Attitudes amongst borrowers taking out a new home owner loan have altered dramatically over the course of the past twelve months or so, according to new research from the home owner loan and mortgage broker John Charcoal.

During the early months of 2009, as interest rates on loans were falling rapidly, but many borrowers expected them to rise again just as quickly within a few months, somewhere in the region of 80 per cent of all new home owner loan were being taken out on a fixed rate basis, in order to lock in to a low rate.

But since rates have remained low for some considerable time now and fixed rate loans charge a much higher premium above base rate than the equivalent tracker rate loan, the majority of borrowers have moved away from the fixed rate option and opted for a tracker rate loan instead, with around 80 per cent of all new loans in December being taken out on a tracker or variable rate deal. According to John Charcoal, this is the first time that the percentage of fixed rate loans has fallen below 20 per cent since August 2008.

Ray Boulger of John Charcoal said “Whilst the split between variable and fixed, at face value, seems dramatic, it is really no surprise as it absolutely our belief that the best value lies in tracker rate loans at present. With the average difference between the best fixed rates and the initial rate on the best trackers around 1.5 per cent in favour of trackers, it will currently take a substantial rise in bank rate for a borrower to who takes a tracker to be worse off than one who opts for a fixed rate.”

Anyone who was looking for a new home owner loan of mortgage around the middle of last year would have definitely been struggling to find a suitable loan deal, as there were a minimal number of products available on the market.

But towards the back end of last year, we have seen a continuous improvement in the number of different loan deals available to potential borrowers, as banks and building societies begin to relax their lending criteria, with new products coming onto the market almost as quickly as they disappeared last year, offering a wider choice for borrowers and higher loan to value ratios.

New research from Moneysupermarket.com, has shown that the number of different home owner loan products has increased now for three consecutive months and has eventually passed the landmark level of 2,500 different loan products.

However, whilst this may seem like a lot of choice compared with May of last year, we should remember that prior to the credit crunch, before the collapse of Northern Rock, there were more than 30,000 different home owner loan products for a borrower to choose from, including things like self certification loans and bad credit loans, which have now practically all disappeared from the market place altogether.

Hannah Mercedes-Skenfield of Moneysupermarket.com said “This is good news for buyers, as passing the 2,500 barrier does suggest that those looking for a mortgage are finding more and more choice, and where there is choice there is competition. However, we have to put things into perspective, while 2,500 available products looks like an important milestone now, it represents what would have been only a small fraction of the market in August 2007. With this in mind we are clearly a long way short of a full recovery, but we are at least moving in the right direction.”

We reported several months ago that a number of local authorities in the UK were planning to start offering home owner loans to people in their local area, who were unlikely to be able to obtain the loan they required through more traditional sources, such as banks or building societies. The idea was introduced by the New Local Government Network (NLGN) as a way of providing loans for those individuals who were struggling to get themselves into the housing market, or with their existing home owner loan, facing difficulties with growing loan arrears, or the possibility of repossession by their existing lender.

Local councils in Hackney, Lambeth, Portsmouth, Manchester and Liverpool were all planning to support the campaign and start offering the loans. However, they have all now been forced to abandon their plans, due to cuts in their budgets and a lack of funding from central government, who have changed their priorities due to the credit crunch and redirected the funding into their own centralised plans such as the Mortgage Rescue Scheme.

The NLGN and the various local authorities involved in the project are clearly disappointed by the change in government priorities, but without the necessary funding this is not possible, although some councils are setting up relationships with local public sector firms in order to start offering business loan on a smaller scale.

Chris Leslie of the NLGN said “The Government has taken the view that its Mortgage Rescue Scheme has been the answer, which in my view is incorrect. It would have been more successful if it had used local councils. Without Government backing, councils have felt that a lot of their core services have to take priority, in particular when it looks like budgets for doing discretionary items will be squeezed.”

Over the course of the past few months, the cost of buying a house and taking out a new home owner loan or mortgage has steadily come down, as the cost of a new home has slowly fallen and banks and building societies have eased their lending criteria slightly, as well as lowering the rates they charge on their range of home owner loan and mortgage products.

According to the latest figures from the Council of Mortgage Lenders (CML), the cost of buying a house and taking out a new loan is the most affordable it has been at any time in the last five years, with buyers now using a much lower percentage of their monthly disposable income on the cost of their home owner loan.

According to the CML figures, in the month of November last year, the average buyer only required 10.6 per cent of their gross salary to cover the amount of their interest payments on a home owner loan. Apart from a low point of 10.2 per cent during 1996, this is the lowest debt burden for people with home owner loans since 1974, when the CML began keeping records. As a result of this, those people with an existing home owner loan continue to see little point in looking for a better deal on their loan and therefore remortgage figures are still continuing to drop, although loans for house purchase are still increasing.

Michael Coogan of the CML said “It is encouraging to see that mortgage interest payments are so affordable for home movers and first time buyers. But with substantial deposits still needed to secure a mortgage, the market will continue to be relatively restrained for some time to come. With refinancing still unattractive or unnecessary for many borrowers due to continuing low rates, we are now seeing a much more house purchase focused market, a profile much more like the beginning of the Noughties than its latter years.” 

We have reported on several occasions recently on how attitudes towards personal loan and credit card debt are changing in the UK following the credit crunch and recession.

A growing number of individuals are now focusing on repaying their loan debts in order to place themselves in a stronger financial position and free up some additional disposable income. But a new survey, conducted by the Association of British Insurers (ABI) has revealed that paying off debts on personal loans and credit cards has become the number one financial priority for a large number of consumers in the UK today.

The survey found that during the last three months of last year, 42 per cent of those interviewed said that they were overpaying on a regular basis on their personal loan debts in order to reduce the balance quicker and make themselves debt free. This figure has increased from 34 per cent just twelve months earlier.

As a result of this changing attitude, the number of people making regular savings has dropped in preference to loan repayment, with only 17 per cent of people saying that they thought they would save more this year than they did last year. However, 37 per cent of people still thought of themselves as savers rather than borrowers. Less than 20 per cent of those interviewed said that they would rather place themselves in more debt, rather than go without something they wanted.

Dr Rebecca Driver, director of research and chief economist at the ABI commented on the survey results, she said “These findings highlight how important it is for any government to deliver policies that appeal to consumers’ increasing sense of financial responsibility, helping more people to become financially independent by increasing saving as well as reducing debt.”