Try to not give lenders any excuses to decline your application

Getting a mortgage application through a lender in the current climate can be challenging.  One day it appears relatively easy, yet the next, it’s a nightmare!  So whatever you do, try to not give lenders any excuses to decline your application or refuse to lend to you.  Try to pay bills on time, don’t miss payments of any type and especially not mortgage payments!  Any missed (or sometimes late) payments will be registered on your credit file and this is normally used as the basis of a decision to lend to you.  Remember that many Insurance companies and mobile phone providers carry out credit searches on people before issuing their products.  Try not to incur too many searches in a short space of time as this can also be detrimental to your credit score.

 I haven’t reported on figures for a while, so I’ve highlighted a few stark reminders of the current state of the financials, estimated by creditaction, for November:

-          299 people are declared insolvent or bankrupt every day. This is equivalent to one person every 4 minutes 49 seconds.

-          93 properties are repossessed every day

-          1,432 people a day reported they had become redundant between June and August 2012.

-          1,170 Consumer County Court Judgements (CCJ’s) are issued every day (based on Q2 2012 trends). The average value of a Consumer CCJ in Q2 2012 was £3,217.

-          Citizens Advice Bureaux in England and Wales dealt with 8,465 new debt problems every working day during the year ending June 2012.

-           Average household debt in the UK (including mortgages) was £53,785 in September.

These are eye openers, but there are some that are really amazing:

-           the UK's total interest repayments on personal debt over a 12 month period would have been £60.3 billion.  This is equivalent to £165 million per day!  Just interest payments!

-          UK Banks and Building Societies wrote-off £5.3 billion of loans to individuals over the 4 quarters to Q2 2012.  In Q2 2012 itself they wrote-off £1.15 billion (of which £567 million was credit card debt) amounting to a daily write-off of £12.52m.

I know these are a grim read, but sometimes we need a gentle reminder of what’s what.  It also might help those who were looking to load up their credit cards on Christmas spending, and worry about it later, remember that these need to be repaid!!  Don’t become a statistic..

Lenders are increasing SVRs now too!

Many existing customers with the Halifax will shortly receive a letter confirming that their Standard Variable Rate will increase from 3.50% to 3.99% on 1st May. Not a nice letter to receive, but it is within the lenders power and will affect between a reported 600,000 – 850,000 customers. A spokesman for the lender says the change acknowledges that the cost of funding a mortgage in today's market remains significantly higher than the longer term average. The increase to the rate reflects the fact that raising money through savings and wholesale markets is currently very expensive. It is not expected that many others will follow suit (RBS also had previously increased rates for some 200,000!). Some lenders have written in guarantees to their mortgage offers terms and conditions, so don’t panic just yet as many track Bank Base Rate. It
does mean that you should review your mortgage offer, especially the small print. If your lender can increase the SVR rate whenever they feel necessary, maybe it’s a good time to review your
options. You don’t have to be loyal to the lender…they may not be thinking especially about you!

The deadline for the end of the stamp duty holiday is looming. The first time buyer's £250,000 completion threshold applies up to 24 March 2012 inclusive. During this time, all First Time Buyers can claim relief on Stamp Duty. Not long now, so get pushing for completion!

The latest figures from creditaction report
- The average amount owed per UK adult (including mortgages) was £29,634 in January. This was around 122% of average earnings.

- 318 people are declared insolvent or bankrupt every day (based on Q4 2011 trends). This is equivalent to 1 person every 62 seconds during each working day
- 1,473 Consumer County Court Judgements (CCJ's) are issued every day (based on Q4 2011 trends). The average value of a Consumer CCJ in Q4 2011 was £2,949.
- Citizens Advice Bureaux in England and Wales dealt with 8,652 new debt problems every working day during the year ending September 2011.
- 93 properties are repossessed every day (based on Q4 2011 trends).
- In Q4 2011, Banks & Building Societies wrote-off £1.48 billion (of which £907 million was credit card debt) amounting to a daily write-off of £16.23m!!

Although these are some horrific and eye opening figures, I do think it’s worth stating these
every now and again. It highlights the state of our economy and makes you stop and think about finances and whether there’s something you could be doing better or with another provider. It is always good to talk!

New 95% Loan to Value aimed at First Timers

First Time Buyers have received more attention this week with The Hanley Economic Building Society being the latest to offer an attractive product to this sector.  At 95% of the property value and with a 3 year discounted rate of 4.75% (5.3% APR) and a fee of just £99 upfront and £400 on completion, this is a bold attempt from the lender to attract first timers.  Only six distributors in the UK have access to this product (AToM are one!) and I suspect funds will be utilised on this product pretty quickly for those with just a 5% deposit!  Well done The Hanley!

Leeds Building Society have also been busy in the products department and launched a 1.99% (4.5% APR) fixed rate for two years for purchase or remortgage.  They will lend up to 70% of the property value and will charge a £199 booking fee upfront and £1,800 completion fee. 

On both these products, redemption penalties will apply during the product period and terms and conditions apply!

In other news, according to creditaction, Rightmove has said new sellers raised average asking prices by 0.7% (£1,596) to an average of £233,139 in September. Prices rose 1.5% compared to September 2010.

House purchase approvals (35,226) were higher in August than in July according to the British Bankers Association, and 14% higher than in August 2010. The average loan approved for house purchase in August was £145,500 which is 1% higher than a year ago.

A moneysupermarket.com survey has found that 27% of Brits currently spend over 40% of their wages on paying off non-mortgage debt. The figures show that the average person pays off £322 every month, which is equivalent to a quarter of the average monthly income for a UK adult (currently £1,288). Even more strikingly, 8% of people say that they spend over 80% of their wages on repaying debt.

And finally, a study by Endsleigh suggests that twice as many people living in the UK are renting (45%) compared to those owning their own home (23%). Middlesex is the most popular area, with over three times as many renters (51%) as buyers (16%). It is closely followed by East Sussex (48%), Surrey (46%) and Berkshire (46%) – all of the top 10 regions for renting are in the South.  According to Endsleigh, 62% of renters intend to buy a property in the next five years.

Statistics tell the story

Of late, the mortgage market has been a very positive place with product choice rapidly on the increase. Lenders have been appearing keen to lend and some even wanting to help over and above the normal call of duty! But (and you knew it was coming!), the statistics are still showing the fragile state of our economy.
August’s creditaction figures state that:
- 331 people every day of the year will be declared insolvent or bankrupt. This is equivalent to 1 person every 60 seconds during a working day.
- 1,577 Consumer County Court Judgements (CCJs) were issued every day during Q1 2011 and the average judgement amount was £3,118.
- 220 mortgage possession claims will be issued and 160 mortgage possession orders will be made today (100 properties were repossessed every day during Q1 2011)
- 1,578 people reportedly were made redundant every day during the 3 months to end May 2011
- The UK population is projected to grow by 1,205 people a day over the next decade

However, despite all of these eye opening and, frankly, quite depressing figures, the one that really is quite unbelievable in the current climate is that, in Q1 2011, UK banks and building societies wrote off £1.89bn (£866m of that being credit card debt). This amounts to a write-off of £20.71m a day! Who said lenders have funding issues??
The average house price in the UK in May 2011 for first time buyers stood at £150,685 which is an annual decrease of 2.1%. The typical first-time buyer deposit in May was 20% (£29,874). The average first-time buyer borrowed 3.14 times their income and the average first-time buyer loan was £119,497.
As at the end of March, there were 1.3m buy-to-let mortgages outstanding, worth a total of £152 bn. By value, buy-to-let mortgages accounted for 12.3% of all mortgages.
And finally, as the summer is well underway - Barclays estimate that, over the course of the six week summer holiday period, British holidaymakers will spend a total of £1.47 billion whilst they are abroad (via debit cards and cash withdrawals). However, Barclays say that this figure is broadly the same as that for summer 2010, and suggest that this shows that consumer confidence has not totally bounced back since the end of the recession.
Next week will be more positive, honest! Sometimes, we just need a reality check!

Buy to Let increased to 85% LTV

Kensington mortgages have launched an 85% loan to value product for Buy to Lets (investment properties for letting out). They will consider First Time Buyers looking to become first time landlords and now also allow applications on new build flats. Good niches and a bold statement of intent to lend! They are currently the only lender requiring a 15% deposit for Buy to Lets, but I expect others will follow suit shortly.

I was astounded to see recent figures from creditaction reporting that Banks and Building Societies had written off £9.9bn of loans to individuals over the last 12 months (end of Q3 2010). That’s nearly £20m a day! In addition, the Government is paying a jaw dropping £120m a day in interest alone on the UK’s net debt (£889bn excluding financial interventions). These are scary figures indeed. But to add to the reality, individuals currently owe more than the entire country has produced during the last four quarters. It’s therefore no wonder that the lending market is in the state it’s in and provides some understanding in to the pressures facing the Government and Bank of England when considering rate changes.

As I write this article a few days before the paper is printed, I am unable to comment on this week’s Monetary Policy Committee (MPC) decision on whether or not to increase the Bank Base Rate. However, out of the nine MPC members for January, two voted for an increase. This is an increase on previous months and we may not be too far away from seeing a rate increase. Some estimates suggest May.

Finally, there has been speculation in the financial press lately regarding the Mortgage Market Review (MMR) which is an FSA initiative to make, in their words, the mortgage market more professional and transparent. Much of this, together with another of their initiatives is the Regulatory Distribution Review (RDR) part of which is designed to encourage our sector towards a fee charging route in all financial advice areas whereas, today, most income for advisors is from introductory fees incorporated in the product sold, paid by the providing financial institution. Watch this space in months to come but it seems fair in many ways that, given the professional qualifications mortgage advisors now need to obtain to give advice, a fee reward is not unreasonable for the amount of work and research undertaken in advising and recommending a mortgage product.

Credit is easy to obtain, but you have to pay it back!

With reports of snow on the horizon and rising energy prices hitting the press recently, uSwitch estimate that 61% of households are worried about the cost of their energy bills this coming winter.

According to creditaction, more than four in ten adults in Britain struggle each month to make it to ‘payday’. And 41% of consumers feel worse off now, than they did this time last year, according to Gocompare.com

In terms of payment difficulties, the UK Payments Council suggest there are more credit cards in circulation in the UK than people and the average rate of interest is currently around 18.86%, which is 18.36% above the current Bank of England Base Rate! uSwitch estimate that 14 million consumers now use credit cards for day to day spending, whilst confused.com estimate that 26% of credit card holders have been charged at least once in the last year for missing a minimum payment.

If credit cards or other unsecured payments are late or missed, your credit report will be affected and only a limited number of lenders will look to assist when applying for a mortgage, but at a premium interest rate. This extends to insurance and mobile phone providers. You may not even know a default has been registered against you, until you apply for further products.

178,200 mortgages ended Q2 2010 with arrears equivalent to at least 2.5% of the outstanding mortgage balance and 9,400 properties were taken into possession, according to the Council of Mortgage Lenders. The equivalent of 1 property being repossessed every 14 minutes. In comparison, the US amassed a record 102,134 repossessions in September alone.

These are stark figures indeed, but the reality is, if you miss one mortgage payment, or secured loan payment in the last 6 months, your chances of getting a new mortgage are almost zero.

I make no apologies for showing the stark figures above as we move in to the Christmas period. Credit is very easy to obtain, but a) you need to pay it back and b) if you get it wrong, it could affect any future financial applications for a considerable period of time.

Understand the different types of mortgages?

A worrying report was recently released by First Direct, the online lender of the HSBC group. Following a survey of 2,000 customers, 92% of those planning on taking out a mortgage during the course of the next year don't understand the difference between the types of deal on offer. Only 26% of existing mortgage borrowers said they completely understood how the main types of mortgages work and, on average, only 22% completely grasped the difference between fixed rates, variable deals and tracker mortgages. The research also concluded that men are more likely to appreciate the difference between types of mortgage than women, at 26% compared to 18%. In short, the cynic in me would suggest that this shows the severe lack of advice taken and understanding provided for customers who buy mortgages online, or from a source only offering their own brand products.

Confidence amongst homeowners about the outlook for the property market has fallen sharply amid growing concerns over the availability of mortgage finance, say Zoopla.co.uk. According to the survey of 6,149 homeowners, the average growth predicted for house prices in the next six months has also dropped to only 3% from 5.5% three months ago. And the number of respondents who expect property prices to fall over the coming six months is up sharply to 1 in 4 (25%) from 1 in 10 (11%) only three months ago.

According to creditaction, at the end of June, there were 1.25 million buy to let mortgages outstanding, accounting for 12% of all mortgages, the highest proportion since records began. In addition, the lettings market remains buoyant, reports the latest RICS Residential Lettings survey, due to increased tenant demand and a shortage of properties pushing rents higher.

First Time Buyers accounted for 52,200 mortgages between April to June, up from 43,400 from January to March, according to the Council of Mortgage Lenders. The typical first time buyer deposit in July was 24% (£39k). The average loan was £123,711 and the average first time buyer borrowed 3.14 times their income.

Credit Card + Mortgage = not good.

A recent report from housing charity Shelter has suggested that as many as one million households are using their credit cards to meet their monthly mortgage or rental payments. This figure represents 6% of homes in the UK, with the charity adding that the problem is growing amongst the middle classes. Without doubt, this is a worrying trend as not only will you be increasing your current debt, you’ll probably be paying interest payments on both your mortgage and your credit card! Shelter have called these figures a “shocking discovery” and warned that in some cases if people were to default on their credit card payments, their homes could be repossessed.
In addition to these striking revelations, Creditaction has reported that 9,300 new debt problems are reported to the Citizens Advice Bureaux and 1,000 people are seeking some formal debt rescheduling plan every day. Therefore, it is unsurprising that in the same report, it is highlighted that a property is being repossessed every 11.2 minutes throughout the UK.
My advice would be not to let the situation get so bad that there is no way back. In the current climate, mortgage arrears are frowned upon as the worst possible misdemeanour. Worse than CCJs, Defaults and other missed payments on credit. Make sure you review your circumstances and take action before it happens. Once mortgage arrears, CCJs or Defaults are registered, every financial institution (including insurance & mobile phone companies) will see these when making decisions on whether or not to lend to you. At the same time, it is likely that any online internet application will fail should you have one of these issues registered against you within the last 12 to 24 months, as nearly all lenders use credit scoring and these inevitably will have a detrimental affect to you score.
To continue the scare mongering, there are only three or so lenders left in the market who will assist clients with adverse credit. The best case scenario is rates around the mid 5%s for historic adverse. The worst case is rates starting from 9.90% with eight, yes eight years redemption penalties to pay if you want to leave them. Therefore, the moral of the story is a simple one. If the going is beginning to look tough, speak to AToM for assistance. Sooner, rather than later!

Mortgage payments are being missed..

When I was approached to write these weekly columns, the brief was to be descriptive and update readers with news from the world of mortgages not on general release. Whilst I knew times were tough, I didn’t realise how little positive news there actually is (or isn’t) in our market! Believe me, I look for positives but the stark reality of the current situation (and that still looming) makes it difficult. The statistics released by ‘creditaction’ for March, show the reality:
o Average house prices have decreased by £95 every day during the last 12 months.
o A property is repossessed every 10 minutes.
o 2,915 people are made redundant daily.
o 1 person is declared bankrupt or insolvent every 4.5 minutes.
o 33,600 applications for credit have been turned down every day during the last six months.
According to research from Which? homeowners are really feeling the pinch with 62% of the working population fretful that they or their partner may lose their job. Some 43% joint income households are anxious they won’t be able to pay their mortgage.
Despite house prices stabilising the ‘experts’ predict 2010 before ‘some normality’ returns with matters likely to get worse before they get better. Recent news from RBS with the loss of another 9,000 jobs and BT suggesting a further 10,000, indicates that the knock-on market effect will be huge.
Moneyexpert.com estimates that 8% of all mortgages holders have missed one payment during the last six months. One in twelve borrowers! Additionally, they suggest that nearly a third of all adults would face financial disaster within two months if they lost their jobs. Half of those believe they would only last a month.
Simply put, if you miss a mortgage payment, finding a lender to offer you a new mortgage is tough. Miss two or three and its as good as mission impossible.
I have said this with regular monotony but there really is no better time to review your finances and plan ahead for the next two to three years. Ask yourself questions including - if I lose my job how will I pay my mortgage? How will I support my family? If you are stuck for answers, speak to AToM or visit our website for more information. Don’t leave it any longer. Let us help you plan a positive future.