The UK and US property & finance market has been talked about greatly over the last few month, by myself included. I would like to point out however that there are several major differences between the UK housing and mortgage market and than of the US, suggesting that the UK should not feel the same house price and credit crises currently faced by the US.
Fixed Rate Mortgages & Stepped Rate Mortgages
There is a conservative tendency in the UK for homeowners to prefer fixed rate mortgages, as opposed to variable rate products on the market, historically due to the consequences many homeowners felt in the 1990's with interest rates above 12%. More importantly there are few independent mortgage brokers I know of who recommend mortgage products with stepped rates*. Stepped rate mortgages are rare in UK with little popularity due to several factors;
(i) - Rates tend to be extremely low to begin, usually around 3%.
(ii) - Rates will generally increase once per year of around 1% - 2%
(iii) - Homeowners will be fixed for generally 3 - 5 years at which point the interest rate is well above other competitor rates
(iv) - Stepped rates tend to carry severe redemption penalties**
(v) - The interest rates tend to be variable which means calculating what your payments will be in 3 years time near impossible.
These factors have led me to shy away from recommending such products, the product providers have a good concept, create a mortgage for people who are on low incomes to buy their own home and as household income historically increases over time clients will be able to afford higher monthly payments. On paper it makes sense but in reality, as we are now seeing in the US, homeowners simply don't appreciate or think about how they plan to pay for next year or the year after.
Federal Reserve and FSA
The UK's FSA have far more sweeping powers and controls compared to the US self regulated style system, although the self regulated system can have great benefits to competition, marketing flexible lending criteria this can have devastating effects when things go wrong.
The FSA done great work in ensuring customers are treated fairly along with brokers & lenders being accountable for their advice and services.
The US Sub prime & UK Adverse Credit Market
Going back to the earlier factor on fixed rate mortgages and stepped rate products, due to supply and affordability US mortgage brokers have offered sum prime clients, generally classified as higher risk, a high risk product. In the UK clients with Adverse Credit who are also classified as high risk will be offered several options with the fixed rate being favorable due to the monthly payments remaining the same.
The major problem currently facing the UK mortgage market is money or rather lack of it.
Take northern rock as a prime example, traditionally Northern Rock doesn't lend to clients with adverse credit. On their high LTV products the credit check is of high importance, however they have still found them selves the victim of the current money market.
Although house prices may stay stable in the UK along with few missed mortgage payments, we still have to tackle the issue to bringing new money into the market at a lower cost.
Hopefully the new year will bring a new LIBOR rate***.
Daniel Morgan
Mortgage Broker & Finance Journalist
* A mortgage product which increases interest rates over a specified period
** Penalty fees for redeeming the mortgage before an agreed date.
*** Interest rate at which banks lend to each other
Sunday 30 December 2007
Saturday 29 December 2007
Mortgage and property market in 2008
There is growing concern coming from experts on how the mortgage and property market in 2008 will turn out.
Although not guaranteed house priced are likely to fall in early 2008 by at least 1-2% as first time buyers are unable to enter the market and second time movers are unable to sell their home. There was incredible housing inflation from early 2006 to mid 2007 of up to 100% in some areas such as the North of England and East Wales.
Thankfully, for long term stability, these unsustainable increases have come to an end, this will hopefully lessen the extent to which the UK's slowing economy will be effected in the long term.
Predictions are that house prices will fall flat over the next year with the possibility of another interest rate cut ensuring UK home owners don't face negative equity there are some positive signs that this market correction will ensure stable growth over the next 10 years.
The possible changes in the mortgage market are more people looking at remaining in their current properties for longer which should see an increase in long fixed rate mortgages, a product being purchased by the current government as a way to stabilise the mortgage market.
Long term mortgages are generally fixed for between 5 years to 25 years which could give added security to homeowners fearful of fluctuating interest rates and house prices. The obvious negative being as the products hints, you are fixed for that period. There are several 25 year products which will only penalise you for the first 5 to 10 years, which is still a considerable amount of time, with the other disadvantage being many independent mortgage brokers may see the recommendation of long term fixed rate mortgages as commercial suicide to the lose of custom many are used to.
If you are considering a long term fixed rate mortgage please remember to fully understand the consequences of tying yourself to one lender for such a period. They can be a good choice for some homeowners but without thinking all doom and gloom, what happens if you need to move for family, work or other social reasons?
Many will offer a porting facility, a feature which allows you to take the mortgage to the next home, however what if your new property in overseas or has a lower value?
For more information on long term mortgages you should seek an independent mortgage broker from my mortgage portal site.
Although not guaranteed house priced are likely to fall in early 2008 by at least 1-2% as first time buyers are unable to enter the market and second time movers are unable to sell their home. There was incredible housing inflation from early 2006 to mid 2007 of up to 100% in some areas such as the North of England and East Wales.
Thankfully, for long term stability, these unsustainable increases have come to an end, this will hopefully lessen the extent to which the UK's slowing economy will be effected in the long term.
Predictions are that house prices will fall flat over the next year with the possibility of another interest rate cut ensuring UK home owners don't face negative equity there are some positive signs that this market correction will ensure stable growth over the next 10 years.
The possible changes in the mortgage market are more people looking at remaining in their current properties for longer which should see an increase in long fixed rate mortgages, a product being purchased by the current government as a way to stabilise the mortgage market.
Long term mortgages are generally fixed for between 5 years to 25 years which could give added security to homeowners fearful of fluctuating interest rates and house prices. The obvious negative being as the products hints, you are fixed for that period. There are several 25 year products which will only penalise you for the first 5 to 10 years, which is still a considerable amount of time, with the other disadvantage being many independent mortgage brokers may see the recommendation of long term fixed rate mortgages as commercial suicide to the lose of custom many are used to.
If you are considering a long term fixed rate mortgage please remember to fully understand the consequences of tying yourself to one lender for such a period. They can be a good choice for some homeowners but without thinking all doom and gloom, what happens if you need to move for family, work or other social reasons?
Many will offer a porting facility, a feature which allows you to take the mortgage to the next home, however what if your new property in overseas or has a lower value?
For more information on long term mortgages you should seek an independent mortgage broker from my mortgage portal site.
Thursday 20 December 2007
End of Adverse credit mortgages?
Adverse credit mortgages are coming under increasing scrutiny since the recent credit crunch which has effected the current liquidity markets on both sides of the continent.
An adverse credit mortgage is a mortgage product designed to aid people who have had problems with credit is the past, the lending criteria varied from allowing one or two missed payments to lending money to bankrupts and repossession cases.
They would invariably have high interest rates and lend on a low LTV, loan to value, of the property which ensured high profits for the lender along with security on the property.
Unfortunately clients started having difficulty keeping up with the monthly payments, especially since rates rose in total 1% last year. Even with the recent interest rate cut there are ever more cases in both the US and UK of homeowners being unable to maintain the payments.
What happens when adverse credit mortgage holders want to remortgage?
Last month Kensington, the specialist adverse credit lender, pulled out of the market.
For clients coming off fixed rate mortgage deals onto the SVR, Standard Variable Rate, we may see even more homeowners facing repossession due to higher monthly payments.
Its put the whole industry in a catch 22. One the one hand adverse credit lenders need to tighten their criteria to ensure future borrowers are of lower risk. One the other hand homeowners coming off fixed rate mortgages may find it difficult to find an adverse credit lender prepared to take on the old terms.
Does this mean the end of adverse credit mortgages?
Whist there must be a re-evaluation of the lending criteria used by the likes of Kensigton we must also remember that stopping the money is not going to solve the problem, as we can already wittiness with the current LIBOR rate at an all time high and the effect this is having on lenders such as Northern Rock.
An adverse credit mortgage is a mortgage product designed to aid people who have had problems with credit is the past, the lending criteria varied from allowing one or two missed payments to lending money to bankrupts and repossession cases.
They would invariably have high interest rates and lend on a low LTV, loan to value, of the property which ensured high profits for the lender along with security on the property.
Unfortunately clients started having difficulty keeping up with the monthly payments, especially since rates rose in total 1% last year. Even with the recent interest rate cut there are ever more cases in both the US and UK of homeowners being unable to maintain the payments.
What happens when adverse credit mortgage holders want to remortgage?
Last month Kensington, the specialist adverse credit lender, pulled out of the market.
For clients coming off fixed rate mortgage deals onto the SVR, Standard Variable Rate, we may see even more homeowners facing repossession due to higher monthly payments.
Its put the whole industry in a catch 22. One the one hand adverse credit lenders need to tighten their criteria to ensure future borrowers are of lower risk. One the other hand homeowners coming off fixed rate mortgages may find it difficult to find an adverse credit lender prepared to take on the old terms.
Does this mean the end of adverse credit mortgages?
Whist there must be a re-evaluation of the lending criteria used by the likes of Kensigton we must also remember that stopping the money is not going to solve the problem, as we can already wittiness with the current LIBOR rate at an all time high and the effect this is having on lenders such as Northern Rock.
Wednesday 19 December 2007
Flat Rental Demand Falls - BMV Troubles
Flat rental has fallen dramatically according to a survey carried out by The Royal Institution of Chartered Surveyors (Rics).
Demand for flats have been falling over the last 3 months to 17% - down from 37% in the previous quarter which could have an impact on investors holding large flat portfolios.
The Rics stated the report highlights the sluggish market in the new build flat sector, this sector has been under increased scrutiny of the past 6 months as many first time investors with large LTV buy to let mortgages are finding it increasingly difficult to make the rental stack up.
Many investors were purchasing property BMV, below market value, and in effect not requiring a deposit - A high risk strategy as often the rental barley covers the monthly mortgage payments.
Many new build flat investors are also finding it extremely difficult to sell the property at the price they originally paid due to the new appeal value and resale value differing.
The other problem with the resale of the properties is they also fall short when stacking up the buy to let mortgage for rental calculations, many buy to let mortgage lenders now require 125% rental calculation on the mortgage payments which makes it difficult to achieve, especially now with the fall in demand.
125% Rental Calculation Example
Mortgage amount: £100,000
Monthly payments: £500 (at 6% interest)
Rental required: £625 (£500 x 1.25)
In the current market it is extremely difficult to find new build flats under £150,000 in the current market with an even more difficult challenge to find properties that would rent for over £700 per month. Another factor effecting the buy to let mortgage market is that many lenders, having seen the problems with rental and resale of new build flats, will not lend money if the property is under a certain number of years old.
There are still good buys to be had where rental stacks up will with easy resale, be cautious of the hundreds of websites offering large discounts of new build properties whist also offering 100% mortgages, most will require a membership fee, finders fee and deposit. In my own experience I have found it near impossible to find a buy to let mortgage of these offers.
Be warned.
For more information on Buy to Let mortgages and ways to put little if any money down then you can visit my website or contact me for more info.
Demand for flats have been falling over the last 3 months to 17% - down from 37% in the previous quarter which could have an impact on investors holding large flat portfolios.
The Rics stated the report highlights the sluggish market in the new build flat sector, this sector has been under increased scrutiny of the past 6 months as many first time investors with large LTV buy to let mortgages are finding it increasingly difficult to make the rental stack up.
Many investors were purchasing property BMV, below market value, and in effect not requiring a deposit - A high risk strategy as often the rental barley covers the monthly mortgage payments.
Many new build flat investors are also finding it extremely difficult to sell the property at the price they originally paid due to the new appeal value and resale value differing.
The other problem with the resale of the properties is they also fall short when stacking up the buy to let mortgage for rental calculations, many buy to let mortgage lenders now require 125% rental calculation on the mortgage payments which makes it difficult to achieve, especially now with the fall in demand.
125% Rental Calculation Example
Mortgage amount: £100,000
Monthly payments: £500 (at 6% interest)
Rental required: £625 (£500 x 1.25)
In the current market it is extremely difficult to find new build flats under £150,000 in the current market with an even more difficult challenge to find properties that would rent for over £700 per month. Another factor effecting the buy to let mortgage market is that many lenders, having seen the problems with rental and resale of new build flats, will not lend money if the property is under a certain number of years old.
There are still good buys to be had where rental stacks up will with easy resale, be cautious of the hundreds of websites offering large discounts of new build properties whist also offering 100% mortgages, most will require a membership fee, finders fee and deposit. In my own experience I have found it near impossible to find a buy to let mortgage of these offers.
Be warned.
For more information on Buy to Let mortgages and ways to put little if any money down then you can visit my website or contact me for more info.
Tuesday 18 December 2007
ECB to offer unlimited funds to banks at fixed rate
The ECB, European Central Bank, today stated it would offer unlimited funds to European banks at a fixed rate in the hope of encouraging banks to start lending to each other again.
What effect does this have on the UK?
It could possibly reduce the LIBOR rate which is currently at an all time high due to the limited supply of lenders willing to lend out their money. Most are keeping hold of their cash due to possible liquidity problems in the future.
If the funds can reduce the LIBOR rate it would make it easier, if not cheaper, for banks such as Norther Rock to borrow money to lend to its customers.
It will not solve the issue of the sub prime market but will ease the consequences the sub prime and adverse lenders have had on the market in general. It is still too early to tell if a reduced libor rate will help or hinder the current situation.
It all now lies with European banks to take up the fixed rate offers and start to lend to each other again.
How does this effect my Mortgage?
Well if you were looking for a fixed rate mortgage a few weeks back with a high LTV, the majority of the lenders were sourcing their finances from the LIBOR market. Now if the LIBOR rates falls due to more money being freely available you could see one of two things happening in the UK mortgage industry;
(i) Mortgage lenders make more profit.
(ii) Mortgage lenders pass on the savings to Mortgage borrowers in reduced interest rates.
With the number of mortgages available on the market I would predict more lenders leaning towards the 2nd option due to increased competition and vigilance from mortgage brokers who give independent advice.
If you use a good Independent Mortgage Broker he should be able to conduct a mortgage search for cheap mortgage with lower interest rates.
Daniel Morgan
FruitMortgages.com
Mortgage Broker Search
What effect does this have on the UK?
It could possibly reduce the LIBOR rate which is currently at an all time high due to the limited supply of lenders willing to lend out their money. Most are keeping hold of their cash due to possible liquidity problems in the future.
If the funds can reduce the LIBOR rate it would make it easier, if not cheaper, for banks such as Norther Rock to borrow money to lend to its customers.
It will not solve the issue of the sub prime market but will ease the consequences the sub prime and adverse lenders have had on the market in general. It is still too early to tell if a reduced libor rate will help or hinder the current situation.
It all now lies with European banks to take up the fixed rate offers and start to lend to each other again.
How does this effect my Mortgage?
Well if you were looking for a fixed rate mortgage a few weeks back with a high LTV, the majority of the lenders were sourcing their finances from the LIBOR market. Now if the LIBOR rates falls due to more money being freely available you could see one of two things happening in the UK mortgage industry;
(i) Mortgage lenders make more profit.
(ii) Mortgage lenders pass on the savings to Mortgage borrowers in reduced interest rates.
With the number of mortgages available on the market I would predict more lenders leaning towards the 2nd option due to increased competition and vigilance from mortgage brokers who give independent advice.
If you use a good Independent Mortgage Broker he should be able to conduct a mortgage search for cheap mortgage with lower interest rates.
Daniel Morgan
FruitMortgages.com
Mortgage Broker Search
Monday 17 December 2007
Need to re-mortgage your fixed rate mortgage?
Need to re-mortgage your fixed rate mortgage?
Your not the only one, 1000's of homeowners have or will be coming off their fixed rate mortgage this year and early 2008. Many have been on fixed rate mortgages as low as 4.4% and most will be re-mortgaging on a rate over 1% higher in the next few weeks!
Even with the recent interest rate cut by the Bank of England it is thought that homeowners may soon feel the pinch of 4 rate rises whilst they were safe in a fixed rate mortgage.
It doesn't have to be doom and gloom though!
There are several ways in which you could remortgage on a cheap mortgage with similar monthly payments that you've had before.
High Arrangement Fee & Low Interest Rate
This maybe an option if you have a small mortgage and will benefit from the lower interest rates, although the higher arrangement fee may not justify the low interest rate unless its for a long period.
Fee Valuation & Free Legals
Many mortgage lenders now offer free valuations and free legals for people remortgaging, helping reduce the overall cost compared with paying upfront.
Offset Mortgage/Flexible Mortgage
These tend to allow the borrower to over pay their mortgage or offset savings against the mortgage balance. This can significantly reduce the monthly payments or reduce the term of the mortgage. It also gives the flexibility to withdraw money if required.
The one thing to remember is to seek an independent mortgage brokers advice on the best and cheapest mortgage option for you. Most importantly if your coming off your fixed rate mortgage, seek advice sooner rather than later. If your mortgage changes to a Standard Variable Rate before you arrange your re-mortgage you will see a steep increase in your monthly payments.
Don't give the lender a penny more than you need too!
For more information on the 1,000's of different mortgages on the market and to find a local independent mortgage brokers near you then please visit my website FruitMortgages.com
Your not the only one, 1000's of homeowners have or will be coming off their fixed rate mortgage this year and early 2008. Many have been on fixed rate mortgages as low as 4.4% and most will be re-mortgaging on a rate over 1% higher in the next few weeks!
Even with the recent interest rate cut by the Bank of England it is thought that homeowners may soon feel the pinch of 4 rate rises whilst they were safe in a fixed rate mortgage.
It doesn't have to be doom and gloom though!
There are several ways in which you could remortgage on a cheap mortgage with similar monthly payments that you've had before.
High Arrangement Fee & Low Interest Rate
This maybe an option if you have a small mortgage and will benefit from the lower interest rates, although the higher arrangement fee may not justify the low interest rate unless its for a long period.
Fee Valuation & Free Legals
Many mortgage lenders now offer free valuations and free legals for people remortgaging, helping reduce the overall cost compared with paying upfront.
Offset Mortgage/Flexible Mortgage
These tend to allow the borrower to over pay their mortgage or offset savings against the mortgage balance. This can significantly reduce the monthly payments or reduce the term of the mortgage. It also gives the flexibility to withdraw money if required.
The one thing to remember is to seek an independent mortgage brokers advice on the best and cheapest mortgage option for you. Most importantly if your coming off your fixed rate mortgage, seek advice sooner rather than later. If your mortgage changes to a Standard Variable Rate before you arrange your re-mortgage you will see a steep increase in your monthly payments.
Don't give the lender a penny more than you need too!
For more information on the 1,000's of different mortgages on the market and to find a local independent mortgage brokers near you then please visit my website FruitMortgages.com
House prices down 3.2% in December
Rightmove, the property website, reported a "3.2% asking price fall exacerbated by seasonal factors and HIP-avoiding first-time sellers" today amid fears in the market that property prices may continue to fall. There have also been reports that the National Network of Independent Surveyors are advising their members to value properties conservatively fueling difficulties in people getting high Loan to Value (LTV) re-mortgages.
January is set to be a trying time for the British housing market with areas such as Wales being the worst hit.
A growing sector in the current market are Discount Property Purchasers (See article on Discount Purchase Properties) who are seizing the opportunity of distressed sellers and purchasing well below the current market value. The average discount is between 15% - 20% which counts high LTV borrowers out but are a lifeline to homeowners with enough equity in their property.
Mortgage rates may fall again after Christmas but it is still unknown if this will help stable the market in its current condition.
The US Faderal Reserve has started to look into regulating the mortgage market, particularly the Self Cert mortgage sector amid concerns that adequate checks are not taking place.
This will hopefully quell the current credit crunch, although it may stop some people from re-mortgaging, fueling further the dropping property prices.
Overseas US property investment
Overseas investors have started to invest heavily in the US property market as they have predicted that property prices are currently undervalued and maybe a good potential investment.
If you would like to learn more about property investment and mortgages in general why not visit my mortgages a-z website.
To view the full copy of the RightMove.com December price index report click here.
Daniel Morgan
FruitMortgages.com
January is set to be a trying time for the British housing market with areas such as Wales being the worst hit.
A growing sector in the current market are Discount Property Purchasers (See article on Discount Purchase Properties) who are seizing the opportunity of distressed sellers and purchasing well below the current market value. The average discount is between 15% - 20% which counts high LTV borrowers out but are a lifeline to homeowners with enough equity in their property.
Mortgage rates may fall again after Christmas but it is still unknown if this will help stable the market in its current condition.
The US Faderal Reserve has started to look into regulating the mortgage market, particularly the Self Cert mortgage sector amid concerns that adequate checks are not taking place.
This will hopefully quell the current credit crunch, although it may stop some people from re-mortgaging, fueling further the dropping property prices.
Overseas US property investment
Overseas investors have started to invest heavily in the US property market as they have predicted that property prices are currently undervalued and maybe a good potential investment.
If you would like to learn more about property investment and mortgages in general why not visit my mortgages a-z website.
To view the full copy of the RightMove.com December price index report click here.
Daniel Morgan
FruitMortgages.com
Saturday 15 December 2007
Discount Purchase Properties
There is a growing trend in recent month, in response to a slow housing market, for investors to demand larger discounts on the open market value (OMV). The way it works is buy purchasing the property at a discount and then having a buy to let mortgage on the OMV thus reducing or even eliminating the need for a deposit.
Example
Open market value of property: £100,000
Purchase price: £85,000
Mortgage: 85% of market value: £85,000
However it is not as simple as purchasing at a discount and then taking out a mortgage to finance the project, you need a one day closed bridging loan to facilitate the purchase and then a buy to let re-mortgage to release the value and equity in the property.
I have been carrying out this type of finance for the last 2 months and have seen a sharp rise in demand from investors for this product.
With expectations of the housing market remaining slow in Jan and Feb we should see this type of finance increase dramatically.
If you are interested in learning more about this type of finance then please feel free to give me a call or email me and I can explain how I can help build you a large property portfolio with little if any money down.
Daniel Morgan
Independent Mortgage Broker
info@fruitmortgages.com
07815161734
Example
Open market value of property: £100,000
Purchase price: £85,000
Mortgage: 85% of market value: £85,000
However it is not as simple as purchasing at a discount and then taking out a mortgage to finance the project, you need a one day closed bridging loan to facilitate the purchase and then a buy to let re-mortgage to release the value and equity in the property.
I have been carrying out this type of finance for the last 2 months and have seen a sharp rise in demand from investors for this product.
With expectations of the housing market remaining slow in Jan and Feb we should see this type of finance increase dramatically.
If you are interested in learning more about this type of finance then please feel free to give me a call or email me and I can explain how I can help build you a large property portfolio with little if any money down.
Daniel Morgan
Independent Mortgage Broker
info@fruitmortgages.com
07815161734
Interest rate drop to 5.5%
Interest rates dropped to 5.5% last week which was a welcome from most of the finance industry. Mortgage brokers, Lenders & Borrowers have all been sensitive to the market in the last 6-8 weeks due to a slow down, if not fall, in house prices and a high LIBOR rate which has made it difficult to source money on the open market. Although the LIBOR rate is still high compared to 3 months ago we are all hoping the drop in the Bank of England base rate will encourage Lenders to lower their interbank rate.
The obvious advantage to home owners is that many on a variable, tracker or discount rate will see their monthly payments reduce over the next few weeks. HBOS, owners of HALIFAX, and Nationwide were both the first to announce it had reduced its interest rates on their tracker and variable products.
However hopes of a change in the current housing market would be possibly over optimistic, a 1/4% change in interest rates save or cost around £40 a month on the average home. There is likely to be a re-index in the British housing market before anyone will see an increase in house sales. January and February should be extremely trying times for the UK.
The only market I can foresee growing will be the Bridging Loan and Discount Property Purchases market as they move in to purchase property from Distressed Sellers, people who cannot sell their home on the open market.
Not to be one for doom and gloom: The only thing to fear is fear itself. The market has a funny way of correcting itself and although it is likely house prices may fall in the near futurem, there is no real concern of a return to the 90's.
Enjoy your Christmas,
Daniel Morgan
Independent Mortgage Broker
FruitMortgages.com
The obvious advantage to home owners is that many on a variable, tracker or discount rate will see their monthly payments reduce over the next few weeks. HBOS, owners of HALIFAX, and Nationwide were both the first to announce it had reduced its interest rates on their tracker and variable products.
However hopes of a change in the current housing market would be possibly over optimistic, a 1/4% change in interest rates save or cost around £40 a month on the average home. There is likely to be a re-index in the British housing market before anyone will see an increase in house sales. January and February should be extremely trying times for the UK.
The only market I can foresee growing will be the Bridging Loan and Discount Property Purchases market as they move in to purchase property from Distressed Sellers, people who cannot sell their home on the open market.
Not to be one for doom and gloom: The only thing to fear is fear itself. The market has a funny way of correcting itself and although it is likely house prices may fall in the near futurem, there is no real concern of a return to the 90's.
Enjoy your Christmas,
Daniel Morgan
Independent Mortgage Broker
FruitMortgages.com
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