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Mortgages: What Is Going On?

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Mortgages: What is going on?

It doesn't take a rocket scientist to work out that with interest rates at a historic low of 0.5% there is only one way they can go. So what next for first time buyers and existing mortgage holders? Fix? Cap? Track? Many borrowers are wondering if it's even possible to get a deal at all in this climate.

Last week, figures from Halifax - Britain's biggest lender - showed that house prices rose 2.6% in May to an average £158,565 - their fastest rate for seven years. Numbers from Nationwide showed prices were up 1.2% in the same month. It is the first time both indexes have risen together since August 2007.

But the news is yet to filter through to lenders who are slashing and burning their mortgage product ranges and rates, leaving borrowers with less choice than ever.

Woolwich, Lloyds and RBS have all withdrawn loans for purchases over the last month and have not replaced them. Gone is the Lloyds five-year fix at 6.59% for borrowers with a 10% deposit and its two-year fixes at 4.49% and 5.89% for those with a deposit of 25% and 15% respectively.

Other lenders are waving attractive rates and deals around but not actually letting customers have them. A Sunday Times investigation found that in April, HSBC cut rates for borrowers with deposits of just 10% but admitted last week that of the 12,000 applications above 75% of the property purchase price, only one in five borrowers received funding.

Even if you can stump up a hefty deposit (we're talking 30% to 40%) you are not guaranteed a happy ending. Large loans or applications for interest-only mortgages tend to attract a negative outcome at the moment. Of course this is double maddening if you have paid an 'arrangement fee' and then don't get it back. None of this is helping the constipated mortgage and property markets.

Brokers surveyed by the Sunday Times are finding a higher number of applications being turned down. Savills Private Finance reported about 30% were being rejected, against 20% a year ago.

John Charcol said lenders had been surprised by the strength of the market and were using up mortgage funding faster than anticipated. Estate agents added that buyers were interested in bargains but transactions were falling through as they failed to secure funding.

Nevertheless, it's a good sign that higher loan-to-value (LTV) ratio mortgages are starting to trickle back onto the market. Britannia, which recently merged with the Co-Operative Bank, has announced new 90% loans, including a two-year fix with an interest rate of 5.09% and a fee of £599. It is also offering a three-year fixed-rate deal with a rate of 5.59%.

Nationwide's expanded product range include loans of up to 95% LTV but these are for existing borrowers, leaving first time buyers out in the cold. Its two-year fixed-rate deal with an interest rate of 2.79% is for loans of up to £150,000. You pay for the privilege though - the sting in the tail is a fee of £2,499.

In a fix?

Of course if you're paying a tiny amount of interest now then the idea of pushing it up voluntarily is not appealing in the short term, even if you think it will be better value in the long run. You are likely to pay a higher rate for your fixed deal than most other options. Louise Cumming of moneysupermarket points out that the average two-year tracker rate is currently 3.28% but fixing for the same period will cost 3.56%.

It's worth remembering that with trackers around the 3% mark, the unavoidable rise in the Bank of England base rate will see those on tracker mortgages paying considerably more than fixed rate borrowers in the not-so-distant future. If you find a good fix you are likely to have the last laugh.

Lenders base their fixed rates on the wholesale money markets rather than the Bank of England base rate and they say that a sharp rise in the former has dictated costs of the deals they can offer. Chelsea Building Society - currently the best fixed buy according to Moneyfacts.com - was forced to raise the rate on its new five-year fix only three days after it was launched, increasing the rate from 4.34% to 4.5%.

The deal is only available up to 65% LTV with a fee of £995. Or you can pay 4.99% on a five year fix with Clydesdale for LTV of up to 80%.

Ray Boulger of mortgage broker John Charcol said, "With most borrowers (including around 80% of our clients) currently choosing a fixed rate mortgage, if interest rates continue to rise then the current recovery in the housing market, which is based primarily on much improved affordability as a result of the combination of lower house prices and lower interest rates, may well wobble. The message for borrowers wanting to take a fixed rate is clear; get in now or miss out on the current relatively low rates."

First time headaches remain

There was a big fuss this month when Lloyds unveiled its new 'Lend a Hand' mortgage aimed at first time buyers which has a rate of 4.39% fixed for three years. Perhaps they should have called it 'Lend me a ton of cash because my parents are rich' mortgage. Because you see the catch is that the Bank of Mum and Dad must slap down a sum equal to 20% of the property's value in a savings account with the bank. And it has be money they won't need for a while as it won't be accessible until the outstanding loan falls below 90% of the property value.

The savings account will pay a fixed interest rate of 3.5% which isn't bad but the bank will take a legal charge on the savings account. There's also a fee of £995. And of course this won't be an option for shared ownership (which is how many first timers are buying now) unless you have very understanding parents.

Things don't look any more promising since the launch of the government's 'MyChoiceHomeBuy' scheme, designed for first-time buyers, key workers and social tenants choosing any property on the open market. Under the part-government-funded scheme, up to half of the cost of a new home will be shared by a housing provider and applicants obtain their conventional mortgage from a range of qualifying lending institutions.

But estate agent group Spicerhaart claims that house chains are collapsing because first-time buyers can't get their money through under the government's new shared ownership schemes designed to get the market moving again.

Paul Smith, Spicerhaart's chief executive, said: “The initiative was meant to be a tonic to the housing market but instead of putting sufficient funds into the scheme to make a real difference, first-time buyers are being left in the lurch, with massive delays to their applications or complete refusal in some parts of the country where the money has already run out. Already we've seen a number of chains collapse as a result of the problems being experienced.â€

It seems that the stalemate is going to continue for a while longer.

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Post i made in anothe thread earlier...

googling Intergenerational mortgage brings this up from 2006....

http://www.myfinances.co.uk/news/mortgages...#036;448370.htm

Interesting that they were offering a 25 year fix at 5.15% when base rates were 4.5% (shortly to rise to 4.75%)

I remember seeing a 25 year fix at 3.99% when BRs were 3.5% A few years back. Id guess 5 year fixes were 3% or less then. Shows how much the banks are probably raking in at current 'cheap' fixes.

Mortgages look really uncompetitive compared to the last 5 years. Dont see how this supports the market.

I would say cash buyers are, but they wouldnt be reflected in the Haliwide figures.

Is it possible QE capitalized interests are somehow directly getting preferential finance and supporting the market?

All indicators would suggest FTB and those moving up the ladder have an awful lot of issues to contend with.

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Post i made in anothe thread earlier...

googling Intergenerational mortgage brings this up from 2006....

http://www.myfinances.co.uk/news/mortgages...#036;448370.htm

Interesting that they were offering a 25 year fix at 5.15% when base rates were 4.5% (shortly to rise to 4.75%)

I remember seeing a 25 year fix at 3.99% when BRs were 3.5% A few years back. Id guess 5 year fixes were 3% or less then. Shows how much the banks are probably raking in at current 'cheap' fixes.

Mortgages look really uncompetitive compared to the last 5 years. Dont see how this supports the market.

I would say cash buyers are, but they wouldnt be reflected in the Haliwide figures.

Is it possible QE capitalized interests are somehow directly getting preferential finance and supporting the market?

All indicators would suggest FTB and those moving up the ladder have an awful lot of issues to contend with.

Those rates were clearly reflecting the land of milk and honey economy, where mortgage loans on assets that only ever went up, was priced accordingly with zero risk premia. This is partly why a bubble self fulfils..not just speculation but credit made exponentially more available under the same delusion.

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The truth is staring us in the face:

House prices are still far, far, too high. They got there over the last 10+ years thanks to hype, mania - and, most of all,

"easy"/FRAUDULENT lending. i.e. LIAR LOANS.

It really is very, very simple.

"Prices" [not credible due to above] need to come down AT LEAST another 40%.

AND - in the end - Japan-style - they will! :P

Edited by eric pebble

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So much bear food today again its hard to digest .........related article to thread said:

.....Even if you can stump up a hefty deposit (we're talking 30% to 40%) you are not guaranteed a happy ending. ...

...John Charcol said lenders had been surprised by the strength of the market and were using up mortgage funding faster than anticipated. Estate agents added that buyers were interested in bargains but transactions were falling through as they failed to secure funding.

Interesting, "using up mortgage funding faster than anticipated.

Oh dear, is this the mortgage funding I have been asking about for weeks?

Is this the mortgage lending that is 60% lower than last year according to new figures from the Building Societies Association (BSA).

Is this the mortgage funding that is down nearly 2/3rds with the closure of the RMBS market.

Is this the mortgage funding that weeks ago the papers reported as "drying up" in an article titled: "Mutuals No Longer As Safe as Houses:

Despite being skewed towards more secure retail deposits, 30pc of the sectors funding or around £100bn €“ comes from institutions, who may think twice following the Moodys downgrade, and the wholesale markets, which remain effectively closed. Without funding, mortgage lending will dry up. To the extent that funding is restricted, it will restrict our ability to lend, Nationwide chief executive Graham Beale told the TSC. The BSAs Adrian Coles reckons it is quite conceivable that lending will fall this year as funding evaporates.

Is this the mortgage funding already being effected by dwindling deposits due to low interest rates and Moodys downgrades and now :

Mortgage rates set to rise as lenders struggle to cover cost of bank victims scheme

21st May 2009

Six out of 10 building societies think they will have to raise their mortgage rates to cover the cost of compensating savers of failed banks, research showed today.

The majority of building society chief executives said the levy they had to pay to the Financial Services Compensation Scheme (FSCS) would have a 'considerable impact' on their business.

Around 60% said they may have to raise their mortgage rates to offset the cost, while 53 per cent said their savings rates may have to fall.

Is this the mortgage lending that is being effected by :

new rules under which lenders have to set aside more capital to cover high loan-to-value mortgages. "The cost to the lender of making one 90% LTV loan available can be four or five times the cost of offering a mortgage at 60% LTV," he said. "We're in a situation where the more lending a lender does at 90% the less lending they are able to do overall."
Edited by Sybil13

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Oh dear, is this the mortgage funding I have been asking about for weeks?

Is this the mortgage lending that is 60% lower than last year according to new figures from the Building Societies Association (BSA).

Is this the mortgage funding that is down nearly 2/3rds with the closure of the RMBS market.

Is this the mortgage funding that weeks ago the papers reported as "drying up" in an article titled: "Mutuals No Longer As Safe as Houses:

Is this the mortgage funding already being effected by dwindling deposits due to low interest rates and Moodys downgrades and now :

Is this the mortgage lending that is being effected by :

Yes, yes, yes, yes, yes, yes.

As ever, you're bang on the money.

Next hpc wave due soon.

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Is this the mortgage lending that is 60% lower than last year according to new figures from the Building Societies Association (BSA).

Is this the mortgage funding that is down nearly 2/3rds with the closure of the RMBS market.

Is this the mortgage funding that weeks ago the papers reported as "drying up" in an article titled: "Mutuals No Longer As Safe as Houses:

Is this the mortgage funding already being effected by dwindling deposits due to low interest rates and Moodys downgrades and now :

Is this the mortgage lending that is being effected by blah blak blah:

No, it's the mortgage funding prompting a 55% increase in approvals and leading to increases in Halifax and Nationwide of 2.6% and 1.2% respectively.

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No, it's the mortgage funding prompting a 55% increase in approvals and leading to increases in Halifax and Nationwide of 2.6% and 1.2% respectively.

you are stupid.

mortgage funding is sold for the future.

approvals do not = sales, they might lead to more chains, which are being broken by the INCREASING number of applicants being turned down.

funding comes from banks capital.....hmm..house prices and commercial property prices still falling.....thats makes some capital assets worth less, much less, and also reduces a banks balance sheet.....some to levels where they need secret support.

course, all this support comes at a price....next year, there will be remarkable tax hikes, to fund borrowing, to fund the unemployed, to fund the rescues.

woof woof......psssssssssssssssssssssss

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No, it's the mortgage funding prompting a 55% increase in approvals and leading to increases in Halifax and Nationwide of 2.6% and 1.2% respectively.

The more I read this forum the more I realise that all the bulls don't project their thinking forward beyond the end of the current day in any form whatsoever. Everything is based on the current headlines with no concerns about the long term economic prospects that are staring us widely in the face. Incredible ostrich-like behaviour!

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The more I read this forum the more I realise that all the bulls don't project their thinking forward beyond the end of the current day in any form whatsoever. Everything is based on the current headlines with no concerns about the long term economic prospects that are staring us widely in the face. Incredible ostrich-like behaviour!

Except sadly its not SAND they have their heads stuck in ! :lol:

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The more I read this forum the more I realise that all the bulls don't project their thinking forward beyond the end of the current day in any form whatsoever. Everything is based on the current headlines with no concerns about the long term economic prospects that are staring us widely in the face. Incredible ostrich-like behaviour!

So true...

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The more I read this forum the more I realise that all the bulls don't project their thinking forward beyond the end of the current day in any form whatsoever. Everything is based on the current headlines with no concerns about the long term economic prospects that are staring us widely in the face. Incredible ostrich-like behaviour!

Eric just said what I was thinking.

"Like a bull in a china shop"...............

"Like a bull with a ramping headline".

The "bull" mentality got us into this mess and will get us deeper into it, unless the bear mentality is allowed to get us out of it.

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The more I read this forum the more I realise that all the bulls don't project their thinking forward beyond the end of the current day in any form whatsoever. Everything is based on the current headlines with no concerns about the long term economic prospects that are staring us widely in the face. Incredible ostrich-like behaviour!

thats what my local EA seems to base his bullish views on.

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