Category Archives: mortgage lend

Cml Reveals Drop in Mortgage Lending

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Mortgage lending has fallen, new research shows.

In figures released by the Council of Mortgage Lenders (CML), it was revealed that some 50,300 loans for the purposes of purchasing a house were taken out over the course of January. Such borrowing was indicated to be worth a total of 7.8 billion pounds. The number of loans approved was also shown to be down by 34 per cent from figures recorded during the same month in 2007 and 19 per cent lower than statistics witnessed in December 2006.

Research from the institution also revealed that buyers took out an amount which is of a decreasing proportion to their earnings. The typical first-time buyer borrowed 3.32 times their income in January, a fall from the 3.38 recorded in the previous month and down from 3.31 seen at the beginning of 2007. Meanwhile, existing homeowners borrowed an average of 2.97 times their income at the start of this year. During December, however, this stood at 3.04.

Michael Coogan, director general of the CML, said: “The wholesale funding markets remain largely closed and mortgage funding still remains constrained. This is now having a discernible impact on lending criteria and the ability of first-time buyers to get into the housing market. Tomorrow’s Budget presents a perfect opportunity for the government to do what it can to help first-time buyers by raising the stamp duty threshold.”

He added that there is unlikely to be “one silver bullet solution to problems in the wholesale funding markets”.

In addition, the council reported that fixed-rate products were becoming decreasingly popular, with the number of people taking out such UK loans in January down by 20 percentage points from six months beforehand. Trackers mortgages, meanwhile, were shown to be favoured by a higher number of consumers, with the CML stating this was due to predictions that the Bank of England would choose to lower the base rate of interest over the remainder of this year.

And following on from an interest rate cut, it possible that Britons could make repayments on mortgages and loans with greater ease – should money lenders choose to pass on such reductions.

Remortgaging was indicated as increasingly dramatically over the course of January – as 85,000 consumers chose to initiate such a borrowing strategy. This figure represents an increase of 43 per cent from the 59,000 recorded in December.

Commenting on the CML figures, the Royal Institution of Chartered Surveyors (Rics) reported that the credit crunch is having a “meaningful impact on the availability of finance for home purchases”. Furthermore, Rics suggested that those looking to take their first steps on the property ladder are “very much under the cosh” – with mortgage lending set to diminish further as the property market weakens.

Those looking for an effective way to supplement their finance in the weeks during a property purchase, a cheap loan may prove to be of assistance. By getting this type of loan it is possible that consumers can meet the various expenses associated with buying a home such as stamp duty and redecorating. A loan may also be of help to those in the midst of the purchasing process. Last month, Lee Tillcock, editor of Business Moneyfacts, reported that a loan for bridging purposes can be of assistance to those in the ‘financial gap’ between buying their new home and selling an old property.

Subprime Mortgage Lending – Pieces of the Puzzle

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The “prime” rate is the rate charged by all banks in the country. The prime rate doesn’t change regularly or often, only when 75% of the country’s top 30 banks decide they need to change it. People who have a decent credit rating are usually given mortgage and other loans at prime rate.

Subprime borrowers are people who probably have pretty poor credit ratings. They may have a history of bad financial management, perhaps including collection accounts, repossessions, maybe even a bankruptcy. At any rate, they are perceived to be more likely than the average borrower to default on this loan. A subprime lender exists to lend money to borrowers who are not expected to act responsibly in the repayment of the debt. The interest rate that a subprime lender charges will be higher than usual because of that increased risk of default. Subprime lenders know about the risk; they fully understand that these borrowers cannot really be counted on to repay their debt. Why should they be surprised when it turns out exactly the way they expect it to?

Lending takes place when one business or individual lets out money to another business or individual, for a defined period of time, and at a specified rate of interest. When you’re talking about a mortgage, it might be – for example – a fixed-rate loan for 30 years, at 5.7% interest. (The annual percentage rate is referred to as the APR.) This is a common type of mortgage: the borrower agrees to pay the lender back over a period of 30 years, at a yearly 5.7% interest rate.

So there are three elements of the puzzle: borrowing, subprime, and lending. What else has contributed to the current situation? Lending practices of dubious quality joined with a huge number of subprime borrowers whose ability to repay their loans was questionable. Yes, we are definitely in a mortgage crisis; foreclosures have never been higher. Whose fault is that?

When a homeowner falls behind in monthly payments on a mortgage, the bank takes notice. If payments are not made for three months, generally the process of foreclosure is initiated. This is a lengthy and costly process that often spans many months. The home is foreclosed and the property is repossessed by the bank.

Actually, the bank would prefer the borrower to repay the debt rather than have to take the property. A bank is not a real estate company. There is also the risk of censure from the federal government if too many of their loans are defaulted upon. For these reasons, foreclosures can take a very long time. The bank is in no hurry.

The majority of subprime mortgages are nowhere near as easy to understand as the example we gave above. Lenders have gotten more and more creative in the last few years, in an effort to attract more subprime borrowers. Many of these borrowers are now carrying an adjustable rate mortgage (ARM). The initial low interest rate of these loans allowed lots of people to get involved in a loan for which they might not have qualified otherwise. When the loan resets in about two years, the interest rate usually goes up considerably. In addition, some of these loans have prohibited refinancing in the first several years.

Borrowers, subprime mortgages, lending, and foreclosure have all worked together to give us this picture. Contributing in addition were falling house prices, rising mortgage payments, changing real estate markets across the country, difficulty of finding accessible mortgages, and a glut of houses for sale on a market where few people are buying. Here’s the completed puzzle: the mortgage mess.

Mortgage Lending Still Growing Despite Interest Rate Rises

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It appears that rising interest rates have had little impact on the UK housing market as the Association of British Bankers have revealed that mortgage lending in July 2007 increased by £13.6 billion. The figure is almost exactly in line with the preceding six-month average of £13.7 billion and represents a slight increase on the June rise of £13.1 billion.

The July increase is not what the organisation expected with BBA statistics director David Dooks admitting that the rise was ‘surprising’ following the cumulative affect of the recent interest rate rises. He added: “Steady growth in lending on UK mortgages in spite of five interest rate rises highlights the popularity of home ownership”, but Dooks also pointed out that much of the total advanced figure could be down to re-mortgaging activity as homeowners seal fixed rate deals to minimise the impact of the interest rate rises.

Those five rises over the last year have led many homeowners currently on due-to-expire fixed rate deals to frantically compare mortgages currently available in the market in an effort to find one that will alleviate the rate increases. Homeowners with a mortgage of £100,000 currently on fixed rate deals obtained two years ago could face a monthly increase in the region of £200 per month if they were to move to the variable standard rate; so the need to find a discounted or fixed rate remortgage is proving fairly critical for many families. That immediate need is what most experts believe are driving the current mortgage boom.

The Council of Mortgage Lending (CML) recently announced that total gross mortgage lending reached a new record for the month of July amounting to £34.4 billion, reflecting the trend highlighted in the BBA figures. The CML readily admit that they attribute market buoyancy to the remortgage effect and don’t expect autumn figures to be so high. Despite that, the CML are still predicting a record £360billion of mortgage lending for the year ended 2007. That will be due in part at least to the fact that more and more fixed-rate mortgages are due to revert to standard variable rate in the coming months.

However, the Royal Institute of Surveyors (RICS) has pointed out that the recent volatility in world markets, including the collapse of the sub-prime market in the USA, will lead to more expensive fixed rate deals, and that will impact on household finances. Chief economist for the organisation Simon Rubinsohn warned: “With 90% of borrowers currently opting for fixed rate deals, those who already find themselves financially stretched will be paying an even higher price for their peace of mind.”

So, even though mortgage lending is still at record levels it is primarily because of homeowners seeking new fixed rate remortgage deals. It appears that the interest rate rises designed to slow the economy are having the desired effect, even if it taking time to work its way through the system.