Since Leeds Building Society launched a new remarkable 10-year fixed rate mortgage, it is worth examining the positive and negative aspects of it. Bank of England suggested that UK borrowers should follow the example of borrowers from other countries where they can fix their mortgages for up to 40 years. The Bank’s Financial Policy Committee emphasized on the advantages of fixed mortgages, especially those fixed for longer, for the housing market in the UK because there will be a lower risk associated with it.
However, until now long-term fixed mortgages have not enjoyed a big popularity in the UK, even though there are very common choice in countries such as the US, Denmark and France.
Nowadays, the question of long-term mortgage deals is again on the table. Currently, the longest fixed deals that can be found in the UK are for ten years and there is very few of them. In comparison, there are hundreds of five-year fixes and thousands of two-year fixes that are offered today.
Leeds Building Society is the latest lender to offer a ten-year fixed rate which available on a 65% loan-to-value with a rate of 4.49% and a £199 fee. This new offer combines two other deals, each being decade-long.
Now we will examine a few reasons why a ten-year fix might be a good choice. First of all, you will feel secure in the long-term in way that cannot be provided by a variable rate or shorter fix. Since you will be aware of the amount you have to pay each month and that it will stay stable will help you budget your income and make a better financial plan for your expenses. Furthermore, with a ten-year deal you won’t have to remortgage and waste more money on that. This will save you money from the fees associated with this procedure. Also, you will be able to lock into the record low mortgage rates available now. Since it is likely that base rates might increase in the future, locking in might be a good idea.
However, you should also be aware of some of the disadvantages of long-term fixed mortgages. One is that there are strict early repayment charges and the other is the price at which these deals come. Due to the long-term security that they offer , they are more expensive compared to other mortgages. Thus, before jumping into a fixed mortgage, explore carefully all the details about it.
A significant percentage of affluent borrowers are buying homes which causes a lot of major banks to stay in the jumbo mortgage business. Those high-balance loans are more risky particularly for interest-only jumbos and jumbos with debt-to-income ratios above 43%. Jumbo mortgage loans hold a higher risk for lenders, mainly due to their larger size and not so much because of the quality of the loan itself. This is because if a jumbo mortgage loan defaults, it may be harder to sell a luxury residence quickly for full price. Market has a serious influence on luxury prices in most cases. Therefore, lenders sometimes prefer to have a higher down payment from jumbo loan seekers. It is more difficult to sell jumbo home to the average borrower because prices can be more subjective. Thus, many lenders may require two appraisals on a jumbo mortgage loan.
However, homebuilders are finding plenty of lenders that will serve their customers.
Most of jumbo mortgage are being done by lending through its private wealth management unit and some through its others bank branches.
Jumbo loans have played an important role in the so called US housing bubble. The rising of house prices in the United States have caused a rise in the jumbo loans applications. Jumbo mortgages were not limited only to luxury properties anymore. Rather many average clients who were interested in buying a normal house in big-city areas, were applying for a jumbo loan.
The conditions for such loans were 40 to 50 years amortization or an interest-only option. This meant the loan could be paid over a longer period of time. The other option was that paymnets could be differed of principal for a few years. Even though that, lenders started to refuse giving jumbo mortgages since 2007 when prices fell down. Other lenders who chose to stay in the jumbo loans sector, rose their price rates. This created a vicious cycle where there was a lack of lending and thus, expensive residences couldn’t be bought and in turn, this put a pressure on house prices. Later on, new limits to jumbo mortgages were adopted in order to fit into the new economic environment after the financial crisis in 2008.
Interest only mortgages appear to be a topic which is slowly but surely becoming extinct. There are currently only several lenders on the market which are willing to provide these loans which have strict conditions attached to them. The month of March saw the latest withdrawal from the Yorkshire Building Society which pulled the plug on its interest only mortgages. This was an action taken as a result of the general slump in the market of these types of mortgages. Other big lenders who have taken measures to withdraw the interest only mortgage from the market include RBS, NatWest, the Co-Operative as well as Nationwide.
Other lenders such as HSBC who are continuing to provide the loan on such basis do so to a very small and select number of customers, in the case of HSBC to its Premier banking customer base. Furthermore, Virgin Money has taken a different approach in tightening up its lending standards by announcing that as of 9th December it will only offer the service to wealthy individuals who are earning in excess of £100,000. The bank has further stated that it will not loan to first time buyers and introduced a new minimum loan size of £500,000 which replaces the previous £300,000.
The criteria for the rest of the banking sector is now that most lenders require a deposit of 40% of the value of the property with many reluctant to offer the interest-only mortgage to first time buyers, making it even more costly for them to get on to the property ladder. What this means is that a person looking for an interest only mortgage on a property worth £200,000 will need to deposit £80,000. If by now you think this criteria is hard enough to meet and will only be sufficed by high net worth individuals it doesn’t end there. A person seeking an interest only mortgage will have to provide evidence that they are able to repay the loan with the typical method of doing so being; a lump sum from a personal account, a pension plan or the sale of a property or a second home. The method of proving repayment needs also to have been in place for a minimum of six months.
Interest-only mortgages have been targeted by lenders as something to get rid of and limit to a very small proportion of borrowers. These schemes were initially created so that borrowers pay off the value of the property at the end of the mortgage agreement in full, with the monthly payment only covering the interest rate. They are therefore considerably cheaper than standard mortgages.
The Bank of England has warned that the rapid rise in housing prices could destabilise the Country’s recovery and has therefore taken measure by withdrawing its funding package for mortgage lending. The bank’s Governor, Mark Carney, stated that the Funding for Lending Scheme (FLS) which enables banks and other lenders to borrow money at a cheap rate in return for providing more mortgage loans is set to be scrapped to household related lending as of February 2014.
The action has come amid a fast rise in house prices, the fastest on record until prior the financial collapse, which has now caused many to fear another major housing bubble. The fears have been further fuelled by low interest rate level lending and the Help to Buy scheme launched by the government. Shares in some of the country’s largest house building companies dropped as the markets feared that mortgage lending would be scaled down. The result of this saw a loss of between 2.2% and 6% of the value of the UK’s three biggest housebuilders which totals to a staggering £470m combined loss of value.
The Governor of the Bank of England stated that the Help to Buy scheme was not a factor in the decision to make the policy changes and that the decision had been made by the Bank as well as the Treasury department. The scheme was set up with the aim to encourage and aide new buyers into the property market by helping them obtain mortgages with very little up front deposit. The Chancellor, George Osborne, stated that now the scheme has achieved its objective which was to kick-start the housing market, its focus should now target small-business and aid the recovery of those most in need.
Removing lending from households from the scheme is to date the clearest indication by Mark Carney that the rising house prices risk derailing the entire financial system as it did during the 2008 financial crisis. The Governor in previous statements has said that price rises in housing is mainly happening in the south-east region of the country and that mortgage lending is at an all-time low. However, in his latest statement he shared the Bank’s concern about the rapid evolution which has occurred in the housing market. This concern has come following figures which reveal that mortgage approvals are at a five year high which us a statistic compiled by the Bank itself.
The Bank of England has reported that both the supply and demand for mortgages increased between the months July and September. The Bank of England’s Credit Conditions Survey revealed that banks increased the supply of mortgage lending to households in the third quarter of 2013, but do not expect the rapid growth to continue at the same pace in the coming months.
There was a significant rise in the number of mortgages accessible to borrowers with loan-to-value (LTV) ratios above 75%, despite the fact that lenders’ willingness to lend at LTV ratios above 90% changed little. The expansion in mortgage supply over 75% LTV was attributed to lenders craving to increase their stake in the home-loan market, rather than any increase in an appetite for more hazardous lending. Accordingly, there has been no significant change in the credit scoring criteria, maximum LTV ratios and maximum loan to income ratios for mortgage lending between Q2 and Q3.
The ‘spread’ or ‘margin’ over Bank Base Rate or swap rates which financial institutions associate with mortgages fell overall in Q3 and is expected to fall further in Q4. Demand for mortgages for purchasing homes rose significantly in Q3 and was expected to develop further in Q4, and banks likewise reported a big rise in demand for remortgage deals. Mortgage defaults also fell significantly in Q3 and are expected to fall even further in Q4.
Reporters caught up with Mark Harris, chief executive of mortgage broker SPF Private Clients, who told them:
“Lenders report that demand for mortgages increased significantly in the third quarter, a trend expected to continue for the rest of the year. Cheaper mortgage rates are the main driver of this demand, with Funding for Lending in particular pushing down rates to record lows. For many would-be borrowers, this is finally an opportunity which is just too good to miss.
“Consumer confidence and rising house prices are also playing their part. Borrowers feel more confident about job prospects and the wider economy, while fear getting priced out of the property market further still if they don’t take the plunge now. However, caution should still prevail: mortgages should only be taken on if borrowers can afford them and it’s important to take a longer-term fix if you are at all concerned about interest rate rises in the future.
“There has been a significant increase in availability of loans for those borrowing more than 75% loan-to-value but not much change in the 90%-plus bracket. The reason for this could be that lenders are waiting for the mortgage guarantee element of Help to Buy, which will enable them to lend at higher LTVs. It does underline that there is a real need for 95 per cent mortgages for those who can afford the mortgage payments but only have a modest deposit.”
For those living in London, getting on the housing ladder can be tough. What with rising house prices and living in the UKs most expensive city, it is becoming even more difficult to find a property, whether you are a first time buyer, or looking to relocate. What if there was a tool to make this easier – something that would show exactly which borough will give you more bang for your buck?
Step forward the new London Borough Comparison tool from NatWest [pictured above]. With this nifty tool, not only can you compare property prices across Greater London, but also delve deeper into the essentials that everybody looks for in an area. From latest crime rate figures to the boroughs with the lowest council tax, the high street bank has made all the most important information available in just one click.
The easily embeddable tool is the first interactive image of its type to be produced by NatWest and not only allows you to view specific information on each borough [see below] but also has a built-in TfL map so that one can offset house costs against travel costs.
To try the free tool out for yourself, simply visit this link: http://www.natwest.com/personal/mortgages/area-comparison/london.ashx
Prominent economists have warned us this week that is Britain is flirting once again with a potentially excessive rise in house prices. A Reuters poll put the chances at 50-50 or higher over the next half-decade. Eleven of the 29 economists surveyed during the poll expressed that they thought the possibility of a house price bubble was ‘likely’.
The chief executive of mortgage broker SPF Private Clients, Mark Harris, explains to reporters his concerns about the risks of a bubble: “With returns on cash hopeless, buy-to-let investors returning to the market in droves and the introduction of government schemes to help homebuyers, we have all the makings of a housing bubble so it is important to moderate and not get too carried away.” Mark Carney, the new Bank of England Governor last week signalled that rates may not rise for three years, it’s no wonder more people are thinking about joining the property ladder or taking advantage of the attractive low rates to move home. The Bank of England’s base rate has never been lower than it is now.
On the other hand, competition between mortgage lenders has been getting fiercer, leaving average five-year fixed rates standing at 3.83 per cent, the lowest they’ve been for a long while. In addition, the Royal Institution of Chartered Surveyors published the latest estate agents’ survey this week, showing that home prices grew last month at their fastest rate since the market peak of November 2006. This news has raised fears among potential homeowners that if they don’t take advantage soon, the affordability of their desired home may climb beyond reach.
But potential homebuyers must be wary of rushing to buy a house, as this could prove a foolish and expensive mistake. It’s wise to look for a home that you may be happy with for some years, rather than a property that you hope you may be able to sell at a profit in a year or two. If a bubble does occur and prices deflate, you’re more likely to end up in negative equity and stuck with a property from which you can’t escape. Negative equity occurs when you owe more than you borrowed.
There are other alternative ways for the cash-strapped to buy a home, not least through the Government’s flagship Help to Buy scheme. Parents can also provide a similar facility to their children as some lenders do accept them as guarantors for a mortgage. Furthermore, you can even buy with friends, each friend owning a share of the home.
If you’ve ever experienced taking out a mortgage, loan or credit card, you probably know how hard it can be to keep up with the monthly payments. This is the reason why people decided to invest in PPI or payment protection insurance. If an unforeseeable event happens that renders you incapable of re-paying your loan, the PPI will start paying your monthly amounts for a maximum period of 1 year. Sound good? The banks sold it as such and in theory it actually was not a bad idea. Its just the way the banks systematically mis-sold this insurance product that made it the massive scandal it has become today.
People who would never have been eligible to make a claim on the PPI policy, such as those people who had long-term illnesses, were still sold the policy. This was mis-selling as the bank staff knew the requirements for eligibility. The same happened to pensioners and the self-employed – all were either sold or without knowing opted in to paying for PPI.
The only way people can get back the money they’ve spent on their PPI premiums, which are large amounts especially for PPI on a mortgage, is by filing a PPI claim. PPI claims are stressful to manage, but there are a lot of advantages why you should spend a little extra effort on your PPI claim.
PPI Claim Advantages
There are many benefits that come with claiming the money you’ve voluntarily or involuntarily spent on your PPI. Here are a few examples.
- Get Your Money Back – The most obvious benefit to PPI claims is that you get a portion of the money that you’ve spent on your payment protection insurance. While the reimbursement that you will get for a successful PPI claim is only a percentage of what you paid for your PPI in the first place, it is better than receiving nothing at all for something that you’ve paid a large sum of money for. The average payout for each is £3,000.
- Mis-Sold PPI Victim No More – It is sad to say that many people were sold PPIs without them even knowing it. There are a lot of individuals today who are still currently unaware that they paid their lender an extra £2,000-£4,000 for their unused PPI. If you believe that you are one of the thousands that were victims of PPI mis-selling, you can take back the money that was swindled from you by filing a PPI claim and getting your refund.
The Help to Buy scheme set up by the government has seen a brilliant start according to the housing industry. In the two months since the scheme has been launched 4,000 people have been guaranteed a home according to the Home Builders Federation (HBF). Moreover, according to Halifax house prices are on the rise at the highest level since September 2010. House prices in the three months leading up to May have been 2.6% higher than they were in the identical period of last year. Criticism will however come from those who may argue that the scheme set up by the government is likely to artificially inflate house prices thus making homes for first time buyers even more unaffordable.
The new scheme which initiated in April allows new buyers to make a deposit of only 5% and borrow a loan of up to 20% of the value of the property from the government. It has been said by the HBF that the interest in the scheme has been huge with more than 500 people per week benefiting from this opportunity. The counterpart of the scheme will not start until the upcoming January which will see the government guaranteeing mortgages.
So far the first stage of the scheme has been branded a success and has been backed by the chief of HBF who credits developers and their commitment to the scheme. However, criticism has come from several notable economists for contributing towards the inflation of house prices.
The most notable critique has to-date come from Sir Mervyn King who believes the scheme should not be extended. According to the housing price index compiled by Halifax short term house values have risen moderately. The prices in the three months leading up to May saw a 1.5% rise in comparison to the previous three. The month of April showed a slightly lower 1.3% increase. However, Martin Ellis who is the housing economist at Halifax believes the demand remains subdued. He believes that weak economic growth along with low income growth is the main constraints on housing demand. Rivals Nationwide on the other hand suggest that the annual growth in housing prices is substantially lower.
Halifax has begun to offer first time buyers a helping hand – the payment of their stamp duty costs. Halifax, which is currently an element of the partially taxpayer owned Lloyds Banking Group, has claimed it will pay up to £2,500.00 to cover the cost of the tax on property purchased between the prices of £125,000 and £250,000.
The bank has extended a similar proposal to buyers about a year ago after the Government in essence stopped the “holiday” on stamp duty for the first-time buyers. The duty begins at zero percent for property up to £125,000 and then one per cent is added for property up to £250,000, three per cent for property over £500,000, and four per cent for property up to a £1million. It is five per cent for property over £2million and seven per cent for anything above that.
In 2009, the Labour government suspended stamp duty for those buying a home under £250,000 if they had never previously owned UK property, but this scheme to help first time buyer ran out last spring. Ed Balls, the current Shadow Chancellor has called for the scheme to be re-instated.
Halifax currently offers stamp duty cash-back for first-time buyer on its full mortgage range. Currently it offers a rate of about 3.24% with almost no fee on a two-year fixed rate for those who have a deposit of more than 20 per cent, but for those who can only put 15 per cent, the rate drops to 3.79 per cent. About one per cent of the currently property price will be paid to a solicitor on the completion. The offer is on now.
A mortgage broker from London & Country said: “On the face of it some of the rates may not look as sparkling as the lowest in the market until you take account of the package as a whole.” And went on to explain how removing the £2,500 would be a clear benefit, but first time buyer should also continue to look at the overall package, to ensure it provides “the best overall value.”