It has always been said that buying a new home and taking out a home owner loan or mortgage is usually the most expensive thing an individuals is ever likely to do and this has been particularly true over the past few years, especially for those people buying for the first time who don’t have any equity from a previous property to help reduce the amount of loan they require.
Over the pat few years, prior to the credit crunch, the percentage of a personas earning which has been used on making their home owner loan repayments has been steadily increasing, pricing many people out of the housing market altogether.
But a new survey conducted by the Woolwich has shown that home owner loans and mortgages are becoming more affordable, as property prices have fallen and lenders introduce new cheap loan rates, due to the low Bank of England base rate.
In December 2008, the average person with a home owner loan was spending around £196 per month on their loan for every £1000 of take home pay they received, but twelve months later, this had fallen to just £157 per £1000 of pay. In real money terms, this means that the average borrower is now paying £110 per month less than they were a year ago, with an average loan repayment amount of £497 per month.
Andy Gray of Barclays bank said “For the 11 million UK households who have a mortgage there is a silver lining to the recession, a substantial reduction in mortgage payments right when they need it most. For them it is a chance to save in a way they might not have been able to before, or to overpay their mortgage and cut years from its life.”
At the beginning of last year, the number of available home owner loan and mortgage deals from banks and building societies had fallen to the lowest level for many years and any new loan products which were introduced, were rather expensive and only offered a low loan to value.
Although things seemed to be improving throughout the course of the year, progress was particularly slow with no real improvement for potential borrowers. However, since December last year, the number of high loan to value products has jumped significantly, as lenders start to slowly ease their lending criteria on home owner loans.
The number of loan deals available at 85 per cent loan to value has increased by 22 per cent in the space of one month and 90 per cent deals has increased by 11 per cent. The figures come from the latest research conducted by moneysupermarket.com, who have not only noticed an improvement in loan to value ratios, but also that the average cost of a loan has fallen, as lenders increase their levels of competition. The average rate for an 80 per cent loan to value product has now reached 4.97 per cent, a reduction of 0.77 per cent since October last year.
Hannah Mercedes Skenfield of moneysupermarket.com commented on the figures, she said “Lenders seem to have started 2010 with their doors open and are clearly more open to mortgage lending than they have been for some time. The increase in products available at 85 per cent and 90 per cent is particularly encouraging for first time buyers, as scraping together a large deposit is not easy, and was the reason many prospective first time buyers deserted the market in their droves last year.”
To say the least, it has been an interesting time over the course of the past couple of years or so in the homeowner loan and mortgage markets.
Although the situation seems to be steadily improving at the moment, there has been a distinct lack of available funding for new loans to individuals looking to purchase or remortgage a property. Banks and building societies have increased their interest rates and lowered the maximum loan to value they offer and with the Bank of England base rate of interest remaining at just 0.5 per cent for the past ten months, many borrowers finishing their initial deal on their home owner loan have chosen to remain on their existing lenders standard variable rate loan, rather than look at a more expensive remortgage product.
Although a large number of lenders have reduced their standard variable rate on home owner loans in line with the Bank of England Base rate, thereby passing on the savings to their loan customers, others have hardly altered their base rate at all and in some cases have even recently increased their standard variable rate, leading to a difference in cost of around £5,670 between the most expensive and the cheapest loan.
With a large difference between different lenders standard variable rates, it is almost impossible to say whether a borrower is now on a good rate with their home owner loan. With an increasing number of more attractive loan deals coming onto the market from lenders and the possible prospect of an imminent increase in the Bank of England Base rate having the effect of pushing up standard variable rates, now may be a good time for borrowers to review the rate on their current home owner loan deal and compare it with some of the deals on offer, to see if it worth moving to a new, cheaper loan.
Although we are starting to see some signs of improvement in the mortgage and home owner loan industry at the moment, it would appear that this optimism is not shared by professional landlords who are looking for new loans to purchase more buy to let properties to develop their portfolios.
According to new research from the buy to let loan specialist, Paragon Mortgages, the situation with regard to funding for buy to let loans has actually got worse during the final three months of last year, rather than seeing signs of improvement and Paragon believe that obtaining a new loan will remain difficult for landlords throughout the course of this year.
Paragon conducted a survey amongst professional landlords and found that only around 10 per cent of these were planning to purchase property with a buy to let loan in the first three months of the year, due to the lack of available funding, despite the fact that there are plenty of realistically priced properties available on the market at the moment. The survey also found that around 67 per cent of professional landlords said that they found it more difficult to obtain a buy to let loan in the last three months of last year, than they had in previous months, as many lenders restrict the number of properties and therefore loans which a single investor is able to have.
John Heron of Paragon said “It is encouraging that landlords are still active in the market and are looking to expand their portfolios. With tenant demand at such strong levels and soft house prices presenting the opportunity for bargains, it is easy to see why. But investors continue to be frustrated by a lack of choice and competition in the buy to let loan market, which is dominated by just two lenders. Landlords have told us that is was more difficult to source mortgage finance in the fourth quarter than in the third and we see nothing to suggest that the situation will improve quickly.”
It is not uncommon these days for people to be in debt with personal loans and credit cards and it seems to be a growing problem in the UK at the moment, with the level of personal loan and card debt increasing at a dramatic rate, despite many people paying their loans off due to the recession. It is bad enough for people who are still working to be able to manage their loan repayments, but there is now also an increasing number of people entering retirement with outstanding debts on personal loans and credit cards. One option for these people, if they are home owners, is to take out an equity release loan against their property to repay outstanding loans and provide additional retirement income.
There are several companies already offering equity release loans, but the latest offering comes from the debt charity The Consumer Credit Counselling Service (CCCS), who is entering the market this year with a no fee loan product to help retired people clear their outstanding loan debts and improve their disposable income levels in retirement. The CCCS previously referred individuals requiring help in this field to a range of providers who offered equity release loans, but it has now obtained authorisation to offer loans itself on a charitable, non profit making basis.
Malcolm Hurlston of the CCCS said “The generation which cut its teeth on credit cards has reached retirement age and with higher debts than previous generations. Thanks to the increase in home ownership, many of them have access to capital which can free them of unsecured loan debt and lighten their last years. The judicious use of equity release can transform the future for many older people and our aim is first, to make it available with the best possible guidance and secondly, to develop better equity release products to meet the needs we discern. I hope to announce the formation of an expert study group within the next weeks.”
