Posts tagged ‘mortgage’

EXCLUSIVE: Mortgage cap restrictions could push homeowners ‘back into negative equity’

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.

Bank of England

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 1

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.”

 

June 24, 2014 at 12:01 PM Leave a comment

Tough new mortgage lending rules ‘cool’ housing market

The housing market showed signs of cooling during May as tough new lending conditions came into force, research showed today.

Mortgage 3

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 RubinsohnSimon 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.”

June 12, 2014 at 7:00 AM Leave a comment

The FCA’s new mortgage rules put affordability first

From Saturday 26 April, the Financial Conduct Authority (FCA) is giving mortgage lenders and advisers in the UK new rules to follow when you take out a home loan. The principle is that your mortgage should suit your circumstances – and that means it must be affordable, writes Linda Woodall, director of Mortgages and Consumer Lending at the FCA.

Linda Woodall

The FCA’s Linda Woodall says new mortgage rules put affordability first

We’ve brought in these rules after reviewing the mortgage market to see how it can work better for consumers. Before the financial crisis, more and more people were being given mortgages without any real evidence they could afford them – a trend fuelled by cheap credit and rising house prices. This led to some people falling into arrears or even losing their homes. Without historically low interest rates since then, many more may have been caught in the same trap. It was clear that something had to change.

A mortgage is the biggest financial commitment most of us will ever make, and it can be hard to make an informed choice from the wide range of deals available. We think everyone who needs it should have professional advice, so you get a loan you can realistically afford to pay back.

Under our new rules, lenders will have to be satisfied you can afford your mortgage. If you’re using a financial adviser or mortgage broker, they will have to discuss your needs and circumstances and make sure you meet the lender’s criteria when they recommend a mortgage for you.

There are exceptions to the rules – for example, some people can choose a mortgage deal without taking advice, and people remortgaging with their existing lender won’t always need to go through the same level of affordability checks. In most cases, though, your lender will have to check your income and basic spending, and any other financial commitments. They will also look at how predicted interest rate rises could affect your mortgage payments.

The point of this isn’t to examine every penny you spend on things you enjoy, or to stop you getting a mortgage. It’s to make sure you can afford what you need as well as your mortgage payments, as far as can be predicted. We’ve specified what lenders must check as a minimum, but each lender can decide for themselves how much more detail they want go into with you.

Many advisers and lenders are already doing these checks with their customers. We’re taking a common sense approach to avoid the problems of the past, and create a sustainable and healthy mortgage market that works well for both lenders and borrowers.

April 22, 2014 at 10:16 AM Leave a comment

Can you afford to buy a home?

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?

Money Advice Service

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.

Interest impact 

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?

 

Question mark in shape of houseMoney 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.

April 7, 2014 at 1:52 PM Leave a comment

How can I get on the property ladder?

This is a legacy post from the findaproperty.com blog which is now maintained as an archive within the Zoopla blog. Links have been preserved.

It’s almost impossible to open a newspaper today and avoid a story about the problems facing first-time buyers or those who want to move to a new home. The issues start with cost: last month, the average asking price of a UK home increased by £911 to £228,298, according to the latest figures from FindaProperty.com.

Rising prices and difficulties securing a mortgage are forcing first-time buyers to look at other, more creative options, to get on the property ladder

But it’s not just the price of a new home that’s making it more difficult for buyers. The other problem is the struggle to secure a mortgage.

The double dip recession and the worsening Eurozone crisis has led the Bank of England to warn that homeowners could face higher mortgage repayments as lenders raise interest rates to recoup costs.  A repayment hike can be devastating for many homeowners on standard variable rate mortgages, who could end up paying thousands of pounds a year extra. Lenders are also passing their extra costs onto many fixed rate deals too.

The pressure on lenders to raise lending interest rates also makes the situation worse for so-called mortgage prisoners – those who can’t afford to buy a home because the change in the mortgage market means they would not be able to negotiate a new mortgage. The unfortunate effect of this could be a slowdown in transactions as lenders become even more picky about who they are willing to offer mortgages to.

But there are option for wannabe home owners – so long as they’re willing to think creatively.

For instance, new research by FindaProperty.com reveals that buying a property with friends could be the answer to many first-time buyer woes.

It turns out that three friends clubbing together to buy a three bedroom home is the most cost effective route onto the property ladder for those who are willing to share.

Not only is the average mortgage repayment for a three-bedroom house in the UK, spread equally between three occupiers, £334 per person, but the monthly repayments of this size account for an affordable 19% of the average net wage across the UK.

Buying a property with friends could also lead to a larger deposit – something mortgage lenders particularly value at the moment. It could also lower the associated costs of moving – so council tax and utility bills will be lower.

Of course there are some practical concerns to keep in mind if you take this route. Be sure to speak to a solicitor and have a contract drawn up about what should happen if one friend wants to leave the arrangement. But as a leg up into the world of property equity, sharing with friends could be a sensible first-step on the road to full home ownership.

June 8, 2012 at 9:35 AM 1 comment

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