First mortgage news section

Scottish Housing Market Continues to Recover

In the three months to 31 January 2010, the quarterly price index for the average domestic property in Scotland rose 5.9% on the previous quarter. Following seasonal and mix adjusting, the average Scottish house price rose to £160,074.

Though house prices are now rising once more, on an annual basis, Scottish house prices have fallen by 6.8%. Following four quarterly price falls and now two consecutive quarterly rises, Scottish house prices have regained the level last seen at the end of 2008. However, the number of house purchase transactions is still around half of the levels recorded before the onset of the recession.

All areas continue to report an annual fall in prices ranging from -2.0% in Dundee to -12.1% in Glasgow. Price movements in the latest quarter remain volatile. Detached houses had been showing a trend decline in price every quarter for the last two years. This fall has been reversed with an increase in the latest quarter of 12.6%. This price rise may have been influenced by the ending last year of the temporary lower starting limit for payment of Stamp Duty Land Tax, encouraging purchases before the year end.

Professor Donald MacRae, chief economist, Lloyds Banking Group Scotland, said: "The Scottish economy entered recession in quarter three of 2008 and has since recorded five consecutive quarterly falls in output with possibly a sixth quarterly fall yet to come. However, business surveys point to an exit from recession in early 2010. Consumer confidence has recovered from the low at the end of 2008 but it is still below pre-recession levels. Retail sales are increasing at an annual rate of 4.3%, while the volume of housing sales has recovered from the low point of February 2009.

"The level of mortgage availability including for first-time buyers has increased while the cost of borrowing remains low for many mortgage holders. Although a house price recovery is evident in Scotland, it is based on much reduced levels of activity. Nevertheless, the Scottish housing market is now into recovery."

From Mortgage Introducer - full story can be read here.

- Scottish Housing Market Continues to Recover

Struggling Mortgage Owners Can Defer Mortgage Payments For Two Years

There was a surprise addition to the Queen's speech this year with Prime Minister Gordon Brown announcing those who have suffered a severe drop in earnings will be allowed to put their mortgage payments on hold for up to two years.

The new legislation will mean those who lose their jobs can get help if their mortgage is worth less than £400,000 and they have less than £16,000 in savings. The government will step in to help those who lose their jobs, effectively underwriting their mortgage payments.

The scheme is said to help those whose interest payments aren't covered by the benefits scheme. These include two income households where one earner has lost their job, or where overtime income has disappeared.

The move was introduced in an attempt to avoid an increase in home repossessions which were predicted at reaching similar levels to those seen during 1991, the worst year of the previous recession.

Currently those who are on benefits can get help with their mortgage payments if the amount borrowed is under £200,000.

Exact details of the scheme terms have yet to be announced and at present the Council of Mortgage Lenders couldn't provide any more information than publicly released.

The Treasury announced many of the top high street lenders including Nationwide, Lloyds TSB, HBOS, Northern Rock, RBS, HSBC, Barclays, Abbey and RBS - have agreed to support the new scheme. These mortgage providers cover 70% of the mortgage market. Building Societies have also expressed an interest in taking part.

Detailed information is expected to follow in the New Year to explain exactly how the scheme will operate. It is hoped the move will help thousands of families keep their homes giving them valuable breathing space and time to get back on their feet.

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- Struggling Mortgage Owners Can Defer Mortgage Payments For Two Years / mortgages, recesion, government, link

MPs Accuse Lenders of Being Too Cautious

MPs have accused mortgage lenders of being over cautious with regard to mortgages and harming the chances of market recovery.

In response the Council of Mortgage Lenders has defended its members, saying that, although they wished to help the ailing housing market and especially first-time buyers, they had to consider the risks of offering risky incentives to would-be buyers.

Meanwhile the mortgage squeeze continues with property sales at a 30-year low.

Prime Minister Gordon Brown said on Monday, that demand for housing in the UK remained high, but there were not enough mortgages at the right price.

Chief economist at Morgan Stanley UK, David Miles, said it might take further falls in house prices of between five and 10% before the market stabilises and picks up again. The former government advisor and current director at the Financial Services Authority admitted this was an educated guess, but felt that such a fall was required before people began to return to the market.

Banks and building societies have cut back their mortgage lending in the current financial turmoil, but MPs accused them of hoarding cash to boost their own bank balances, while letting the market determine how far house prices should fall. MP George Mudie said they were letting their industry fall apart and appeared unconcerned. He added that the Government guarantee to underwrite £250bn of inter-bank lending should get rid of any excuses for not lending and kick-start the market into action.

Nationwide's latest figures show that house prices are falling faster than at any time since the early 1990s. The Royal Institution of Chartered Surveyors said that the price fall and reduction in sales made this a worse housing crisis than the ‘90s. However, a recent rise in the number of buyer enquiries was a glimmer of light for the market.

With the current crunch in lending, it is more important than ever to see out mortgage advice from an impartial mortgage broker.

- MPs Accuse Lenders of Being Too Cautious / mortgages, mortgage lenders, government, link

Libor Stays High as Base Rate Cuts are Forecast

Although share prices have made some recovery in the early part of this week, there is still a long way to go before the worst ills of the credit crisis are over. As the world lurches into recession, hopes that the mortgage market would pick up are not quite being fulfilled yet.

The London inter-bank three-month lending rate (Libor) which banks use to lend money to each other was stuck at 6.25% on Tuesday. This remains high and will not induce banks to begin to lend freely to each other yet. This is a concern after the Bank of England – and other major banks around the world – lowered interest rates in a co-ordinated move last week. Once upon a time Libor would have been close to the base rate, but this is no longer the case in these extraordinary times.

While Libor has a significant impact on fixed rate mortgages, variable rate mortgages are more influenced by the Bank's base rate. Predictions are rife that this will be cut again before Christmas and could be slashed substantially in 2009.

This is in spite of yesterday's CPI inflation figure reaching 5.2%. Many experts feel that this has peaked and inflation will come down sharply in the coming months. That would give the Bank of England much more freedom to cut the base rate in an attempt to boost the economy and the mortgage market.

Some forecasters believe the base rate could down as low as 2% in 2009, and there are predictions that inflation will be as low as 1% in 12 months time, following a period of economic deflation and slowing cost of living.

Nevertheless, there is little chance now of the UK avoiding recession which appears to be on our doorstep.

The Bank of England's main aim is to keep inflation under control, which is why it resisted lowering interest rates for so long. It was only when the financial crisis became dire that it cut half a percent off the base rate last week.

- Libor Stays High as Base Rate Cuts are Forecast / mortgages, interest rates, credit crunch, recesion, link

Borrowing Still Tough as Deposits Go Up

The move towards responsible lending by mortgage lenders is not going to make it any easier for borrowers to get a mortgage. This is going to make it especially hard for first-time buyers.

Anyone looking to buy with only a small deposit is likely to be squeezed out of the mortgage market as banks and building societies tightened up lending criteria once again.

As well as putting up its minimum deposit for new borrowers, the biggest building society in Britain, Nationwide, has also reduced the amount it is willing to lend.

Its announcement of new mortgage rates this week came with the news that the minimum deposit it will accept is 15%, with the sole exception of its three-year tracker rate which is 1.49% above base rate, making it currently 5.99%.

Nationwide has also reduced its borrowing amounts to 4.1 times single or joint income. Thus, if an individual has an income of £25,000 he or she would be able to borrow £102,500, which is a reduction of around £4,000 on the building society's previous terms.

At the moment the best tracker rate around is cheaper than the best fixed rate deal. The lifetime tracker from First Direct is 0.49% above base rate – making it 4.99% at the moment – and comes with a fee of £999, and the requirement for a 20% deposit. On an average £150,000 loan initial monthly repayments would be £876 on a 25 year loan.

This comes in at £44 a month cheaper than the best fixed rate deal around, from Market Harborough BS. The rate is 5.49% which makes the repayments on a 25 year £150,000 loan £920.

Taking the tracker deal would mean that you would have a base rate rise of 0.5% “in hand” before the tracker became more expensive than the fixed rate.

- Borrowing Still Tough as Deposits Go Up / mortgages, mortgage lenders, mortgage rates, link

Mortgage Lenders Slow to Respond Positively

The response of mortgage lenders to the Bank of England's 0.5% cut and the Government's rescue package last week has been underwhelming.

Some mortgage lenders withdrew their best deals at the end of the week, and actually made life harder for borrowers.

Tracker rates – said to depend on the Bank's base rate – were increased by some lenders. Although trackers that are in place must follow the changing Bank rate (plus a percentage), new tracker mortgages have had their starting points raised. For example, new customers with Abbey now have to pay 0.5% more than last week, despite the cut in the base rate of the same amount.

Shortly after the Bank of England's announcement last Wednesday Lloyds TSB removed all its homebuyer trackers with deposits of 10% or less; now the minimum deposit demanded is 25% of the purchase price. Woolwich also raised its rates and increased the minimum purchase deposit to 15%.

Such actions don't appear to following PM Gordon Brown's urgings for the banks to do more to help new buyers get on the housing ladder.

As taxpayers are gaining an increasing stake in nearly all banks, it is mystifying that they can't borrow back the money they are lending to the banks!

Nationwide has made no move yet, and says it is watching the market.

Halifax has previously promised that its standard variable rate would only even by 2% higher than the Bank's base rate. Now, however, it is writing to its borrowers to say that the differential will be raised to 3% from 31 October.

Mortgage lenders will claim that they are taking a more responsible attitude to lending, and, of course, following the lending excesses of the past ten years, this would be commendable. However, moving lending rates against the prevailing base rate seems to be taking things to extremes.

- Mortgage Lenders Slow to Respond Positively / mortgage lenders, mortgage rates, interest rates, government, link

Libor Unmoved by Government Rescue Package

Although the surprising 0.5% cut in Bank of England base rate on Wednesday should help to bring variable rate mortgage down, it will have done nothing for those with fixed rate mortgages.

Fixed rate mortgages are more reliant on the swap rate or Libor (London Inter-bank Offered Rate). Unfortunately it looks as though the Government's £500bn financial system rescue package has had scant impact on the money markets and the Libor. In fact, Libor rose slightly after the Government's announcement.

In many ways Libor can be thought of as a measure of the credit crunch. It is calculated from ten currencies over 15 time zones and announced every day at 11am in London. On Thursday, the rate was at 6.28%, up from 6.27% on Wednesday. Libor is usually at a level just higher than the central bank rate. However, the gap between the old base rate (5%) and 6.27% is higher than normal. The overnight rate did ease back from 5.83% to 5.42%, but of course the gap with the UK bank rate actually increased from to 0.83 to 0.92.

It seems that, as yet, the Government rescue package has not put trust between banks back into the system. In addition, banks will be reluctant to use the extra facilities on offer unless they really have to.

Market watchers want to see a fall in Libor as an indication of an easing of the credit crunch, but it is recognised that the impact of the rescue package may take some time to filter through to the system, the markets and Libor itself.

On Wednesday banks and building societies in the UK signed up to an initial fund of £25bn, with £25bn made available to other firms. In addition, £200bn will be available for guaranteed short-term loans to try and improve liquidity and get banks lending to each other once again.

- Libor Unmoved by Government Rescue Package / mortgage rates, interest rates, credit crunch, policy, government, link

Welcome Rate Cuts for Mortgage-Owners

The Bank of England cut its rates yesterday by 0.5%, to 4.5%, in an attempt to rescue Britain from a looming recession. The move, expected to come 24 hours later than it did, will help mortgage owners by reducing their monthly repayments quite significantly.

For example, for those with a mortgage of £200,000 the monthly repayments will fall by approximately £60 a month – welcome relief during the credit-crunch. It is also thought that this move will help first-time buyers looking for fixed-term products and those looking to re-mortgage.

Central banks around the world have all coordinated similar cuts in an attempt to prevent a global recession. The US Federal Reserve has reduced rates from 2% to 1.5%, the European Central Bank has reduced from 4.25% to 3.75% and similar moves have been made by Canada, Sweden and Switzerland.

Many top high-street lenders, including Halifax, Lloyds and Barclays have already cut their rates in line with the Bank of England's latest announcement, and many more are expected to follow shortly.

The government has justified the decision in a statement that announced that inflation is expected to rise to over 5% before dropping back down to approx 2% in the near future, making this move necessary.

The move has largely been welcomed by financial experts, although the government has also been criticised for not stepping in sooner, with many believing the current crisis could have been held off had this decision been made six months ago.

In order to be effective it is hoped that the relevant markets will respond positively in order to prevent Britain from sinking further into the well-publicised recession that is expected to take hold.

- Welcome Rate Cuts for Mortgage-Owners / interest rates, regulation, government, link

Bank Cuts Interest Rate a Day Early in Co-ordinated Move

In an astonishing move the Bank of England has cut the base rate by half a percent – and announced the measure a day earlier than usual.

The move by the Bank coincides with rate cuts by five other central banks, including Canada, Sweden and Switzerland. The US Federal Reserve cut its rate from 2% to 1.5% and the European Central Bank (ECB) also took half a percent off, cutting its rate from 4.25% to 3.75%. China also cut its rate, by 0.27%.

This is an unprecedented move which has the aim of steadying the tumbling global economy and plunging stock markets around the world.

The FTSE 100, which had fallen sharply initial trading, then began rising steadily after the press conference by the Prime Minister and Chancellor on Wednesday morning, rocketed on the news of the rate cut. This was evidently what the Stock market really wanted to hear. At 1pm on Wednesday the FTSE 100 was slightly higher than Tuesday's close.

This the first time the Bank of England has cut rates in a special meeting since 18 September 2001 - when rates came down from 5% to 4.75%. The rate, now at 4.5% is at its lowest since it was 4.5% in July 2006.

Earlier on Wednesday the UK government announced plans for a £50bn rescue plan for UK banks.

The good news for mortgage borrowers was that some mortgage lenders instantly passed on the rate cut to borrowers - cutting their variable rates.

EEF, the UK manufacturers' organisation welcomed the move, and chief economist Steve Radley hoped that, coupled with the plan to shore up the financial system the co-ordinated rate cuts would help avoid the potential slide into depression.

The Federal Reserve said it had made its 0.5% cut "in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures".

The ECB said it had felt able to act as pressures on inflation have started to moderate in a number of countries.

- Bank Cuts Interest Rate a Day Early in Co-ordinated Move / mortgage lenders, mortgage rates, interest rates, policy, government, link

UK Government Rescue Plan for Banks

As markets continue to slide around the world and banks everywhere fall deeper into trouble, in the UK the Government has come up with a £50bn rescue plan for the banking system.

Initially the extra capital will be made available to eight of the biggest banks and building societies in the country. The Government will receive preference shares in those businesses for its investments.

With the banking system lurching from one crisis to another and share prices plunging day after day, the cash injection will be used to prop up the system as banks have struggled to access funding for even their day to day activities.

In addition to the £50bn, the Bank of England will make an extra £200bn available for short-term borrowing to give banks and building societies the liquidity they need to keep doing business.

The eight banks which are part of the scheme are Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered, and the Treasury also said that other banks are allowed to apply to be included in the plan.

The shares that the Government will have in the financial institutions will be preference shares which, rather than a dividend, pay a fixed rate of interest which must be paid before other shareholders get anything (in preference), but confer no voting rights.

It should be remembered that the Government money is taxpayers' money so in return for this massive investment by the Government, the banks will have to toe the line. Restrictions will include a limit on executive pay and dividends for other shareholders.

Obviously the bottom line is the hope that the deal will kick-start the money markets back into action and underline the security of the banking system. With new money into the system the Government is hoping to stop the panic currently stalking UK banks.

- UK Government Rescue Plan for Banks / recesion, policy, government, link