The latest statistics from all the major housing market indices have shown that house prices have hit the bottom and are now actually starting to increase in value once again, according to research conducted by Assetz.
The figures show that prices reached their lowest point between April and May this year, but the figures for May show a significant increase in the average price of a new home, with an annualised growth rate of 17.3 per cent and although it is still early days to start getting excited about recovery and growth, it is the first time in a while since the downward trend has been reversed.
The two main hurdles left facing potential homebuyers are raising a sufficient deposit to meet lenders’ loan to value restrictions and obtaining the necessary funding to make the purchase through a suitable mortgage or homeowner loan. The majority of potential buyers are now realising that they need a much larger deposit than they did previously and many have saved adequately over the past twelve months or so to raise the necessary funds and so this is becoming less of a problem, but with banks and building societies still looking for reasons not to offer a loan rather than trying to help borrowers, obtaining a suitable loan is still a challenge for many.
Stuart Law of Assetz said “All indicators now suggest that we have passed the bottom of the house price curve. While we can’t read too much into one set of figures alone, all the major indices and the recent RICS survey are all indicating an end to falling prices and an increase in activity.
Extreme supply limitations and the recent introduction of some interesting new first time buyer mortgage products will help support market recovery and it is likely that we will see a flurry of higher loan to value rates released as soon as it is widely recognised that the market has stabilised and the risk to the banking sector of further housing equity losses has diminished.”
The recent economic down turn and credit crunch have caused huge problems for the finance industry and loan companies over the course of the past couple of years and although we are now starting to see the first small signs of recovery (albeit very slight indeed), the effects of the credit crunch and current recession are still taking their toll on financial institutions, particularly those connected with the secured loan industry.
Over the past twenty four months or so, we have seen several large name companies close their doors to new loan applications from consumers and loan brokers alike, making it more and more difficult for potential borrowers to obtain the secured loan they require.
Just when we thought that we were starting to see the light at the end of the tunnel and things were starting to pick up again, another secured loan packaging company has announced that it is to cease trading and will close down with immediate effect. Loan Options, a packaging company which sources secured loans across the market on behalf of loan brokers and financial intermediaries for their clients, made the announcement today, blaming the current state of the market and difficult economic conditions for the closure.
Loan Options have said that any ongoing applications will be transferred to V Loans, who will continue with the processing and completion of all current loan applications and there should be minimal disruption for loan brokers and their clients. Managing Director of Loan Options, Andy Moody commented on the decision, he said “The market deteriorated to the stage where we could not continue and we were put in a position where we had to cease trading. We will do everything we can to make sure our brokers are protected.”
We reported recently on the likelihood that fixed rate deals on homeowner loans would probably increase in the very near future, due to an increase in the cost of banks borrowing funds on the wholesale money markets.
This week has seen a significant shift in the type of loan being chosen by new borrowers, as the average interest rate charged on a fixed rate homeowner loan has increased by around 0.6 per cent in the space of one week. At the same time as this, the average rate on variable and tracker loan deals has actually fallen by around 0.3 per cent.
The figures have been released by homeowner loan brokers, Mortgageforce, who have seen the number of fixed rate loan applications drop from 75 per cent to just 64 per cent of their total. A spokesperson for the company said “Whilst a borrower’s choice between a fixed rate and a tracker is largely based on how they expect the bank rate to behave in the next few years, when the price difference between the two is this significant, it’s difficult to resist the cheaper one.”
As an example of this difference, a potential borrower looking for a new loan from the Nationwide building society has the option of either a fixed rate at 6.28 per cent, or a tracker rate at 5.23 per cent. For a typical homeowner loan of £150,000 this will mean a difference of £131.25 every month in interest payments between the two deals.
This is quite a dilemma for many people trying to choose the right loan. One solution to the problem is to opt for the more flexible tracker deal and then make regular monthly overpayments to the same level as the cost of the fixed rate. This has the benefit of reducing the loan balance quicker while interest rates are low, thereby saving interest, with any overpayment amounts being used to mitigate any future interest rate rises by making underpayments to the equivalent level.
It was reported earlier this week that the Council of Mortgage Lenders (CML) have recently reviewed their figures downwards regarding the number of expected repossessions this year from borrowers falling into arrears and defaulting on their homeowner loans. However, the housing charity Shelter disagrees with the CML and have predicted that there is likely to be a “second wave” of repossessions through loan arrears within the next two years.
Although the CML have predicted that there will now be around 65,000 repossessions over the year, rather than 75,000, the figures from the Financial Services Authority (FSA) show an increase of 62 per cent in the total number of repossessions and also a 33 per cent increase in the level of loan arrears cases. Shelter have warned that a combination of rising unemployment, an increase in interest rates pushing up the cost of loans and the government mortgage support scheme finishing, could create the situation where we see a huge increase in the number of loan repossessions, even based on what we have seen during the current economic slowdown.
Sam Younger of Shelter commented on the problem, he said “With arrears escalating at an alarming rate, unemployment at its worst for 12 years and interest rates very likely to rise next year, we believe a second, more devastating wave of repossessions could occur within the next two years.
The government and lenders are working hard to help homeowners who are struggling now. But they must not be complacent and we fear that they are not planning adequately for the future. We are pleased that the new housing minister has today increased the funding for legal advice at courts. But the government must also find ways of expanding other advice services for vulnerable households and ensure repossession prevention schemes help more people.”
As a part of its ongoing review of secured and homeowner loan companies treating customers fairly, particularly during the current economic down turn, the financial regulator, the Financial Services Authority (FSA), has issued its latest report and has found continued shortcomings amongst a number of loan companies and third party administrators in the specialist lending areas, such as self certification and bad credit loans, when it comes to their handling of customers in an arrears situation on their loan, or facing repossession, despite warnings being issued to all lending institutions at the end of last year.
Currently four specialist loan companies have been subject to enforcement by the FSA and several more are currently being investigated, for failing to meet the FSA’s guidelines on treating customers fairly and having correct and suitable procedures for handling loan arrears.
The most recent companies to be investigated have all offered bad credit loans in the past and are currently not offering any new loans to customers. The FSA found that these lenders, along with the third party administrators who are appointed by the loan company to deal with those customers in arrears, were not meeting the necessary standards with particular areas of concern being: focusing on recovery of arrears rather than assessing the customers needs, taking court action too quickly, applying large charges and penalties to loans in arrears and companies not monitoring third party administrators adequately.
Lesley Titcomb of the FSA said “In current market conditions, with our data showing more people struggling to meet their mortgage payments, it is vital that firms treat customers who get into arrears fairly. It is unacceptable that some firms are applying fees unfairly and pushing customers towards repossession without considering alternatives. The steps we are announcing today demonstrate that proper handling of arrears is still a high priority for us and will continue to be so until the necessary progress has been made.”