Mortgages - 10 reasons not be cheerful
30 April 2008
In the current climate the prospect of trying to arrange a new mortgage is becoming tough, with many thousands of households due to come off their current fixed rate deals.
Things are equally difficult for first-time buyers. Originally, many predicted that falling house prices might at least benefit those trying to get a foot on the property ladder. It hasn’t worked out that way - with mortgage deals disappearing daily and lenders tightening their criteria, anyone looking for a mortgage faces unattractive and expensive options.
We hate to be bearers of bad news, but SaveBorrowSpend has to bring you 10 reasons not to be cheerful.
1. Farewell to 125%, 100% and 95% deals
Over-borrowing is dead. Two of the biggest lenders, Nationwide and Abbey announced this week the virtual scrapping of all deals on their books for people wanting to borrow more than 90%. Other lenders have already in recent months scrapped the 100% plus deals. It could be argued if they hadn’t offered these deals in the first place then we wouldn’t be facing as bad a problem today.
2. Limited Equity, Limited Choice
If you don’t have substantial equity in your house, MoneyExpert.com is warning that your choices when it comes to re-mortgaging are ‘severely limited’. The financial services provider has calculated that if you are looking to re-mortgaging you now need a deposit of at least 15.5% to take out a fixed or variable mortgage! It also says the worst affected will be people who are looking to renegotiate their mortgage for the first-time. This will impact badly on those who bought near the top of the market, in the past couple of years, with a big mortgage.
3. Disappearing Mortgage Deals
There are currently just over 3,900 mortgage products on the market, a fall from more than 7,900 at the beginning of the year. The figures are even more dramatic when you realise there were more than 13,400 in April 2007.
4. Arrangement Fees Soaring
The typical mortgage set-up fee now stands at £987 according to uSwitch.com. The price comparison website is warning people that if they don’t pay this cost upfront and spread it across the term of their mortgage the cost will rise to more than £2,000.
Furthermore, a report by the mortgage advice firm Mform reveals that on average, back in the good ol’ days of March 2007, you would have paid a fee of £578 for the most competitive three year fixed-rate deal. It now says it will cost you £1,132. Yet again, the customer pays for the mistakes of the big financial institutions.
5. Mortgage Approvals Fall
This week the Bank of England reported mortgage approvals had fallen in March to 64,000. This is down from 72,000 in February and represents the lowest figures since records began in 1999 and a 44% drop year on year.
6. £200 extra on mortgage repayments
The Financial Service Authority estimates 1.4 million fixed-rate deals will come to an end in the next 12 months. If these people simply revert to their lender’s standard variable rate the FSA says they will need to find an average of £210 more a month to meet their repayments. When you add this to the soaring cost-of-living, it’s no wonder that the politicians are nervously eyeing the opinion polls…
7. House Prices Falling
The Nationwide has just reported the first annual fall in house prices for 12 years. The building society says prices fell by 1.1% in April and were down 1% year on year. The average cost of a home is now £1,759 less that it was a year ago. Negative equity looms for people who’ve bought properties at the peak of the market with larger mortgages.
8. Interest Rate Cuts
The Bank of England has been cutting interest rates in recent months, most recently to 5.0%. However in the majority of cases borrowers are not reaping the benefits. The key to this is the Libor rate (London inter bank offer rate) at which banks charge to lend to each other, and the relationship between this rate and the base rate which has become increasingly estranged.
9. £50 billion bank bail-out
The Bank of England recently announced a £50 billion injection into the banking system. The so-called “Bonds for Mortgage” scheme allows banks to swap potentially risky mortgage debts for secure Government bonds. The hope was that this would boost much needed lending between banks, enabling them to pass on better deals to borrowers. However, so far, this benefit for customers has failed to materialise. In fact it has led to the Governor of the Bank of England, Mervyn King, to stress that this bail-out should not be seen as an opportunity to continue paying out multi-million pound bonuses. Some City types have even been told to limit their lunch bills to £52.00 a head. Diddums!
Free remortgage quote
10. Bleak Future?
Surely there’s an end in sight to the current gloom? Er, no, not in the immediate future anyway. Investment Bank Morgan Stanley predicts house prices will fall by at least 10% this year and 1.2 million households could soon discover their loans are far higher than the value of their home. The Royal Institute of Chartered Surveyors warning is that every day this year 123 houses will be repossessed.
I’m trying to enjoy the “Economic Blitz Spirit” so I’m off to Aldi now and its beans on toast for tea! At least the weathers nice at the moment (not).
SaveBorrowSpend Philippa Adam
