Precise Mortgages has received approval from the FSA to provide mortgages to homeowners. They are the latest in a series of mortgage lending companies to emerge since the credit crisis.

The company currently makes loans available to buy to let investors and hopes the first of a new series of contractor mortgage products will be launched next month.

The UK is eager to increase financial services competition in the wake of the credit crisis and new challengers have emerged to compete with leading banks Barclays, HSBC, Lloyds and RBS.

Consumer confidence in the housing market has dropped sharply in recent months according to Zoopla.co.uk’s latest Housing Market Sentiment survey. 63% of homeowners now expect to see housing prices increase in the next six months compared to 78% three months ago.

The property website’s survey also shows that average predicted growth has dropped to 3% from 5.5% and 25% of respondents expect house prices to fall in the next 6 months. Three months ago, only 10% thought prices would decline.

Home owners are however slightly more optimistic about the price of their own home compared to those in their neighbourhood. Whilst 1 in 4 expect sellers in their area will see their house price decline, only 21% believe their home will be affected and homeowners also expect their property will perform 13% better than that of their neighbours.

71% of Scots expect to see house prices rise in their area, 62% of the English think prices will increase whilst amongst the Welsh, that figure drops to 61%.

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The British Bankers’ Association recently confirmed that the number of mortgages granted for house purchases in the UK fell again in September. The level of mortgage lending is now at its lowest for ten years.

In September, gross mortgage lending was £8bn, a 10.8% drop on the same period last year. And three or 4 years ago, an average of 55,000 mortgages were approved each month. Now the figure is just over 31,100.

There were 677 fewer mortgages granted compared to August’s figure of 31,781, although this drop was not quite as bad as analysts had expected. The value of mortgages advanced fell by £0.1bn to £4.6bn, with an average mortgage value of £142,900. Remortgage approvals also declined last month, dropping by 161 to 23,820 whilst equity release and other purpose mortgages dropped by 371.

Demand for new mortgages is still low despite there being more properties for sale and falling prices. Economist Howard Archer from Global Insight said the housing market has very little going for it at the present.

At the end of last week, the Bank of England published its ‘Trends in Lending’ report that warned that house prices are likely to remain unchanged or drop slightly next year as the public sector cuts bite.

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Young people looking to buy their first property are struggling to save enough money to put down as an initial deposit. Although house prices are falling, the typical deposit requirement in August was 21%.

35% of parents of young adults aged between 18 and 24 have either given, or are willing to give, up to £10,000 to help their child get on the property ladder. A further 18% would give up to £15,000, according to research from leading mortgage lending company, the Halifax.

The CML paints a similar picture saying that more than 80% of first-time buyers have had to rely on cash from the Bank of Mum and Dad to help them get the necessary deposit. In 2005, just 38% received help from their parents.

The number of approved first time buyer mortgages dropped by 1,000 to 18,300 in August, well below the 35,000 mortgages that were approved at the start of the credit crisis three years ago.

New research from HSBC shows that almost 33% of adults in the UK have savings of less than £250; way below the recommended minimum of £4,683 (3 months average salary). People in the 25 to 34 age bracket are the least prepared; 41% have savings of less than £250 and 25% have nothing set aside at all.

Head of savings at the bank, Richard Brown, said that these findings are worrying and it is extremely important that people put money aside to deal with emergencies.

His comment makes perfect sense. If you are a homeowner and lose your job, how will you meet your next mortgage repayment? 20% of British homeowners say they won’t be able to! Maybe the younger ones will simply turn to Mum and Dad for help…

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The Co-operative Bank is hoping to lend a helping hand to first time buyers with their new 100% shared ownership mortgage.

The new product allows first time buyers to borrow 75% LTV from the bank and the remaining 25% from a local housing association. The scheme is being run on a regional basis and the contractor mortgages can be obtained from a few strategic partners.

A spokesperson from the Bank said that this reinforces the institution’s commitment to social inclusion, community support and first time buyer assistance.

The Co-op already offers 90% mortgages, a Share to Buy scheme operated through Britannia quite a few shared ownership products. First time buyers can avail of the new scheme on any Co-operative Bank mortgage.

Last month, the Co-operative Bank and Britannia launched a 90% LTV two year fixed rate mortgage, with the interest rate set at 5.09% and an application fee of £999.

At that time, James Hillon, from Co-operative Financial Services, said the new product would provide a welcome boost for both first time buyers and people moving home.

Co-operative Financial Services and the Britannia Building Society merged in August last year and since then have seen profits rise substantially. Profits rose from £81.4m in the first half of 2009 to £109.3m, in the first half of this year. The Co-op also saw a 31% increase in mortgage applications in the first half of this year.

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In the 10 years before the credit crisis, homeowners regularly used equity release as a cheap source of finance. In the last quarter of 2003, equity withdrawal reached a peak of £17.1bn. By 2006, the annual figure had dropped back to £50bn.

However, using equity release as a way of boosting spending power came to an abrupt end once the recession kicked in. In fact, homeowners became much more interested in reducing their debts and since March 2008, £44.2bn has been paid in additional mortgage repayments.

In Q2 this year, homeowners reduced their mortgages by £6.2bn, the largest cash injection since the first quarter of 2009.

Mortgage lending companies are making it increasingly difficult for borrowers to avail of equity release due to tougher lending criteria and with home owners concerned about job stability, the priority is now debt reduction.

David Smith, a senior partner at Carter Jonas, said that homeowners are doing exactly the opposite of what the deputy governor of the Bank of England wants them to do, which is spend. But he pointed out that in the long run, reducing outstanding mortgage debt will benefit the housing market and the economy.

The Bank of England is expecting lenders to tighten further their credit scoring criteria over the next three months which will make it even harder for first time buyers to get a mortgage. There are also concerns that people looking to remortgage will face higher rates than they do at present.

Lenders are worried that the government’s austerity measures will lead to higher unemployment with the knock on affect that more people will default on contractor mortgage repayments. But if lending criteria tighten further and people cannot get an attractive rate when they remortgage, the problem will get worse.
The UK’s current outstanding mortgage debt stands at £1.24 trillion.

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Chaos could be looming for customers of 311 RBS branches in England and Wales and 7 branches of NatWest in Scotland. State-backed RBS has sold the branches to Spanish owned Santander, a bank with a notoriously poor customer service record.

Anybody who has taken out a contractor mortgage with an RBS branch that has been sold will have their account transferred automatically to Santander in the next year to 18 months and these customers are already raising concerns over interest rates.

For example, the standard variable rate on a RBS/Nat West mortgage is currently 4%, whilst Santander’s rate stands at 4.24%. On a £150,000 mortgage, this would mean the transferring RBS customers would need to pay an extra £20 a month.

A Santander spokesperson said it was too early to talk about mortgage rates but customers will be kept fully informed throughout the transition process.

Elsewhere on the mortgage front, borrowers are being advised to weigh up the difference in arrangement fees when looking for best buy mortgage deals.

New research from moneysupermarket.com suggests borrowers could lose out on more than £3,000 on a two year £150,000 mortgage deal. For example, with a rate of 2.24% and a 3% arrangement fee, the repayments would total £20,300 over the 2 year period whereas a rate of 2.89% and a £99 arrangement fee would lead to a repayment of just £17,200.

Clare Francis, the website editor, said it was important not to get blinded by the attractive headline rates. Once the arrangement fees are factored in, these mortgages suddenly aren’t as wonderful as they first appeared to be.

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The mark up charged by mortgage lending companies in the UK is the highest in the western world, according to new research.

Add to this the fact the UK also has some of the highest house prices in the world and it’s not difficult to understand why first time buyers are becoming increasingly disillusioned with the housing market.

Banks in the UK add an extra 2.5% on top of the wholesale interest rate, whereas in the U.S. the mark-up is only 0.85%. The resulting difference means that home owners buying an average priced property in the UK pay at least £120 per month more than those on the other side of the Atlantic.

It has become increasingly obvious that the banks are using this mortgage mark-up to repair their balance sheets after the economic crisis. In 2004, the average mark-up was a mere 0.19%!

Lloyds Bank for example has quickly reversed its fortunes. Last year the group posted a loss of £6.3 billion. The results after the first six months of this year painted a very different picture as the bank made £1.6 billion profit despite reducing contractor mortgage lending by a massive 55%!

The housing market has slowed down dramatically in recent months as a direct result of the lack of first time buyers. This slow down has created increasing fears that the bottom is going to fall out of the market and some experts are predicting that house prices could drop by as much as 25%.

Figures from the CML revealed that there was a drop of 15% in the amount of new mortgages made available between July and August.

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Home owners received two warnings last week about the precarious state of the UK’s housing market.

The head of the British Bankers’ Association expressed concerns that new banking rules might cause a second credit crunch, with the result that contractor mortgages would be harder to come by, and a leading economist warned that house prices could drop by as much as 10% within the next 12 months.

House prices did fall by 0.9% last month according to the Nationwide House Price Index, but Howard Archer from IHS Global Insight believes that is just the tip of the iceberg. He expects to see prices fall another 3% before the end of this year, followed by a drop of up to 5% next year.

As well as being bad news for sellers, people considering a remortgage could have problems getting a decent rate if prices drop. Equity of 25% today could easily become just 17% if prices drop by as much as 10%.

Angela Knight, the head of the BBA, expects to see the cost of borrowing rise because of the Basel III agreement requiring the banks to hold more reserve capital. She pointed out that although the change would provide a more stable banking environment, it would add billions to the banks’ operating costs, which in turn would lead to the banks charging their customers more for mortgages.

The CML, on the other hand, thinks that most of the banks already have more than the requisite capital holdings and therefore Basel III will not have a negative impact on the mortgage business.

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The latest buy to let survey from the CML shows that the sector is showing signs of recovery.

24,900 buy to let mortgages were approved in the second quarter of this year compared to 22,000 in Q1 and 21,600 in the comparable period last year.

At the end of June, there were 1.26 million buy to let mortgages outstanding with a total value of £149bn and they accounted for 12% of all mortgages. This is the highest level we’ve seen since the end of 2008.

Michael Coogan, the director general of the CML, predicted that demand for private rented property will remain high as fewer first-time buyers can afford to purchase a property.

He says that UK financial institutions must ensure that finance is available for private landlords in order to meet the population’s housing demand.

The CML’s report also showed that 18,500 people had arrears of at least 1.5% on their outstanding mortgage. This is a slight improvement on the end of 2009 when the figure stood at 19,300. There was however a slight rise in the number of repossessions; up to 1,600 from 1,400 in 2009.

Whilst high deposits have meant that many people are unable to get their first foot on the housing ladder, a recent survey by Zoopla suggests that it works out cheaper to take out an interest only contractor mortgage on a property rather than renting in almost 75% of locations in the UK.

In fact data from Moneyfacts.co.uk suggests that first time buyers are becoming more active as mortgage rates decrease. The average fixed rate for first time buyers with a 10% deposit has dropped by 0.33% in the last six months.

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Although there are now 66% more mortgages available than there were in January, a lot of people are still struggling to obtain sufficient finance to buy properties.

Only one in twelve of the contractor mortgage deals currently on offer allow a minimum deposit of 10%, whilst over half require a down payment of at least 25%. According to the CML, this means first-time buyers need to find an average of £35,000 as a deposit.

First-time buyers especially are still finding significant obstacles even though the UK mortgage market is supposed to be over the worst. If the trend for a 25% deposit continues, first-time buyers will be priced out of the housing market and this will lead to problems in the future.

Mortgage lending may well continue to be rationed because next year lenders are going to need to start repaying the government for the loans they received via the emergency support schemes.

The government is trying to kick start the mortgage market by abolishing stamp duty for two years for anyone buying a first home up to the value of a quarter of a million pounds.

The CML is also concerned that the Mortgage Market Review proposals pose a significant threat to the mortgage industry, a move which is in direct conflict with the government’s promise to extend homeownership.

The FSA has already said that the MMR will lead to a regime of heavier regulation, less choice and less competition. Mortgage lending is now predicted to fall short of the previously forecasted £150bn this year and further regulation will only cause the market to shrink further.

The trade body admits that whilst there is a definite case for regulatory reform, there needs to be extensive consultations on the future shape of the housing market before any new measures are implemented.

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The FSA yesterday proposed some new measures that they hope will reduce excessive mortgage lending. The Authority wants to make mortgage lenders responsible for assessing whether a consumer is able to repay their contractor mortgage.

In order to achieve this, lenders will be required to verify a mortgage applicant’s income. By imposing this condition the FSA hopes to reduce excessive mortgage lending and prevent fraud.
Between 2007 and Q1 of 2010, nearly 50% of new mortgages were granted without the lender verifying the borrower’s income.

The FSA said in a statement that it hoped the changes would help lenders become more responsible and that problems are prevented before they have the chance to develop.

According to a review of the UK mortgage market by the financial watchdog, 46% of UK households currently have no money left, or suffer a shortfall, after their mortgage repayments and living costs have been deducted from their income.

Mortgage market director Lesley Titcomb from the FSA pointed out that there was a clear link between overstretched finances and mortgage arrears and house repossessions. She said that the Authority is particularly keen to protect consumers who are vulnerable by ensuring that everybody who takes out a home loan has the means to repay it.

Michael Coogan, the director general of the CML, believes that these regulatory requirements are not necessary and that the only affect will be to impose further costs on housing market lenders and these costs will be passed on to consumers.

He said the CML looks forward to working with the FSA to make sure there are no negative side-effects from these regulations.

Meanwhile, research from the BBA shows that the majority of mortgages are granted by the high street banks. Around 35,000 mortgages are approved each month and in May the banks were responsible for 75% of all the new housing loans.

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The Bank of England had some bad news at the end of last week for freelancers hoping to secure an IT Contractor Mortgage.

The Bank expects the supply of mortgages to shrink over the next three months. It also notes that demand has declined during the 2nd quarter of the year.

Prior to the economic downturn, more than £8bn per month in net funds was being advanced to house buyers. That figure dropped down to £1.2bn in May. This slowdown was confirmed by the Nationwide house price index which rose by a minimal 0.1% in June.

Mortgage lending companies had hoped to see an increased demand once winter and the effect of the end of the stamp duty holiday waned. For many, this has not happened. Uncertainty about interest rates, job security and the economy as a whole are amongst the factors blamed for this lack of demand.

For the first time since the end of 2008, demand for secured remortgaging increased during the 2nd quarter. But lenders do not anticipate any further increases as a lot of existing customers are borrowing at standard variable rates that are currently low.

The chief economist from the RICS, Simon Rubinsohn, said that there will be a shortage of finance for the housing market for some time to come and the construction industry is likely to be badly affected.

Whilst the supply of mortgages is expected to shrink, the amount of credit available for businesses is expected to slowly improve over the next quarter.

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