Anybody who has applied for a new loan or mortgage in the past twelve months will know that it has become more difficult to be accepted for any type of finance since the start of the credit crunch, as lenders across the market are withdrawing many of their products and imposing ever tighter lending criteria on the range of loans and mortgages which they do have remaining.
But the extent of these loan restrictions and the effect they are having on borrowers is only just becoming apparent. According to the latest statistics from GE Money Home Lending, as many as 3.4 million people have been declined for a mortgage or loan application at some point in the last eighteen months.
The research also revealed that over 450,000 borrowers applied for a loan on more than four occasions before they were accepted and 30,000 individuals were forced to make up to eight attempts before finding a lender who would grant them a loan.
In addition to these figures, 412,000 people were unable to obtain any type of loan, regardless of the number of attempts made. This is, of course, a vicious circle for many loan applicants, as each failed application has a negative impact on a borrower’s credit rating and therefore makes it even harder to be accepted for a loan on subsequent applications and highlights the need for potential borrowers to apply more carefully and use specialist brokers and lenders who are more likely to be able to help them.
A spokesman for GE Money said “with criteria changing regularly and the risk of decline increasing all the time, it is even more important that borrowers looking to obtain a mortgage use reputable mortgage professionals with broad experience, knowledge and systems at their disposal which will increase the chances of the borrower getting the deal they need. In addition there are a number of dedicated specialist lenders with a strong pedigree who may be able to meet borrowers needs.”
Since the end of last year, there have been warnings from a number of groups that there would be a dramatic increase in the number of homes being repossessed throughout the course of this year, due to rising arrears and defaults on mortgages and homeowner loans.
The Council of Mortgage Lenders (CML) predicted earlier this year that we would see around 450,000 being repossessed this year alone and although we have not yet reached this level, there has been a sharp rise in the number of possession orders issued by lenders.
During the course of the second three months of 2008 there were a total of 28,658 possession orders issued on mortgages, an increase of 24 per cent from the same period last year and 4 per cent higher than the first three months of this year. To date, there have been a total of 57,166 orders granted by the county courts this year and 18,900 homes have actually been repossessed.
A lender is able to apply to the courts for a possession order once the arrears have built up on a homeowner loan, or it is in default. Before this stage is reached, both the lender and borrower should endeavour to do everything they can to avoid the situation and it is therefore essential for a home owner to contact their lender as soon as problems start on their loan, in order that the situation may be rectified before the arrears build up too much.
Once a possession order is granted by the court, this will state the date when the home owner must vacate the property and the borrower then has until this date to either bring the loan account up to date, or sell the house to avoid the repossession taking place.
The Financial Services Authority has recently investigated lenders with regard to their repossession policies and has stated that they must treat customers fairly in their proceedings, ensuring that repossession is only considered as a last resort.
The ongoing effects of the credit crunch are having a huge impact on many peoples financial situation at the present time and it looks as though the trend is likely to continue for some time to come yet.
With the Mortgage and loan markets remaining reasonably stagnant, it seems there are no competitive cheap loan deals available, particularly for those borrowers who are reaching the end of their cheap fixed rate mortgage and this, coupled with the rising cost of living, high rate of inflation and job insecurity, is leaving many individuals in the difficult position of not being able to keep up with the repayments on their mortgage.
One solution to the problem, other than to downsize or take on a second job, is to rent out a spare room in the house. To many home owners, there could be nothing worse than having a stranger living under the same roof as them, but as the demand for rental property continues to increase, along with the cost of their homeowner loan, many people are starting to do just that in order to avoid their loan going into arrears or even defaulting and having someone else living in the house is certainly a better option than the bailiffs knocking on the front door. Most banks and building societies are likely to welcome this course of action, rather than see the loan enter an arrears situation.
According to the Abbey, the average rent generated from a room is £289 per month, creating an additional annual income for a home owner of £3,468. As an additional bonus, this is likely to be tax free income, as the Government offers a tax free allowance of £4,250 per annum through rental income.
It may not be everybody’s cup of tea, but for those individuals who have more money going out each month than they have coming in, renting a room out could be the ideal solution to remain in the black.
Just a couple of years ago, many individuals who were looking to take out a mortgage loan hardly gave any consideration to the standard variable rate of interest which their new lender offered, as most borrowers had taken a short term fixed, or discounted rate loan for two or three years.
Once the product reached the end of the initial deal, the borrower would simply re-mortgage and obtain a new cheap loan for the next couple of years, repeating this process until the mortgage was repaid in full, so what was the point in even thinking about the standard variable rate, if they were never going to pay it?
Two years down the line and there have been some drastic changes within the mortgage and loan markets. The effects of the credit crunch has meant that a huge number of cheap loan and mortgage products have disappeared altogether from lenders’ portfolios and those which are left are subject to much tighter lending criteria, restricting the amount of loan someone may now be eligible for, which means that the nice re-mortgage deal that borrowers were taking for granted two years ago may no longer exist and they are likely to be stuck with their existing lender, paying the often expensive standard variable rate.
As a result of this, borrowers are now paying much more attention to the long term cost of their mortgage loan, as many now realise that they are likely to be paying the standard variable rate for some considerable time, once the initial deal has finished.
According to research from the Nationwide building society, 53 per cent of borrowers were now taking more interest in the standard rate than they were twelve months ago and 56 per cent said that they would shop around further for a new mortgage loan, taking into account the standard rate of interest and also the initial fees charged by the lender. In addition to this, 44 per cent said that they would now be looking at a longer term fixed rate of five, or more years.
The total number of housing transactions in the UK fell once again, to a new low, during the month of July, according to the latest survey from the Royal Institute of Chartered Surveyors (RICS).
The report, which is based on the number of property surveys in respect of mortgage loan valuations carried out by the society’s individual members, showed that fewer surveys were carried out during July than at any other time in the past thirty years, since the institute started to keep records on such matters in 1978.
The main reason given for the slow down in activity in the property market was due to a lack of available funding from banks and building societies in the form of mortgages and other secured loans, coupled with a general lack of confidence in the housing market from potential buyers.
The report also revealed that almost 84 per cent of RICS’ surveyors said that average house prices had fallen once again, against last month, but the rate of the decrease was now slowing down.
On a more positive note, there was an increased level of interest from new buyers looking for a new homeowner loan, rather than re-mortgage cases, along with a higher number of people putting their home back on the market at a reasonable price, rather than trying to demand unrealistic asking prices for their properties in the current economic conditions.
A spokesman for RICS said “The lack of mortgage finance has brought the housing market to a virtual standstill with first time buyers rapidly becoming an endangered species. Going forward, there are signs that sales activity might pick up a little as sellers start to re-evaluate unrealistic asking prices. However, the current confused messages from the Government regarding stamp duty risks damaging any returning confidence and may discourage mobility.”
