In truth, it is the cajas that have the biggest problem due to their over exposure to both developers and consumers and last month the government had to rescue Caja Castilla La Mancha. It is not expected to be the last and similar rescues are expected in the coming months. At the same time, in May Moody’s, a leading credit rating agency, announced that it is studying the potential downgrade of 32 Spanish banks and cajas due to their deteriorating balance sheets and high levels of bad debt.
With all the international focus on the mismanagement of banks it is interesting to consider why Spain’s caja’s, who have traditionally been the mainstays of their local communities, find themselves in such a position.
The first is the de-regulation several years ago which allowed them to expand into other regions – previously they could only operate in their home “region”. This has led to a massive geographic expansion by many cajas and vastly increased competition between themselves and the banks for customers.
The second is their ownership/management structure. The caja’s are mutual, non profit organisations whose primary role was to support the local community. As such, under their statutes their governing bodies are predominantly made up of local politicians who are not known for their banking or management skills!
Thirdly, rapid expansion, and an increase in competitiveness, along with the range and complexity of products, has stretched management capabilities and exposed poor risk management policies, systems and processes.
In summary, Spain’s banking system is not as safe as houses - as the sea withdraws the rocks are being exposed. Having said that, it most economic and political commentators agree that it is inconceivable that the government will allow any leading bank or caja to fail - not just because of the domestic consequences but also because their much lauded regulatory system will be seen to have failed.
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Monday, June 22, 2009
Friday, June 19, 2009
Whats wrong with Spanish Banks (part 2)
Initially, the lending to Spanish developers was based on using the land and the properties themselves as security. But, as the boom continued, the lending became increasingly speculative with Spanish banks lending money to companies or businessmen to buy shares in other Spanish property companies and, in return, using shares in these companies as security. At the same time, consumer lending, both Spanish mortgages and personal loans, continued to boom.
Unfortunately, as the credit crisis took hold, the house of cards collapsed. In the last twelve months virtually every major Spanish property company, quoted or private, along with a myriad of smaller developers, have either had to: enter into creditor protection schemes, e.g. Fadesa Martinesa, Habitat; negotiate debt for equity swaps, e.g. Metrovacesa, Colonial; or attempt to re-negotiate their debt. Assets sales and restructurings are rife and the banks and cajas are now the biggest owners of property in Spain. Combine this with falling property values (and sales), unemployment scheduled to reach 4 million this year and many customers who cannot afford to pay their mortgages, and the problem is evident.
For example, in February of this year, bad debts accounted for over 4.13% of loans and this is expected to rise to over 6.0% by the year end. As the economic environment deteriorates further, lenders are re-negotiating mortgage terms with borrowers to avoid having to make further provisions.
In truth, it is the cajas that have the biggest problem due to their over exposure to both developers and consumers and last month the government had to rescue Caja Castilla La Mancha. It is not expected to be the last and similar rescues are expected in the coming months. At the same time, in May Moody’s, a leading credit rating agency, announced that it is studying the potential downgrade of 32 Spanish banks and cajas due to their deteriorating balance sheets and high levels of bad debt.
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Unfortunately, as the credit crisis took hold, the house of cards collapsed. In the last twelve months virtually every major Spanish property company, quoted or private, along with a myriad of smaller developers, have either had to: enter into creditor protection schemes, e.g. Fadesa Martinesa, Habitat; negotiate debt for equity swaps, e.g. Metrovacesa, Colonial; or attempt to re-negotiate their debt. Assets sales and restructurings are rife and the banks and cajas are now the biggest owners of property in Spain. Combine this with falling property values (and sales), unemployment scheduled to reach 4 million this year and many customers who cannot afford to pay their mortgages, and the problem is evident.
For example, in February of this year, bad debts accounted for over 4.13% of loans and this is expected to rise to over 6.0% by the year end. As the economic environment deteriorates further, lenders are re-negotiating mortgage terms with borrowers to avoid having to make further provisions.
In truth, it is the cajas that have the biggest problem due to their over exposure to both developers and consumers and last month the government had to rescue Caja Castilla La Mancha. It is not expected to be the last and similar rescues are expected in the coming months. At the same time, in May Moody’s, a leading credit rating agency, announced that it is studying the potential downgrade of 32 Spanish banks and cajas due to their deteriorating balance sheets and high levels of bad debt.
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Wednesday, June 17, 2009
What's wrong with Spanish Banks? (part 1)
Spain’s world class and much lauded banking system begins to crack. Why?
After 18 months of insisting that Spain’s banking system is one of the best in the world, superbly regulated, well provisioned and with no exposure to toxic debt, the truth is out – they need help!
So what has happened? Well, while the regulators did indeed successfully manage to limit Spanish banks’ exposure to the US sub-prime market, and other forms of international “toxic” debt, they failed to adequately regulate their banks’ domestic lending, thus creating their very own sub-prime crisis.
Spain, like the UK 15-20 years ago, has a two tier retail banking system: traditional banks and regionally based mutual savings banks (“cajas”), i.e. building societies. It is with the latter where the biggest problems now arise.
The problems are twofold – liquidity and credit risk. On the first point, Spanish banks and cajas have traditionally issued long term mortgage backed securities “titulaciones” to finance their mortgage lending. However, as the domestic property and credit boom gathered pace they also relied increasingly on the short term wholesale money markets to finance their long term loan and mortgage portfolios – shades of Northern Rock!
The advent of the euro made access to these markets easier while cheap money fuelled a consumer led boom. The credit crisis effectively closed both sources of funding and it is a fact that over the last eighteen months Spanish financial institutions have been the biggest users of the European Central Bank liquidity window, regularly borrowing more than €40bn. The Spanish government has also been guaranteeing the bond issues of a number of banks and cajas – an action that seems to contradict re-assurances that the Spanish banking system is in rude health.
However, while the liquidity crisis may finally be easing, the emphasis has now shifted to the asset side of the balance sheet. The Spanish banks and cajas fuelled the country’s property boom by lending vast sums of money to property developers – recent estimates put the sum at €318bn, and then to consumers to buy their finished products.
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After 18 months of insisting that Spain’s banking system is one of the best in the world, superbly regulated, well provisioned and with no exposure to toxic debt, the truth is out – they need help!
So what has happened? Well, while the regulators did indeed successfully manage to limit Spanish banks’ exposure to the US sub-prime market, and other forms of international “toxic” debt, they failed to adequately regulate their banks’ domestic lending, thus creating their very own sub-prime crisis.
Spain, like the UK 15-20 years ago, has a two tier retail banking system: traditional banks and regionally based mutual savings banks (“cajas”), i.e. building societies. It is with the latter where the biggest problems now arise.
The problems are twofold – liquidity and credit risk. On the first point, Spanish banks and cajas have traditionally issued long term mortgage backed securities “titulaciones” to finance their mortgage lending. However, as the domestic property and credit boom gathered pace they also relied increasingly on the short term wholesale money markets to finance their long term loan and mortgage portfolios – shades of Northern Rock!
The advent of the euro made access to these markets easier while cheap money fuelled a consumer led boom. The credit crisis effectively closed both sources of funding and it is a fact that over the last eighteen months Spanish financial institutions have been the biggest users of the European Central Bank liquidity window, regularly borrowing more than €40bn. The Spanish government has also been guaranteeing the bond issues of a number of banks and cajas – an action that seems to contradict re-assurances that the Spanish banking system is in rude health.
However, while the liquidity crisis may finally be easing, the emphasis has now shifted to the asset side of the balance sheet. The Spanish banks and cajas fuelled the country’s property boom by lending vast sums of money to property developers – recent estimates put the sum at €318bn, and then to consumers to buy their finished products.
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Tuesday, May 19, 2009
US demand up
WASHINGTON, May 4 (Reuters) - Demand for prime mortgages rose in the first quarter for the first time since early 2007, even as banks tightened standards for home loans, the Federal Reserve said in a survey of loan officers released on Monday.
About 35 percent of U.S. banks saw stronger demand for top quality home loans in the quarter, a "substantial" change from the 10 percent that reported weaker demand in the January survey, the Fed said in its April Senior Loan Officers Survey on bank lending practices.
Only two banks said they were making subprime loans -- loans to borrowers with blemished credit that played a major part in the credit crisis that has caused the worst financial meltdown since the Great Depression.
In a sign some of the strains from the worst financial crisis since the Great Depression may be fading, U.S. banks eased standards for business lending. Terms had tightened on loans to large and middle-market firms in each of the eight previous quarters and to small firms for 10 straight quarters.
The Fed said banks eased standards for consumer loans other than credit cards as well.
While the proportion of banks reporting such tightening is large, the April survey marked the first time since January 2008 that the share fell below 50 percent, the Fed said.
The share of respondents who had tightened standards for home equity lines of credit was down, and demand for home equity lines of credit was lower, the Fed said.
Domestic banks left their standards for credit card loans unchanged, the Fed said.
Demand for other types of loans fell in the quarter.
Banks said credit quality is likely to deteriorate for the rest of the year if consensus forecasts for the economy prove on target.
Banks providing trade credit said they had tightened standards over the previous six months.
Banks that tightened standards or terms for international trade finance cited the uncertain economic outlook in the United States and abroad, higher country risk, and worsening industry-specific problems as reasons.
The Fed polled 53 domestic banks and 23 branches of foreign parents for the survey. (Reporting by Mark Felsenthal, Editing by Chizu Nomiyama)
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About 35 percent of U.S. banks saw stronger demand for top quality home loans in the quarter, a "substantial" change from the 10 percent that reported weaker demand in the January survey, the Fed said in its April Senior Loan Officers Survey on bank lending practices.
Only two banks said they were making subprime loans -- loans to borrowers with blemished credit that played a major part in the credit crisis that has caused the worst financial meltdown since the Great Depression.
In a sign some of the strains from the worst financial crisis since the Great Depression may be fading, U.S. banks eased standards for business lending. Terms had tightened on loans to large and middle-market firms in each of the eight previous quarters and to small firms for 10 straight quarters.
The Fed said banks eased standards for consumer loans other than credit cards as well.
While the proportion of banks reporting such tightening is large, the April survey marked the first time since January 2008 that the share fell below 50 percent, the Fed said.
The share of respondents who had tightened standards for home equity lines of credit was down, and demand for home equity lines of credit was lower, the Fed said.
Domestic banks left their standards for credit card loans unchanged, the Fed said.
Demand for other types of loans fell in the quarter.
Banks said credit quality is likely to deteriorate for the rest of the year if consensus forecasts for the economy prove on target.
Banks providing trade credit said they had tightened standards over the previous six months.
Banks that tightened standards or terms for international trade finance cited the uncertain economic outlook in the United States and abroad, higher country risk, and worsening industry-specific problems as reasons.
The Fed polled 53 domestic banks and 23 branches of foreign parents for the survey. (Reporting by Mark Felsenthal, Editing by Chizu Nomiyama)
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Spanish slowdown eases
MADRID, May 12 (Reuters) - Spanish house sales fell at the slowest pace in 11 months during March, the National Statistics Institute reported on Tuesday, marking the latest data to suggest Spain's severe recession may be easing.
Home sales fell 24.3 percent to 34,895 in March in what was the 13th straight month of decline, but well below rates of 37.5 percent in February and 38.6 percent in January, INE reported.
The March result was the slowest rate of decline since April 2008 and followed Bank of Spain data showing banks lent 7 billion euros in March for mortgages, the most since July 2008.
Economists expected the sales trend to continue as real estate firms and banks repossess homes due to soaring debt defaults and put them on the market at ever lower prices.
"It's not that things are improving, there's just less deterioration," said economist Carlos Maravall at the AFI consultancy. "We've had a very sharp fall in terms of house sale numbers and what remains to be seen is a price fall."
March housing results were flattered by the statistical impact of a sharp, 39 percent fall in March 2008 sales and the fact Easter fell in March last year.
But they mirrored data showing a slowdown in the rate of decline in April service and manufacturing sector activity, as measured by the Markit Economics Purchasing Managers' Index.
Spain's Socialist government last week said it saw green shoots of economic recovery after Spanish consumer confidence hit a year high in April as new jobless claims rose at their slowest pace in nine months.
The International Monetary Fund expects Spanish house prices to fall 30 percent from peak to trough and estimates Spain is around half way through that process. (Reporting by Andrew Hay; Editing by Chris Pizzey)
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Home sales fell 24.3 percent to 34,895 in March in what was the 13th straight month of decline, but well below rates of 37.5 percent in February and 38.6 percent in January, INE reported.
The March result was the slowest rate of decline since April 2008 and followed Bank of Spain data showing banks lent 7 billion euros in March for mortgages, the most since July 2008.
Economists expected the sales trend to continue as real estate firms and banks repossess homes due to soaring debt defaults and put them on the market at ever lower prices.
"It's not that things are improving, there's just less deterioration," said economist Carlos Maravall at the AFI consultancy. "We've had a very sharp fall in terms of house sale numbers and what remains to be seen is a price fall."
March housing results were flattered by the statistical impact of a sharp, 39 percent fall in March 2008 sales and the fact Easter fell in March last year.
But they mirrored data showing a slowdown in the rate of decline in April service and manufacturing sector activity, as measured by the Markit Economics Purchasing Managers' Index.
Spain's Socialist government last week said it saw green shoots of economic recovery after Spanish consumer confidence hit a year high in April as new jobless claims rose at their slowest pace in nine months.
The International Monetary Fund expects Spanish house prices to fall 30 percent from peak to trough and estimates Spain is around half way through that process. (Reporting by Andrew Hay; Editing by Chris Pizzey)
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Wednesday, April 15, 2009
Green Shoots?
Telegraph - Economists hail first green shoots in housing market
The first "green shoots" of recovery in the housing market have been hailed by economists after figures showed an increase in the number of mortgages being taken out and property sales increased for the first time since 2007.
It comes as the number of new homebuyer enquiries rose for five consecutive months, with evidence showing that this is beginning to feed through to sales, according to the Royal Institution of Chartered Surveyors.
It said the number of new buyer enquiries increased at the fastest pace since September 2003 while the number of properties actually being sold by estate agents increased for the first time since November 2007.
Howard Archer, economist at Global Insight, said: "There are increasing signs that the housing market activity may have passed its worst point."
Ian Perry, RICS spokesperson, said: "The market is still in a fragile state but with demand continuing to pick up, there may be more signs of stabilisation in the coming months."
At the same time, the number of mortgages approved for those buying a new home also rose in February, according to the Council of Mortgage Lenders.
Numbers rose from 23,400 loans in January to 24,300 loans in February, a 4 per cent increase.
The number of loans approved to first-time buyers also increased by 7 per cent to 9,400 in February.
Michael Coogan, director general at the CML, said: "There are some positive signs for later in the year."
However, the lack of affordable mortgages remains "a barrier" to most first-time buyers who typically had to find a deposit of 25 per cent, a record amount, the CML explained.
But there was positive news for those looking to buy their first home as falling house prices meant first-time buyers borrowed less. The average first-time buyer loan was £95,000 in February, down from £97,000 in January and £114,000 in February last year.
The CML also highlighted a shift away from tracker mortgages towards fixed rate deals as borrowers looked to lock into historically low interest rates of just 0.5 per cent.
House prices fell last month by 2.3 per cent, wiping out the 2 per cent rise in January, bringing the average cost of a home to £160,327, according to Halifax.
RICS said the number of properties being sold by estate agents rose from 9.6 properties during the three months to February to 9.7 properties during the three months to March.
David Hawke, a RICS member based in Nottinghamshire, said: "There are some signs of "green shoots" but mortgage money is still tight."
And Benson Beard, a RICS member based in London, said: "The last month has definitely seen an increased in buyer numbers and agreed sales.
"We can all look forward to a tough year but one that in hindsight may yet signal the bottom of the market."
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The first "green shoots" of recovery in the housing market have been hailed by economists after figures showed an increase in the number of mortgages being taken out and property sales increased for the first time since 2007.
It comes as the number of new homebuyer enquiries rose for five consecutive months, with evidence showing that this is beginning to feed through to sales, according to the Royal Institution of Chartered Surveyors.
It said the number of new buyer enquiries increased at the fastest pace since September 2003 while the number of properties actually being sold by estate agents increased for the first time since November 2007.
Howard Archer, economist at Global Insight, said: "There are increasing signs that the housing market activity may have passed its worst point."
Ian Perry, RICS spokesperson, said: "The market is still in a fragile state but with demand continuing to pick up, there may be more signs of stabilisation in the coming months."
At the same time, the number of mortgages approved for those buying a new home also rose in February, according to the Council of Mortgage Lenders.
Numbers rose from 23,400 loans in January to 24,300 loans in February, a 4 per cent increase.
The number of loans approved to first-time buyers also increased by 7 per cent to 9,400 in February.
Michael Coogan, director general at the CML, said: "There are some positive signs for later in the year."
However, the lack of affordable mortgages remains "a barrier" to most first-time buyers who typically had to find a deposit of 25 per cent, a record amount, the CML explained.
But there was positive news for those looking to buy their first home as falling house prices meant first-time buyers borrowed less. The average first-time buyer loan was £95,000 in February, down from £97,000 in January and £114,000 in February last year.
The CML also highlighted a shift away from tracker mortgages towards fixed rate deals as borrowers looked to lock into historically low interest rates of just 0.5 per cent.
House prices fell last month by 2.3 per cent, wiping out the 2 per cent rise in January, bringing the average cost of a home to £160,327, according to Halifax.
RICS said the number of properties being sold by estate agents rose from 9.6 properties during the three months to February to 9.7 properties during the three months to March.
David Hawke, a RICS member based in Nottinghamshire, said: "There are some signs of "green shoots" but mortgage money is still tight."
And Benson Beard, a RICS member based in London, said: "The last month has definitely seen an increased in buyer numbers and agreed sales.
"We can all look forward to a tough year but one that in hindsight may yet signal the bottom of the market."
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Are banks profiteering?
Telegraph - The difference between the Bank of England's benchmark interest rate and the average rate on a tracker mortgage has risen from 1.18 per cent at the beginning of April last year to 3.20 per cent today, according to personal finance website Moneyfacts.co.uk
The Bank of England has aggressively cut its Bank rate from 5 per cent in October to a historic low of just 0.5 per cent in an attempt to revive the economy.
While existing borrowers with a tracker mortgage will be enjoying the drop in rates, new borrowers are being badly hit. HSBC has announced it is launching a tracker loan charging 4.09 per cent above the Bank rate.
The margins on the average two-year fixed rate deal has risen from 1.19 per cent above the two-year swap rate - which is the rate that lenders use to price their fixed rate mortgages – at the beginning of April last year to 2.41 per cent above the rate today, Moneyfacts said.
Despite two-year swap rates dropping by 3.03 per cent since the beginning of last October, the average two year fixed rate mortgage has been reduced by just 1.64 per cent over the same period, it said.
It comes after billions of pounds of financial support from the Government has been given to the banks during the credit crisis.
Andrew Montlake, of mortgage brokers Coreco, said: "Banks are taking the opportunity to widen their margins to claw back of the profits that they've lost during the credit crisis. Every time they launch a new range of deals, the margins seem to be even bigger, specifically on tracker rate deals."
The average rate charged on a two-year fixed rate deal is currently 4.64 per cent, compared with 3.70 per cent for the average two-year tracker, according to the research.
Michelle Slade, analyst at Moneyfacts.co.uk, said: "Since base rate started falling in October 2008, mortgage lenders have continued to increase their margins.
"While existing tracker customers have benefited, anyone looking for a new tracker deal has seen the margin over base continue to increase. The vast majority of providers have passed much bigger cuts to their savings rates, when compared to their standard variable rate as once again they increase their margins."
An HSBC spokesperson said: "HSBC's tracker mortgages are regularly the lowest in the market. Mortgage interest rates reflect the risk of lending in the market, in the current environment it is not surprising that they are higher than previous years."
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The Bank of England has aggressively cut its Bank rate from 5 per cent in October to a historic low of just 0.5 per cent in an attempt to revive the economy.
While existing borrowers with a tracker mortgage will be enjoying the drop in rates, new borrowers are being badly hit. HSBC has announced it is launching a tracker loan charging 4.09 per cent above the Bank rate.
The margins on the average two-year fixed rate deal has risen from 1.19 per cent above the two-year swap rate - which is the rate that lenders use to price their fixed rate mortgages – at the beginning of April last year to 2.41 per cent above the rate today, Moneyfacts said.
Despite two-year swap rates dropping by 3.03 per cent since the beginning of last October, the average two year fixed rate mortgage has been reduced by just 1.64 per cent over the same period, it said.
It comes after billions of pounds of financial support from the Government has been given to the banks during the credit crisis.
Andrew Montlake, of mortgage brokers Coreco, said: "Banks are taking the opportunity to widen their margins to claw back of the profits that they've lost during the credit crisis. Every time they launch a new range of deals, the margins seem to be even bigger, specifically on tracker rate deals."
The average rate charged on a two-year fixed rate deal is currently 4.64 per cent, compared with 3.70 per cent for the average two-year tracker, according to the research.
Michelle Slade, analyst at Moneyfacts.co.uk, said: "Since base rate started falling in October 2008, mortgage lenders have continued to increase their margins.
"While existing tracker customers have benefited, anyone looking for a new tracker deal has seen the margin over base continue to increase. The vast majority of providers have passed much bigger cuts to their savings rates, when compared to their standard variable rate as once again they increase their margins."
An HSBC spokesperson said: "HSBC's tracker mortgages are regularly the lowest in the market. Mortgage interest rates reflect the risk of lending in the market, in the current environment it is not surprising that they are higher than previous years."
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Mortgage rejections up fourfold
Telegraph - Nearly 9pc of vetted mortgage applications are being rejected this year compared to just 2.3pc in 2007, according to moneysupermarket.com.
The website said that all the applications were qualified against the lender's criteria prior to submission and on paper appeared to fit. However, lenders still found reasons to reject them.
"Credit histories play an important part in the process and any blemishes will make finding a mortgage increasingly difficult. All debt repayments – credit cards, loans, store cards etc – must be made on time. Details of all missed repayments are held on your personal files for six years and may count against you when your credit rating is accessed.
"Assessing affordability is key for lenders and everyone has to be much more realistic about what they can borrow. The most anyone can reasonably hope for is four times their salary – anything over this is more likely to be rejected. And you can't expect lenders to take overtime or commission into consideration when they assess affordability, they are likely to base the maximum lending purely on your basic salary."
Many lenders are advertising that loans at so-called 90pc LTV are available but mortgage brokers claim that applicants with a clean credit history are being turned down for the most minor of misdemeanours.
Matt Andrews of Money Workout, the mortgage broker says that the best buy rates give a misleading impression and that most borrowers will get the advertised rates, even if they meet the general criteria the lender has set.
"Lenders are being extremely picky and getting a deal with more than 85pc LTV is very difficult. They may be advertising great rates on mortgages of 90pc LTV and above, but the reality is that most borrowers do not qualify – even if they have a clean credit score – as lenders have got very tight on criteria."
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The website said that all the applications were qualified against the lender's criteria prior to submission and on paper appeared to fit. However, lenders still found reasons to reject them.
"Credit histories play an important part in the process and any blemishes will make finding a mortgage increasingly difficult. All debt repayments – credit cards, loans, store cards etc – must be made on time. Details of all missed repayments are held on your personal files for six years and may count against you when your credit rating is accessed.
"Assessing affordability is key for lenders and everyone has to be much more realistic about what they can borrow. The most anyone can reasonably hope for is four times their salary – anything over this is more likely to be rejected. And you can't expect lenders to take overtime or commission into consideration when they assess affordability, they are likely to base the maximum lending purely on your basic salary."
Many lenders are advertising that loans at so-called 90pc LTV are available but mortgage brokers claim that applicants with a clean credit history are being turned down for the most minor of misdemeanours.
Matt Andrews of Money Workout, the mortgage broker says that the best buy rates give a misleading impression and that most borrowers will get the advertised rates, even if they meet the general criteria the lender has set.
"Lenders are being extremely picky and getting a deal with more than 85pc LTV is very difficult. They may be advertising great rates on mortgages of 90pc LTV and above, but the reality is that most borrowers do not qualify – even if they have a clean credit score – as lenders have got very tight on criteria."
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Tuesday, April 7, 2009
USA plans to curtail risky mortgages
CAMBRIDGE, Massachusetts (Reuters) - A powerful U.S. lawmaker said on Monday he is preparing a broad package of legislation that would promote stability in the mortgage market by limiting future subprime lending, and would also take on executive compensation and limit systemic risk.
U.S. Rep. Barney Frank, who chairs the House Financial Services Committee, said on Monday he expects to hold hearings on this bill by the end of April.
"We will bring a bill out in April that will stop people from getting loans in the future that they cannot repay," said Frank, whose committee is spearheading the United States' efforts to battle the banking crisis. "It is important that we say you can't securitize 100 percent of anything."
Frank aims for the package to become law by the end of the year.
The Massachusetts Democrat said he did not propose to eliminate mortgage securitization -- essentially selling a loan to investors -- but said that allowing lenders to securitize the full value of a loan encouraged overly risky lending practices.
"We start with restricting securitization, not to the point where it stops," Frank said in a speech at Harvard University in Cambridge, just outside Boston.
His bill would limit the securitization of subprime mortgages, but Frank said his eventual goal would be to apply the no-100-percent securitization rule across the financial industry.
TO TAKE ON BONUSES
It will also take on the issue of executive bonuses in an effort to ensure that financial industry officials do not take excessive risks.
The aim is to do away with a culture in which, he said, "If you take a big risk and it pays off, you make money and if you take a big risk and it costs the company money, you break even."
He also said that U.S. regulators need to have the authority to wind down non-bank financial institutions, to avoid a repeat of the kind of market turmoil that accompanied the crises at Lehman Brothers and American International Group.
"No institution anywhere in the financial system ought to be able to get so indebted that it threatens our financial stability," Frank said.
His committee is also planning to limit credit card issuers' ability to impose penalty interest rates.
"We will have a bill that will be coming out that will say they cannot raise your interest rate retroactively on any money you already owe them, that if you make a payment of money you owe that they cannot allocate it to that part of your debt that has the lowest interest rate," Frank said.
The subprime mortgage business -- loans to less-creditworthy borrowers -- went into a sharp downturn three years ago, setting off the current world financial crisis. While activity in that business has largely ground to a halt, Frank said he is pushing legislation to restrict it in the future out of a presumption the market will return someday.
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U.S. Rep. Barney Frank, who chairs the House Financial Services Committee, said on Monday he expects to hold hearings on this bill by the end of April.
"We will bring a bill out in April that will stop people from getting loans in the future that they cannot repay," said Frank, whose committee is spearheading the United States' efforts to battle the banking crisis. "It is important that we say you can't securitize 100 percent of anything."
Frank aims for the package to become law by the end of the year.
The Massachusetts Democrat said he did not propose to eliminate mortgage securitization -- essentially selling a loan to investors -- but said that allowing lenders to securitize the full value of a loan encouraged overly risky lending practices.
"We start with restricting securitization, not to the point where it stops," Frank said in a speech at Harvard University in Cambridge, just outside Boston.
His bill would limit the securitization of subprime mortgages, but Frank said his eventual goal would be to apply the no-100-percent securitization rule across the financial industry.
TO TAKE ON BONUSES
It will also take on the issue of executive bonuses in an effort to ensure that financial industry officials do not take excessive risks.
The aim is to do away with a culture in which, he said, "If you take a big risk and it pays off, you make money and if you take a big risk and it costs the company money, you break even."
He also said that U.S. regulators need to have the authority to wind down non-bank financial institutions, to avoid a repeat of the kind of market turmoil that accompanied the crises at Lehman Brothers and American International Group.
"No institution anywhere in the financial system ought to be able to get so indebted that it threatens our financial stability," Frank said.
His committee is also planning to limit credit card issuers' ability to impose penalty interest rates.
"We will have a bill that will be coming out that will say they cannot raise your interest rate retroactively on any money you already owe them, that if you make a payment of money you owe that they cannot allocate it to that part of your debt that has the lowest interest rate," Frank said.
The subprime mortgage business -- loans to less-creditworthy borrowers -- went into a sharp downturn three years ago, setting off the current world financial crisis. While activity in that business has largely ground to a halt, Frank said he is pushing legislation to restrict it in the future out of a presumption the market will return someday.
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NAB leaves rates on hold
SYDNEY, April 7 (Reuters) - National Australia Bank (NAB.AX) will leave its standard variable mortgage rates unchanged after the central bank cut official rates, it said on Tuesday.
NAB said higher funding costs were behind the decision.
Earlier Commonwealth Bank of Australia (CBA.AX) said it would cut its rates by 0.1 percent. The central bank cut by 0.25 percent.
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NAB said higher funding costs were behind the decision.
Earlier Commonwealth Bank of Australia (CBA.AX) said it would cut its rates by 0.1 percent. The central bank cut by 0.25 percent.
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Sunday, April 5, 2009
Sellers could be sued under HIP rules
Telegraph - A revamped and strengthened version of the controversial packs is coming into force next week.
One of the features of the new HIP involves house sellers filling in a detailed questionnaire about their property. Lawyers fear that sellers will leave themselves open to be sued, as a result.
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The Property Information Questionnaire involves the seller answering about 30 questions about their home, such as: "Are you aware of any flooding at your property since you have owned it or before?" and "Is your property a listed building or contained in a listed building?"
The completed document will be included as part of the HIP and given to any buyer interested in putting in an offer.
The information questionnaire, which was not part of the original HIP, is designed to give the buyer as much information about the property as possible.
However, Simon Seaton, co-founder of Fridays, a property law firm, said: "By introducing this questionnaire a seller is giving representations which the buyer will reply upon in order to place an offer on the property.
"The concern is that if the information turns out to be incorrect, the seller could be sued by the buyer, in my opinion, for any out-of-pocket costs. This is an erosion of caveat emptor."
He said that in practice most buyers would be reluctant to sue, but if they were interested in buying the property they would use the incorrect information to bargain down the price. "This arms the buyer with ammunition to gazunder, which in the current property market is the last thing we need," he said.
The original HIPs were introduced two years ago by the Government in an effort to simplify the complexities of selling a house. The theory was that by forcing the seller, rather than the buyer, to compile key documents before the house hit the market, it would stop lengthy delays.
A pack, which costs a home seller £350 on average, contain a home's title deeds, local searches and an energy performance certificate – which rates the property's energy efficiency on an A to G scale.
The Department for Communities and Local Government said that Mr Seaton was scaremongering, and that sellers could fill in "don't know" to any of the questions.
However, Trevor Kent, the former president of the National Association of Estate Agents, said: "I really don't think this is scaremongering. We have been told as estate agents that if we help the vendor fill in the form we are liable under the Property Misdescriptions Act, which in it worst form could see me losing my job."
A Communities and Local Government spokesman said: “It is always been the case that a buyer could sue a seller for providing false information, and the questionnaire will make no difference to this.”
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One of the features of the new HIP involves house sellers filling in a detailed questionnaire about their property. Lawyers fear that sellers will leave themselves open to be sued, as a result.
Related Articles
House prices record their first rise in 16 months
HIPs will be 'unenforceable'
Four-beds become three in HIP fiasco
Home seller packs 'will lead to £250m waste'
Hips uncertainty slows house prices
Housing supply overtakes demand
The Property Information Questionnaire involves the seller answering about 30 questions about their home, such as: "Are you aware of any flooding at your property since you have owned it or before?" and "Is your property a listed building or contained in a listed building?"
The completed document will be included as part of the HIP and given to any buyer interested in putting in an offer.
The information questionnaire, which was not part of the original HIP, is designed to give the buyer as much information about the property as possible.
However, Simon Seaton, co-founder of Fridays, a property law firm, said: "By introducing this questionnaire a seller is giving representations which the buyer will reply upon in order to place an offer on the property.
"The concern is that if the information turns out to be incorrect, the seller could be sued by the buyer, in my opinion, for any out-of-pocket costs. This is an erosion of caveat emptor."
He said that in practice most buyers would be reluctant to sue, but if they were interested in buying the property they would use the incorrect information to bargain down the price. "This arms the buyer with ammunition to gazunder, which in the current property market is the last thing we need," he said.
The original HIPs were introduced two years ago by the Government in an effort to simplify the complexities of selling a house. The theory was that by forcing the seller, rather than the buyer, to compile key documents before the house hit the market, it would stop lengthy delays.
A pack, which costs a home seller £350 on average, contain a home's title deeds, local searches and an energy performance certificate – which rates the property's energy efficiency on an A to G scale.
The Department for Communities and Local Government said that Mr Seaton was scaremongering, and that sellers could fill in "don't know" to any of the questions.
However, Trevor Kent, the former president of the National Association of Estate Agents, said: "I really don't think this is scaremongering. We have been told as estate agents that if we help the vendor fill in the form we are liable under the Property Misdescriptions Act, which in it worst form could see me losing my job."
A Communities and Local Government spokesman said: “It is always been the case that a buyer could sue a seller for providing false information, and the questionnaire will make no difference to this.”
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House prices drop again
Telegraph - Prices fell at an annual rate of 17.5 per cent during the month, compared with record annual drops of 17.7 per cent in February – based on Halifax's preferred measure of comparing prices during the previous three months with the same period a year earlier.
The figures contrast with those reported by Nationwide on Thursday, which showed a surprise 0.9 per cent jump in house prices during March.
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House prices: What next?
House prices fall, leading to a record annual rate of decline, Halifax reveals
UK house prices rose in March for first time since 2007, Nationwide survey shows
Economists cautioned against reading too much into the Nationwide price rise, warning that while the market may have bottomed out, any recovery still remained a long way off.
Today's Halifax figures are more in line with expectations for the market at a time when the country is in recession and unemployment is rising.
But despite the steep monthly price fall, which followed a drop of 2.3 per cent in February, Halifax said there were "tentative signs that activity may be beginning to stabilise".
With the average property in the UK now costing £157,326, the house price to earnings ratio – a key measure of affordability – has fallen to 4.34, its lowest level since early 2003 and down from a peak of 5.84 in July 2007.
Recent steep interest rate cuts have also reduced the amount of income taken up by mortgage repayments from a peak of 26.9 per cent in October last year, to a three-and-a-half year low of 22.6 per cent last month.
Figures from the Bank of England released earlier this week showed the number of mortgages approved for house purchase jumped by 19 per cent during February, while a report out yesterday signalled that the banks and building societies thought they would increase mortgage lending during the coming three months.
Halifax added that house prices were around 2.7 per cent lower during the first quarter than they had been in the previous one, compared with falls of 5 per cent to 6 per cent recorded during each of the previous three quarters.
But despite the recent run of positive data on the property market, the group said it was too early to talk about a recovery.
Martin Ellis, Halifax housing economist, said: "Conditions in the housing market are likely to be tough during the remainder of 2009 despite the improvements in affordability.
"Increasing unemployment, low consumer confidence and the constraining effects of the continuing dislocation of the financial markets on the availability of mortgage finance are all likely to exert downward pressure on the market over the coming months."
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The figures contrast with those reported by Nationwide on Thursday, which showed a surprise 0.9 per cent jump in house prices during March.
Related Articles
House prices record their first rise in 16 months
Global markets boosted further by G20 promises
Builders buoyant as UK house prices show rise
House prices: What next?
House prices fall, leading to a record annual rate of decline, Halifax reveals
UK house prices rose in March for first time since 2007, Nationwide survey shows
Economists cautioned against reading too much into the Nationwide price rise, warning that while the market may have bottomed out, any recovery still remained a long way off.
Today's Halifax figures are more in line with expectations for the market at a time when the country is in recession and unemployment is rising.
But despite the steep monthly price fall, which followed a drop of 2.3 per cent in February, Halifax said there were "tentative signs that activity may be beginning to stabilise".
With the average property in the UK now costing £157,326, the house price to earnings ratio – a key measure of affordability – has fallen to 4.34, its lowest level since early 2003 and down from a peak of 5.84 in July 2007.
Recent steep interest rate cuts have also reduced the amount of income taken up by mortgage repayments from a peak of 26.9 per cent in October last year, to a three-and-a-half year low of 22.6 per cent last month.
Figures from the Bank of England released earlier this week showed the number of mortgages approved for house purchase jumped by 19 per cent during February, while a report out yesterday signalled that the banks and building societies thought they would increase mortgage lending during the coming three months.
Halifax added that house prices were around 2.7 per cent lower during the first quarter than they had been in the previous one, compared with falls of 5 per cent to 6 per cent recorded during each of the previous three quarters.
But despite the recent run of positive data on the property market, the group said it was too early to talk about a recovery.
Martin Ellis, Halifax housing economist, said: "Conditions in the housing market are likely to be tough during the remainder of 2009 despite the improvements in affordability.
"Increasing unemployment, low consumer confidence and the constraining effects of the continuing dislocation of the financial markets on the availability of mortgage finance are all likely to exert downward pressure on the market over the coming months."
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Wednesday, April 1, 2009
Mortgages top of Browns help plan
Telegraph - The Prime Minister insisted that there will be "targeted" plans for certain parts of the economy, including the mortgage market.
Despite growing resistance to new fiscal measures from the Treasury, the Bank of England and the CBI, Mr Brown is determined to not be put off announcing new spending plans in next month's Budget.
Mr Brown was challenged on his trip to South America that the consensus at home was that the country could no longer afford a new fiscal boost. On Tuesday, Mervyn King, the Governor of the Bank of England, said Britain could not afford further tax cuts or public spending rises in the Budget.
But Mr Brown, who returns to Britain tomorrow, claimed that he did not differ in his outlook from Mr King.
He said: "I think what Mervyn King was saying is what I have always said, that you have got to be cautious about everything that you do."
But he raised the possibility of specific, targeted measures including action on mortgages, or climate change and low carbon recovery, or public works and investment.
"We have got to get the economy moving, but of course you have got to have sustainable finances. That is what running an economy is all about."
He added: "We must not rule out the action that is necessary for jobs and growth."
One of the ideas that had been suggested to Treasury officials but then ruled out was a review of mortgages to see whether all mortgages in future should be trackers, rather than fixed rate.
A Treasury source said such a plan would be fraught with potential difficulties because of the volatility it could create.
But there is still a desire to try and revive the mortgage market and Alistair Darling, the Chancellor, will be expected to announce some initiative to get the banks lending to potential home owners and first time buyers in particular.
The number of homes changing hands has continued to be less than half of the levels seen a year ago. New figures yesterday showed that house prices fell in all areas of England and Wales on both a monthly and an annual basis during February.
The annual rate of house price falls has been steepest in the West Midlands at 17.7 per cent, closely followed by Wales at 17.6 per cent and the North West and South West, where properties have lost 17 per cent of their value during the year to the end of February.
Figures from the British Bankers' Association have shown that the number of mortgages approved for house purchase has risen for three months running.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "While latest mortgage approvals data suggest that housing market activity may have bottomed out and survey evidence indicates that buyer inquiries have picked up significantly recently as people are attracted by lower house prices and the Bank of England slashing interest rates, we remain sceptical that sales will pick up substantially any time soon and put a floor under prices."
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Despite growing resistance to new fiscal measures from the Treasury, the Bank of England and the CBI, Mr Brown is determined to not be put off announcing new spending plans in next month's Budget.
Mr Brown was challenged on his trip to South America that the consensus at home was that the country could no longer afford a new fiscal boost. On Tuesday, Mervyn King, the Governor of the Bank of England, said Britain could not afford further tax cuts or public spending rises in the Budget.
But Mr Brown, who returns to Britain tomorrow, claimed that he did not differ in his outlook from Mr King.
He said: "I think what Mervyn King was saying is what I have always said, that you have got to be cautious about everything that you do."
But he raised the possibility of specific, targeted measures including action on mortgages, or climate change and low carbon recovery, or public works and investment.
"We have got to get the economy moving, but of course you have got to have sustainable finances. That is what running an economy is all about."
He added: "We must not rule out the action that is necessary for jobs and growth."
One of the ideas that had been suggested to Treasury officials but then ruled out was a review of mortgages to see whether all mortgages in future should be trackers, rather than fixed rate.
A Treasury source said such a plan would be fraught with potential difficulties because of the volatility it could create.
But there is still a desire to try and revive the mortgage market and Alistair Darling, the Chancellor, will be expected to announce some initiative to get the banks lending to potential home owners and first time buyers in particular.
The number of homes changing hands has continued to be less than half of the levels seen a year ago. New figures yesterday showed that house prices fell in all areas of England and Wales on both a monthly and an annual basis during February.
The annual rate of house price falls has been steepest in the West Midlands at 17.7 per cent, closely followed by Wales at 17.6 per cent and the North West and South West, where properties have lost 17 per cent of their value during the year to the end of February.
Figures from the British Bankers' Association have shown that the number of mortgages approved for house purchase has risen for three months running.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "While latest mortgage approvals data suggest that housing market activity may have bottomed out and survey evidence indicates that buyer inquiries have picked up significantly recently as people are attracted by lower house prices and the Bank of England slashing interest rates, we remain sceptical that sales will pick up substantially any time soon and put a floor under prices."
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Mortgage approvals up by 19%
Telegraph - A total of 37,937 loans were approved for people buying a home during the month, the highest level since May last year, according to the Bank of England.
The figure suggests that record low interest rates and recent steep house price falls are tempting buyers back to the property market.
Reports from estate agents have suggested that interest in property has soared in recent weeks, but there had previously been little evidence to show that this was translating into sales.
The British Bankers' Association last week released figures showing that the number of mortgages approved for house purchase by the major banks rose for the third month in a row during February.
But it was thought that much of this increase was being driven by banks' greater market share, rather than higher overall lending levels.
However, today's Bank of England figures, which beat economists expectations and are well up on the recent six month average of 31,495, suggest sales may be picking up again.
Vicky Redwood, UK economist at Capital Economics, said: "February's household borrowing figures suggest that housing market activity may finally have turned a corner.
"The rise in the number of mortgage approvals for new house purchase... might suggest that the pickup in new buyer inquiries is feeding through into actual activity. With new buyer inquiries still rising, this is clearly quite promising."
But she added that approvals levels would need to broadly double before they were no longer consistent with falling house prices.
Despite the pickup, approvals for house purchase were still 44 per cent lower than in February 2008.
Remortgaging activity also continued to decline during the month, with just 32,633 loans approved for people switching to a better deal, well down on the previous six-month average of 52,780.
The fall in remortgaging activity is likely to reflect the fact that record low interest rates mean many people are better off staying on their lender's standard variable rate when their existing deal comes to an end, rather than taking out a new mortgage.Net mortgage lending, which strips out redemptions and repayments, also rose during February, increasing to £1.51 billion, up from £1.08 billion in January, but still below December's £1.96 billion.
The figures came as property intelligence group Hometrack reported a slowing in the rate of house price falls during March as activity in the market increased.
The group said house prices in England and Wales dropped by 0.6%, the lowest fall for 10 months, while both the number of potential buyers registering with agents and the number of sales agreed continued to rise.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The further limited rise in mortgage approvals from last November's record lows, and reports from estate agents that buyer inquiries have recently picked up appreciably, suggests that housing market activity has very likely bottomed out."
But he added that, with rising unemployment and the current problems in the economy, any recovery in activity was likely to be "gradual and fitful for some time to come".
Unsecured lending remained subdued during February, with borrowing through credit cards rising by £190 million, while consumers repaid £435 million more of loan debt and overdrafts than they borrowed.
Meanwhile, building societies continued to see their share of the mortgage market contract.
Net lending by the sector was negative for the second month running during February, with customers repaying £976 million more on their mortgages than building societies advanced through new lending.
But savings levels continued to soar, with mutuals taking in £1.6 billion, the highest amount ever during February and 18% up on the figure for February 2008.
The figure contrasts with one reported by the British Bankers' Association last week, which showed that consumers withdrew £73 million from banks during the same month.
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The figure suggests that record low interest rates and recent steep house price falls are tempting buyers back to the property market.
Reports from estate agents have suggested that interest in property has soared in recent weeks, but there had previously been little evidence to show that this was translating into sales.
The British Bankers' Association last week released figures showing that the number of mortgages approved for house purchase by the major banks rose for the third month in a row during February.
But it was thought that much of this increase was being driven by banks' greater market share, rather than higher overall lending levels.
However, today's Bank of England figures, which beat economists expectations and are well up on the recent six month average of 31,495, suggest sales may be picking up again.
Vicky Redwood, UK economist at Capital Economics, said: "February's household borrowing figures suggest that housing market activity may finally have turned a corner.
"The rise in the number of mortgage approvals for new house purchase... might suggest that the pickup in new buyer inquiries is feeding through into actual activity. With new buyer inquiries still rising, this is clearly quite promising."
But she added that approvals levels would need to broadly double before they were no longer consistent with falling house prices.
Despite the pickup, approvals for house purchase were still 44 per cent lower than in February 2008.
Remortgaging activity also continued to decline during the month, with just 32,633 loans approved for people switching to a better deal, well down on the previous six-month average of 52,780.
The fall in remortgaging activity is likely to reflect the fact that record low interest rates mean many people are better off staying on their lender's standard variable rate when their existing deal comes to an end, rather than taking out a new mortgage.Net mortgage lending, which strips out redemptions and repayments, also rose during February, increasing to £1.51 billion, up from £1.08 billion in January, but still below December's £1.96 billion.
The figures came as property intelligence group Hometrack reported a slowing in the rate of house price falls during March as activity in the market increased.
The group said house prices in England and Wales dropped by 0.6%, the lowest fall for 10 months, while both the number of potential buyers registering with agents and the number of sales agreed continued to rise.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The further limited rise in mortgage approvals from last November's record lows, and reports from estate agents that buyer inquiries have recently picked up appreciably, suggests that housing market activity has very likely bottomed out."
But he added that, with rising unemployment and the current problems in the economy, any recovery in activity was likely to be "gradual and fitful for some time to come".
Unsecured lending remained subdued during February, with borrowing through credit cards rising by £190 million, while consumers repaid £435 million more of loan debt and overdrafts than they borrowed.
Meanwhile, building societies continued to see their share of the mortgage market contract.
Net lending by the sector was negative for the second month running during February, with customers repaying £976 million more on their mortgages than building societies advanced through new lending.
But savings levels continued to soar, with mutuals taking in £1.6 billion, the highest amount ever during February and 18% up on the figure for February 2008.
The figure contrasts with one reported by the British Bankers' Association last week, which showed that consumers withdrew £73 million from banks during the same month.
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Wednesday, March 25, 2009
Has the UK housing market hit the bottom?
Telegraph - For the third month in a row, the number of loans extended to home buyers has increased, climbing from a low of 17,900 in November last year to 28,179 in February.
The statistics from the British Bankers' Association are the latest evidence that the moribund housing market is showing some sings of life. Estate agents have reported that more people are coming in through their doors in recent weeks, as rock-bottom interest rates start to slowly trickle through to some lower mortgage deals.
The Royal Institution of Chartered Surveyors earlier this month said that while home sales fell to the lowest since at least 1978, the number of potential buyers registering with estate agents during February rose to the highest level since August 2006.
Economists at investment bank UBS this week suggested the worst may be over. "There are a few, but nonetheless important, green shoots emerging that provide a glimmer of hope," Amit Kara at the bank said. "We are not suggesting that the road from here is onward and upward, but rather that the intensity of the pain will gradually ease."
David Dooks, a director at the BBA, said: "There are certainly more mortgages being lent out by the largest lenders. But I don't think this is a sign of green shoots, more a symptom that we may be getting close to the bottom."
Most believe that too much should not be read into the BBA data. Seema Shah, property expert at the think tank Capital Economics, said: "Mortgage approvals for new house purchase are still extraordinarily weak, being 31 per cent lower than a year earlier and some 65 per cent below the late 2006 peak."
The BBA figures also show that savers continued to withdraw money from their savings accounts during February, fed up with record low interest rates.
After a net £2 billion being taken out in January, a further £100 million was withdrawn in February. Most are using their money to either pay off their debts or – in the case of people losing their jobs – fund everyday expenses.
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The statistics from the British Bankers' Association are the latest evidence that the moribund housing market is showing some sings of life. Estate agents have reported that more people are coming in through their doors in recent weeks, as rock-bottom interest rates start to slowly trickle through to some lower mortgage deals.
The Royal Institution of Chartered Surveyors earlier this month said that while home sales fell to the lowest since at least 1978, the number of potential buyers registering with estate agents during February rose to the highest level since August 2006.
Economists at investment bank UBS this week suggested the worst may be over. "There are a few, but nonetheless important, green shoots emerging that provide a glimmer of hope," Amit Kara at the bank said. "We are not suggesting that the road from here is onward and upward, but rather that the intensity of the pain will gradually ease."
David Dooks, a director at the BBA, said: "There are certainly more mortgages being lent out by the largest lenders. But I don't think this is a sign of green shoots, more a symptom that we may be getting close to the bottom."
Most believe that too much should not be read into the BBA data. Seema Shah, property expert at the think tank Capital Economics, said: "Mortgage approvals for new house purchase are still extraordinarily weak, being 31 per cent lower than a year earlier and some 65 per cent below the late 2006 peak."
The BBA figures also show that savers continued to withdraw money from their savings accounts during February, fed up with record low interest rates.
After a net £2 billion being taken out in January, a further £100 million was withdrawn in February. Most are using their money to either pay off their debts or – in the case of people losing their jobs – fund everyday expenses.
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Monday, March 23, 2009
UK Mortgage lending drops 60%
LONDON, March 19 (Reuters) - British gross mortgage lending fell 60 percent from a year ago in February to 9.9 billion pounds ($14.10 billion), the lowest since February 2001, the Council of Mortgage Lenders said on Thursday.
The 15 percent monthly fall from January's figure of 11.7 billion pounds was much bigger than the 3-4 percent decline the CML said the market usually experiences at that time of year.
But the CML said February's number was in line with its forecast for 145 billion pounds of lending in 2009 as a whole.
Analysts expect the housing market, gripped by the credit crunch, to remain weak for some time.
"Housing market activity and prices remain under serious downward pressure from the awful economic climate and ongoing low mortgage availability," said Howard Archer, an economist at Global Insight.
"We continue to expect house prices to fall by 15 percent overall in 2009 and then dip by a further 5 percent in the first half of 2010 before stabilizing. This would take them some 35 percent below their 2007 peak levels."
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The 15 percent monthly fall from January's figure of 11.7 billion pounds was much bigger than the 3-4 percent decline the CML said the market usually experiences at that time of year.
But the CML said February's number was in line with its forecast for 145 billion pounds of lending in 2009 as a whole.
Analysts expect the housing market, gripped by the credit crunch, to remain weak for some time.
"Housing market activity and prices remain under serious downward pressure from the awful economic climate and ongoing low mortgage availability," said Howard Archer, an economist at Global Insight.
"We continue to expect house prices to fall by 15 percent overall in 2009 and then dip by a further 5 percent in the first half of 2010 before stabilizing. This would take them some 35 percent below their 2007 peak levels."
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Restoring faith in property
Telegraph - Estate agents on average are selling only two or three houses a month. Mortgages are harder to come by than springs in a desert. And yet, if a town house in a good address with peeling paint and dodgy plumbing, or a picturesque cottage desperately in need of renovation appears on the market, crowds of potential buyers suddenly emerge to compete for the pleasure of a life-changing project.
Nothing, it seems, has dampened property lovers' desire to rescue. Cluttons in London reports that unmodernised properties are attracting the "creative buyers" who anticipate huge price growth when the market starts to move again. "Both developers and individuals are searching out the real bargains," says James Hyman, partner for residential sales. "Unmodernised properties in need of complete renovation are coming back into vogue at knock-down prices and offer greater long-term added value than more expensive properties." This is the new wreckonomics.
Classic custom campersWhen estate agent Matthew Harvey of Chesterton Humberts put a Grade II listed two-bedroom thatched cottage at Rushall in Wiltshire on the market on March 7 with a guide price of £150,000, he was blown away by enquiries. No 2 Elm Tree Cottages has a solid-fuelled stove with a back boiler, a downstairs bathroom, and sales particulars bearing the magic words "requires modernisation". Matthew had eight viewings on the first day, and every other call thereafter was about the cottage.
"A lot of young couples who have always dreamed of having a cottage are interested," he says. "And a lot of older couples who are getting nothing for their money in the bank want a nice little cottage. An astonishing number of people have cash to buy with. It is a semi that needs just about everything doing to it – plumbing, wiring, new kitchen, bathroom – but it had new thatch in 2005 so it has a good lid."
But how do the sums work now that renovators can no longer build rising prices into their calculations? Are they on a road to ruin, spending vast sums they can never recoup? "I think the cottage probably needs around £35,000 spent on it," says Matthew. "In good times I have sold properties like this at £180,000 or £190,000, but the end value is never going to be more than £210,000. So there is a little bit of jam for people to take. But there are also buyers who aren't worried about making money and just want to live in it." Within 48 hours Chesterton Humberts (01672 519222) had an offer of the guide price and is still receiving more.
It is not just that keeping the money in the bank has lost its attraction. One interesting side effect of the recession is that the cost of hiring builders is dropping, so the cost of building work isn't frightening people away. The consultant E C Harris reported recently that tender prices could drop by 10 per cent in 2009, and by 6 per cent in 2010. In some areas they could fall by as much as 25 per cent over the next three years.
The chance to snaffle a substantial Queen Anne house at £695,000 instead of a million or two has proved impossible to resist. The words "total refurbishment" seems to have titillated interest even further. Brook House at Eastry, four miles from Sandwich in Kent, has nine bedrooms, two bathrooms, attics, a covered courtyard, outbuildings and five acres. "It needs £500,000 spent on it, at least," says Ed Church, handling the sale at Strutt & Parker (01227 451123). There were 149 viewings in less than a month, and last week the agent went to sealed bids.
So do the sums look healthy? In a buoyant market the house might be worth £1.5m to £2m. But these buyers are no longer looking at a two- or three-year turnaround with a quick profit. "Buyers are looking at this as a house they will live in for 30 to 40 years," says Ed. "They are returning to traditional values and looking for a home."
Two beguiling Cotswold properties, Grass Ground farmhouse and Grass Ground cottage at Hailey near Witney, have been setting hearts fluttering. With guide prices of £650,000 and £550,000, there were 80 viewings and offers on each within three weeks. Estate agent Harry Gladwin of Knight Frank (01865 790077) is about to go to sealed bids, as offers already exceed the guide prices. Whoever would have thought it in this market?
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Nothing, it seems, has dampened property lovers' desire to rescue. Cluttons in London reports that unmodernised properties are attracting the "creative buyers" who anticipate huge price growth when the market starts to move again. "Both developers and individuals are searching out the real bargains," says James Hyman, partner for residential sales. "Unmodernised properties in need of complete renovation are coming back into vogue at knock-down prices and offer greater long-term added value than more expensive properties." This is the new wreckonomics.
Classic custom campersWhen estate agent Matthew Harvey of Chesterton Humberts put a Grade II listed two-bedroom thatched cottage at Rushall in Wiltshire on the market on March 7 with a guide price of £150,000, he was blown away by enquiries. No 2 Elm Tree Cottages has a solid-fuelled stove with a back boiler, a downstairs bathroom, and sales particulars bearing the magic words "requires modernisation". Matthew had eight viewings on the first day, and every other call thereafter was about the cottage.
"A lot of young couples who have always dreamed of having a cottage are interested," he says. "And a lot of older couples who are getting nothing for their money in the bank want a nice little cottage. An astonishing number of people have cash to buy with. It is a semi that needs just about everything doing to it – plumbing, wiring, new kitchen, bathroom – but it had new thatch in 2005 so it has a good lid."
But how do the sums work now that renovators can no longer build rising prices into their calculations? Are they on a road to ruin, spending vast sums they can never recoup? "I think the cottage probably needs around £35,000 spent on it," says Matthew. "In good times I have sold properties like this at £180,000 or £190,000, but the end value is never going to be more than £210,000. So there is a little bit of jam for people to take. But there are also buyers who aren't worried about making money and just want to live in it." Within 48 hours Chesterton Humberts (01672 519222) had an offer of the guide price and is still receiving more.
It is not just that keeping the money in the bank has lost its attraction. One interesting side effect of the recession is that the cost of hiring builders is dropping, so the cost of building work isn't frightening people away. The consultant E C Harris reported recently that tender prices could drop by 10 per cent in 2009, and by 6 per cent in 2010. In some areas they could fall by as much as 25 per cent over the next three years.
The chance to snaffle a substantial Queen Anne house at £695,000 instead of a million or two has proved impossible to resist. The words "total refurbishment" seems to have titillated interest even further. Brook House at Eastry, four miles from Sandwich in Kent, has nine bedrooms, two bathrooms, attics, a covered courtyard, outbuildings and five acres. "It needs £500,000 spent on it, at least," says Ed Church, handling the sale at Strutt & Parker (01227 451123). There were 149 viewings in less than a month, and last week the agent went to sealed bids.
So do the sums look healthy? In a buoyant market the house might be worth £1.5m to £2m. But these buyers are no longer looking at a two- or three-year turnaround with a quick profit. "Buyers are looking at this as a house they will live in for 30 to 40 years," says Ed. "They are returning to traditional values and looking for a home."
Two beguiling Cotswold properties, Grass Ground farmhouse and Grass Ground cottage at Hailey near Witney, have been setting hearts fluttering. With guide prices of £650,000 and £550,000, there were 80 viewings and offers on each within three weeks. Estate agent Harry Gladwin of Knight Frank (01865 790077) is about to go to sealed bids, as offers already exceed the guide prices. Whoever would have thought it in this market?
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Tuesday, March 17, 2009
UK Home Repos up by 2/3
Telegraph - A total of 46,750 properties were repossessed by lenders during the year, up from 27,900 in 2007, the City watchdog said.
There was also a steep jump in the number of people who fell behind with their mortgage repayments during the final quarter of the year.
Around 68,000 people got into arrears during the period, a 13% jump compared with the previous quarter, which had seen a 10% rise.
The FSA said borrowers were increasingly struggling to clear their arrears, and this led to the total number of people who were behind with repayments steadily increasing since early 2007.
At the end of last year, 377,000 homeowners were in arrears, 10% more than in the third quarter and 31% higher than at the end of 2007.
The number of mortgages that were in arrears as a proportion of all loans also increased significantly during the year to 3.37%, up from 2.26% 12 months earlier.
The FSA's figures for repossessions are considerably higher then those reported by the Council of Mortgage Lenders, which said 40,000 people lost their homes during 2008, the highest level since 1996.
The difference is because the FSA covers all regulated lenders, whereas the CML includes only its members. The FSA also includes both first and second charge mortgages, while the CML looks only at first charge loans.
But the FSA figures did show a slight fall in the number of homes that were repossessed during the final quarter of 2008, with 13,028 properties taken over by lenders during the period.
This was 436 fewer than during the previous three months, although the figure was still 60% higher than a year earlier.
The fall may be due to the introduction of the Government's pre-action protocol in November, under which courts are allowed to grant repossession orders only as a last resort if all other measures have failed.
A pick-up in the number of repossessed homes that lenders were able to sell meant the number of such properties held by banks and building societies rose by only 1% during the final quarter to 27,903, although this was 88% higher than a year ago.
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There was also a steep jump in the number of people who fell behind with their mortgage repayments during the final quarter of the year.
Around 68,000 people got into arrears during the period, a 13% jump compared with the previous quarter, which had seen a 10% rise.
The FSA said borrowers were increasingly struggling to clear their arrears, and this led to the total number of people who were behind with repayments steadily increasing since early 2007.
At the end of last year, 377,000 homeowners were in arrears, 10% more than in the third quarter and 31% higher than at the end of 2007.
The number of mortgages that were in arrears as a proportion of all loans also increased significantly during the year to 3.37%, up from 2.26% 12 months earlier.
The FSA's figures for repossessions are considerably higher then those reported by the Council of Mortgage Lenders, which said 40,000 people lost their homes during 2008, the highest level since 1996.
The difference is because the FSA covers all regulated lenders, whereas the CML includes only its members. The FSA also includes both first and second charge mortgages, while the CML looks only at first charge loans.
But the FSA figures did show a slight fall in the number of homes that were repossessed during the final quarter of 2008, with 13,028 properties taken over by lenders during the period.
This was 436 fewer than during the previous three months, although the figure was still 60% higher than a year earlier.
The fall may be due to the introduction of the Government's pre-action protocol in November, under which courts are allowed to grant repossession orders only as a last resort if all other measures have failed.
A pick-up in the number of repossessed homes that lenders were able to sell meant the number of such properties held by banks and building societies rose by only 1% during the final quarter to 27,903, although this was 88% higher than a year ago.
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FSA to limit mortgage borrowing
Telegraph - As part of a wide-ranging package of announcements for banking regulation following the near-collapse of the financial system, Lord Turner, chairman of the Financial Services Authority, will also declare a ban on 100 per cent mortgages.
In all but the most exceptional circumstances, it will become "normal practice" again for loans to limited to a maximum of three times the borrower's salary.
The move comes after Gordon Brown asked the FSA to look into banning risky mortgage lending.
Last month, he called for a return to safety-first banking, saying: "We want to see the reinvention of the traditional savings and mortgage bank in Britain, making loans on prudent and careful terms."
The clampdown announced by Mr Turner is unlikely to have an immediate impact on the housing market, with lenders already severely curtailing their offers in the wake of the credit crunch.
Instead, the hope is that the measures will prevent a repeat of the current crisis, which was begun and fuelled by defaults on sub-prime mortgages - over-generous deals given to borrowers who could not afford repayments on properties worth less than the amounts raised against them.
So-called "extreme loans" of as much as six times borrowers' salaries became common during 2006 and 2007 as mortgage providers competed to attract business.
Many offered 100 per cent-plus mortgages, handing out cash over and above the value of the property, saddling thousands with negative equity and risk of repossession when the housing market ground to a halt.
Northern Rock, which had a number of sub-prime mortgages on its book when it was nationalised to stop it collapsing in September 2007, has repossessed a number of homes from borrowers who took out its "Together" mortgage - which offered loans at 120 per cent of value.
The mortgage cap forms part of a wider review of the regulation of the financial industry, which Mr Turner hopes will inject more rigour into the system.
He is said to be preparing a crackdown on executive bonuses which reward risk-taking, and is also expected to announce requirements on banks to hold greater levels of capital during boom years to protect against a sudden crash.
In what may prove a controversial move, the FSA is also said to be considering offering immunity from prosecution to whistleblowers within institutions who help prosecutors build a case against more senior staff responsible for financial wrong-doing.
Last week, Hector Sants, chief executive of the FSA, warned the City to be "very afraid" of the watchdog in future, promising that a recent shake-up had left the Authority far more prepared to take action against irresponsible behaviour.
The Conservatives have suggested that the FSA could be abolished as punishment for failing to prevent the current crisis and its powers returned to the Bank of England.
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In all but the most exceptional circumstances, it will become "normal practice" again for loans to limited to a maximum of three times the borrower's salary.
The move comes after Gordon Brown asked the FSA to look into banning risky mortgage lending.
Last month, he called for a return to safety-first banking, saying: "We want to see the reinvention of the traditional savings and mortgage bank in Britain, making loans on prudent and careful terms."
The clampdown announced by Mr Turner is unlikely to have an immediate impact on the housing market, with lenders already severely curtailing their offers in the wake of the credit crunch.
Instead, the hope is that the measures will prevent a repeat of the current crisis, which was begun and fuelled by defaults on sub-prime mortgages - over-generous deals given to borrowers who could not afford repayments on properties worth less than the amounts raised against them.
So-called "extreme loans" of as much as six times borrowers' salaries became common during 2006 and 2007 as mortgage providers competed to attract business.
Many offered 100 per cent-plus mortgages, handing out cash over and above the value of the property, saddling thousands with negative equity and risk of repossession when the housing market ground to a halt.
Northern Rock, which had a number of sub-prime mortgages on its book when it was nationalised to stop it collapsing in September 2007, has repossessed a number of homes from borrowers who took out its "Together" mortgage - which offered loans at 120 per cent of value.
The mortgage cap forms part of a wider review of the regulation of the financial industry, which Mr Turner hopes will inject more rigour into the system.
He is said to be preparing a crackdown on executive bonuses which reward risk-taking, and is also expected to announce requirements on banks to hold greater levels of capital during boom years to protect against a sudden crash.
In what may prove a controversial move, the FSA is also said to be considering offering immunity from prosecution to whistleblowers within institutions who help prosecutors build a case against more senior staff responsible for financial wrong-doing.
Last week, Hector Sants, chief executive of the FSA, warned the City to be "very afraid" of the watchdog in future, promising that a recent shake-up had left the Authority far more prepared to take action against irresponsible behaviour.
The Conservatives have suggested that the FSA could be abolished as punishment for failing to prevent the current crisis and its powers returned to the Bank of England.
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Thursday, March 12, 2009
New UK Mortgages at record low
Telegraph - The CML said just 23,400 loans were advanced for house purchase in January, less than half the amount approved during the same time a year earlier.
It is the lowest level since the CML began collecting the monthly data in January 2002.
However, while lending criteria remain tight amid fears about the economy, the CML said lower interest rates and income multiples have made payments easier for those able to obtain credit.
First-time buyers typically borrowed three times their income in January and the average loan was £97,000.
It said the typical first-time buyer spent 15.8 per cent of their income on mortgage interest payments, the lowest proportion since July 2004.
Michael Coogan, CML director general, said that while January and February are usually the quietest months in the mortgage market, the current withdrawal of many lenders from new lending had created "a huge gap" in the capacity to fund mortgages to match consumer demand.
He said: "People want to know why lenders are not lending. They are, but government schemes to restore the flow of funds are primarily focused on a few large banks and recent lending commitments by a few lenders cannot fill the gap overnight although we hope to see more funds flowing into mortgage activity later in the year.
"On top of the action to plug the funding gap and stabilise financial markets, we need to see a sustained revival of consumer demand. Mortgage affordability is good for those borrowers with deposits, but consumer confidence and lender appetite will remain muted in the face of rising unemployment and falling house prices."
Melanie Bien, of mortgage brokers broker Savills Private Finance, said: "Despite the recapitalisation of the banks and dramatic slashing of interest rates in recent months, the number of mortgages taken out continues to fall.
"These desperately low numbers show how important it is that the Treasury and Bank of England work together with lenders to encourage them to regain their appetite for lending. Without mortgage approvals increasing, the housing market is likely to remain in the doldrums."
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It is the lowest level since the CML began collecting the monthly data in January 2002.
However, while lending criteria remain tight amid fears about the economy, the CML said lower interest rates and income multiples have made payments easier for those able to obtain credit.
First-time buyers typically borrowed three times their income in January and the average loan was £97,000.
It said the typical first-time buyer spent 15.8 per cent of their income on mortgage interest payments, the lowest proportion since July 2004.
Michael Coogan, CML director general, said that while January and February are usually the quietest months in the mortgage market, the current withdrawal of many lenders from new lending had created "a huge gap" in the capacity to fund mortgages to match consumer demand.
He said: "People want to know why lenders are not lending. They are, but government schemes to restore the flow of funds are primarily focused on a few large banks and recent lending commitments by a few lenders cannot fill the gap overnight although we hope to see more funds flowing into mortgage activity later in the year.
"On top of the action to plug the funding gap and stabilise financial markets, we need to see a sustained revival of consumer demand. Mortgage affordability is good for those borrowers with deposits, but consumer confidence and lender appetite will remain muted in the face of rising unemployment and falling house prices."
Melanie Bien, of mortgage brokers broker Savills Private Finance, said: "Despite the recapitalisation of the banks and dramatic slashing of interest rates in recent months, the number of mortgages taken out continues to fall.
"These desperately low numbers show how important it is that the Treasury and Bank of England work together with lenders to encourage them to regain their appetite for lending. Without mortgage approvals increasing, the housing market is likely to remain in the doldrums."
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Wednesday, March 11, 2009
Savills sees foreign investor return to the UK market
Telegraph - However, the company expects the volume of transactions overall to be "significantly lower" in 2009, because of the difficulty of raising money for mortgages.
The recovery of the property market is dependent on the financial system starting to function again, Savills said.
"Demand from cash rich investors and up-sizers is likely to emerge as price falls work their way through the market. This will make residential investment property start to look especially attractive to foreign buyers benefiting from the weakness of sterling," the company said. Interest rates close to zero may also stimulate demand for commercial property, Savills said.
Savills said its finances are robust enough to cope with the recession, after it agreed a new £80m banking facility which lasts until 2011.
In 2008, Savills slumped to a pre-tax loss of £7.7m, from a profit of £85.9m the previous year. Revenue fell 13pc to £568.5m and the estate agent had to write down £42m on the value of acquired businesses and asset impairments.
The company made redundancies, closed offices and cut £22m of costs during the year.
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The recovery of the property market is dependent on the financial system starting to function again, Savills said.
"Demand from cash rich investors and up-sizers is likely to emerge as price falls work their way through the market. This will make residential investment property start to look especially attractive to foreign buyers benefiting from the weakness of sterling," the company said. Interest rates close to zero may also stimulate demand for commercial property, Savills said.
Savills said its finances are robust enough to cope with the recession, after it agreed a new £80m banking facility which lasts until 2011.
In 2008, Savills slumped to a pre-tax loss of £7.7m, from a profit of £85.9m the previous year. Revenue fell 13pc to £568.5m and the estate agent had to write down £42m on the value of acquired businesses and asset impairments.
The company made redundancies, closed offices and cut £22m of costs during the year.
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US Mortgage applications rise
NEW YORK, March 11 (Reuters) - U.S. mortgage applications rose for the first time in three weeks as near record low interest rates spurred demand for home refinancing and purchase loans, data from an industry group showed on Wednesday.
The jump in demand came several weeks after the unveiling of the strongest government action yet to aid homeowners since the housing market's meltdown began and may help gauge what is in store this spring, the peak home-buying season.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended March 6 increased 11.3 percent to 723.4.
U.S. President Barack Obama last month announced the Homeowner Affordability and Stability Plan, which is designed to provide much-needed support to the housing market. The goals of the housing plan are to support refinancing for good quality borrowers; help distressed borrowers avoid foreclosure; and stimulate new housing demand through the expansion of Fannie Mae (FNM.P)(FNM.N) and Freddie Mac (FRE.P)(FRE.N), the top two U.S. home funding companies.
Mark Goldman, lecturer of real estate at San Diego State University, said interest rates on mortgages are at enticing levels that could lift demand in the months ahead.
"It does not really matter if interest rates on mortgages move up one week or move down another, they are still at historically low levels," he said.
"What is important right now is that home affordability has improved and low interest rates help more people afford to buy a home," he said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.96 percent, down 0.18 percentage point from the previous week and the second lowest rate since the weekly MBA survey began in 1990. The record low was 4.89 percent for the week ended Jan. 9, 2009.
Interest rates were well below year-ago levels of 6.37 percent.
The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the U.S. economy, as well as the rest of the world. Economists contend the United States might not emerge from recession unless the housing market stabilizes.
Goldman, who is also a mortgage broker, said for people who have equity in their home the opportunity to refinance to lower monthly payments should provide a bit of relief to strapped consumers amid a shrinking economy.
"The main problem is that wages are stagnant, but it does present the opportunity to save more money and go consume, which will help the economy," he said.
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The jump in demand came several weeks after the unveiling of the strongest government action yet to aid homeowners since the housing market's meltdown began and may help gauge what is in store this spring, the peak home-buying season.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications
U.S. President Barack Obama last month announced the Homeowner Affordability and Stability Plan, which is designed to provide much-needed support to the housing market. The goals of the housing plan are to support refinancing for good quality borrowers; help distressed borrowers avoid foreclosure; and stimulate new housing demand through the expansion of Fannie Mae (FNM.P)(FNM.N) and Freddie Mac (FRE.P)(FRE.N), the top two U.S. home funding companies.
Mark Goldman, lecturer of real estate at San Diego State University, said interest rates on mortgages are at enticing levels that could lift demand in the months ahead.
"It does not really matter if interest rates on mortgages move up one week or move down another, they are still at historically low levels," he said.
"What is important right now is that home affordability has improved and low interest rates help more people afford to buy a home," he said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.96 percent, down 0.18 percentage point from the previous week and the second lowest rate since the weekly MBA survey began in 1990. The record low was 4.89 percent for the week ended Jan. 9, 2009.
Interest rates were well below year-ago levels of 6.37 percent.
The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the U.S. economy, as well as the rest of the world. Economists contend the United States might not emerge from recession unless the housing market stabilizes.
Goldman, who is also a mortgage broker, said for people who have equity in their home the opportunity to refinance to lower monthly payments should provide a bit of relief to strapped consumers amid a shrinking economy.
"The main problem is that wages are stagnant, but it does present the opportunity to save more money and go consume, which will help the economy," he said.
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Tuesday, March 10, 2009
RBS criticism for refusing to pass on rate cuts
Telegraph - RBS is refusing to help borrowers or savers despite receiving a £20 billion bailout from the taxpayer, experts said.
Other leading high street banks, including Nationwide, Lloyds TSB and Halifax, have confirmed that they will be lowering their standard variable rate for mortgage borrowers.
RBS is maintaining its SVR at 4 per cent despite the Bank of England cutting interest rates to just 0.5 per cent on Thursday.
The bank has also it would be cutting some of its savings deals by up to 0.2 per cent.
Politicians and financial experts attacked RBS's decision, calling for pressure to be put on bank chiefs at RBS to pass on the cuts to borrowers.
Tim Newhouse, of the price comparison website Moneysupermarket.com, said: "It is disappointing to see the bailed-out RBS Group freezing SVR mortgage rates while cutting savings returns. It shows the futility of the Bank of England's decision on Thursday."
Vince Cable, the Liberal Democrat shadow chancellor, said: "My primary concern is for savers and they need to be given the best possible outcome."
RBS said the Government wants it to operate on a commercial basis in order to allow us to repay the UK taxpayer as soon as is practicable.
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Other leading high street banks, including Nationwide, Lloyds TSB and Halifax, have confirmed that they will be lowering their standard variable rate for mortgage borrowers.
RBS is maintaining its SVR at 4 per cent despite the Bank of England cutting interest rates to just 0.5 per cent on Thursday.
The bank has also it would be cutting some of its savings deals by up to 0.2 per cent.
Politicians and financial experts attacked RBS's decision, calling for pressure to be put on bank chiefs at RBS to pass on the cuts to borrowers.
Tim Newhouse, of the price comparison website Moneysupermarket.com, said: "It is disappointing to see the bailed-out RBS Group freezing SVR mortgage rates while cutting savings returns. It shows the futility of the Bank of England's decision on Thursday."
Vince Cable, the Liberal Democrat shadow chancellor, said: "My primary concern is for savers and they need to be given the best possible outcome."
RBS said the Government wants it to operate on a commercial basis in order to allow us to repay the UK taxpayer as soon as is practicable.
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Branson returns to Mortgages
LONDON (Reuters) - Virgin Group VA.UL will return to the mortgage market and obtain a license to operate a high street bank, the group's billionaire founder Richard Branson told the Times newspaper.
"We are going to get back into the mortgage business and we will become a bank either by acquisition or by getting our own banking license," he said.
"You will see us become a consumer bank within the next couple of years."
Branson's Virgin Group, which led a failed attempt to take over ailing lender Northern Rock last year, sold its mortgage finance arm, Virgin One, to RBS (RBS.L) in 2003.
Branson, of the government's business advisers, said he was urging Prime Minister Gordon Brown to make the liquidity crisis a top priority.
"The prime minister realizes that the most dangerous thing is the liquidity issue," Branson told the newspaper. "We cannot allow perfectly decent companies go to the wall just because they cannot get liquidity."
Branson was giving the interview while flying round the world last week to promote the launch of his newest airline, V Australia.
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"We are going to get back into the mortgage business and we will become a bank either by acquisition or by getting our own banking license," he said.
"You will see us become a consumer bank within the next couple of years."
Branson's Virgin Group, which led a failed attempt to take over ailing lender Northern Rock last year, sold its mortgage finance arm, Virgin One, to RBS (RBS.L) in 2003.
Branson, of the government's business advisers, said he was urging Prime Minister Gordon Brown to make the liquidity crisis a top priority.
"The prime minister realizes that the most dangerous thing is the liquidity issue," Branson told the newspaper. "We cannot allow perfectly decent companies go to the wall just because they cannot get liquidity."
Branson was giving the interview while flying round the world last week to promote the launch of his newest airline, V Australia.
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US backs bailout bill
WASHINGTON (Reuters) - Bankruptcy judges could cut the mortgage debt of homeowners in bankruptcy court as a last resort to avert foreclosure, under a bill approved by a 234-191 vote on Thursday in the U.S. House of Representatives.
Seen by Democratic supporters as vital to stabilizing the crumbling U.S. real estate market, the so-called "cramdown" bill has been opposed by bankers, despite amendments made this week to limit its scope, including one restricting it to existing primary residence mortgages, not future loans.
The Senate was expected to consider its own version of the House bill soon, but chances of passage are uncertain there.
The House bill has additional provisions meant to help homeowners in the worst housing market in decades, a slump that has helped pull the U.S. economy into a deepening recession.
Under present law, bankruptcy courts may reduce many forms of debt for struggling borrowers -- including a boat, car, vacation home or family farm -- but not a primary residence.
Changing bankruptcy law to allow this, say bankers and Republican opponents of the bill, would raise costs for everyone by diverting capital from the mortgage debt market.
But Democrats backing the bill discount such fears and say it could sharply cut the high U.S. home foreclosure rate.
About one in eight U.S. homeowners with mortgages, a record share, ended 2008 behind on payments or are in the foreclosure process, a mortgage industry group reported on Thursday.
President Barack Obama on Wednesday launched a $75 billion foreclosure relief plan, part of a $275 billion housing stimulus program announced last month.
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Seen by Democratic supporters as vital to stabilizing the crumbling U.S. real estate market, the so-called "cramdown" bill has been opposed by bankers, despite amendments made this week to limit its scope, including one restricting it to existing primary residence mortgages, not future loans.
The Senate was expected to consider its own version of the House bill soon, but chances of passage are uncertain there.
The House bill has additional provisions meant to help homeowners in the worst housing market in decades, a slump that has helped pull the U.S. economy into a deepening recession.
Under present law, bankruptcy courts may reduce many forms of debt for struggling borrowers -- including a boat, car, vacation home or family farm -- but not a primary residence.
Changing bankruptcy law to allow this, say bankers and Republican opponents of the bill, would raise costs for everyone by diverting capital from the mortgage debt market.
But Democrats backing the bill discount such fears and say it could sharply cut the high U.S. home foreclosure rate.
About one in eight U.S. homeowners with mortgages, a record share, ended 2008 behind on payments or are in the foreclosure process, a mortgage industry group reported on Thursday.
President Barack Obama on Wednesday launched a $75 billion foreclosure relief plan, part of a $275 billion housing stimulus program announced last month.
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Thursday, March 5, 2009
Interest rate cut
A mortgage fix could pay off in the long term
It all depends on what you want from your mortgage, says Kara Gammell
By Kara Gammell
Last Updated: 3:04PM GMT 05 Mar 2009
Interest rates may be at an all-time low, but many borrowers are still struggling to snap up competitive mortgage deals.
Those looking to remortgage, or take out their first loan, may be tempted by some of the cheaper tracker rates on offer – but many advisers say they may be better off in the long run by opting for a more expensive fixed-rate deal.
Melanie Bien, director of independent mortgage broker Savills Private Finance, said: "The best mortgage rate for you will very much depend on your own particular circumstances."
Some borrowers are currently paying low rates because their loan is linked to the lender's standard variable rate (SVR). But sticking to an SVR could backfire. Matt Andrews of Moneyworkout said: "Beware of the SVR handcuffs. If you are thinking of sitting on your SVR, you must also think about your property value."
As property values fall the percentage of your borrowing against your mortgage – loan to value or LTV – increases, he said, and this affects borrowers in two ways.
"Firstly, many lenders tier their interest rates, with a higher rate for a higher loan to value. You could slip into a more expensive category if you wait. And many lenders are not lending if your loan to value is greater than 80pc. Those with less equity could find it impossible to remortgage, and find themselves handcuffed to the standard variable rate, hoping it doesn’t go up."
He added: "You may have a fantastic SVR now, but look at your loan to value, look at property prices in your area and how they are moving, think about your needs over the next few years, and if your mortgage may cross the 80pc boundary with the fall in property prices, you may want to consider fixing now, before its too late."
Fixed-rate deals also offer security to first-time buyers and those whose budgets are stretched, as they have the peace of mind that monthly mortgage payments won't suddenly rise.
Ms Bien said: "While two-year fixes tend to be the cheapest fixed-rate deals and the most popular, it may be worth fixing for a longer period. While interest rates remain low now – and may fall further this week – there is no guarantee that they will be as low two years from now when you need to remortgage."
In fact, many economists are expecting rates to rise over this period, particularly if, as expected, inflation starts to pick up again over the medium term. What's more, few are expecting house prices to recover in the near future. This could leave those remortgaging in two years' time in a difficult position, with less equity in their home and interest rates rising.
Ms Bien said: "If lenders are still not offering mortgage to those with less than 10 per cent equity in their home, you could find it difficult to remortgage, leaving you at the mercy of your lender's standard variable rate."
For first-time buyers, a very competitive deal available is the five-year fixed rate from the Post Office at 6.01 per cent. This is available to those with just a 10 per cent deposit and has a £599 fee. If you can afford to borrow only 85 per cent of your home's value, Leeds Building Society offers a five-year fix at 5.25 per cent with a £199 fee.
For those who don't need the certainty of a fix, a base-rate tracker may look more attractive as starting rates are significantly lower. Many are expecting interest rates to remain low for a year or 18 months, giving home owners the benefit of cheaper monthly mortgage payments.
However Ms Bien said that borrowers should be wary of trackers that have penalties after three years, as these may give borrowers less flexibility to switch if rates start to rise sharply.
Woolwich currently offers a tracker charging 2.99 percentage points over the Bank Rate, for the term, giving a current rate of 3.99 per cent. There will be penalties to pay if you remortgage within three years. This rate is available up to 70 per cent loan-to-value (LTV) with a £995 fee. Nationwide has a two-year tracker at 2.83 percentage points over base, giving a rate of 3.83 per cent with a £995 fee, available up to 60 per cent LTV.
Ms Bien said: "For those with significant equity in their home of at least 40 per cent, the pick of mortgage deals are available." Alliance & Leicester, for example, offers 2.04 percentage points above the base rate for two years, giving a rate of 3.04 per cent. However home owners pay a fee equivalent to 2 per cent of the sum they are borrowing.
This is only available to those with 60 per cent LTV.
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It all depends on what you want from your mortgage, says Kara Gammell
By Kara Gammell
Last Updated: 3:04PM GMT 05 Mar 2009
Interest rates may be at an all-time low, but many borrowers are still struggling to snap up competitive mortgage deals.
Those looking to remortgage, or take out their first loan, may be tempted by some of the cheaper tracker rates on offer – but many advisers say they may be better off in the long run by opting for a more expensive fixed-rate deal.
Melanie Bien, director of independent mortgage broker Savills Private Finance, said: "The best mortgage rate for you will very much depend on your own particular circumstances."
Some borrowers are currently paying low rates because their loan is linked to the lender's standard variable rate (SVR). But sticking to an SVR could backfire. Matt Andrews of Moneyworkout said: "Beware of the SVR handcuffs. If you are thinking of sitting on your SVR, you must also think about your property value."
As property values fall the percentage of your borrowing against your mortgage – loan to value or LTV – increases, he said, and this affects borrowers in two ways.
"Firstly, many lenders tier their interest rates, with a higher rate for a higher loan to value. You could slip into a more expensive category if you wait. And many lenders are not lending if your loan to value is greater than 80pc. Those with less equity could find it impossible to remortgage, and find themselves handcuffed to the standard variable rate, hoping it doesn’t go up."
He added: "You may have a fantastic SVR now, but look at your loan to value, look at property prices in your area and how they are moving, think about your needs over the next few years, and if your mortgage may cross the 80pc boundary with the fall in property prices, you may want to consider fixing now, before its too late."
Fixed-rate deals also offer security to first-time buyers and those whose budgets are stretched, as they have the peace of mind that monthly mortgage payments won't suddenly rise.
Ms Bien said: "While two-year fixes tend to be the cheapest fixed-rate deals and the most popular, it may be worth fixing for a longer period. While interest rates remain low now – and may fall further this week – there is no guarantee that they will be as low two years from now when you need to remortgage."
In fact, many economists are expecting rates to rise over this period, particularly if, as expected, inflation starts to pick up again over the medium term. What's more, few are expecting house prices to recover in the near future. This could leave those remortgaging in two years' time in a difficult position, with less equity in their home and interest rates rising.
Ms Bien said: "If lenders are still not offering mortgage to those with less than 10 per cent equity in their home, you could find it difficult to remortgage, leaving you at the mercy of your lender's standard variable rate."
For first-time buyers, a very competitive deal available is the five-year fixed rate from the Post Office at 6.01 per cent. This is available to those with just a 10 per cent deposit and has a £599 fee. If you can afford to borrow only 85 per cent of your home's value, Leeds Building Society offers a five-year fix at 5.25 per cent with a £199 fee.
For those who don't need the certainty of a fix, a base-rate tracker may look more attractive as starting rates are significantly lower. Many are expecting interest rates to remain low for a year or 18 months, giving home owners the benefit of cheaper monthly mortgage payments.
However Ms Bien said that borrowers should be wary of trackers that have penalties after three years, as these may give borrowers less flexibility to switch if rates start to rise sharply.
Woolwich currently offers a tracker charging 2.99 percentage points over the Bank Rate, for the term, giving a current rate of 3.99 per cent. There will be penalties to pay if you remortgage within three years. This rate is available up to 70 per cent loan-to-value (LTV) with a £995 fee. Nationwide has a two-year tracker at 2.83 percentage points over base, giving a rate of 3.83 per cent with a £995 fee, available up to 60 per cent LTV.
Ms Bien said: "For those with significant equity in their home of at least 40 per cent, the pick of mortgage deals are available." Alliance & Leicester, for example, offers 2.04 percentage points above the base rate for two years, giving a rate of 3.04 per cent. However home owners pay a fee equivalent to 2 per cent of the sum they are borrowing.
This is only available to those with 60 per cent LTV.
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+ 44 207 183 2790
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