Mortgage customers with bad credit relying more on mortgage brokers

According to a recent report many mortgage customers with damaged credit ratings are now relying on brokers in order to help them to find a lender that will accept them for a mortgage deal.

Officials from the Financial Services Authority claim that many bad credit mortgage customers are now going straight to mortgage brokers rather than shopping around for a mortgage.

However, the FSA has stated that whilst these borrowers may be grateful for getting any sort of mortgage deal, many may not be getting the best deal by failing to shop around.

The FSA report went on to state that many people within the sub-prime market, which comprises those with bad credit, may be looking more at short term affordability rather than at how good a deal they are getting over the long term.

The report goes on to state that sub-prime customers tend to rely on the information provided to them by mortgage brokers, and assumed that they would not be steered in the wrong direction by brokers, thus not bothering to check deals for themselves.

Sub-prime customers are also reliant upon information regarding the risks of taking out a mortgage from their mortgage brokers, according to the report.

The report also showed that the main consideration for sub-prime customers was to find the cheapest deal possible.

In the current financial climate, where many lenders have tightened up on their lending criteria, many consumers may assume that they cannot find a mortgage deal for themselves if they have bad credit.

Consumers that are looking for a bad credit mortgage are urged to hunt around and compare different deals from a range of lenders in order to try and get the best deal on their mortgage borrowing, although the number of deals available to sub-prime customers has dropped over recent months as a result of the global credit crunch.

Mortgage applicants to struggle like the days of old

Over recent years credit conditions in the UK have been pretty lax, and even those with poor credit usually managed to find a suitable mortgage from one of the many lenders offering loans and mortgages to those with damaged credit.

However, a recent report has suggested that the days of being able to get a mortgage pretty easily have long gone, and consumers may now have to go back to the days of old, which meant going cap in hand to the bank or lender in order to try and persuade them to offer them a mortgage.

Many banks and building societies are raising rates and changing criteria to make it more difficult for higher risk consumers to get a mortgage, which effectively means that those without perfect credit are going to be left out in the cold with most doors slammed shut in their faces.

A number of lenders, including the Nationwide and the Cheltenham and Gloucester, have recently announced that they are increasing the rates on their mortgages, and many others have made significant changes to their lending criteria over recent weeks.

With all sorts of mortgage deals disappearing from the shelves – for instance there are now only nine lenders that offer 100% mortgages compare to 22 lenders just six months ago – and an increasing number of lenders raising their loan to value ratios and demanding higher deposits for affordable mortgage deals, the situation is set to get worse.

One industry professional stated: “Conditions in the mainstream mortgage market are now rapidly deteriorating at a frightening speed, with lenders changing their pricing and/or criteria at the fastest pace in living memory, and probably ever.”

Gloomy outlook for mortgages and house prices

Recent report continue to reiterate that there are bleak times ahead for the mortgage and housing markets in the UK for the future, with some industry officials stating that the unexplained house price increases in the UK over recent years could have set the nation up for an almighty house price crash. Officials from the International Monetary Fund have stated that house prices in the UK are around 30% higher than they should be, and this could lead to their collapse.

The IMF has said that Britain could be one of the most vulnerable countries in the world to fall victim to a major house price collapse because of the unexplained rise in house prices over the past decade. In addition to this bad news about house prices, the Bank of England continues to warn the nation that the mortgage meltdown is set to get worse, and said that already the number of mortgage deals has fallen by a massive 70% since the credit crunch swept across the country late last summer.

According to the bank of England, around 43% of lenders expect more mortgage deals to be withdrawn over the coming months, and there is set to be an increase in the number of people getting into mortgage arrears well as the number of people facing repossession. A Tory Party official said: ‘Reading between the lines, the Bank of England is telling us that “we ain’t seen nothing yet”. Hard-pressed British families are going to pay the price of Gordon Brown’s economic incompetence as the credit squeeze bites further on an ill-prepared nation.’

An official from the Liberal Democrats stated: ‘We are in the nightmare scenario where banks can’t lend and people can’t borrow. The UK economy has been running on little else than the wide availability of cheap credit for several years. With lending now drying up, there is a real danger this will have a serious impact on growth in the economy.’

Bank loses customer mortgage insurance details

Last year saw a range of data loss blunders by banks and government agencies, which put millions of consumers at increased risk of becoming victims of identity theft and fraud, including the loss of 25 million consumers’ personal and bank details lost by HM Revenue and Customs when two discs went missing.

Whilst we have only just edged into the second quarter of this year a bank has recently admitted to another huge data loss blunder, having lost the details of hundred of thousands of customer with mortgage related life insurance.

High street bank, HSBC, has recently admitted that it has lost a disc that contains the personal details of 370,000 customers that have taken out mortgage related life insurance with the bank. The disc was being sent out via courier around four weeks ago according to a recent report, and the information contained included the names, dates of birth, insurance cover details, and other information about the customers.

The bank has now reported the incident to the UK’s financial regulator, the Financial Services Authority, and reports indicate that the bank now faces an investigation over the loss of the data. If the investigation reveals that security measures by the bank were not up to scratch HSBC could face hefty fines and penalties.

An official from the bank stated: ‘There is nothing else that could in any way compromise a customer and there is no reason to suppose that the disk has fallen into the wrong hands. Nonetheless, HSBC would like to apologise to its life assurance customers for any concern this may cause them. Each customer will be contacted shortly and a thorough investigation into this matter is underway.’

Non-FD customers lose access to mortgages

The Internet banking giant First Direct, which is part of the HSBC bank, has recently announced that its mortgage products will no longer be available to consumers that are not customers of the bank effectively immediately. The move is said to be a temporary measure, and all of its mortgage products will be made unavailable to non-First Direct customers, including the two year fixed rate offset mortgage. The bank has confirmed that the products will still be available to its own customers.

Officials from the bank have stated that they have received record numbers of applications for home loans, and this temporary suspension will enable the bank to focus on the applications that it already has. A number of banks and building societies have had to put a hold on new lending over recent weeks, with some stating that they will only be able to lend to local customers and other putting a hold on new lending altogether. This comes as lenders continue to struggle to get finance on the wholesale money markets in order to fund their lending.

An official from First Direct stated: “We’ve seen unprecedented demand for our mortgages since January thanks to our highly competitive pricing and the decision of other lenders to raise rates. As a result, we’re currently seeing applications running at five times our normal volumes.”

He added: “First direct won its reputation for its amazing customer service and our first priority is to ensure we give all our customers the level of service they expect from us. The flood of interest in our mortgages has meant we’re taking longer than we’d like to handle applications, especially from non-customers. Rather than increase interest rates dramatically to discourage new applications, we’ve decided to withdraw temporarily from offering mortgages to non customers until we’ve cleared the backlog. I’d like to apologise to customers for any delays they may have experienced and give them my commitment that we’ll not rest until we’ve restored first direct’s normal standards of service.”

Woolwich introduces longer term fixed rate mortgage

Over recent months the Chancellor of the Exchequer, Alistair Darling has been calling for longer term fixed rate mortgages to be introduced, claiming that these mortgages could help to bring stability to the housing and mortgages sectors and could provide security and peace of mind to homeowners.

Darling addressed the issue in his recent first budget, and has even drawn up proposals to encourage lenders to offer this sort of longer term fixed rate deal, stating that these mortgages work well in other countries.

In a recent announcement the Woolwich has stated that it will now be offering one such mortgage, and this will be in the form of a ten year fixed rate mortgage, with a fixed rate of 5.29%, which is only marginally over the current base rate.

This is a deal that could appeal to those due to come off cheap fixed rate mortgages in the coming weeks, although it is for a lower period than the 20 and 25 year fixed rate terms that Darling has been calling for.

However, unfortunately there is a catch – in order to qualify for the mortgage borrowers must put down a deposit of 40%, as the mortgage has a 60% loan to value ratio, and this means that it is not going to be suitable for first time buyers who do not have a large deposit to put down.

However, it may suit those that are selling their homes and moving to another property, as they can use the equity from their previous homes to put down by way of a large deposit.

An official from the Woolwich stated: “The mortgage market is hugely uncertain at the moment and lenders are continually re-pricing products. However, the long-term swap market has steadied at lower levels and we have been able to put together a long-term product at a historically very competitive rate.”

Trial shows HIPs to be ineffective

A recent trial has suggested that the controversial Home Information Packs, which are now compulsory for all homes being marketed for sale in England and Wales, are not proving to be as effective as officials had hoped.

HIPs were introduced just before summer last year, and due to various delays did not come into full force until December of last year.

The idea behind HIPs was to make the sale of a home a smoother and easier process, and provide vital information to potential buyers.

Many people have been against HIPs from the start, claiming that they cause unnecessary delays and prove costly, but officials involved in their implementation have said that they should prove to be a valuable asset when it comes to the sale of a home. However, according to recent figures the HIP is only seen by one in every six people before they make an offer on the property.

The shadow housing minister stated that the figures proved a point – that HIPs were ineffective, stating: ‘These results reveal what we and the industry have known all along, Hips are a complete waste of time. It is proving to be a very costly and bureaucratic joke. The Hip hasn’t made the process quicker or more certain, it has simply made it more expensive and choked in paperwork. It is the time this Government scrapped Hips once and for all.’

However, Caroline Flint, the current housing minister stated: ‘What is clear from the trials is more buyers wanted to see the Hip but it was not always made available to them. We have taken action to increase awareness of the right to see a Hip and to remind agents of their responsibility to provide one. Consumers are benefiting. Search costs are falling, first time buyers are receiving important information.’

Split between rate setters over latest rate movement

According to the minutes of the latest Monetary Policy Committee meeting, there was a 7-2 split between the powerful MPC members with regards to the latest interest rate movement that followed the March Monetary Policy Committee meeting.

It appears that two members voted to cut the rate by 0.25% to 5%, including the vice governor of the Bank of England, Sir John Gieve, who backed David Blanchflower.

However, with seven members, including the governor of the Bank of England, Mervyn King, voting to keep rates on hold due to pressures over inflation the interest rate remained unchanged at 5.25%. The Bank of England last cut rates in February by 0.25%, and previously in December 2007, but a further 0.25%.

However, between August 2006 and July 2007 there were five interest rate hikes of 0.25%, so many homeowners are still struggling with mortgage repayments despite the two recent rate cuts.

Industry experts were of a split opinion with regards to whether there would be a further rate cut in March, but with rate setters having to consider inflation risks as well as the risk of a slowing economy. Fears over the slowing economy have been eased somewhat as a result of recent figures that showed a surprise increase in retail sales over the month of February, indicating that consumers were still spending.

In the meantime the US Federal Reserve has slashed its interest rates once again, which means that over the past six months the Fed has cut rates by 3% from 5.25% to just 2.25% in a bid to assist the failing economy and minimise the risk of recession.

Possible future problems for homeowners on IVA programmes

According to a recent report some people on IVA programmes who are also homeowners could face problems in the final part of their IVA term, and could find themselves hit with extortionate interest rates as a result of having to remortgage or borrow against the equity in their home in compliance with a clause that is in the IVA agreement.

This could cause many problems for these homeowners, who could face crippling repayments on the amount that they have to borrow.

An IVA is an agreement whereby the borrower pays a set amount each month for five years, and this money is distributed between the creditors on a pro rata basis. At the end of the five year term any remaining balance is written off.

However, if the IVA has been taken out by a homeowner there is a clause that requires the homeowner to use the equity in the home to put towards the debt, usually in the last year of the agreement, although the homeowner does not have to sell the home.

There are two problems that these homeowners are likely to face, which could see them paying significantly higher rates on the amounts that they have to borrow.

The first problem is that interest rates are probably much higher now than they were when the homeowners took out their original mortgage, so when they have to remortgage or borrow to release their equity the interest rate they pay is likely to be far higher.

The second issue is that because of the IVA they will be classed as higher risk, sub-prime borrowers, and this will also result in paying a higher rate of interest.

One industry official stated: ‘There is a problem here. People in an IVA will be remortgaging into something significantly more expensive.

Not only are mortgage rates higher than when these people bought their houses, but they could well be classified as sub-prime - that is to say as riskier borrowers who need to be charged more to compensate for that risk.’

Interest rates remain on hold for now

The Bank of England has decided to keep interest rates on hold for the month of March, announcing after the most recent Monetary Policy Committee meeting that interest rates would have to remain static at 5.25% despite calls from industry professionals and homeowners to cut rates in order to improve the economy and raise consumer confidence.

The central bank has stated that whilst it understands that many households are suffering financially, and that this is having an adverse effect on the economy and on consumer confidence, it also has to take into account the danger of rising inflation, and therefore deciding on the movement of the base interest rate has become a fine balancing act.

Between August 2006 and July 2007 there were five 0.25% interest rate rises, and this left many homeowners on variable rate mortgages struggling to keep up with repayments.

The situation was eased very slightly when the Bank of England cut the base interest rate by 0.25% in December of last year, and there was another rate cut of a further 0.25% in February.

However, interest rates are still significantly higher than they were before the series or rate hikes began, and there are now concerns that consumers that are due to come off cheap fixed rate deals will be unable to keep up with repayments on their mortgages unless the base rate comes down further.

A number of analysts and industry experts have predicted that the base rate will fall again at least once before the summer, and that there will be further rate cuts in the second part of the year, which could help to bring the base rate down considerably by the end of the year.

However, the governor of the Bank of England, Mervyn King, recently said that interest rates may not fall as fast or by as much as some seem to think.

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