Category Archives: Mortgage & Finance

Help To Buy To Help Less Than 1 in 3

Fewer than one in three potential first-time buyers believe they will be helped to get on to the property ladder by the Help to Buy scheme.

 

More than one third (34%) said they would still struggle to get a mortgage and over one in ten (12%) said they would find a 5% deposit difficult to save for. Nearly a quarter (24%) were unsure if the scheme, which will make 95% mortgages widely available from next January, will help.

The findings are in a MoneySupermarket survey which also found that 35% of non-home owners think they will never be able to buy their own home. This time a year ago, the proportion was 41%, suggesting that first-time buyers are more hopeful.

Those who believe they will get on to the housing ladder estimate they will be 37 years old when they buy their first home.

This increases to 38 for those looking to buy in London, while those in Yorkshire and Humberside believe they will manage to get a foot on the housing ladder by 34. North of the border, Scots will be 42 on average before they buy their first property, underlining the fact that only a third of those in Scotland (30%) intend to buy their own home compared to 61% of Londoners and 45% nationally.

The MoneySupermarket analysis revealed that the number of overall mortgage products available to first-time buyers is currently 1,565 – up 17% on this time last year, while the average rate on first-time buyer mortgages has dropped 0.59% year-on-year.

However, the average LTV is now 76% for first-time buyers, down from 78% this time a year ago. This means someone taking out a mortgage on a £150,000 property would need a deposit of £36,000, an extra £3,000 compared with last year.

For those seeking a 90% LTV mortgage, the number of mortgages available has fallen by 13%, although the average rate for these products has fallen by 0.52% since April 2012.

A spokesperson at MoneySupermarket.com said: “Home ownership is something millions of people aspire to, so it’s encouraging to see an increase in the number of people who hope to one day own their own home, even though it may feel a long way off for many.

“The Funding for Lending scheme has provided a real boost for the mortgage market in terms of the number of products available. However, the main beneficiaries are those with large deposits, so it is understandable that so many aspiring home owners still think it’s going to be difficult to get on to the property ladder.

“And even though the Government’s new Help to Buy initiative is aimed at giving help to these people, it is evident that many are sceptical that it will make a significant difference.”

Meanwhile, separate research for the Council of Mortgage Lenders shows that home ownership, not renting, is still the ultimate lifestyle choice for most.

Lloyds Start Lending On Student Homes

Lloyds buy-to-let subsidiary BM Solutions is to start lending to landlords who let Houses in Multiple Occupation properties to students.

However, its criteria are tight with a maximum of five sharers on one Assured Shorthold Tenancy agreement. BM Solutions will not lend where tenants in the same property are on separate tenancy agreements – for example, bedsits.

BM Solutions has recently also dropped its restriction on lending to landlords who accept housing benefits tenants.

A BM Solutions spokeswoman said: “We regularly review our lending policies and make changes when we feel it is necessary to do so.

“The private rental sector is playing an increasingly important role in supporting the demand for housing in the UK and as such we are taking the necessary steps to update our policies to support this.”

Meanwhile, Teachers Building Society has improved the loan calculation on its buy-to-let mortgage deal, which is available to teachers and education professionals in England, Scotland and Wales and also to anyone buying or remortgaging property in Dorset.

The mortgage is now calculated on the basis of rental income being a minimum of 125% of the mortgage payment, calculated for affordability reasons at the society’s SVR of 5.74%. The deal on offer is for less than this, and is a two-year discounted variable rate at 3.49% with an arrangement fee of £1,499 and an application fee of £99.

OFT Acts Against Pay Day Lenders

The OFT is giving the leading 50 payday lenders, accounting for 90% of the payday market, 12 weeks to change their business practices or risk losing their licences, after it uncovered evidence of widespread irresponsible lending and failure to comply with the standards required of them.

The OFT has also announced that, subject to consultation, it proposes to refer the payday lending market to the Competition Commission after it found evidence of deep-rooted problems in how lenders compete with each other.

The action was announced in the final report on the OFT’s compliance review of the £2billion payday lending sector. The review found evidence of problems throughout the lifecycle of payday loans, from advertising to debt collection, and across the sector, including by leading lenders that are members of established trade associations.

Particular areas of non-compliance included:

Lenders failing to conduct adequate assessments of affordability before lending or before rolling over loans;

Failing to explain adequately how payments will be collected;

Using aggressive debt collection practices;

Not treating borrowers in financial difficulty with forbearance.

The 50 leading lenders, each of which was inspected, will have to take rapid action to address the specific concerns the OFT identified with each of their businesses. They must demonstrate within 12 weeks that they are fully compliant, or risk losing their licence. Failure to cooperate with this process will trigger enforcement action.

Payday lending is a top enforcement priority for the OFT. Customers often have limited alternative sources of credit and are frequently in a vulnerable financial position. Combined with this, the high rates of interest charged by many payday lenders can make the consequences of irresponsible lending particularly acute.

The OFT has also uncovered evidence suggesting that this market is not working well in other respects and that irresponsible lending in the sector may have its roots in the way competition works.

Lenders were found to compete by emphasising the speed and easy access to loans rather than the price and also to be relying too heavily on rolling over or refinancing loans. The OFT believes that both these factors distort lenders’ incentives to carry out proper affordability assessments as to do so would risk losing business to competitors. Too many people are granted loans they cannot afford to repay and it would appear that payday lenders’ revenues are heavily reliant on those customers who fail to repay their original loan in full on time.

Despite payday loans being described as one-off short term loans, costing an average of £25 per £100 for 30 days, up to half of payday lenders’ revenue comes from loans that last longer and cost more because they are rolled over or refinanced. The OFT also found that payday lenders are not competing with each other for this large source of revenue because by this time they have a captive market.

The OFT believes that these fundamental problems with the operation of the payday market go beyond non-compliance with the law and regulations. It believes that a full investigation by the Competition Commission is needed to identify and, if appropriate, impose lasting solutions to make this market serve its customers better. The Financial Conduct Authority (FCA) will regulate consumer credit from April 2014 and it will be able to use the analysis and conclusions of the Competition Commission in developing its rules and applying its powers. The FCA will have significant powers and resources beyond those available to the OFT, including powers to cap interest rates and to impose a ban or a limit on the number of rollovers lenders may offer.

Clive Maxwell, OFT Chief Executive, said: “We have found fundamental problems with the way the payday market works and widespread breaches of the law and regulations, causing misery and hardship for many borrowers. Payday lenders are earning up to half their revenue not from one-off loans, but from rolled over or re-financed deals where unexpected costs can rapidly mount up.

“We are proposing to refer this market to the Competition Commission, which has wider powers to get to heart of the problems in this market and to identify and impose lasting solutions that protect consumers.

“Irresponsible lending is not confined to a few rogue payday lenders – it is a problem across the sector. If we do not see rapid, significant improvements by the 50 lenders we inspected they risk their licences being removed. Payday lending is a top enforcement priority for the OFT.”

 

Repossessions At Lowest Level For Five Years

The Council of Mortgage Lenders (CML) reports that the number of home repossessions has fallen to its lowest level in five years as a result of low mortgage rates and better debt management and relationships between lenders and borrowers.

The CML says that there was a total of 33,900 homes repossessed in 2012, a fall of nine per cent on 2011, down from 37,300 in 2011 and the lowest number since before the financial crisis and credit crunch of 2007.

This is lower than the figure predicted by the CML last year. It had predicted that due to the continued pressure on household finances the figure would be 45,000 before revising this down to 35,000 but the actual figures are even lower than that.

The trend looks set to continue in 2013 as repossession numbers also fell to 7,700 in the final quarter of 2012, the lowest quarterly figure for five years and down from 8,200 in the third quarter of 2012 to maintain a repossession rate of 0.07 per cent.

CML director general Paul Smee said: “The fall in arrears and possessions is obviously very welcome. Households fall into difficulty for a variety of reasons, most of which cannot be anticipated.

“Wherever possible, lenders will work with borrowers to manage periods of temporary financial difficulty and enable them to keep their home.

“Anyone worried about their situation should talk to their lender, who will try to help them.”

The CML predicts that there will be a slight increase in 2013 to 35,000 repossessions.

The figures show that despite high inflation raising the cost of living and low wage increases, the benign conditions for mortgage borrowers are helping to reduce the problems facing homeowners.

Interest rates have been at an historical low of 0.50 per cent for almost four years now and the cost of a mortgage is at its lowest level as percentage of disposable income for over a decade.

There is unlikely to be a change in base rate for some time as the bank of England tries to provide the right conditions for economic growth.

This, combined with a more generous attitude from lenders on forbearance, has helped keep repossession rates down. The banks believe they have more chance of getting money back that they are owed if they allow homeowners to stay in their homes.

However, today’s figures from the CML show that there has been a slight increase in the number of cases of homeowners struggling with high levels of mortgage debt. The number of cases of people who have arrears of more than ten per cent of their mortgage debt increased from 28,200 at the end of 2011 to 28,900 at the end of 2012.

Meanwhile, the number of households with smaller levels of mortgage arrears has been falling overall since 2007. In the last 12 months the number of homeowners with arrears of 2.5 per cent or more fell from 161,400 to 157,900.

At the peak of recent mortgage arrears there were 216,400 repossessions in the 12 months to June 2009.

The CML advised that if you are in arrears on your mortgage, the best avenue to take is to speak to your lender and to ensure that communication is good so as to agree to resolve the issue over a reasonable timescale.

The CML said: “As the statistics demonstrate, lenders try to keep borrowers in their homes and only take possession as a last resort.”