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Is Funding For Lending Working For First Time Buyers?

Is Funding For Lending Working For First Time Buyers?

FIRST-TIME buyer numbers are up by almost a quarter year-on-year, lenders said yesterday, amid signs that government efforts to encourage mortgage lending are finally percolating down to people with smaller deposits.

A total of 21,700 loans worth £2.7 Billion (GBP) were made available to first-time buyers in November 2012, one of the highest monthly totals in the last three years, the Council of Mortgage Lenders (CML) said.

These figures mean that first-time buyer numbers were up by 24% compared with a year earlier, and increased by 8% month on month.

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Mortgages for private property purchases and Buy To Let landlords and business credit are becoming more widely available, thanks in part to the Government’s financial initiative, the Funding for Lending Scheme.

Mortgages More Widely Available in 2013

Mortgages More Widely Available in 2013

An indicator that moves to ease lending restrictions and free up credit appear to be working.

The £80 Billion (GBP) Government scheme, launched in August 2012 was intended to boost the flow of credit to private households and businesses.

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Bank of England's Funding For Lending Scheme Beginning To Have Effect

Bank of England’s Funding For Lending Scheme Beginning To Have Effect

The £80 Billion (GBP) Funding for Lending Scheme (FLS), launched in August by the Bank of England (BoE) and HM Treasury, is starting to show signs of having a positive effect.

The multi Billion pound scheme designed to unclog the flow of credit to the UK’s residential homebuyers is having the desired impact as official figures show an upturn in mortgage approvals.

The Funding for Lending Scheme (FLS) makes money available to banks on the condition they pass it on to businesses and households in the form of cheaper loans and mortgages.

The Bank of England have stated that the number of loans approved for residential property purchases rose by 2,103 to 50,024 in September 2012 and the number of loans approved for re-mortgaging increased by 1,860 to 28,343.

Meanwhile, unsecured consumer credit has also increased by £1.2 Billion (GBP) in September 2012, the sharpest rise since February 2008, including an increase of £307 Million (GBP) in credit card borrowing while the remaining £900 Million (GBP) came from overdrafts and unsecured personal loans.

Borrowers have faced even tougher times trying to take out a mortgage in recent months as lenders tightened their lending criteria even further, causing a drop in the proportion of mortgages approved.

The average interest rate on new mortgages also fell slightly, from 3.84% to 3.77%, offering some hope that the recent rise in borrowing costs may also be starting to ease.

Governor of the Bank of England, Sir Mervyn King, said that “More than 20 banking groups, including the five largest lenders in the UK, have signed up to the Funding for Lending Scheme, while funding costs have fallen by around one percentage point”.

However, Sir Mervyn warned the initiative was temporary and lenders would have to accept further losses if normal banking services are ever to make a return.

The reductions in borrowing rates have primarily been aimed at households taking out mortgages with low Loan-To-Value (LTV) mortgages. So they may not help first-time buyers (FTBs) much.

As mentioned last week, borrowers are still faced with some degree of uncertainty when looking for mortgages or credit as despite all the positive noises made by the BoE and the Government, banks are still fairly reluctant to lend.
Read last week’s top story here.

The simplest solution may be to become your own bank!

Tough new mortgage rules aim to prevent lenders from taking advantage

Tough new mortgage rules aim to prevent lenders from taking advantage

New Rules For UK Lenders

The Financial Services Authority (FSA) have outlined new tough measures for mortgage lenders in a bid to shake up the UK mortgage market

New mortgage lending rules effective from April 2014 are intended to prevent irresponsible lending and means that borrowers can only take up deals that they can prove they can afford.

The long-running review by the FSA aims to bring common-sense and responsibility back to the UK mortgage industry following the meltdown observed since the property crash in 2008.

One new measure that will come into effect today (1st November 2012) means UK lenders will not be able to take advantage of borrowers unable to get a mortgage elsewhere.

The new ruling is intended to protect borrowers already trapped in mortgage deals with their current lenders, as well as those who may end up stuck when the new rules come in to force.

The FSA want to get lenders to treat all borrowers the same and want to avoid lenders treating new applicants less favourably than other similar customers, e.g. Offering them a higher interest rates or worse repayment terms.

From 2014, mortgage lenders will have to consider an applicant’s income and outgoings and mortgages that are on an interest-only basis will only be offered to borrowers with a solid repayment plan, rather than relying on UK property prices rising (capital appreciation).

Mortgage lenders will also have to factor in any impact that future interest rate rises could have on repayment costs.

The new rules will affect over 9 Million mortgaged UK households and will also have a serious impact on would be buyers who are currently trapped in the private rental sector (PRS) because they are unable to afford to buy a property due to higher mortgage costs and the extortionate cost of deposits.

Need a Mortgage Broker? – Full UK listings here

The Bank of England (BoE) have warned that in future getting a mortgage might be tougher than you think.

The BoE stated that tightened qualifications, set by a wide range of lenders, could see the credit rating of expectant borrowers fall beneath the banks’ accepted level for mortgages.

The Credit Conditions Survey, published quarterly, found that UK mortgage lending has shown signs of improvement in early 2012 but residential property buyers face a tough three months until summer.

 Most lenders expect the upward pressure on mortgage interest rates to be maintained and anticipate reducing the availability of mortgages in the next three months.

With little prospect of a material loosening in credit conditions on the cards, and housing market demand likely to remain weak, the downwards pressure on house prices is set to be maintained this year. 

Would be mortgage borrowers need to be prepared for the stricter criteria being demanded by mainstream lenders, meaning more difficulty in securing a mortgage.

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Residential property affordability is at its most favourable in almost a decade, according to the latest Lloyds TSB Affordable Cities Review.

My home town of Salford, in the North West, is the most affordable UK city with an average property price of £102,391 that is 3.81 times the average gross annual earnings.

This partly reflects a 32% fall in house prices in this part of Greater Manchester since 2008.

The average price for a home in a UK city is £173,202 equating to 5.5 times the average gross annual earnings.

This is an improvement on 5.7 times the average gross annual earnings in 2011 and is significantly below the peak of 7.2 times the average gross annual earnings observed in 2008.

10 most affordable UK cities, 2012

UK cities

Region

Price to Earnings ratio

Salford

North West

3.81

Londonderry

Northern Ireland

3.87

Bradford

Yorkshire and the Humber

3.98

Lancaster

North West

4.00

Stirling

Scotland

4.04

Belfast

Northern Ireland

4.08

Durham

North

4.08

Lisburn

Northern Ireland

4.09

Hereford

West Midlands

4.26

Birmingham

West Midlands

4.43

UK cities average

 

5.51

Sources: Lloyds Banking Group, ONS

The marked improvement in affordability in UK cities over recent years has been driven by the significant fall in residential property prices.

Since 2008, the average house price within a city has fallen by 18% (£37,403) from £210,605 in 2008 to £173,202 in 2012.

  • 7 out of the 8 most affordable cities are in Northern Ireland and the North of England.
  • Ely in the East of England is the most affordable city in the south of England (4.60).

The least affordable city in the UK is Truro in the South West where the average property price (£250,489) is nearly ten times (9.71) the average gross earnings in the area. The benefits to the quality of life associated with living in this picturesque part of Cornwall have supported residential property prices in this area for the past decade.

Oxford (8.80) is the second least affordable city, followed by Winchester (8.76). Inverness (5.97) and York (5.95) are the least affordable cities outside Southern England.

Suren Thiru, housing economist at Lloyds TSB, commented: “The improvement in housing affordability within many of our major urban conurbations has been significant during the past few years and reflects the decline in house prices over the period. There is, however, a distinct north-south divide to the locations of the most affordable UK cities. Looking forward, the marked improvement in city affordability is likely to help support demand for those able to enter the housing market. Much of this benefit, however, maybe offset by the continuing difficulties many households face in raising a deposit and uncertainty over the outlook for the UK economy.”

The Financial Services Authority (FSA), are urging people seeking mortgage advice to ensure they obtain the correct type of mortgage product for their residential property purchase.

The FSA have said that Buy to Let Mortgage applications are rising, but a growing number of applications are fraudulent.

Would be homeowners and borrowers who, for whatever reason are unable to meet the strict lending criteria now demanded for a UK residential mortgage, are attempting to fraudulently use Buy To Let (BTL) mortgages as a means to purchase property, despite having no intention of being a landlord or ever renting the property out to tenants.

Buy to let mortgages are not regulated in the same way as residential mortgages and the borrowing criteria are more relaxed.

This means that buyers who fail to meet the income and credit check requirements of a residential mortgage can still get approval for a similar sized buy to let mortgage.

The FSA believe that intermediaries and financial advisors are involved in the fraudulent applications.

When asked about the rising levels of deception an FSA spokesman commented: “We are seeing anecdotal evidence of unregulated buy-to-let mortgages being used fraudulently as a replacement for regulated residential mortgage contracts, as borrowers and intermediaries seek to circumvent more stringent income and affordability checks.”

With the continuation of the record low Bank of England interest rates (0.5%) there has been very little movement in UK property prices for more than 8 months.

However, UK mortgage lender Halifax reckons there was a 0.6% increase in UK property values in January 2012.
The UK’s largest mortgage lender found that despite the month-on-month increase in January, on average UK property prices were still 0.9% lower over a rolling three-month period.

The average price of a UK residential property in January 2012 was £160,907.

This has resulted in a 14-year low, in terms of payments in proportion to household earnings, for new borrowers looking to invest in UK residential properties.

Martin Ellis, housing economist at Halifax, said: “If the UK can avoid a prolonged recession, we expect broad stability in house prices in 2012.”

The prospects for UK property prices in 2012 will depend on many facors, including the fallout and repercussions from the Eurozone debacle and its effect on the struggling UK economy.

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According to the latest research data released by Halifax; “Average mortgage payments for new borrowers as a proportion of disposable earnings” were at their lowest in the second half of 2011, meaning that UK Residential Property affordability in the UK is at its best since 1997!

The Halifax data is obtained by tracking the affordability of residential housing in 386 local authority districts across the UK

Typical mortgage repayments for both First Time Buyers (FTB) and home movers, (as new borrowers) at the long term average Loan To Value (LTV) ratio stood at 27% of disposable earnings in Q4 (Fourth Quarter) of 2011.

Halifax said this is well below the average of 37% recorded over the past 27 years.

There was a modest fall in payments relative to earnings over the past year from 29% in Q4 of 2010 and mortgage payments have almost halved as a proportion of income in recent years from a peak of 48% in Q3 of 2007.

The Halifax data highlights lower house prices and reduced mortgage rates as being the main drivers behind the significant improvement in affordability.

Lower house prices and mortgage rates have resulted in significant improvements in affordability in most local authority districts since 2007.

Martin Ellis, housing economist at the Halifax said “The falls in house prices and cuts in mortgage rates in the last few years have resulted in a significant improvement in housing affordability for those able to raise the necessary deposit to enter the market. Mortgage payments for a typical new borrower are now at their lowest in proportion to earnings since 1997. The marked improvement in affordability was a key factor supporting housing demand in 2011. The prospect of an exceptionally low Bank of England Bank Rate over the foreseeable future should maintain affordability at favourable levels in 2012. This should support the market over the coming 12 months, helping to offset the impact of the downward pressures on demand from the ongoing difficulties faced by households regarding their finances and uncertainty about economic prospects”.

The data does not include remortgages or Buy-To-Let mortgages, whilst it may be great news for First Time Buyers and normal homeowners, it does little to reflect the UK BTL market for property investors, however with higher LTV products emerging for FTBs, it cannot be too long before the lenders realise that us investors do actually know what we are doing and we could even see the return of 100% mortgages….I can live in hope!

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