• get a better rate on your current mortgage
• consolidate your debts and monthly outgoings
• release equity in your property
• move home

In happier financial times, remortgaging was a popular way to release equity in your property, say if you wanted to install a new kitchen or do expensive running repairs. Nowadays, however, when the financial climate is not quite so buoyant, any remortgaging should be based on need rather on the desire to accrue luxury fixtures and fittings. You should bear in mind, too, that if you leave your current mortgage earlier than planned there may well be financial penalties to pay, as well as any costs associated with your new mortgage. It will pay you in terms of time and worry to factor all these ‘unseen’ costs into your calculations.

How to Remortgage your Home

If you have decided to stay with your current mortgage lender the process should be relatively trouble free and clear-cut. Just before your mortgage term is due to expire you can expect to be contacted by your lender, who will discuss your options with you.

If you feel a bit intimidated by all this talk of interest rates, fixed rates and variable rates, however, take heart, you are not alone. If this applies to you we would urge you to contact a mortgage broker, who will be aware of products that aren’t necessarily available direct to borrowers. All UK mortgage brokers are answerable to the FSA (Financial Services Authority); this means you can be confident that you will be dealt with in accordance with the
FSA Code of Conduct. (This is a pdf file). To put it simply, the regulations of the FSA mean you can expect to be treated with fairness and honesty. You should bear in mind that most mortgage brokers charge for their services, another ‘unseen’ cost to factor into your calculations.

A spokesman for Ernst and Young, Dougald Middleton, said, “While the survey shows that costs of borrowing have eased over the last quarter, we think credit conditions have turned over the last three or four weeks.”

The outlook seems distinctly gloomy for consumers, and banks are blaming this forecast on the tightening of wholesale funding. Conversely, the default rate on mortgages and loans has fallen, so it’s good news for the banks at least.

Barclays will foot the mortgages while Bovis risk footing the bill for future repossessions or other mortgage losses by ring-fencing a portion of its profits from house sales. Unwise or perceptive, do you think?

Well, if the property market continues to fall, or even if it remains static, Bovis profit margins will likely suffer. If, however, we are at the turning point – i.e. the property market falls no lower, then it could be a very clever move indeed.

What’s the relationship between Barclays and Woolwich?

Woolwich  became part of  the Barclays Group  in 2000 and is responsible for the mortgage side of the Barclays business.

Mortgage Lenders, Halifax, have reported today that house prices fell for a second consecutive month in May and property market activity remains slow. The average house price is now £167,570, which still represents a 6.9% increase on house prices for the same time last year (2009).

The Halifax report is, however, in stark contrast to Nationwide‘s report of a 0.5% increase in May, contributing to a 9.7% year-on-year boost.

The Nationwide’s chief economist, Martin Gahbauer, reported that, “housing market conditions remain characterized by thin transaction volumes and a relative scarcity of properties for sale, despite a slow return of more sellers in recent months.” He predicted a moderately upward trend in prices.

Meanwhile, the Halifax representative, Martin Ellis, said their figures were consistent with a slowing market and supported their prediction of flattened.

How to find a cheap mortgage

The first two months of 2010 have seen fixed rates chopped and tracker deals whittled down in cost and the best bit is that this is not only for those low-risk borrowers who, let’s face it, have never really had too many problems getting a mortgage. If you are classified as ‘high-risk’ or have only a minimal deposit, it’s your time too.

In fact, since November of last year mortgage rates for borrowers with a 10% deposit have fallen from 7% to 5.3% – that’s a third. To put this into real terms, if you take out a 90% loan to value deal now it will be £160 per month cheaper than if you had taken it out in November.

Despite the more favourable market, when it comes to deposits it’s still a case of the bigger the better; even with the best deal on a 90% mortgage, you will still pay more than twice the interest rate of a 60% mortgage. A 60% loan to value deal will attract an interest rate of approximately 2.58% compared to that 5.3% mentioned above.

New Mortgage Deals

Yorkshire Building Society: new range of mortgages at up to 85% loan to value

HSBC: new range of mortgages including a super-low five-year fixed rate at just 4.64%. This deal is only available up to 60% loan to value and attracts a fee of £999, so you will need a lot of money up-front to qualify.

Norwich & Peterborough Building Society: a new range of three-year discounted variable rates available up to 75% loan to value. The fee for this one is £695 and rates start at 2.95%.

Northern Rock: two-year fixed rates now start at 3.59% and 2-year trackers from 2.65%. These mortgages are part of the NR’s new Everyday range, which are not as flexible as the existing, fully flexible, range.

The Post Office: range expanded to include 75% loan to value deals. Set up fee is £599.

Current Best Mortgage Buys

The following are based on the total cost over the first 2 years and assume a property price of £250,000 on a 25 year repayment mortgage.

10% deposit, getting a mortgage of £225,000 on a property costing £250,000

HSBC term tracker rate at 4.99% (Base+4.49) with no fee

Santander (Abbey) two-year tracker rate at 5.49% (Base+4.99) with a £995 fee

Santander (Abbey) five-year fixed rate at 6.69% with a £995 fee

15% deposit, getting a mortgage of £212,500 on a property costing £250,000

Leek United BS
two-year discounted rate at 2.95% with a £195 fee

HSBC term tracker rate at 4.99% (Base+4.49) with no fee

Leek United two-year fixed rate at 4.79% with a £195 fee

20% deposit, getting a mortgage of £200,000 on a property costing £250,000

Leek United BS two-year discounted rate at 2.95% with a £195 fee

Nottingham BS three-year tracker rate at 3.99% (Base+3.49) with a £795 fee

Leek United two-year fixed rate at 4.79% with a £195 fee

25% deposit, getting a mortgage of £187,500 on a property costing £250,000

ING Direct two-year tracker rate at 2.64% (Base+2.14) with a £795 fee

ING Direct term tracker rate at 2.89% (Base+2.39) with a £695 fee

First Direct 2-year fixed rate at 3.29% with a £998 fee

30% deposit, getting a mortgage of £175,000 on a property costing £250,000

Santander (Abbey) three-year tracker rate at 2.54% (Base+2.04) with a £995 fee

ING Direct term tracker rate at 2.89% (Base+2.39) with a £695 fee

First Direct two-year fixed rate at 3.29% with a £998 fee

40% deposit, getting a mortgage of £150,000 on a property costing £250,000

HSBC
two-year discounted rate at 2.39% with a £999 fee

First Direct term tracker rate at 2.89% (Base+2.39) with no fee

Yorkshire BS two-year fixed rate at 3.39% with a £495 fee

This is why the words of David Hollingworth of mortgage broker, London & Country, are balm to the property buyer’s soul.   Hollingworth believes that ‘although the market has changed substantially since the onset of the credit crunch, it is still possible to get a mortgage, and there remain thousands of deals out there.’

He offers the following advice:

• Put down as large a deposit as you can because the keenest rates are only available to those with a deposit of 25% and above.
• Deposits are even important if you are remortgaging. Hollingsworth explains that, because of falls in house prices, you may have slipped into a different loan-to-value (LTV) band.  The advice is to use any savings you may have to reduce the loan-to-value and thereby get a better mortgage rate.  Remember though that once the money has been used up in the mortgage you won’t be able to get hold of it again, so leave yourself a buffer in case of short term emergencies.
• One of the major causes of the credit crunch was the fall of the sub-prime market, that is, people who borrowed more than they could possible repay.  Because of this, people with a poor credit history will struggle more than most to find a competitive deal.  Check your credit record through various agencies, such as Experian,  Equifax, or Callcredit Check to ensure that there is nothing unexpected or untoward on your record that shouldn’t be there.  It is also important to register to vote – not being on the electoral role will damage your credit rating.
• Mortgage-brokers can help and, if your case is at all complicated by something like missed payments or a county court judgement, you are strongly advised to contact one.  Always use a broker who is registered with the Financial Services Authority.
• If you don’t like the idea that your mortgage repayments can change depending on the interest rates, go for a fixed rate mortgage.  And from a current interest rate of 0.5%, the only way is up!
• When it comes to arrangement fees, some lenders offer a choice of paying a higher arrangement fee to get a lower mortgage rate.  This fee is generally added to the mortgage and it is probably best to have a very slightly higher mortgage and pay lower rates than vice versa.

Mortgages may be more difficult to get in the future because the lender will need to make sure that you (the borrower) can afford the loan.  One of the major changes will be the outlawing of self-certification.  Put simply, you won’t be able to simply tell the lender what your income is; instead he will calculate how much disposable income you have left after other outgoings and assess if this is enough to meet the mortgage repayments.  In effect, this puts an end to ‘fast-track’ applications.

There will also be a crack down on ‘toxic combinations.‘  A toxic combination is when several factors in the borrower’s profile added together make it obvious that there will be some difficulty in repaying the loan.  For instance, lending a high multiple of income to somebody with a poor credit history would be outlawed.

Because lenders will be picking up the pieces when loans go wrong, they will need to ensure themselves against unpaid loans.  This could mean a rise in the cost of mortgages.
There is the possibility that courts will not be so quick to grant repossession to lenders.  This is based on the assumption that the onus is on the lender to ensure that these situations do not occur.

Buy-to-Let and Second Charge Lending

Buy-to-let and second charge lending is an area that the FSA want to regulate, however, to do so they would need government approval.

These changes to home loans are by no means definite.

These reforms to the mortgage market are only at the consultation stage. This means that they will not be taking effect immediately and that, following the consultations, the rules may change.  Discussion and consultation is open until January 30th, 2010 and the FSA are actively seeking views from consumer groups and the mortgage industry.  The feedback statement will be published in March.

What does the mortgage industry think about the reforms?

A year ago, prior to nationalisation of the bank, this figure stood at just 0.45%.

Northern Rock have cited the current economic climate as the main reason for the shocking figures above, but it cannot be ignored that the Rock’s ‘Together’ mortgage, which allowed customers to borrow up to 125% of the value of their home, has played a significant part in the arrears turmoil.

Figures released by Northern Rock at the beginning of March 2009 showed that over 4.5% of customers with ‘Together’ mortgages were more than 3 months in arrears – up almost 1% on the previous year and more than twice the industry average of 1.88%. Although Northern Rock withdrew Together mortgages from the market over 12 months ago, the future looks very bleak for some existing customers with this product.

When Northern Rock was nationalised, the Government promised that it would be sympathetic towards customers in arrears with their mortgage, and that it would wait at least 6 months before beginning repossession proceedings. However, it has been revealed that, by the end of 2008, the bank held 3,620 repossessed properties, up 63% on the previous year.

They bank has thus been accused by several charities of using ‘aggressive’ tactics to seize back homes, but Chief Executive Gary Hoffman has said that repossessions are ‘an unfortunate effect of the current ‘external economic backdrop’ and that they will continue to work closely with affected customers to keep enforced possessions to a minimum’.

At the end of 2007, figures showed that Granite (the securitisation company set up by Northern Rock in 2001) had lost £10.2 million pounds through repossession since its inception, yet by the end of December 2008, the figure had risen to almost £46 million – a huge increase of 350%. Northern Rock confirmed that they had total losses of almost £1.4 billion for 2008, largely due to bad loans, yet they have recently announced £14 billion of new mortgage lending (maximum LTV 85%).

With the economy in freefall and more repossessions likely, it looks like Northern Rock will incur further losses, meaning that it will remain under state control for much longer than expected – the Government hoped the loan would be paid off by 2010, but in reality it could take several years more.

Despite all this, Northern Rock plan to award large bonuses to some 500 executives, creating widespread anger. Only last week, the Prime Minister stated that bankers associated with any losses should not receive a bonus.

However, Northern Rock has justified the bonuses by saying they are paid for financial performance and customer satisfaction. Senior executives did not receive cash bonuses for 2008 or 2009 and have had their pay frozen, along with the promise of deferred payments. Several thousand employees did receive a total of £9.2 million in bonuses in 2008, while a few hundred junior managers are also eligible for deferred bonuses (thought to be paid in 2010).

For those Northern Rock customers living with the threat of repossession, this must seem like a real smack in the teeth.

However, due to the current recession and the banks’ stricter lending criteria regarding mortgage lending, many organisations (such as the New Local Government Network) believe that local authority mortgages could be the answer to the mortgage and remortgage problems commonly experienced by first-time buyers and those with little equity who are looking to remortgage.

Chris Leslie, director of the New Local Government Network says:

“Despite attempts to reboot the banking system at a national and international level, mortgage finance is not yet trickling through to the grassroots in ways able to help those needing to urgently remortgage, facing negative equity or first time buyers.

We still feel that the public sector should supplement the mainstream banks in providing modest but helpful lines of mortgage credit – on a secured and prudent basis, of course – to ensure that we have a mixed economy of provision not entirely reliant on a nervous private banking sector.

Local authority lending may well have a part to play here and we are seeing gradual interest across councils in perhaps thinking about this role more seriously”.

At present, the majority of banks only offer mortgages with a maximum LTV of 80%, meaning that many first time buyers simply cannot afford the 20% deposit and thus cannot get onto the property ladder. Local authority mortgages offered loans covering 97% of the property price, and thus if they were reintroduced it would provide a lifeline to those who are currently priced out of the property market.

Just like a conventional mortgage, local authority mortgages run for 25 or 30 years, but tend to lend to local people and in areas of high regeneration. It has emerged that the housing minister, Margaret Beckett, is seriously considering reintroducing the local authority mortgage scheme in order to open the housing market to those currently excluded.

One problem with the local authority mortgages was that councils were previously prevented from lending below the standard national rate of 5.07%, but last month this rate was slashed to 3.93%, meaning more affordable mortgages in view of the current economic climate.

If this mortgage scheme gets the go-ahead from the Government, local authorities in cities and towns such as Manchester, Portsmouth, and Bristol will shortly be offering mortgage services to those first time buyers and remortgagors unable to access the mainstream mortgage market. This needs to be sooner rather than later, as the credit crunch and subsequent recession has all but ground the housing market to a halt and this could be just the thing to get it moving again.

In the days when local authorities did offer mortgages, the scheme was proven to be valuable; at one point, they held 16% of the mortgage market. As Chris Leslie, director of the New Local Government has said, a diversity of mortgage provision is needed to prevent, or rather resolve, the current crisis.

It is not known when the local authority mortgages will come into force, but Gordon Brown, in a speech at the New Local Government Network annual conference in January, told how he believed that councils should be given greater opportunities to play a bigger role in housing.

This indicates that local authorities will be given greater powers in the near future – for those unable to get onto the housing ladder, the local authority mortgage cannot come soon enough.