Mortgage Crisis Latest
What is happening?
The credit crunch and how it affects you today
- The latest on how it affects your mortgage
- The credit crunch and UK property prices
- First Time Buyers and the mortgage crisis
- The Mortgage Crisis and Remortgaging
- People Coming off Short Term Fixed rate deals
- People Buying Property ie Selling to Buy
The credit crisis and your mortgage:
Last Updated 14 July 2013
Bank of England cuts rate by half a percent to 0.5%
The latest cut brings the interest rate to the lowest ever level in the Bank’s 315-year history.
This is the sixth drop in rates since October in an effort to combat the economic problems.
Here is the history of how and when the Bank of England has dropped the base interest rate during the credit crunch crisis.
(8 Oct 2008interest rates lowered by 0.5 Percentage Points to 4.5%… 6 Nov 2008interest rates lowered by 1.5 Percentage Points to 3%…. 4 Dec 2008 interest rates lowered by 1.0 Percentage Points to 2.0%… 8th Jan 2009 interest rate lowered by0.5 Percentage Points to 1.5%… 5th Feb 2009 interest rates lowered by 0.5 Percentage Points to 1.0%… 6th March 2009 interest rates lowered by 0.5 Percentage Points to0.5%)
The latest report from the Bank of England says “World activity continued to weaken, reflecting both depressed confidence and the persistent problems in international credit markets. In the United Kingdom, output dropped sharply in the fourth quarter of 2008..
…the Committee also resolved to undertake further monetary actions, with the aim of… raising the rate of growth … to a level consistent with meeting the inflation target in the medium term….
To that end… the Committee agreed that the Bank should, in the first instance, finance £75 billion of asset purchases by the issuance of central bank reserves”.
Does this raise the dread spectre that the government is starting to print money? Watch this space
How might it affect you?
Most mortgage customers with tracker deals will have the cut in interest rates passed on to them by their bank or building society.
Customers with an average £120,000 repayment mortgage will see their monthly bill drop by £30.
But those on standard variable rate deals must wait for a decision from their lender, most of which are currently saying their rates are under review.
How might it affect you?
If you are one of four million homeowners on a tracker mortgage, ie where theinterest rate you pay is always a set rate above or below the Bank of England base rate, you should see your payments reduce automatically.
For example: a tracker mortgagee with a £250,000 loan will gain by £76 a month while someone with a £150,000 repayment loan will see a fall of almost £50 a month on their mortgage repayments.
But note that many tracker mortgages have an agreed minimum rate that the lender will go down to. Check with your lender what this is.
If you have a standard variable rate mortgage it is not guaranteed at all that any of the reduced interest rate will be passed on to you.
The banks claim this is because they borrow money from each other using a rate called LIBOR (London Interbank Offered Rate – if you care to know) – which is currently higher than the base rate.
If you have a fixed-rate mortgage you definitely will not see a cut unless you get a new mortgage or remortgage.
Despite a general feeling to the contrary lenders are willing to give mortgages.
However their lending criteria over the past year has been constantly changing, resulting in mortgage seekers having to have larger deposits in order to obtain the funding they require.
For those property buyers with a reasonable deposit, and who have a good credit history there should not be a big problem. The best thing to do is to talk to a mortgage adviser and find out your position.
Even those purchasers who have to sell a property are finding that if they are going up market, then the potential saving on the more expensive property more than outweighs the amount of reduction they have had to accept on the property being sold.
We are bombarded with doom and gloom by the press, who seem to love to talk
everything down, but there are some huge plus points currently which we need
to focus on in order to get the property market going again. That will
drive prices back up, which benefits everybody.
What about property prices?
House prices have already fallen by about 8% in recent months.
Almost every expert is saying prices will drop. It is only a question of by how much.
Some think property prices will fall by a further 15% in the next few months leading to a total fall over the next year or so of around 20%.
Others talk of a 35% drop.
Between 2000 and 2007 average house prices had doubled – so provided you bought before 2000 – even a 35% drop means you will still have made money on your property.
The people at risk of losing out from falling prices are those who bought between 2006 and 2007. But only if they are forced to sell.
The peak in UK house prices was October 2007 with an average price of £186,000.
A fall of 25% would take the average British house price to £140,000.
If there is a serious recession, which now seems likely, the effect of job losses will mean fewer house sales.
Plus there will probably be less lenders offering money for property purchases.
The fear is that what happened in Japan in the early 1990’s might happen in the UK. There, a property boom fueled by cheap credit from the banks suddenly collapsed.
15 years later prices have yet to recover in spite of desperate efforts by the Japanese authorities, including 0% mortgages.
However, on the bright side:
The Japanese don’t have Sarah Beeney and the other cheerleaders of the British love for property wheeling and dealing. Meaning it’s in our blood and unlikely to go away.
Arguably, as long as the sun shines, food grows and the air is breathable, the Brit’s will always have an eye out for a bargain and a renovation.
Another factor to bear in mind is that if the influx of economic and other immigrants, eg from eastern Europe, continues, then there will be a floor to any property crash. These people need somewhere to live and there is only a limited amount of space.
However if the recession is so bad that they go home, this might cause problems, as they have been affecting prices here for several years. This was part of the reason the buy to let boom continued despite all the gloom and doom predictions over the past 4 years or so.
But if the recession is bad in the UK it might be worse in developing countries like Eastern Europe. So they might stay.
Just remember nobody knows anything
Slowly, but surely, the mortgage famine is dimishing. There are more loans around and some of the really stringent conditions have been eased. But while the crisis is ending, home loans are far from out of the woods. So a good mortgage broker is your best friend.
The Mortgage Crisis for First Time Buyers who are hoping to buy
Property prices have risen over the past year. But they are still below their peak of a few years ago. So it could be a good time to buy – particularly for those who have nothing to sell.
Prices could go up or down from here. But if you can afford to move, do it. You’ll be gaining both a roof over your head and an asset while you won’t be feathering the bank account of some landlord. If you have found a place you want to live in then go for it. The chances are it will go up in price over the long term. (Remember it is a HOME first and only an investment very much second place)
Wherever you buy, you’ll need to have a deposit or to save up for one. There are practically no loans which you can get with less than a 10 per cent deposit. And if there are any, then the interest rates will be substantially above average. You will find a greater range if you can save up for a 20 per cent deposit. Some lucky buyers find their families will help them achieve this target. Thank Bank of Mum’n’Dad is always the best bet for lowest rates!
To get a mortgage, you’ll need to pass the lender’s finance tests. The bank or building society will want to know how much you (and your partner) earn. The loan you could get will be based on this – perhaps three to four times the total
You’ll also need a good credit score so check your credit rating and get to work on repairing any damage to your rating. Do this as early as possible – lenders will not advance a penny to anyone without a cast iron record. Most have been stung too often and too hard in the past to take any risks whatsoever.
Always be realistic. Will one of you stop work soon – perhaps for family reasons? Or is there a chance of losing your job? If so, stay renting rather than take on a loan that will cause difficulties later on. And don’t forget interest rates can (and will) go up some time in the future.
Remember, it is better to stay a renter and in control of your finances than to have a mortgage and fail then fail to keep up the payments.
There are plenty of home to rent, especially flats thanks to the glut of two bedroom properties built for speculative landlords and larger properties which cannot be sold.
The Mortgage Crisis for Recent First Time Buyers
Whether you are in a mortgage crisis depends on your exact situation. Some people will be struggling – especially if work is hard to get or you have lost overtime payments. But others who took out tracker mortgages are laughing with monthly payments far lower than they dared to hope for.
Those who are already locked into a fixed rate deal set up a few years ago are paying more than many. But few fixed rate deals last for more than five years so hopefully by the time it comes to an end, you will be able to remortgage to a more attractive deal.
This is because it is possible that however bad the general economy gets interest rates will probably remain very low for the next year or so. Beyond that, they are likely to rise – after all, they could not go any lower.
But never forget. Nobody actually knows anything. After all, who predicted that interest rates would fall so far and so fast?
Many – perhaps one in five – recent buyers have problems no matter what interest rate they are paying. Some took on loans that were worth more than the value of their property. Since then, property values have fallen so the percentage rise needed so they can sell without hassles is large. Others took on loans for very high multiples of their annual income – as much as six or seven times in extreme cases. And a few have difficulties because they took out a loan for more than the property’s value coupled with a very high mortgage compared with their earnings.
The Citizens Advice Bureau and other debt agencies are currently seeing a sharp rise in borrower problems.
If you are having difficulties, take advice. Don’t rob Peter to pay Paul by borrowing more on your credit card. It won’t work and will almost certainly make things worse for you.
Read more on what to do if you have difficulties repaying your mortgage in the UK
The Mortgage Crisis for People who are Remortgaging
Your situation very much depends on how much equity you have in the property.
If you are a long-term owner with good equity you should be fine. You will always find a lender willing to deal with you. It is a question of using a good independent mortgage broker to find you the best deal.
Of course, some people on variable rates are enjoying such low monthly repayment that they can profitably put off remortgaging to another rate whilst interest rates are so low.
The Mortgage Crisis for People Coming of Short Term Fixed rate deals
This is not nearly as bad as you thought! Many lenders now have really low “go-to” rates – that’s the trade term for the interest you pay when you come off a fixed rate or other short term deal. You might find the go-to rate is lower than you are paying now.
Of course, rates won’t always be low. Fixing for three to five years can make sense especially because that allows you to budget accurately and not get caught out by surprises. But the low go-to rates mean you can take your time and check with a good mortgage broker exactly what is on the market.
And keep your eye on the best buy tables.
Meanwhile always find out what your current lender is prepared to offer. Remember it makes financial sense for the lenders to keep a good customer. It’s cheaper for them than signing up someone new!
The Mortgage Crisis for People Buying Moving Homes
The only sure thing based on past experience is that the experts continually to get it wrong! They are really bad at spotting price falls but when they all agree that values will continue to drop, along come new buyers to put firstly a floor under prices and then push them up.
But if you are selling to move someone – and there are always those who have to do this as well as those who want to, there may be some comfort in knowing that any drop in the price of your home could be matched proportionally by a fall in the value of the property you’re buying. While rises and falls come with big variations between regions or even between streets, they do at least tend to move in the same direction.
Lower prices are good if you are trading up to a more expensive property. There is a £200,000 gap between a present home worth £150,000 property and a £300,000 home – that’s now £150,000.
However if you are trading down you will want to move quickly. The problem is that any property buying / selling chain you’re involved in is probably going to have problems somewhere along the line that will affect everyone else. And look at the maths. Anyone trading down – perhaps your present property is too large or you wish to move to a cheaper area – will have less profit to gain.
The Mortgage Crisis for People with Bad Credit History
Loans for those with poor credit histories are called sub-prime or impaired credit mortgages. And the plain fact is that these are now very few and far between. If you can find one – talk to a mortgage broker who specialises in bad credit – it will probably be very expensive.
Lenders are reluctant enough to put their heads above the parapet for normal loans. The thought of lending to someone with credit problems and few county court judgements or someone with uneven earnings is enough to send them scurrying back to their holes.
It’s not impossible but far more difficult and more expensive than it used to be.
You might do as well to sit tight and rent. There is little point in biting off more than you can chew as any future problems will be magnified by the high interest rates on the few remaining sub-prime loans. Again, don’t be fooled by today’s ultra low rates. Just a few years ago, mortgages for people with a poor record had interest rates in excess of 10 per cent plus really tough small print.
The Mortgage Crisis and Mortgages for the Self Employed
Traditionally it was always more difficult for people without a regular salary to get a mortgage. The lenders had neither the imagination nor the inclination to see that the world was changing and that self employment was an increasing option for many.
That changed during the past 10 to 15 years as more innovative lenders came onto the scene and saw an opportunity. Instead of demanding at least three years’ worth of audited accounts if you were self employed or the director of your own company, they came up with “self-certification” or self-cert which required a lower scrutiny level. Unfortunately, some borrowers saw this as a licence to borrow large sums without being able to repay. And they were encouraged by some dodgy mortgage brokers who turned a blink eye to what they knew were lies on application forms. Over the past year or so, watchdog the Financial Services Authority has been weeding out dishonest brokers and banning them from business. It is an offence to lie on an application form. Besides criminal sanctions, the lender could repossess your home even if you are up to date on the payments. Tough, but true.
But while it is difficult to get a mortgage if you’re self employed, it is not impossible.
There are flexible lenders out there who know that prospects for the self employed can be as good if not better than for someone in work who is suddenly made redundant. After all, when you are employed, it can be all or nothing while the self employed can put up with reduced prospects for a while. Start by consulting mortgage brokers who specialise in the self employed
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