Plan to increase mortgage availability
Doubts have been cast on a Government scheme announced in the Budget to help mortgage lenders raise billions of pounds of new funding from the money markets.
Experts said the plans to guarantee residential mortgage-backed securities, which banks and building societies used in the past to raise wholesale funding for new lending, will do little to improve the availability of mortgages.
The Government had previously promised up to £50 billion for the Asset-backed Securities Guarantee Scheme, but yesterday the Treasury admitted that it “did not expect uptake to be particularly high”, quashing the hopes of millions of homeowners unable to get a new home loan.
Tony Ward, of Home Funding Limited, a mortgage finance specialist, said: “There is not a market for these assets and the fact that the Government has offered to provide a guarantee is unlikely to help.
This scheme has been painted as an answer to the shortfall in wholesale funding but in reality we will see little impact on the mortgage market for the foreseeable future.”
The deadlock in wholesale funding has seen a chronic shortage of available home loans over the past year, exacerbating the collapse in property prices.
The average home has fallen 16 per cent in value in the last 12 months, figures from the Nationwide show.
The number of mortgages has slumped from 16,000 in 2007 to around 1,200 today, according to Moneyfacts.co.uk, the financial website. Over the last year, lenders have tightened criteria and limited competitive deals to borrowers with hefty deposits.
The Council of Mortgage Lenders, a trade body, released figures yesterday showing a 16 per cent rise to £11.5 billion in mortgage approvals last month compared to February, but admitted that it is still down 52 per cent on the same month in the previous year.
At the peak of the housing market in June 2007, gross mortgage lending hit almost £35 billion. In 2007, around a third of new mortgage lending was funded through residential mortgage-backed securities and the total market was worth almost £300 billion.
However, in the aftermath of the credit crunch, which first emerged in September 2007, investors avoided mortgage-backed securities because of the question marks over the quality of the loans which had been pooled together.
The guarantee scheme, which was given the green light by European regulators earlier this week, is based on recommendations made by Sir James Crosby in his report in the mortgage market released last year.
Under the rules of the Asset-backed Securities Guarantee Scheme, only AAA-graded mortgages issued since January 2008, with loan-to-value ratios below 90 per cent, can be included by banks and building societies.
Chris Ames, head of asset-backed investment at Schroders Investment Management, said: “Conservatively structured AAA-rated securities, backed by recently originated mortgages, should be a good investment whether there is a Government guarantee in place or not. But for the past 18 months or so, the high yield that investors require has kept banks from selling new securities.”
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London Properties Asking Prices
LONDON (Reuters) – Asking prices for homes in England and Wales fell an annual 7.3 percent in April, the smallest drop since January, property Web site Rightmove said on Monday.
That follows an annual drop of 9 percent in March and adds to evidence that the pace of house price falls may be starting to moderate as the flow of credit picks up after coming to a virtual standstill last year.
There remains a big gap between initial asking prices and eventual selling prices, however, and Rightmove said many properties were still being listed at an unrealistic price.
“Many sellers are still starting too high, but the fact they are coming to market in greater numbers and feel they can ask for more shows a strengthening in confidence,” said Miles Shipside, Rightmove’s commercial director.
“It looks like we are now bumping along the bottom of the trough.”
Average asking prices rose 1.8 percent in the month of April, the third consecutive monthly rise. However, the figures are not adjusted to take seasonal factors into account and include only new listings.
The survey also found that a tenth of existing sellers were lowering prices by at least 2 percent each month.
“Feedback from estate agents suggest that prices actually being achieved are still around 25 percent below peak prices in many instances,” the survey noted.
April is traditionally a busy month for new property listings. The Rightmove survey showed there were 13 percent rise in new sellers in April but a 19 percent fall compared with the same month last year.
The housing market has taken a battering over the past year with prices down more than a fifth from their mid-2007 peaks according to leading mortgage lenders.
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What’s more if you are switching your mortgage to Chelsea, but not moving your home you’ll find some of our mortgages offer assistance with fees including your legal fees (subject to conditions). And even with our other mortgages you can still take advantage of our Legal service for remortgages. Click on the ‘New borrower products’ link to the left of the page for more details of our mortgages.
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Mortgage lending creeps higher
By Lee Wild
Tue 14 Apr 2009
LONDON (SHARECAST) – The number of loans for home purchases jumped 4% in February from the month before, according to new data from the Council of Mortgage Lenders (CML).
It found 24,300 mortgages worth £3.1bn were completed by banks and building societies during the month, up from 23,400 in January.
The news follows recent data from the Nationwide revealing UK house prices rose 0.9% in March, the first increase since October 2007.
But CML director general Michael Coogan urges caution. “We are not convinced that underlying trends have shifted sufficiently to change our forecasts for mortgage market activity in 2009, but there are some positive signs for later in the year,” he said.
“Some large banks are making more funding available through enhanced lending commitments, which is helpful but will not satisfy consumer borrowing demand on its own.”
There was a sharp fall in remortgaging activity as borrowers reaching the end of their current deal chose to stay on their lender’s standard variable rate. The recent run of interest rates cuts has boosted their appeal.
First-time buyers are finding it slightly easier to get on the housing ladder as lenders start to offer better deals for those with smaller deposits.
There were 9,400 loans to first-time buyers in the month, up 7% from January, but still way down on the 17,400 reported a year ago.
CML figures also showed homeowners are starting to prefer the security of fixed rate deals to tracker products. As well as wanting predictability, many fear interest rates could rise sharply some time next year.
The number of new deals at fixed-rates jumped to 56% in February from 49% the month before, while trackers saw their popularity decline to 31% from 38%.
Meanwhile, the slump in house prices and the government’s one-year stamp duty holiday for properties costing up to £175,000 have benefitted an increasing number of people. Some 57% didn’t pay any stamp duty at all in February, up from 48% a year earlier.
Dirty Trick by Mortgage Lenders
Halifax, Britain’s biggest lender, has been accused of undervaluing customers’ properties when they come to remortgage, forcing them on to more expensive deals.
Brokers say borrowers may see as much as 40% wiped off the value of their homes, although prices have fallen by an average 21% from their August 2007 peak, according to Halifax’s own house-price index.
The down-valuations mean borrowers no longer qualify for the lender’s best deals. Halifax charges 5.29% for its five-year fix if you have equity of 5% or less, compared with only 3.99% at 25%, a difference of £2,600 a year on a £200,000 interest-only loan.
The move comes amid growing evidence that lenders, while claiming to offer competitive deals following government pressure, are in fact imposing sneaky conditions which mean even “good” borrowers do not qualify for the best rates.
HSBC said last week it would commit £1 billion in loans to people with deposits of 10%, helping first-times buyers back into the market. This was part of the £15 billion it has already committed to lend this year, and it has previously offered a market-leading fix of 3.99% over five years.
However, one Sunday Times reader complained she was rejected, despite having the required 40% equity, because she did not have 75% of the value of her mortgage in savings — £160,000.
Neil Avery of Timothy James, an adviser, said: “We’re increasingly finding that what lenders are saying and what they are doing is very different. The outcome implies Halifax is working the property market to its advantage.”
Down-valuations
Thousands of customers who took out Halifax’s cheap two-year deals immediately before the credit crunch in 2007 are now applying to the bank for a “transfer deal”.
However, brokers have been alarmed to see the value of clients’ homes on Halifax’s online valuation system — which is pegged to its house-price index — slashed by tens of thousands of pounds in a matter of days.
The bank is then offering existing customers transfer deals at higher rates.
Avery cites the case of one client living in a substantial London home. “On Friday their property valuation according to the Halifax’s computer system stood at £1.3m. This was already down 19% on what the client paid for the house two years ago,” he said.
Halifax published its new valuations on Tuesday, just three days later. The house was worth £965,000 — a further correction of 25%. This will mean the couple pay about £290 a month more, or £14,000, over the next four years,” Avery said.
Giles and Nikki Holland, of Earlsfield, south-west London (pictured left), also Halifax customers, received an automatic valuation of £400,000 — £100,000 less than the one they were given by their estate agent. The difference will add £2,000 a year to their interest repayments.
Avery said: “Halifax boasts of offering relatively good remortgage deals to people who are in negative equity — but it doesn’t say its own valuation system could be pushing people into the red in the first place.”
Halifax said: “We take a prudent approach to the use of automatic valuations and they are closely monitored against standard valuations. The model adjusts dynamically, reflecting changes in the market as they happen to ensure the valuation is accurate. Where intermediaries and their clients wish to appeal against the valuation, we will deal with it on a case by case basis.”
Bank of Scotland, which is part of Lloyds Banking Group like Halifax, has moved to ban customers who take out popular remortgage deals offering free legal fees and valuations from appealing against valuations altogether. Those who want to have this option have to pay the costs, the lender said. Melanie Bien at Savills Private Finance said: “We feel this will act as a deterrent to borrowers disputing the valuation of their property.”
Hidden conditions
Katrina Murray, 36, of St John’s Wood, London, was turned down for HSBC’s five-year deal at 3.99% despite having a spotless credit record, the required 40% deposit and £15,000 in savings — because she wanted the deal on an interest-only basis.
The bank said she would need 75% of the loan value in savings to qualify — £160,000. HSBC said: “We enforce this very strictly. Those who want to take out an interest-only loan must have a repayment vehicle to support it.”
However, Murray said: “Why do they impose this at the last minute and why is it not advertised in their conditions? Who in their right mind would have this amount of savings in this market if they could pay off more of their mortgage sooner? This appalling practice has meant a waste of time and effort for me.”
Bien said: “Lenders are increasingly making it more difficult for people to take out loans on an interest-only basis. Whereas during the property bull market they may not have pressed clauses in contracts, such as the need for a repayment vehicle, they are certainly doing so now.”
You can’t ditch your fix
Meanwhile, Nationwide is not allowing existing customers to switch to cheaper fixes even if they are willing to pay the penalty, depriving them of thousands of pounds in savings.
For example, in March last year, Nationwide was offering a three-year fix at 5.85%. Today its best deal for three years is 3.98%. A borrower with a £200,000 loan could save £2,485, even after paying a 2% early-repayment penalty and an arrangement fee of £995, if the building society let existing customers move.
Richard Morea of L&C, the broker, said: “It is disappointing that Nationwide customers aren’t getting the same opportunity to take advantage of cheaper mortgage rates as customers with other lenders.”
House price movements cause confusion
By Sharlene Goff
Published: April 4 2009 03:00 | Last updated: April 4 2009 03:00
Is the homeowners’ nightmare of tumbling house prices finally at an end, or is there even worse to come? This week has been a confusing one for anyone attempting to read the runes of the UK housing market.
Nationwide reported a surprise rise in house prices this week, prompting hopes that the bottom of the market may be in sight. But as fast as some analysts have boldly called an end to price falls, others have cautioned that the sunny upland of rising prices will not rapidly be regained.
There was plenty of fuel for the gloom mongers yesterday as Halifax released data showing thathouse prices were still falling. In March its index dropped by 1.9 per cent – although during the full first quarter of 2009 prices fell at a slower pace than they had last year.
The picture emerging from estate agents is similarly mixed. Many agents in London are reporting a sharp increase in buyer interest and a higher volume of sales. In some areas the number of property transactions has more than doubled since last year.
Some agents have claimed this pick-up in activity has resulted in more properties selling at, or close to, the asking price. Others have even spotted the real estate equivalent of the first swallow of summer: instances of competitive bidding. Marsh & Parsons, the London agent, for example, said more than 25 properties had gone to sealed bids – where buyers tender their best offers in secret – in the past two months.
Other agents are more cautious, warning that any evidence of an improvement in property prices is a rare glimmer of hope in a still clouded market.
“We may have seen the end to continual and significant price falls but I don’t think we are quite at the bottom,” said Liam Bailey, head of residential research at Knight Frank. “For the rest of the year I think we will see alternating months of growth and falls.”
Nationwide, which re-ported a 0.9 per cent increase in prices in March, was quick to temper hopes of a rapid recovery in prices.
Knight Frank said higher numbers of sales were only being achieved in areas that had suffered the most severe slump in prices. Even then buyers were trying to negotiate substantial discounts on already lower asking prices.
But, while there may be no sign of a rebound in prices, even the most pessimistic commentators agree that the sharpest price falls seem to have passed.
Most forecasts point to a further 5-10 per cent drop by the end of this year before prices start to stabilise.
David Adams, head of residential at Chesterton Humberts, another agent, said prices were close to the bottom in specific “hotspots” – predominantly prime areas that are popular with foreign buyers – but not necessarily the market as a whole.
House Prices Fell in March says Halifax
House prices fell by 1.9% in March, but the annual rate of decline slowed slightly, figures from Halifax showed today.
The monthly figures run counter to those published yesterday by rival lender Nationwide, which showed a 0.9% rise in house prices over the month. This is not the first time the indices have disagreed – in January, Halifax reported a price rise while Nationwide said prices had dropped, and such volatility is common when transaction levels are so low. The three-monthly figures from both lenders, which are a better reflection of the state of the market, both show price falls.
David Smith, senior partner at Dreweatt Neate estate agents, said the figures were proof that Nationwide’s figures should not be viewed as the beginning of an upturn.
“There is an inherent volatility to house prices right now and because of this, a sideways-moving market, with the odd spike up or down, remains the most likely course for the rest of 2009,” he said.
Howard Archer, chief UK economist at IHS Global Insight, said the contrasting data showed how important it was to look at all the surveys available rather than focusing on just one.
“House price data can be very volatile from month to month, and also between surveys,” he added.
The March decline reported by Halifax, which took the average price of a UK home down to £157,326, was smaller than the 2.3% fall recorded in February. The annual rate of deflation as shown by the lender’s measure, which compares the last three months’ average with the same period last year, also reduced, from 17.7% to 17.5%.
Prices are now more than £33,000 lower than in March last year, according to the Halifax.
Martin Ellis, Halifax’s housing economist, said that although the number of sales completed in England and Wales halved between 2007 and 2008, there were some “very tentative” signs that activity was beginning to stabilise.
However, he said house prices were likely to continue to fall. “Conditions in the housing market are likely to be tough during the remainder of 2009 despite the improvements in affordability.
“Increasing unemployment, low consumer confidence and the constraining effects of the continuing dislocation of the financial markets on the availability of mortgage finance are all likely to exert downward pressure on the market over the coming months.”
Stalling market
The housing market has stalled over the past year as buyers have been deterred by falling prices and a squeeze on credit, which has made it much harder to raise a mortgage.
There are signs this could get easier over the coming months, with the Bank of England reporting that lenders expect to be able to offer more loans to households.
However, it looks likely that credit will be targeted at buyers with at least 25% to put down as a deposit, which by Halifax’s measure means a lump sum of just under £40,000.
According to Halifax, those who can raise that kind of sum can take advantage of the lowest house price-to-earnings ratio in more than six years, with homes now costing 4.34 average earnings as opposed to 5.85 when the market was at its peak in July 2007.
The cost of servicing mortgage debt has also fallen, with interest rates slashed to 0.5%. Monthly repayments accounted for 22.6% of average income before tax in February, compared to a peak of 26.9% in October when the Bank base rate stood at 5%.
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London House Prices Up Again
House prices rose last month for the first time in 16 months, according to figures from the Nationwide Building Society today.
The price of a typical house increased by 0.9 per cent to £150,946 in March in contrast to February when month-on-month house prices fell by 1.9 per cent.
The unexpected rally lowers the annualised rate of house price declines from 17.6 per cent to 15.7 per cent.
Signs that buyers are returning to the housing market was underlined today by a survey by the Bank of England on credit conditions in the UK which revealed that banks expect to increase lending to individuals and businesses over the next three months,
Nationwide welcomed the tentative sign of stability, but added, “It is far too soon to see this as evidence that the trough of the market has been reached.”
Howard Archer, chief UK and European economist at IHS Global Insight, agreed that while it is important not to read too much into the surprise rise, he said “there are increasing signs that the housing market may have passed its worst point, helped by the substantial fall in house prices from their 2007 peak levels and markedly reduced mortgage rates.”
House prices have fallen every month since October 2007, with the typical home plunging in value from a peak of £186,044 to £147,746 by February 2009.
The dramatic cuts in base rate of the past few months would take time to work through into the housing market, Nationwide said. “It is too early to talk of a house price recovery.”
The news of at least a temporary respite to the slump in property values follows other signs of stability. Mortgage approvals have picked up, albeit from low levels. In February they increased by 19 per cent to 37,900 – the highest level in nine months.
Nationwide said: “The upturn is welcome and is certainly a signal that there is some movement in the market. It is more likely to reflect the return of buyers who have delayed purchasing through the worst of the financial turbulence at the end of 2008 rather than the beginnings of a swift recovery.”
House price stability is regarded as one of the conditions necessary for a wider economic recovery. Consumer confidence and spending tends to dive when home values, most people’s biggest asset, are shrinking.
The news on house prices is the second encouraging sign in two days. Yesterday the COPS/Markit purchasing managers index — a key barometer of manufacturing activity — climbed sharply, albeit from low levels.
The Nationwide’s monthly rise was “seasonally adjusted”, showing an underlying pick-up even after adjusting for the normal bounce in activity at this time of year.
