It has been a tough time for anyone looking for a new home owner loan or mortgage over the course of the past couple of years or so, with lenders tightening their lending criteria, reducing maximum loan to value ratios and increasing interest rates on their loan products following the credit crunch.
But as the country slowly emerges from recession, banks and building societies are starting to ease their criteria, increasing loan to values and lowering rates to more affordable levels.
New research from Moneyfacts.co.uk has found that average rates on new home owner loan products have now fallen to their lowest level in around 15 months, making the prospect of buying a new home cheaper and easier for many individuals.
The average rate on a two year fixed rate loan has now reached 4.61 per cent, down from 5.21 per cent in the month of March last year and rates on three and five year fixed rate loans have also dropped in a similar fashion.
However, the average standard variable loan rate also currently stands at 4.66 per cent , with many borrowers actually paying much less than this on the reversionary rate of their home owner loan, thereby offering very little encouragement for existing borrowers to switch their loan to a new provider.
As home owner loan rates have dropped, many borrowers, particularly those on their lenders standard variable rate, have kept their monthly loan repayments at the previously higher level, thereby making significant overpayments and reducing the outstanding balance of their loan far quicker than they otherwise would have done.
Darren Cook of Moneyfacts.co.uk said “There is little incentive for borrowers to remortgage to another mortgage deal. mortgage revert rates as low as 2.5 per cent have meant that borrowers should have taken the wise decision to overpay their mortgage.”
Over the course of the past few years, a combination of bad press, poor investment returns and employers closing company schemes has meant that many people now do not have the adequate retirement income they need to live on form their pension alone.
As a result of this, many individuals are now turning to alternative methods to provide an income for themselves in retirement and either buying property or using the equity in their own home is becoming a large part of this planning for many approaching retirement age.
New figures from the Council of Mortgage Lenders (CML), show that there has been a significant increase in the number of people taking out a buy to let loan and building themselves a property portfolio to provide them with rental income in retirement.
The other main use of property to provide retirement income is through equity release loans and lifetime mortgages. These allow people to withdraw the equity from their home in the form of a loan, without the need for monthly loan repayments, with the interest on the loan being rolled up on the original amount.
Despite the fact that the rest of the housing and home owner loan market has seen a significant reduction in new business since the onset of the credit crunch, equity release loans have enjoyed continued success, with only a slight dip in new loans, compared with a 60 per cent drop in new home owner loans since 2008.
Jon King, managing director of Hodge Lifetime Mortgages commented on the changes, he said “More people are now looking at how their homes can provide an income for them for retirement. While the equity release market has witnessed a slight decline since 2008, it has been nowhere near as significant as the fall in gross mortgage lending during the same period.”
An increasing number of people in the UK are struggling with their loan and credit card repayments following the credit crunch and recession and as unemployment continues to increase, so does the level of loan arrears and defaults and even insolvency cases from individuals who can not maintain their repayments.
A recent report has suggested that potential borrowers should make sure that they are able to afford the monthly repayments before they apply for a new personal loan, by carrying out a detailed affordability calculation.
With large numbers of people seeing their working hours being reduced, or even facing the prospect of redundancy, an affordability calculation should not only take into account their current financial circumstances, but also into the foreseeable future, to ensure that they will still be able to afford the loan repayments if their disposable income were to suddenly change.
A report conducted at the end of last year predicted that somewhere in the region of 880,000 people in the UK will think about taking out a new personal loan throughout the course of this year and if they fail to work out their budget accurately, many of these could find themselves in severe financial difficulty with their new loan.
Those individuals looking to take out a new loan should carefully workout their budget, taking into account all of their outgoings as well as their income. They should also leave a comfortable margin between the new loan repayment and their disposable income, to allow for unexpected expenses or reduction in income.
A report in the Daily Express advised borrowers “Write down all the money you’ve got coming in and going out. When you’re comparing loans, don’t just look at the APR of interest on the loan. Also check the total amount repayable, which includes every penny you’ll pay for the loan, including fees and charges.”
As lenders start to increase the maximum loan to value they offer and reduce the interest rates on home owner loans and mortgage products, a growing number of home owners are beginning to think about remortgaging their home ion order to get a better deal on their loan.
Whilst many people simply wish to switch their home owner loan to a new deal to save money on their monthly loan repayments, others are in the position of wanting to release additional equity from their property, to allow them to make a large purchase, carry out home improvements, or consolidate other debts such as unsecured loans and credit card bills.
TFC Home loans, the mortgage packaging company, has now advised both borrowers and loan brokers to consider other alternatives for those looking for a remortgage deal to release equity, as in many cases, there could be a cheaper loan option available to them.
Due to the fact that existing home owner loan rates are, in many cases, extremely low at the moment, TFC have said that it could work out cheaper for a borrower to take out a secured loan on their home rather than remortgage, as this could possibly double the overall interest rate being paid on the whole loan, as well as incurring additional charges.
Andy Brown of TFC, quoted an example of where someone’s existing loan was on a low rate standard variable rate. He said “In this instance a remortgage can see their interest rate double, so the best option can be to leave the mortgage as it is and take out a secured loan for the additional borrowing.”
“The overall cost of borrowing is favourable for the client and it leaves them free to consolidate into a remortgage in future when the products in the market are more competitive.”
It would appear that as the UK slowly leaves the recent recession and credit crunch behind, consumer confidence is slowly starting to return to the housing and home owner loan markets, as public demand for new home owner loans continues to increase over the course of the year so far.
New research from Paaleads.com has shown that enquiries for new home owner loans and mortgages for house purchase were at their highest level so far this year, during the month of April, with an increase in loan applications of around 14 per cent above the figures for March.
Apart from a slight dip in the new loan figures in February, activity in the home owner loan market has steadily continued to increase throughout the year so far.
Even remortgage activity has started to increase once again, as lenders are starting to introduce cheap loan deals at higher loan to value ratios, although overall activity in this area is still lower than it was at the beginning of the year, despite a 5 per cent increase in remortgage loans in March.
It is also apparent that due to the recent turmoil in the home owner loan and mortgage market, a growing number of potential borrowers are now also seeking professional advice from an independent adviser or loan broker.
Dean Jones at Paaleads.com said “To see such a movement in one month is very encouraging from a market perspective and having seen consumers flock to moneysupermarket.com to compare mortgages when the stamp duty announcement was made, we are now seeing this uplift shift to the advice side.”
“That remortgage levels are still low is testament to the fact that there is still some way to go before the market could be said to be on the up as a whole.”