Homebuyers being shut out by many lenders

A large number of homebuyers are having the door shut in their faces by lenders, according to a recent report. In the current financial climate an increasing number of lenders are becoming more and more stringent about who they will lend to, and as a result of this many homebuyers have been left out in the cold because they are not able to get the finance that they need to purchase a property. Read more

Tags: equity, order, standard deposit, bank, property, bank of england, report, buyer groups

Equity being used by older people in debt

According to a recent report a rising number of older homeowners are using the equity in their homes in order to pay off debts. Officials are concerned that this increasing trend is leaving more and more people without any means to support themselves in their retirement. Read more

Tags: debt consolidation, average age, equity, debt, industry, equity release, order, offering

Consumers still having to pay high deposits for affordable mortgages

Over recent months getting a mortgage has become increasingly difficult and expensive, with many lenders reserving their best deals and lowest interest rates for those that are able to put down a sizeable deposit as opposed to the traditional 5% deposit. The changes in mortgage lending and costs have come about as a result of the global credit crunch, which swept across the nation last summer. Read more

Tags: Mortgage loan, lenders, england and wales, lending, Mortgages, interest rates, equity, arrangement fees

Mortgages for self-build homes still available, says expert

People interested in building their own homes can still find mortgages, despite finance being scarce due to the credit crunch, the editor of Homebuilding.co.uk has said. Read more

Tags: price, cent loan-to-value ratios, equity, expert, cost, Homebuilding.co.uk, self build mortgages, average asking price

Some areas are at risk of negative equity, claims expert

There are concerns that certain areas of the country may be prone to negative equity over the next two years, according to the UK property market information provider Mouseprice.

A survey published this month found that 23 per cent of 24 to 34-year-olds are worried about having negative equity and 13 per cent of respondents said they had decided to delay their plans to move until the situation in the housing market situation improves.

Jonathan Upton, business development director at Mouseprice, said: “The conditions that are required for negative equity are present in some areas,” adding that the situation will depend on the level of deposit that people took out, when they bought their house and the profile of the housing market where they live.

However, Mr Upton also commented that it is difficult to tell whether first-time buyers will be particularly hard hit.

In their favour, people who are not yet on the housing ladder may benefit from falling house prices, giving them a stronger hand in negotiations.

Tags: business, Business and Economy, survey, equity, favour, house, business development, provider mouseprice.a survey

Consumers ‘confused’ by Isas

Over 40 per cent of consumers do not know what the current limit is on their Isa according to research from financial experts.

Findings from the Alliance & Leicester also revealed that almost 80 per cent of do not know what the maximum limit is for equity Isas.

Ewan Edwards, head of savings at Alliance & Leicester, said that the study shows that, with the new rules surrounding Isas arriving in April, many consumers are still confused by the current regulations in place.

“We feel that more could be done to communicate the basic principles and benefits of Isas, so that everyone is clear about how they work and how to get the most out of them,” he added.

The “structure must be more straightforward” if they are to appeal more to the man on the street, he concluded.

According to Moneyfacts.co.uk, changes to Isas from April 6th involve increasing the the annual contribution to £7,200 while the maximum cash element is also set to increase from £3,000 to £3,600.

Tags: ISA, leicester, maximum limit, bank of england, edwards, ISAs

Changes to Isas will benefit consumers say experts

The changes to Isas anticipated to occur in April of this year have been welcomed by industry experts.

Robin Keyte, a director with the financial services firm Towers of Taunton, said that getting rid of the definition of mini and maxi Isas should benefit both the customer and the Inland Revenue.

The increase in the maximum amount a person is able to invest in an Isa in a tax year, from £3,000 to £3,600 should help encourage saving as well as rise in line with inflation, he added.

“You could also say that with the credit crunch digging in, it’s very timely, because people want to reduce their spending. The timing is good,” Mr Keyte said.

Removing the ‘Personal Equity Plan’ (PEP) description and treating the funds as Isas should also help simplify the situation for the consumer.

He said that there’s “no point” in keeping the name different, due to the amount of similarities between the two products.

According to figures released in November 2007 by HM Revenue and Customs, the amount of money saved in Isas has now reached £208 billion.

Tags: services firm towers, Towers, maximum, line, Personal Equity Plan

Popularity of equity release in the rise

According to a recent report the popularity of equity release schemes is on the up, and experts state that the quality and service in this area is also improving.

Equity release schemes have gained a bad reputation and have been at the centre of controversy, with one equity release provider recently being fined by the Financial Services Authority for giving inaccurate advice to consumers. However, despite its poor reputation equity release is becoming a hit with older homeowners.

According to Norwich Union these equity release schemes are particularly popular with homeowners that are close to retirement. In a survey of 1600 people between the ages of 50 and 56 one in ten stated that they would consider equity release programmes in the future. These schemes were not as popular with those that had already retired, with survey results showing that only one in twenty retired consumers would look at equity release.

One equity release worker stated that the information provided to consumers these days is far more detailed and comprehensive.

She said: ‘The market today is very different. The paperwork given to customers before they sign goes so much further. It really shows what they’re getting into.’

A Prudential equity release customer also said: ‘I was afraid of the financial bits, but my neighbour sat in on one of the meetings. It told me how much I could draw down and I’ve taken about a third of an agreed maximum.’

She added: ‘The compound interest rate is the nasty bit. The man from the Pru worked out that on average I’m likely to live another 27 years. He then told me how much I’d owe, based on the interest rate, if I borrowed varying amounts over various times.’

Alan Wright
26th November 2007

Tags: home, equity, value, release, mortgage, property, loan

RICS states only rich can afford to be landlords

Officials from the Royal Institute of Chartered Surveyors have stated that in the current economic climate only the rich can afford to become landlords, with investment properties being made inaccessible to many people because of the high level of deposit that many lenders are now demanding.

According to reports the level of deposit required on buy to let properties has increased by 500% since 2002, with the average deposit needed now being around 30% of the property value, equating to an average of around £65,600.

In the first quarter of 2002, according to the report, only around 8% or an average £10,100 was needed to invest in a buy to let property. RICS officials state that the high level of deposit needed means that many potential buy to let purchasers have been put off or simply cannot afford to get their foot on to the buy to let ladder.

However, the Institute states that the situation could ease somewhat next year, with interest rates likely to fall and house prices likely to drop or remain stable. This could see an increase in the number of consumers deciding to invest in buy to let.

One economist from the Royal Institute of Chartered Surveyors stated: “It takes more capital than ever to set up a buy-to-let investment. Would-be investors who have missed out on the impressive returns of previous years are now finding the hurdles to property investment are higher than they imagined. However, existing landlords should be able to use the equity in their past investment properties to fund the deposit needed for new ones, and this should ensure that demand from the buy-to-let sector does not dry up entirely.”

Tom Smith
18th November 2007

Tags: landlord, equity, investment, buy-to-let, Mortgages

Buy-to-let ‘out of reach’

The buy-to-let market is now out of reach of the ordinary investor, due to spiralling prices, it was claimed this week.

The Royal Institution of Chartered Surveyors (RICS) has found that the average deposit a would-be landlord needs to put down to get hold of a rental property is £65,000, or 30 per cent of the property’s value.

In early 2002, this figure was just £10,100.

The increase has been brought about by factors common across all parts of the housing market, such as high interest rates and contracting supply, but also by factors specific to buy-to-let.

In particular, rental cover ratios for mortgages are high, with most landlords being asked to ensure that rental yields on their properties will cover 125 per cent of the mortgage before a lender will consider handing the money over.

Senior economist at RICS David Stubbs said: “It takes more capital than ever to set up a buy-to-let investment. Would-be investors who have missed out on the impressive returns of previous years are now finding the hurdles to property investment are higher than they imagined.

“However, existing landlords should be able to use the equity in their past investment properties to fund the deposit needed for new ones, and this should ensure that demand from the buy-to-let sector does not dry up entirely.”

Tags: RICS, David Stubbs, surveyors, Chartered, equity

Signs of housing market cool down

Predictions from many economists and analysts that the housing market in the UK is cooling down have been proven following figures relating to house prices for September.

According to figures house prices in September fell for the first time since December, and to many this reflects the start of the cooling down period for the UK housing market. The figures come from the HBOS house price survey. According to the figures there was a 0.6% drop in house prices, which was a far cry from the predicted 0.4% increase.

The average house prices has now fallen to just below the £200,000 mark, taking the annual three month rate of house price inflation to 10.7% compared to the expected 11.1% rise that had been forecast. Halifax officials state that although the economy remains strong it is likely that house price inflation will fall further in the coming months, as the housing market in the UK continues to cool.

Martin Ellis from the Halifax stated: “September’s price fall is consistent with the normal behaviour of the market during a slowdown. A mixed pattern of monthly price rises and falls is a typical feature of a more subdued housing market.”

This could mean good news for first time buyers that are looking to get onto the property ladder, but could result in problems for those that have recently taken out large mortgage, many of whom could find themselves falling into negative equity.

The likelihood of an impact on consumer spending has also increased as a result of the slowdown in the housing market.

One economist stated: “Since house prices gains have stalled, we believe it is highly likely that spending growth will also hit the wall in the months ahead.”

Tom Smith
4th November 2007

Tags: equity, mortgage, property, market, decrease, prices, housing

100 per cent-plus mortgages safe

A predicted slow down in house prices should not dampen the optimism for 100 per cent plus mortgages, experts have claimed.

Bestinvest, a financial advice firm, claim that even if house prices stabilise, 100 per cent borrowers will not be at risk of negative equity.

However, the company maintains that this type of borrowing is not for everyone and advice should be sought before taking up such a loan.

Peter O’Donovan of Bestinvest said: “Eventually house prices will continue to increase. And hopefully as they pay off their mortgage, of course, they reduce that burden on the loan-to-value.”

He added: “It’s down to affordability – speaking to a client, getting to know them properly and being able to recommend these sorts of products knowing that you aren’t putting them in any sort of danger.

“Lenders themselves do say ‘no’ if they don’t think its right. They don’t want to have to repossess in a year’s time, it’s not good business.”

However, the Royal Institution of Chartered Surveyors warned that there may be a one in ten chance of a housing market crash in the UK.

Tags: housing market crash, equity, Mortgages, lenders, percentage

Endowments Still Failing

Despite the last four years seeing a rising stock market, millions of endowment policies are still unlikely to be worth enough to pay off the mortgages they were meant to cover.

 There have been soaring share values around the world, and record growth in commercial property, but for six million mortgage endowment policy holders in Britain it will still not be enough.

The Association of British Insurers has produced figures that reveal that to the end of 2006, two thirds of endowment policies in force were still in the red band – that is, they will not deliver the target sum upon maturity. Those achieving a green rating were only 18%, and should deliver the target amount. The figures are only marginally better than at 2004, when 71% were red and 14% were green. Amber policies make up the rest – these are at risk of not paying the intended maturity value. The booming stock and property markets do not seem to have had much of a positive effect on these policies.

Deeper investigation shows that the overall trend disguises huge differences between insurers. Where there are some companies forecasting that nearly all their endowment policies will hit the targets, others have only a meagre number that are expected to deliver the goods.

Sadly it is some of the bigger companies, who between them number two million endowments, who are failing. Norwich Union, Standard Life and Friends Provident are those with the highest number of prospective shortfalls.

One couple in Fareham, Hants have two endowments they hoped would pay off their £41,300 mortgage. A Legal & General policy started in 1983 is due to mature next year and is expected to beat its target of £22,800 by around £2,000. The other policy was taken out with Royal Insurance in 1988. It is now run by Phoenix, part of Resolution. Due to mature in 2013, the latest projection in spring suggested it would fall short of its £18,500 target by somewhere between £5,000 and £7,000. They will have to re-invest the £2,000 from Legal & General to help pay the shortfall of the Phoenix policy.

The Phoenix policy’s recent performance has been poor, giving returns almost less than investment. How can that be the case with such good growth in the markets in recent years?

Most endowment policies are invested in “with-profits” funds. These spread the money from savers across a number of assets that include shares, bonds and commercial property. In the past five years shares have managed average returns of 10%, and commercial property has average returns of over 15% in the same period. Bonds only grew by an average of 4.6% per annum, and the in past twelve months have actually gone down in value. The problem was that many insurers got cold feet in the share and property market in 2002 and 2003, and transferred large parts of their funds to bonds. Thus, the funds have failed to take advantage of the rising stock market and commercial property prices.

Small companies Wesleyan and Liverpool Victoria have no policies in the red, and Legal & General now has half of its policies in green, up from 20% in 2002. Conversely Standard Life has 88% policies in red, up from 68% in 2002.

It seems that most endowment investors have missed out as equity markets have soared.

Tom Smith
18th July 2007

Tags: red, endowments, shares, profits, Mortgages, short, invest, stocks

House Tipping Point On The Way

Figures from HM Revenue and Customs have indicated that the number of properties sold in England, Wales and Northern Ireland was at its highest point since the late eighties.

During 2006-7 the number of properties being exchanged was 1,859,000. The number of sales was up by 11% compared with then figure for the previous twelve months. House prices went up by the same percentage and are growing at more than their average rate over the long term.

The number of homes sold at the last peak in 1988 was 2,148,000 for England and Wales. In 1989 sales of property slumped by 25% and the house price boom that had run for six years fizzled out after the Bank’s base rate was pushed up and mortgage rates followed suit.

That crash in house prices in 1989 came as a shock to most of the nation who had seen house prices only going upwards for the previous thirty years. The Nationwide BS House Price Index showed that average house prices in the UK had gone up every year from 1955. But 1989 changed all that and house prices fell by 11% and it was 1998 before house prices reached the same levels as 1989.

The early nineties became the period of negative equity for many people, with many houses worth less than the mortgages owed on them. Unemployment went up and the recession bit. With homeowners finding it difficult to make their mortgage repayments, many fell into arrears and there was a rise in repossessions. Mortgage lenders had a glut of properties under their ownership and off they went at auction at bargain prices. Between 1991 and 1998 over 400,000 homes were repossessed and a million people were left without a home.

A lot of the sequence of events that led up to the 1989 house-price crash are being repeated in the current situation. The parallels are undeniable: house prices are out of reach of first-time buyers; house prices seems to be going upwards for ever; interest rates are on the increase; and mortgage rates are on the rise too. Also, the ratio of house prices to incomes is now at its record level, and customer debt is an ever-growing problem in this country. The noises coming out of the Bank of England suggest strongly that interest rate rises have not finished yet – there’s almost been a promise that there will be another quarter point rise in July. And, most strikingly of all, repossessions have started to rise again.

Property prices on average are still on the up and have been for eleven years, but it sure looks unsustainable. Many experts are still saying that they do not believe there will be a house price crash, but more of a gentle deflation. There is so much talk of the possibility, however, that it’s hard to see people continuing to fork out large sums for houses and the repayments at such high levels, when a downturn may indeed be just around the corner. The tipping point must be in sight. It’s just a question of how steep the drop is going to be on the other side.

Tom Smith
17th July 2007

Tags: boom, equity, england, fall, negative, bust, slow, prices, drop, increase

Brits think of retirement first

The majority of Brits are more concerned about their pension than getting a mortgage.

New research shows that the average person in the UK begins putting money towards their retirement before taking their first step onto the property ladder.

A report released by Axa shows that the average person starts planning their retirement at the age of 28 but does not buy a house until the age of 29.

Britain, in fact, is a world leader when it comes to planning for retirement, beating off competition from the US, Canada and Australia.

Although the British attitude is commendable, some industry experts are warning that too many people (one third) are relying on property to secure a retirement income.

“Homeowners have limited options for generating earnings from the property they live in,” said Steve Folkard from Axa.

“Many people don’t take into account how emotionally attached they can become to a family home.

“By the time they retire, people are often loathed to move away from their friends and family or rob their children of their inheritance by handing over their home to an equity release company. This can scupper plans to take an income from the equity in their home,” he added.

Tags: uk, ladder, equity, folkard, mortgage.New research, CAC 40, Steve Folkard, income