Archive for August, 2007

Alliance & Leicester has urged first time buyers to consider its PlusMortgage product.

Jeremy Claridge, the head of specialist mortgages at Alliance & Leicester said:  “When innovative products come onto the market, it’s important they actually fill a gap and help those who need it most.  Rising interest rates and house prices mean first-time buyers need flexible products that will help them get onto the housing ladder.”
The PlusMortgage package combines a 100% LTV mortgage with a personal loan, which allows borrowers to make unlimited overpayments on the loan.

According to their research, Alliance and Leicester says that 73% of mortgage brokers believe a bundled product such as the PlusMortgage is of real benefit to first time buyers.

Abbey recently claimed that a growing number of first-time buyers are using brokers for advice on what mortgage is best for them; with 28% of those aged between 25 and 34 speaking to intermediaries before buying, compared to 2% of those aged over 65.

The latest British Bankers’ Association figures show that net underlying mortgage lending picked up again in July.
This imlplies that the housing market is still coping adequately with the five interest rate increases over the past twelve months.

However, various building societies said the Bank of England’s monetary tightening campaign was beginning to reduce buyer demand.

The BBA said mortgage lending rose £5.7 billion last month, up from £5.4 billion in June and above the recent monthly average.

July’s strong rise was surprising, given the expected cumulative impact of higher interest rates,” said David Dooks, BBA director of statistics. “This resilience shows the popularity of home ownership and also reflects more remortgaging activity.”

The Council of Mortgage Lenders (CML) also said gross lending hit a July record of £34.4 billion. “Mortgage lending remains robust despite the five interest rate rises since last August — although we have yet to see the full impact of higher rates,” the CML said in a statement.

But Building Societies Association figures showed mortgage lending growth easing with building societies accounting for just less than 20% of residential mortgages.

The BSA said seasonally-adjusted mortgage approvals (a more forward-looking indicator of housing demand), amounted to £3.6 billion in July, down from £3.9 billion in June and £4.9 billion in the same month last year.

It appears that many people are unaware of the role of IFAs in providing them with mortgage advice.

The lender edeus carried out research that showed almost 60% of consumers would go to their own bank or building society, or a mainstream lender, for mortgage advice.  Only 40% would use a professional mortgage adviser or IFA.
Of those opting for a high street lender, 26% said it was due to the wider range of mortgages available, 21% said it was easier than using a broker or adviser, and 18% said it was because their bank or building society already knew about their personal financial history.

In addition, 14% believed that they would be offered a favourable rate by using a mainstream lender and 12% said they opted for a lender because it had a well known brand name.

The survey also revealed the huge confusion over the advice services provided by both mainstream lenders and intermediaries.

•    78% didn’t know that mortgage intermediaries could provide access to mortgage products that were not available directly from a lender
•    43% did not know that the high street lenders would only provide advice about their own mortgages
•    35% of people thought that mortgage intermediaries and IFAs always charged a fee
•    20% didn’t understand how the process of using a mortgage intermediary actually worked

Nicola Severn, spokesperson for edeus, says: “We know from lending statistics that the majority of borrowers come via the intermediary route, but these findings clearly show that there is sub section of society who is confused about the role intermediaries play.

“With huge marketing budgets, and a high street presence that mortgage intermediary firms are unable to match, it is no wonder that mainstream lenders are able to persuade consumers to visit their branches”

Tesco Clubcard holders are being offered exclusive mortgage deals thanks to a joint partnership by Tesco and Saffron Building Society.

Clubcard holders are being offered a two-year tracker mortgage, with a variable mortgage rate tracking at 0.26% below the Bank of England’s base rate for the first two years. After that, the mortgage rate is set at 0.95% above the base rate, giving an APR of 6.7%.

With an initial set-up fee of £599, the offer includes the legal work and a refundable evaluation.

The Association of Mortgage Intermediaries (AMI) believes the current housing market will slow but don’t believe a property crash will occur.

The AMI said that the full impact of recent interest rate rises will not be felt for some months as borrowers begin to realise the effects that rates are having on their wallets.

The AMI further added that unless a recession happens then the market should not suffer the same problems as seen in the early 1990’s.

Chris Cummings, director general of AMI, says: “Another increase in base rates to 6% is inevitable given the strength of the key indicators. If rates rise as soon as August, then another increase, possibly in November, to 6.25% would become more likely.”

Cummins also added that that low unemployment, supply problems and strong GDP will underpin the demand in the housing market as a whole, thus enabling a major crash from happening.

The AMI report also claims the UK won’t suffer the same sub-prime problems which have dominated the US economy in recent months.

“The investors who finance the sub-prime lenders are becoming increasingly risk averse and so expect a higher return for investing in sub-prime. However, there will always be a market for credit-impaired borrowers. The key is for the risk to be priced appropriately and the credit criteria to be strict enough to protect the customers”, said Cummins.

Over a quarter of homeowners would consider having a lodger to help fight interest rate rises and boost their incomes.

A survey by Propertyfinder.com also found that 19% of mortgage borrowers would consider taking a lodger but don’t have enough space to do so. They estimate that as many as 26 million bedrooms lie unused in Britain.

In addition, if interest rates rise to 6% then the average mortgage repayment will have risen by £79 per month since the rates began rising; leading to borrowers needing to find new ways to supplement their incomes.

Warren Bright, chief executive of Propertyfinder.com, says “it’s a huge change to consider taking a stranger into your home so in practice, only a tiny proportion of homeowners would do it”.

“However, for many people, especially for younger homeowners, those who live alone or who don’t have children, it can be a very attractive option.  What’s more, there is tax relief available too”, he added.

Homeowners taking on a lodger can receive £4,250 of income tax free, equivalent to £82 per week.

The FSA says most mortgage lenders have dropped their controversial mortgage exit administration fees (MEAFs). This is in response to the FSA Statement of Good Practice issued back in January.

The FSA wanted mortgage lenders to examine how they treat future customers and provide options for past customers to gain compensation by the end of July.

According to the FSA, a sample of some of the biggest firms in the market such as HSBC, Mortgage Express, Barclays, Alliance & Leicester,Abbey, and Northern Rock found that most lenders had either dropped their exit fees or opted to charge a fee which cannot be changed during the lifetime of the mortgage.

Other lenders chose to charge a MEAF which only reflects the administrative cost of exiting a mortgage and that can only be changed for reasons clearly explained at the outset.

Clive Briault, of the FSA, says the regulator had achieved its main goal of making the costs clear to consumers.
He said: “Customers will know when they sign up for a mortgage what fee they will pay on exit, or should be given a clear idea of how the fee might be varied fairly. We will continue to monitor closely how firms treat their customers in this area.”

The FSA advised customers who have been charged a higher exit fee than stated in their mortgage contracts, to contact their lender for a refund. They also said that customers should examine all fees and interest rates when choosing their mortgage to ensure exit fees are fully transparent.

Woolwich has launched what it believes is its best ever fee-free lifetime tracker mortgage.

It comes with no application fees and is set at just 0.17% above the current base rate; giving a current payment rate of 5.92%.

Woolwich has also introduced its new “fix and track mortgage” that will allow customers to benefit from one year at an interest rate of 5.39% before switching to follow the Bank of England’s rate.

“Interest rates are getting near the top of their cycle and tracker mortgages are proving more popular than ever as they tend to have a lower starting rate than other products,” said Andy Gray, head of mortgages for Woolwich.

The Woolwich has also launched a new lifetime tracker mortgage that has a discounted rate of 0.16% below the base rate for the first 2 years.

The Woolwich is part of the Barclays group and hopes its new mortgages will compete strongly against mortgages from Northern Rock, Alliance & Leicester, Abbey, HSBC and Mortgage Express.

Abbey has claimed that the Government plans to introduce long-term fixed-rate mortgages would not be popular with most new borrowers.

In a survey of 1,000 people, the Abbey found that only 23% would consider a 25-year mortgage.

Of the rest, 54% said that that they wouldn’t take up such a mortgage, while 23% were uncertain.

Sue Hayes, director of Abbey Mortgages said “It is clear that the public don’t have much of an appetite for 25-year mortgages; this is borne out by Abbey’s own experience; we have launched 25-year mortgage products in the past, all of which had limited demand.”

Reasons given by those not interested in such a long term mortgage include the duration (27%), uncertainty over the future (27%) and the belief that interest rates could fall (23%).