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Mortgage ‘timebomb’ Raises Fears Of A New Wave Of Repossessions

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http://www.timesonline.co.uk/tol/money/pro...icle6345121.ece

Millions of homeowners with mortgage deals that expire over the next year are in for a nasty surprise as tighter lending criteria mean that they may struggle to remortgage, experts have warned.

With hundreds of thousands of borrowers already stuck on standard variable rates (SVRs), fears are growing of a sharp rise in defaults and home repossessions when the Bank of England begins to increase the cost of borrowing as the economy recovers. Economists forecast that interest rates will rise as early as next year; any increase is likely to be passed on quickly by lenders in the form of higher SVRs.

Melanie Bien, director of Savills Private Finance, the mortgage broker, says: “This situation is a ticking timebomb. While interest rates are low, borrowers will be fine to sit on SVRs but once rates start to rise, which we expect to happen next year, payments could become unaffordable and lead to repossession for those who can’t cope.”

A borrower with a £150,000 interest-only mortgage on the current average SVR of 4.61 per cent, is paying £576 a month. But if interest rates rise by 2 percentage points over the next 18 months, as some economists expect, monthly repayments will increase by £250, or £3,000 over the course of the year. A rise of 4 points, predicted by 2012, will lead to repayments soaring by £5,000 a year.

The chronic shortage of mortgage funding means that borrowers with even the slightest question mark over their financial or employment history are being rejected for new deals. Brokers say that the restrictions are unlikely to ease over the next year as banks continue to cherry-pick “prime” borrowers. However, there are 3.8 million homeowners who are known as “complex prime”, according to Mintel, the research company. This group includes those who have seen their wages cut, face redundancy, have moved frequently, are self-employed, or face high levels of debt.

A further one million borrowers are in negative equity, according to the Council of Mortgage Lenders (CML). These borrowers, who are trapped with a home loan that is worth more than the value of their property, will find it impossible to secure a new mortgage deal from most lenders. The CML says that a further 1.1 million homeowners have seen the loan-to-value ratio of their mortgage grow to above 90 per cent, dramatically reducing the number of deals available and pushing up the cost of remortgaging.

Mintel also estimates that another 1.3 million homeowners are considered “sub-prime” because they have missed mortgage payments or credit card bills, have been repossessed, or were given a county court judgment.

However, this group is set to double over the next 12 months as unemployment passes three million. At least half a million borrowers will be three months in arrears by the end of the year, according to the CML. Missed payments remain on credit reports for three years.

Mortgages for borrowers considered credit-impaired have vanished from the market in the past two years. At the peak of the housing boom, there were more than 7,000 mortgage deals for borrowers with less than perfect credit histories. Today figures from Moneyfacts.co.uk, the financial website, show there are only eight.

Another group of borrowers who will struggle to secure mortgage finance are those with a self-certification mortgage. About 45 per cent of mortgages were approved without a check on income in 2007, according to the Financial Services Authority (FSA), either because deals were self-certified, or fast-tracked by lenders. The FSA is set to severely restrict the deals, which became known as “liars’ loans” because of the potential for borrowers to inflate their earnings to borrow larger sums. In 2007 there were 816 deals available for borrowers who could not provide proof of income, compared with only 14 today. Borrowers who took out loans worth more than three times their income will struggle to remortgage under the more prudent lending criteria now in force.

Matt Andrews, of MoneyWorkout, the broker, says: “Without proving their income, families were allowed to stretch to a slightly larger property by securing a mortgage outside their income capability.

....

I'm not sure this really exists but interest rates can only go up unless you expect a Japan style slump.

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http://www.timesonline.co.uk/tol/money/pro...icle6345121.ece

I'm not sure this really exists but interest rates can only go up unless you expect a Japan style slump.

We won't have a Japan style slump in the UK as their is no underlying economy to support us. Even after the big crash in Japan they were still exporting huge amounts of high quality product around the globe. Can't see what will support the UK as the hedge-fund genie is out of the bottle and our government has been effectively neutered.

I wish we could have a Japan style slump, but unfortunately we will suffer a British self-styled economic Armageddon.

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Another group of borrowers who will struggle to secure mortgage finance are those with a self-certification mortgage. About 45 per cent of mortgages were approved without a check on income in 2007, according to the Financial Services Authority (FSA), either because deals were self-certified, or fast-tracked by lenders. The FSA is set to severely restrict the deals, which became known as “liars’ loans” because of the potential for borrowers to inflate their earnings to borrow larger sums. In 2007 there were 816 deals available for borrowers who could not provide proof of income, compared with only 14 today. Borrowers who took out loans worth more than three times their income will struggle to remortgage under the more prudent lending criteria now in force.

Matt Andrews, of MoneyWorkout, the broker, says: “Without proving their income, families were allowed to stretch to a slightly larger property by securing a mortgage outside their income capability.

-----------------

:D:D A few things to note here: Not so long ago, the CML [Council of Mortgage Liars] were saying that "Self-Certs" only made up 1% of loans..... :lol:

Well!!! -- Now the FSA is saying 45% of mortgages are Liar Loans!!.....

But let's not forget, people all over the UK [and further] were "buying" with Liar Loans, thus inflating prices so that those with non-Liar Loans had to match those prices....... So - the "fact" that "only" 45% of loans were Liar Loans MAKES NO DIFFERENCE.... :D

BECAUSE THE LIAR LOANS HAD ALREADY ARTIFICIALLY, AND FRAUDULENTLY, SKEWED THE ENTIRE "MARKET" ANYWAY......

And I love that line -- "....families were allowed to stretch to a slightly larger property by securing a mortgage outside their income capability"..... :lol:

Oh yeah ! :P "SLIGHTLY"... :P !!

Edited by eric pebble

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"The FSA is set to severely restrict the deals, which became known as “liars’ loans” because of the potential for borrowers to inflate their earnings to borrow larger sums. In 2007 there were 816 deals"

Looks like they have been reading our Eric's posts. :lol:

Makes you wonder how many with mortgages, have been budgeting for rates to go back up? Or how many have been making exta payments whilst rates have been so slow?

Surely people could not of expected these very low rates to last long, could they? :unsure:

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And belanie Mien uses the case of an IO mortgage, likely to rise to £900 per month. Add to that the life cover, the repayment plan and everything else and houses suddenly look very expensive again.

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Surely people could not of expected these very low rates to last long, could they? :unsure:

Very few people have the ability to learn from history.

E.g. to someone looking to take out a mortgage right now, ask them if they have budgeted for changes in interest rates.

Well, they say, they can up a few points.

Hmm, you'll answer, you're taking out a 25 year mortgage, so let's look at the last 25 years and assume that history repeats itself. And rates went up to 15% for a short time in 89.

Then their eyes roll and they chuckle: "c'mon, that was an exceptional event, it can never happen again!". And a barrier falls across their mind.

You decide to silently shake your head and walk away; most people cannot comprehend that given a long enough time span, exceptional events are bound to happen.

I've had this exact conversation twice in the last 6 months :(

EDIT: typo.

Edited by DeepLurker

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And I love that line -- "....families were allowed to stretch to a slightly larger property by securing a mortgage outside their income capability"..... :lol:

Oh yeah ! :P "SLIGHTLY"... :P !!

Well, around here each additional bedroom cost (in 2007) about an extra hundred thousand. So not that much of a stretch really! :lol:

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Yeah, its a crazy situation.

We have already seen the desperation within Britain, with people throwing in Ferrari's and holidays to entice buyers.

I think next we will see people offering up their kid's virginity, or maybe an organ donation; as selling at a loss is bad joo-joo, especially for the majority of recent and MEW'd property 'owners' out there.

But, to draw a parallel, it is a lot easier to pull teeth from a rotten mouth than a healthy one. Our terrible national addiction to the 'fast food' and 'sugary' fix of property has left the UK with a pretty awful set of nashers. Get out the pliers!

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There is also another side to this timebomb as the government will be cranking up taxes to stop the PBR growing any further. I tend to go along with the theory that inflation and interest rates will be at or around double figures during the next decade and that's about the only thing that can reduce the impact of the timebomb. House prices may rise nominally, but they will continue to fall in real terms.

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yeah we had all this worry a couple of years ago when people came of low fixed rates and there was a concern that millions would not be able to afford their repayments.

Nothing much happen and people got on with it. Same thing will happen this time. This is a non story. Please move on nothing to see here.

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yeah we had all this worry a couple of years ago when people came of low fixed rates and there was a concern that millions would not be able to afford their repayments.

Nothing much happen and people got on with it. Same thing will happen this time. This is a non story. Please move on nothing to see here.

that was only last year I think

they were only saved by the huge cut in BoE rate so could go onto low SVRs

may not be so lucky next time

Edited by newdman

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Nothing much happen and people got on with it. Same thing will happen this time. This is a non story. Please move on nothing to see here.

Eh? What previous sub-prime property bubble in the UK are you referring to?

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that was only last year I think

they were only saved by the huge cut in BoE rate so could go onto low SVRs

may not be so lucky next time

The big cut in rates only happen at the end of last year. This was being talked about 18 months or so before. As i said this is a non story.

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The big cut in rates only happen at the end of last year. This was being talked about 18 months or so before. As i said this is a non story.

that's a bit before I started taking a serious interest so I could have missed it

I only remember all the talk last year of people having big payment rises when coming off 2 year deals - and then it all fizzled out as they went on to low SVRs when BoE slashed rates

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Mainstream banks like Abbey are offering 4%+ to savers if they tie up their money for a year or two. This tells me that interest rates are going to go up fairly soon.

Based on the saving rates, I'm thinking 6% mortgage rates will be commonplace by the end of the year, so more repossessions on the way.

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My ex missus fixed rate comes to an end on her Liar Loan next year...Her 'property' is approx 20% negative equity at this moment in time.

As much as I cannot stand her I do regret her not selling up in mid-2007 when I told her to!

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My cousin bought his home for £115,000 in 2000, at peak prices he could have sold for £280,000+ easily, he bought a new house a couple of years or so ago (it was approx 20% below market value at the time divorcing couple!), he is now trying to sell he got a few low offers but eventually got an offer for £220,000 after much talking to and convincing he has accepted (he will thank me in the future) but still thinks he is making a 60K loss :blink: But i explained a few things i have learnt from this site and he has come to his senses. What was the clincher at the end was he is coming into the 3rd yr since buying the new home thus will not pay any Capital gains tax if sold within 3yrs. I have always told him that if the house was once worth £115K it can be worth the same again (give and take inflation adjustments). B)

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We won't have a Japan style slump in the UK as their is no underlying economy to support us.

I wish we could have a Japan style slump, but unfortunately we will suffer a British self-styled economic Armageddon.

I agree. :(

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"The FSA is set to severely restrict the deals, which became known as “liars’ loans” because of the potential for borrowers to inflate their earnings to borrow larger sums. In 2007 there were 816 deals"

Looks like they have been reading our Eric's posts. :lol:

Makes you wonder how many with mortgages, have been budgeting for rates to go back up? Or how many have been making exta payments whilst rates have been so slow?

Surely people could not of expected these very low rates to last long, could they? :unsure:

You didn't need to budget house prices where going up, get into difficulty sell the house and make a profit.

This was the gameplan, it was the plan relied upon by idiots running the banks as it was foolproof.

What could possible go wrong.

It would take a huge housing crash which was never going to happen to bring everything off the rails.

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You didn't need to budget house prices where going up, get into difficulty sell the house and make a profit.

This was the gameplan, it was the plan relied upon by idiots running the banks as it was foolproof.

What could possible go wrong.

It would take a huge housing crash which was never going to happen to bring everything off the rails.

Indeed, and of course it was their mantra, re-inforced by the constant property ramping shows...property only ever goes up.. You don't need a proper job, you can make more money by getting out the magnolia, and flipping properties.

I lost account of the number of people we saw on "Homes Under the Hammer" who gave up decent jobs to go into "developing", and boasting how much money they had made through property.

Madness, and obvious to anyone with a brain, it just could not go on.

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The big cut in rates only happen at the end of last year. This was being talked about 18 months or so before. As i said this is a non story.

So look at the timing.

18 months ago people coming off a 2-year fix could remortgage on another 2-year fix. They weren't in NE and there were still shedloads of deals around. A year later they had a much-reduced LTV and little chance of a new low-rate fix, but could drop onto a nice low SVR.

The fist option is long-gone; the second will vanish when rates go back up.

What's missing in your "move along, nothing to see" scenario is the perfect storm of NE/low LTV, sensible lending constraints and higher interest rates. 2 our of 3 so far; when the third one kicks in, it's curtains.

edited for spelling

Edited by Mal Volio

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And belanie Mien uses the case of an IO mortgage, likely to rise to £900 per month. Add to that the life cover, the repayment plan and everything else and houses suddenly look very expensive again.

The what? REPAYMENT PLAN? Don't think I've ever seen this term before.

Are you seriously suggesting that mortgagees in Browns Britain are intending to pay off the capital?

Burn the Heretic! :)

Edited by dryrot

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So look at the timing.

18 months ago people coming off a 2-year fix could remortgage on another 2-year fix. They weren't in NE and there were still shedloads of deals around. A year later they had a much-reduced LTV and little chance of a new low-rate fix, but could drop onto a nice low SVR.

The fist option is long-gone; the second will vanish when rates go back up.

What's missing in your "move along, nothing to see" scenario is the perfect storm of NE/low LTV, sensible lending constraints and higher interest rates. 2 our of 3 so far; when the third one kicks in, it's curtains.

edited for spelling

Oooh, I don't like the sound of that. Perhaps Norman Lamont might? ;)

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