four new homeowners admits to overstretching themselves financially to get on the housing ladder. When you consider that during the past 18 years, the Bank of England Bank Rate has fluctuated from a high of more than 7 per cent down to its current rate of 0.5 per cent, a stress test against shifts in the interest rate makes sense.
For example, an average first time buyer with a mortgage of £140,800 would be making monthly payment of £749. For these people, a 2 per cent rise would result in an increase of £171 a month on top of their existing mortgage payments.
If you are thinking about buying a home, it’s essential to consider all the key costs. Using a budget planner will help you plan your finances and cope with any unexpected costs.