The Financial Services Authority (FSA) published its three monthly mortgage lending data report yesterday (22nd June), which gives details of activity levels within the home owner loan market as well as how borrowers are handling their loan accounts.

The report revealed that the amount of new lending on home owner loans in the first three months of this year remained unchanged from the previous three months figures, with a total balance of outstanding loans of £1,206 billion.

New loan commitments stood at £34 billion for the quarter and new advances stood at £32 billion, both of which were down on the previous three months by 6 per cent and 22 per cent respectively.

Although the FSA said that there had been a reduction in the total number of outstanding loans over the course of the first three months of the year, there had also been a reduction in the number of loans in arrears, as well as a reduction in the number of properties being repossessed through loan defaults.

The total number of new loan arrears cases saw a decrease of around 2 per cent, compared with the previous quarter, with a total of 40,500 loan arrears cases.

 Similarly, the number of home repossessions continued to fall, with a total of 10,500 cases, a reduction of around 11 per cent on the previous figure and the lowest repossession figures seen for two years.

Due to the continued tightened lending criteria from banks and building societies, it was hardly surprising to find that high loan to value cases of 90 per cent or greater, only accounted for less than 2 per cent of the overall number of new loans.

The same was true for high income multiple loans and bad credit loans which accounted for less than 1 per cent and just 0.3 per cent respectively.

First time buyers are still finding it incredibly difficult to be able to get themselves onto the housing market and find a suitable home owner loan, which meets their requirements and is affordable, according to a new survey.

The report, which has been produced by the Bank of England, has revealed that the number of first time buyers entering the housing market and taking out a home owner loan has steadily fallen over the course of the year so far.

Despite government incentives, such as an increase in the stamp duty limit, along with an increase in loan products offering higher loan to value ratios, there are now fewer first time buyer than there were at this time last year and significantly fewer than during the early 90’s.

Although there has been a slight increase in the number of higher loan to value products, these loan deals tend to be rather expensive when compared with a similar loan which only offers 75 per cent loan to value.

This means that, although a first time buyer may now be able to afford the deposit for a house, they are unlikely to be able to afford the home owner loan repayments, due to the high interest rates charged.

In order to obtain a competitive cheap loan deal on a mortgage or home owner loan, a first time buyer realistically needs to be thinking about a maximum loan to value of 75 per cent and the vast majority can not afford this amount without financial help from their parents.

Back in1995, only 10 per cent of first time buyers depended on parental support for a deposit on their loan. By 2006/07 this percentage had risen to around 45 per cent and by the end of last year, 85 per cent of first time buyers under 30 required help with raising a deposit.

Following the aftermath of the credit crunch and the results of the recent Mortgage Market Review (MMR), banks and building societies have been accused of offering loans irresponsibly in the past through things like high income multiples and self certification loans.

As a result of this, lenders now have a duty to offer loans responsibly and ensure that borrowers are able to afford the loans they apply for. This is one reason why loan to value and income multiples have been reduced along with the disappearance of self certification loans.

But now, lenders are being accused of offering loans on an irresponsible basis once again, through many of their “fast track” loan services.

“Fast track” loans allow an offer to be made quickly on the loan, usually by not requiring applicants to provide proof of their income through payslips and P60’s, or accounts for self employed applicants.

But the Financial Services Authority (FSA) have now said that this type of “fast track” loan has been marketed by lenders in the same way as a self certification loan was in the past, with some lenders offering a guarantee that there will be no checks carried out to verify the income of the loan applicants

Both lenders, loan brokers and intermediaries have defended the “fast track” system of producing a loan offer, saying that this system is now only ever used in low risk loan areas, such as low loan to value ratios and re mortgages.

Although this argument has just been raised, it largely relates to home owner loans which were offered prior to the credit crunch, these days this is not so much of a problem as the majority of lenders are keen to check every detail they can before offering a loan, even in the case of fast track cases.

When the Mortgage Market Review was published last year, one of the major areas of concern in the report was that of high risk loans, including things like: adverse or bad credit loans, self certification loans and high loan to value ratios.

These types of “toxic” loans have been largely to blame for the cause of the credit crunch and banking crisis and, not surprisingly, the vast majority of lenders have withdrawn from these types of loan already, due to the adverse conditions in the loan market at the current time.

The financial regulator, the Financial Services Authority (FSA), has announced that it is conducting a review of the “toxic” loan market following the Mortgage Market Review findings and it is considering whether or not to place an outright ban on certain types of loan.

The most likely speculation is that there will be a ban on combinations of high risk loan areas, such as a bad credit loan with a high loan to value, or an interest only loan on a sub prime loan basis.

The FSA are also considering introducing regulation for buy to let loans along the same lines as residential mortgages and home owner loans. There is currently no regulation at all for the buy to let loan market.

However, during a speech to the Council of Mortgage Lenders (CML), Lesley Titcombe of the FSA, dismissed the rumours that there would be an outright ban on loans above 75 per cent loan to value, or reduced loan to income multiples, describing such bans as “blunt tools”.

The results of the investigation and any eventual ban on various types of loan are due to be published in an FSA paper in July this year.

Lesley Titcombe said “We want to stop problems before they cause widespread problems for consumers.”
 

For the past fifteen months, the Bank of England base rate for loans has remained at the historically low level of just 0.5 per cent. This has saved many borrowers hundreds, or even thousands of pounds in interest payments on their home owner loan over the course of the last year or so.

Low interest rates have prompted many borrowers to opt for a tracker of variable rate loan in recent months, largely due to the extra cost which is often associated with a fixed rate loan deal and at the beginning of this year, the vast majority of new home owner loans were taken on a variable rate basis.

However, with increasing levels of uncertainty looming in the home owner loan and housing markets and the possible prospect of interest rate rises from the Bank of England in the not too distant future, many new borrowers are now switching back to a fixed rate loan.

According to the latest statistics from the home owner loan broker John Charcoal, May this year saw the highest proportion of people taking out a fixed rate loan since last October, with 26 per cent of all new loans being taken on a fixed rate basis, as borrowers seek the security of knowing their loan repayments will be unchanged if rates increase.

Drew Wotherspoon of John Charcoal said “Knowing what the future for interest rates looks like is an exercise in crystal ball gazing, but the reality is that there is only one way interest rates can now move, it’s just when and by how much.”

“Some borrowers are still adopting a wait and see approach, but the narrowing in the price differential between fixed and variable rates over the last few months has led some to act now.”