As some level of confidence starts to return to the banking and home owner loan sectors of the markets, many lenders are beginning to increase the maximum loan to value ratio they are prepared to offer to potential borrowers and in particular, to first time buyers in an attempt to provide a boost to the rest of the housing and home owner loan markets.
One building society has just launched a new scheme which allows buyers to obtain 100 per cent loan to value on a home owner loan or mortgage, providing that they are resident in the Channel Islands.
Skipton International has launched the product, known as “the next generation mortgage”, which is only available in Guernsey, Jersey and Alderney and as the name suggests, involves a family member putting up some type of security for 15 per cent of the purchase price. The first or second time borrower is able to take a loan of 85 per cent under the scheme, with the family guarantor placing the deposit in a special account with the Skipton.
Although they will not be able to access the money whilst it is used as security for the loan, they will be able to draw the interest from the funds, which currently stands at 2.00 per cent gross, thereby providing themselves with an income. As an alternative, the family member may use part of the equity in their own property in order to provide the 15 per cent security for the loan.
Nigel Pascoe of Skipton International said “This new account opens the door for first time buyers and those who might be struggling to raise their deposit from their own means, buy importantly does not require a third party to donate or lend funds.”
We have reported over the course of the past few months on how activity in the housing and home owner loan markets has continued to increase, as a growing number of individuals move house and more first time buyers take out their first loan in order to get themselves on to the property ladder.
According to the latest figures from the Council of Mortgage Lenders (CML), this trend is continuing, with an increase in loan sales activity during the month of October with a total of £13.5 billion being offered in new home owner loans, showing an increase of 5 per cent over the previous month.
Although these figures are encouraging, they are still 27 per cent lower than they were at the same time last year, when there was £18.5 billion offered in new loans. The CML have said that the 5 per cent increase in October is typical at this time of year and was expected, as individuals buy a house before Christmas, but it also now expects new loan activity to slow down towards the end of the year.
However, the CML has maintained its forecast of £141 billion worth of new home owner loans and mortgages for the whole of this year.
Paul Samter of the CML commented on the figures, he said “There has been a significant change in the type of lending taking place from the start of the year. House purchase activity has picked up significantly. In contrast, remortgaging has dropped to decade low levels as many borrowers have little incentive to refinance when they move on to low reversionary rates and others find themselves unable to do so due to equity constraints. The coming months are likely to be dominated by seasonal factors rather than underlying change.”
Since the beginning of the credit crunch, more than two years ago now, banks and building societies have continued to tighten their lending criteria dramatically and in particular the area of loan to value ratio’s has been severely restricted, with many lenders only offering a maximum of 75 per cent loan to value on their home owner loan and mortgage products.
Northern Rock were the first victim of the credit crunch, largely due to their high loan to value products such as their Together range, which offered loans of up to 125 per cent loan to value.
But the Coventry building society has just announced that it is to reintroduce a 125 per cent loan to value service for its existing borrowers. The new loans are designed to help existing Coventry customers, who may be in a negative equity situation with their current home owner loan due to falling property prices, to be able to move house.
The deal will not be available to everyone, in order to qualify, applicants must have an existing home owner loan with the society and have an excellent credit rating. It is designed to help those who have to move, due to things such as a growing family or job relocation and would otherwise be unable to do so because of negative equity on their existing loan.
Ray Boulger of the mortgage broker John Charcoal said “This new facility from Coventry Building Society for credit worthy existing mortgage customers, allowing them to move even if they have little of no equity in their property, is a superb example of a lender responsibly looking after its existing customers. It is really good to see a lender actually living up to its motto rather than just talking about it.”
We reported last month on how attitudes towards fixed rate home owner loans and mortgages have changed over the course of recent months. Whereas at the beginning of the year, the majority of new loans were taken out on a fixed rate basis due to the belief from many borrowers that interest rates would rise sharply in the near future, the number of fixed rate loan deals has dropped significantly in favour of variable, discounted and tracker rate loan deals.
According to the latest figures from the home owner loan and mortgage broker, John Charcoal, fixed rate loans accounted for just 26.3 per cent of the overall home owner loan market during the month of October, compared with 83.1 per cent in June this year.
The main reason for this change in attitudes from borrowers is due largely to the particularly high cost of fixed rate loan deals at the moment, compared with tracker and discounted deals, which can often work out considerably cheaper over a term. The other main factor is that it now seems unlikely that the Bank of England will increase interest rates for some time and therefore borrowers are less worried about their loan repayments increasing.
Drew Wotherspoon of John Charcoal commented on the change, he said “The roller coaster movement in product choice reflects the rapid change in mortgage pricing and interest rate sentiment over the last year. With the outlook for interest rates little changed over the last month an even higher proportion of borrowers chose a variable rate mortgage, in most cases a tracker. There seems a good prospect that borrowers on a variable rate will be able to benefit from rates more than 2 per cent lower for the time being and then switch to a similarly priced fixed rate later.”
A long period of economic growth, regular pay rises and easy access to personal loans and other types of finance has placed many consumers in the situation where they think nothing bad could possibly happen to them and that their financial situation can only get better, due to things like the value of their house continually increasing and always being accepted for another personal loan, or credit card without any in depth checks carried out by their bank to see if they could afford the repayments.
All of a sudden, the credit crunch arrived and many individuals got a very serious wake up call, leaving many previously credit worthy individuals in financial difficulty with loan and mortgage arrears and even facing the possibility of repossession.
Many people blame the banks for this problem, particularly in how they offered loans to people who were always going to face difficulty in paying them off, but consumers themselves must take their own fair share of the responsibility, by not bothering to obtain a reasonable financial education with regard to borrowing money through loans and credit cards, as well as the best forms of savings and how interest rates work, for example.
In light of this, the government is to launch a new financial education agency, which will be designed to offer free advice to consumers on a range of financial matters, such as personal loans, debt advice, home owner loans and mortgages as well as areas such as savings accounts and managing money on a daily basis. The agency is to be introduced along with the new financial services bill, which will place much tighter regulation on banks and other financial institutions and as part of the regulation, banks will be responsible for funding the agency through a levy in their annual fees.
