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Banks To Be Stress Tested On 35% Drop In House Prices

Banks To Be Stress Tested On 35% Drop In House Prices

Banks Stress Tested On 35% Drop In House Prices
And 5% Rise In Interest Rates

UK and Continental banks are to be stress tested using a worst case scenario in an effort to assess if they could cope with a house price slump of 35% or a sudden spike in interest rates to more than 5%, the exercise will be monitored by the Bank of England.

Sky News broke the story on Monday ahead of an official announcement on Tuesday by the Prudential Regulation Authority (PRA), after learning that banks would be subjected to an armageddon style scenario to see if they have sufficient capital to withstand another economic slump.

A series of commercial real estate losses is expected to be applied to the banks’ balance sheets as part of the tests, but it’s not certain whether or not the interest rate hike will be quantified as part of the tests, but the 35% slump in property prices could reveal if banks and building societies would need to raise billions of pounds of fresh capital to survive, unless they can demonstrate their ability to withstand such a huge slump.

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Mortgage Loan Approvals Increase

Mortgage Loan Approvals Increase

More “Help To Buy” Mortgage Lenders Announced

The number of mortgages given to first-time buyers increased by a third in the 12 months to August 2013 according to the latest data from the Council of Mortgage Lenders (CML), with new entrants to the property market accounting for 44% of all residential property purchases during the month.

The CML figures were published as Barclays became the latest high street lender to confirm it was signing up to the second part of the government’s Help to Buy scheme, which is designed to make more 95% mortgages available to first-time buyers, second steppers and home movers.

Barclays join Santander, RBS, Halifax and HSBC in confirming it will use the taxpayer-backed guarantee to make high Loan-To-Value (LTV) mortgages available for property purchasers, meaning that more than half of UK mainstream mortgage lenders are now signed up to provide more mortgages at higher loan to value ratios.

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UK Funding For Lending Scheme Flops

UK Funding For Lending Scheme Flops

The UK Government initiative to get banks lending again has become a bit of a laughing stock according to some economists.

The funding for lending scheme (FLS) was dubbed a “white elephant” after the first data showed that in the three months to the end of September 2012, just £500 Million (GBP) of lending was released by all the 35 banks and lenders signed up for the scheme, which was launched in August this year.

The funding for lending scheme was supposed to reduce borrowing costs for banks and other lenders, who are required to pass on the lower costs to their customers. But so far the lending appears to be lowering mortgage rates rather than helping small businesses.

Only six banks and building societies have used any funds from the FLS in the three months to the end of September 2012 and their net lending – which takes account of loans being repaid – was negative by £1 Billion (GBP) because customers repaid existing loans faster than new loans were granted.

At three banks, more loans were repaid than new loans actually taken out, leading to negative net lending at Royal Bank of Scotland of £642 Million (GBP) and Lloyds Banking Group took £2.7 Billion (GBP) from the economy during the third quarter while Santander removed £3.4 Billion (GBP).

The biggest injection of credit came from Barclays at £3.8 Billion (GBP), whilst Leeds Building Society added £212 Million (GBP) and Nationwide Building Society £1.8 Billion (GBP).

The Prime Minister David Cameron insists that the coalition Government’s plans to take a more pro-active role in the UK housing market is “absolutely right” in order to help struggling potential buyers to raise large deposits.

Speaking at a residential property construction site in Lewisham, Mr Cameron attempted to reassure people seeking mortgage advice, stating that the NewBuy Guarantee initiative will help “unblock” the housing market by providing 95% Loan-To-Value mortgages underwritten by homebuilders and the UK Government.

Three major mortgage providers have so far committed to the Government-backed NewBuy scheme.

Barclays, Nationwide Building Society and NatWest Home Loans intend to back the NewBuy scheme by offering products which will tie in with it. Santander and Halifax are also expected to begin offering similar mortgage products along the same lines at a later date.

The mortgage indemnity initiative will aim to help people invest in property even if they only have a deposit of 5% or 10%.

As well as helping people who are finding it tough to save towards 20% deposits, the project is designed to boost the construction sector by spurring demand for new-build properties.

First Time Buyers (FTB) looking to purchase homes in England worth up to £500,000 could be eligible for the scheme in the months to come. The Government will cover 5.5% of the value of each mortgage provided, while 3.5% will be covered by house builders.

Forecasts suggest that as many as 100,000 UK new build home buyers could gain mortgage funding through the scheme.

Mr Cameron said: “The problem today is we have lenders who are not lending so builders cannot build so the buyers cannot buy and it needs the government to step in and help unblock the market. The new scheme was absolutely right in attempting to lower the requirements to more affordable levels of between “£10,000 to £15,000” with the taxpayer and the construction industry underwriting the high loan-to-value (LTV) mortgages”.

However, as reported on “Spotlight” earlier this week, the scheme has already prompted heavy criticism from opposition parties.Read the full article here 

Labour’s shadow housing minister Jack Dromey was among the first to be openly critical of the mortgage indemnity scheme proposal, publicly stating that the Government needed to invest directly in the building of more new homes.

Some property industry pundits have labelled the scheme as a “gimmick” to boost the ailing UK construction sector.

Even some lenders remain fairly wary of the Government’s plans and are yet to sign up to the initiative, with only three major lenders signed up to take part so far.

Nonetheless, the Council of Mortgage Lenders has backed the scheme as “good news for home-buyers”.

The UK coalition Government’s NewBuy scheme was launched today, (12th March), aiming to provide a much needed boost for people seeking first-time buyer mortgages.

A recent survey by property portal Rightmove questioned over 2,726 potential house purchasers between March 5th and 7th 2012 about their awareness of the 95% NewBuy mortgages and how the new Government backed scheme might affect them.

Their results of the survey found that nearly 2 in every 5 first-time buyers believe that the introduction of the scheme means they are more likely to get on the housing ladder within the next 12 months.

The NewBuy scheme is available only on UK new-build properties.

However, some critics were already questioning the scheme before any official announcement was made.

Labour’s shadow housing minister Jack Dromey claimed that only 3 out of the original 7 lenders were participating, and that the number of developers in the scheme had fallen from 25 to 7.

The Council of Mortgage Lenders, which up until last week was unable to confirm whether the launch was even going to go ahead despite being co-architect of the scheme.

The CML issued a general, guarded statement, adding that it would issue further information when details of the scheme and participants were available.

CML Director General, Paul Smee, said: “NewBuy mortgages will help creditworthy borrowers who simply haven’t yet managed to build up a large enough deposit to gain access to finance to buy a newly-built home. NewBuy is good news for home-buyers, and potentially good news for jobs and the wider economy too. Borrowers need to understand the implications of high loan-to-value (LTV), borrowing, so we will be supporting the initiative with clear consumer information to help people decide whether NewBuy borrowing is an attractive option for them.”

The House Builders Federation (HBF) also issued a statement just days after it too had to admit it did not know for sure if today’s launch would go ahead.

Stewart Baseley, executive chairman of the HBF, said: “NewBuy will help thousands of people to meet their aspirations to buy a new home, freeing up the housing market and helping first-time buyers and those unable to take the next step on the ladder. The scheme will also provide a vital kick-start for house builders large and small who will be able to build the homes and create the jobs that the country desperately needs.

According to the research by Rightmove, 38% of those looking to buy for the first time stated they would be more likely to purchase a home over the next 12 months once the scheme was launched.

The scheme could also benefit ‘second-steppers’ – those looking to sell and trade up for the first time – with 24% of respondents in this group stating they would be more likely to purchase over the next 12 months.

Rightmove director Miles Shipside said: “NewBuy looks set to give a significant housing boost to the fortunes of those who need it the most. We’ve found that raising a deposit has long been the major obstacle for those looking to purchase a new home at the foot of the housing ladder. NewBuy helps address this challenge, and we’ve found that the knock-on effect is that, as of today, nearly two in five first-time buyers will be more likely to getting on the housing ladder via thanks to this initiative. First-time buyers and second-steppers have long been frustrated in their efforts to get on to or move up the housing ladder by prohibitive deposit requirements. Four out of ten first-time buyers cited ‘raising enough of a deposit’ to be their single biggest housing market concern in our recent First-Time Buyer Report. NewBuy opens the door to these groups and can also serve as a great stimulus to help safeguard and create jobs in the new build property sector.”

The HSBC and Yorkshire and Clydesdale banks have already said they will not be participating, and neither LloydsTSB or Santander have deals ready although Nationwide has said it will have NewBuy deals available.

More than a quarter of aspiring first-time buyers are so desperate to raise a deposit that they will take out either a second job or even risk getting an unsecured loan.

Research by Santander, says that 27% will take on extra debt to raise the money for a deposit and 28%  are also taking up second jobs or working overtime to find the money.

The research reveals a quarter of non home owners are hoping to buy for the first time within the next five years, however, one-third say they will never own property.

Santander  say that the average deposit for a first-time buyer is now a staggering £37,375 – an average of 17% of the overall property value, .

The figures are a stark contrast to data obtained from current home owners, who bought their properties on average 12.5 years ago. Then, just 5% relied on overtime or a second job, and only 4% took out a loan to raise their deposits.

 Savings (54%) are, as then, the most popular way of funding a deposit, but whereas it used to take 29 months to save for a deposit, it now takes 40 months.

 Another change is the proportion of potential buyers relying on inheritance money. This has almost doubled in the last 12.5 years, moving from 8% to 14%

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Banks and building societies have made widespread changes to their UK mortgage rates in recent weeks, with a growing number of lenders raising rates on tracker loans as the escalating Eurozone debt crisis drives up the cost of funding these mortgages.

This week, Nationwide Building Society and Halifax – part of Lloyds Banking Group – became the latest high-street lenders to increase their tracker rates.

Halifax has upped the rates for tracker mortgages by as much as 0.30 percentage points, raising its two-year tracker from 3.04% to 3.34%.

It is available for loans up to 75% of a property’s value, with no fee.

Woolwich, Santander, Northern Rock, Accord & Barclays Wealth are among the other lenders to have raised their rates over the past month.

Not all mortgage rates are heading upwards.

At the same time as increasing several tracker rates, Nationwide Building Society cut the cost of some fixed-rate products – including its five-year fix, which was reduced from 3.69% to 3.59%.

Other mortgage lenders have eased their criteria and launched attractive products. On Wednesday, Barclays re-entered the 90% loan-to-value market, after it stopped offering these loans three years ago.

Coventry Building Society also launched a new range of fixed and capped rate products that come with no early redemption charges this week.

These are the current ‘best-buy’ mortgages deals available now.

Remortgages

While tracker rates have been going up, mortgage brokers say there are still a number of competitive deals available. Santander has a two-year tracker at 1.95% – Bank of England (BoE) base rate plus 1.45% – available up to 60% loan-to-value with a £1,995 fee. It comes with a free valuation and free legal work.

For those who want a longer-term tracker,

HSBC’s lifetime tracker at 2.49% – BoE base rate plus 1.99% – is a fabulous deal. It comes with no fees and no early repayment charges, which means borrowers can remortgage to a fixed-rate deal at any point during the mortgage term.

Fixed-rate deals remain cheap and have not seen any major rate movements. Leeds Building Society is still offering its 2year fix at 1.99%, available up to 75% loan-to-value (LTV), with a £1,999 fee.

Chelsea Building Society’s five-year fix at 3.29%, available up to 70% loan-to-value (LTV) with a £1,495 fee, is the market leading longer term fix.

First-time buyers: 90% deals

Barclays’ move to increase its maximum loan-to-value from 85 per cent to 90 per cent has provided first-time buyers with more options. According to Moneyfacts, the financial data provider, there are now 253 mortgages requiring only a 10% deposit, compared with 206 in October 2010 and just 101 in October 2009.

It is offering a three-year fix at 4.99% with no fee or a five-year deal at 5.49%, with a £499 fee. Its maximum loan size is £500,000.

Cambridge Building Society and Melton Mowbray Building Society are also offering five-year deals at 5.39%.

Large loans

Competition has increased in the large-loan market recently, with more high-street lenders offering these type of mortgages.

RBS Private Banking has a two-year tracker at 2.19% – BoE base rate plus 1.69% – available up to 50%loan-to-value, with a £999 fee.

NatWest has a two-year fixed-rate at 2.65%, available up to 60% loan-to-value, with a £999 fee.

Most wealthy borrowers will typically be better off opting for Barclays Wealth’s two-year tracker at 2.49%.”

Self-employed

Skipton Building Society has some of the most competitive deals for self-employed borrowers as it will consider retained profits in a limited company. It offers a two-year tracker at 1.98% – BoE base rate plus 1.48 percentage points – available up to 60% loan-to-value, with a £1,995 fee. It also has a two-year fix at 2.48%.

Read the Full FTSE article here

Property investors and home buyers now face bowing down to their lender’s choice of conveyance solicitor or even having to pay twice to use their own solicitor

As if finding the property, saving a deposit, passing credit and salary checks weren’t enough for would-be property buyers!

Lenders have thrown up yet another new issue – YOUR SOLICITOR!

An increasing number of borrowers are finding that their lender will not work with the law firm they have chosen to do their conveyancing.

This problem is likely to grow, causing a situation that reduces consumer choice and increases costs, hassle and delay to the buying process.

Mortgage lenders have always had panels of law firms they are willing to work with, but in the past few months big names such as Santander, Nationwide and Lloyds Banking Group have all reviewed and reduced those lists – in some cases removing solicitors who have worked with them for more than 20 years.

Lenders blame a rise in fraud as the reason for the cull – criteria have been tightened and a smaller panel should be easier to keep an eye on. No lender will say how many solicitors have been dropped, claiming the information is commercially sensitive, but the Law Society says it is hearing daily from firms that have been removed from panels, or have other concerns about them. Some do not even realise they have been dropped until contacted by a borrower who has instructed them.

Borrowers may only find out their solicitor is not approved when they apply for a mortgage – by which point those who are selling as well as buying are likely to have instructed someone and incurred costs.

For those who are only buying, switching may not mean a fee, but it could mean using someone unknown rather than a solicitor you have used before or have had recommended.

The Council of Mortgage Lenders, (CML), is unapologetic, saying mortgage companies have been forced to act. “There has been a significant amount of fraud and loss to lenders and their clients out of conveyancing in recent years, the Law Society’s recent creation of a conveyancing quality scheme is a tacit admission of this fact”. says the CML’s Sue Anderson

While the Law Society argues that lenders can be assured that members of its new scheme meet strict standards, Anderson describes it as “untried, unproved, untested” and says “it is reasonable for lenders to take their own steps to control their risk”.

Unfortunately for borrowers who want to choose their own lawyers, the issue looks likely to rumble on. Some lenders say their lists are closed, so those firms that have been dropped through lack of business will not be able to get back on, and the chair of the Conveyancing Association, Edward Goldsmith, says he expects panels to go on shrinking. “In two or three years those panels will be further reduced – they will be almost like super-panels,” he says. He suggests that, ultimately, this will be good news for consumers. “The firms that remain on the panel will be those who do a good job.”

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