Mortgage News

When the Government introduced the Council tax in 1991, they rushed to get houses valued. They outsourced the job to estate agents and other people. Usually, they would make valuations just be having a quick look at the outside of the house and making a best guess about what value it was in.

Since 1991, there has been no rebranding. The effect is that many houses are incorrectly banded leading to a significant number of people paying too much council tax.

The easiest way to check is ask local neighbours what band they are in. If they are in a lower band you have a very good chance of not just getting a lower council tax bill, but getting a backdated rebate. A friend of mine recently was successful in getting a lower council tax band. He described it in more detail here - A Council Tax Reband could save you thousands

Other tips for Saving Money on Council Tax

• Students Don’t Pay council Tax
• If you live alone, you are entitled to get a 25% discount. Make sure you tell the council though.
• If there is one adult and several students, you are entitled to the 25% discount.
• Renovation. If the house is empty for renovation, you can claim an exemption for upto 12 months.

On a personal note, I really dislike the council tax, it is very regressive and takes a high % of my meagre teaching income. I would like to see a local income tax which would be fairer. The thing with the council tax is that it was rushed through because everyone despised the poll tax. But, the solution given was not the best.

Also see: Council Tax at Guardian

Original post by Tejvan R Pettinger

With House prices falling, the renting sector is becoming more expensive and is experiencing an almost mirror price change.

The cost of renting for students has increased by 20% in the past 4 years. Renting costs are rising because there is less supply of rented accommodation. Landlords are renting to more professional workers who can’t buy a house. The increase in cost of student renting is similar to the increased cost of general renting.

Regional Variations in Renting Costs

There is a huge disparity in the cost of renting throughout the country.

The highest cost of renting is predictably in London, where the weekly average is £102.

• Exeter rents are £78
• Leeds £62

The cheapest places to rent include:

Middlesbrough, Stoke, Wolverhampton, Crewe and Bradford. Here rents are less than £45 a week.

Students on a tight budget, would be advised to think carefully about where they study.

Original post by Tejvan R Pettinger

The Council of Mortgage Lenders reported a 41% rise in home repossessions in the first 6 months of this year.

18,900 homes were seized in the first 6 months of this year compared to 13,000 in the last 6 months of 2007.

The number of people in arrears by more than 3 months also rose by 29,000.

The Council of Mortgage lenders forecast a total of 45,000 repossessions by the end of the year.

Although the statistics (41% jump) are alarming, the % of homeowners defaulting is still relatively small. The vast majority still continue to meet mortgage payments However, homeowners have faced a tough 6 months, with disposable incomes squeezed by:

• Rising energy prices
• Rising petrol and diesel prices
• Increased cost of remortgaging, reflecting interest rate rises during 2007.

Negative Equity and Falling House Prices

• The Halifax reported further large falls in house prices in July. Prices fell by £3,000 in one month. The biggest monthly fall since 1983.
• House prices are have now dropped £22,000 from their peak.
• The Bank of England voted to keep interest rates constant at 5%

Original post by Tejvan R Pettinger

The number of loans approved for house purchases in June was just 21,118, a drop of 23pc compared to May, according to the British Bankers’ Association. Since June last year, mortgage approvals have dropped significantly (64% on last year. This slump in the mortgage sector reflects the current credit crunch, lack of confidence and concerns over falling house prices. Banks have tightened up their criteria for lending. In particular the amount of deposit required has increased alot.

• The number of remortgages have fallen by 13%
• The number of households using their house for equity withdrawal fell by 37%

The slump in mortgage lending has been a powerful influence on house prices. House prices have fallen 17% in past 12 months and further falls are likely with the housing market showing its quietest volumes since the early 1990s.

These figures will put pressure on Government to take further action to bolster  mortgage lending.

See: scheme to ease credit crunch

Original post by Tejvan R Pettinger

Falling house prices certainly create no shortage of newspaper headlines. Although some of these headlines can sound unnecessarily apocalyptic, falling house prices are not quite the end of the world. In fact falling house prices can be of benefit to some people.

Who Benefits from Falling House prices?

First time buyers. At the moment the ratio of house prices to incomes are very high, close to 5 times salary. Falling house prices will enable increased affordability. Also rising salaries and pricing can mean that real house prices will fall than more than nominal. If you are a first time buyer then waiting for a while can enable prices to become more affordable.

People wanting to buy bigger Houses. If your house price is falling in value, then it will also be cheaper to buy other houses. If you are wanting to trade up to a more expensive house, this will actually make it cheaper.
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Original post by Tejvan R Pettinger

The Bank of England announced plans to inject extra liquidity into the troubled mortgage sector.

The government and Bank of England have been concerned about how the level of mortgages has dried up since the start of the subprime crisis.

The scheme allows big banks like Natwest, HSBC, Halifax and others to exchange mortgage securities for government securities. Government securities are much more trusted and hopefully this should ease interbank lending and overcome the problems in the mortgage sector.

However, the Council of mortgage lenders indicated that they the scheme may not translate into lower interest rates for homeowners. The Banks were not enthusiastic about the terms of the deal, which required a premium for exchanging securities. Also in the current climate there are little competitive pressures to reduce rates and the Banks may keep their stricter lending criteria for a while.

See: More details on the Bank bailout and whether it will help overcome the problems. 

Original post by Tejvan R Pettinger

Recent data suggested the pace of house price falls have accelerated in the UK. Many analysts now suggest that house prices may fall by upto 25% within the next 12 months.

How Much will House prices Fall By?

Halifax predicts a moderate house price fall of 5 -10%. The reasons for a moderate house price fall are:

1. Unlike the US, the UK has a shortage of supply, this is unlikely to be addressed in the short to medium term. Therefore with supply constraints it is not unreasonable for the ratio of house price to income to rise.
2. Affordability of Mortgages is below the historical high of the early 1990s. The main reason is that base rates (cut to 5% recently) are much lower than in the 1990s slump when interest rates were in double figures for several months.
3. Base Rates likely to fall. The slowdown in growth and inflationary pressures is likely to cause a fall in interest rates. As interest rates fall, it will help restore the attractiveness of buying a house (even if it is difficult to secure a mortgage)

Prospects of 30% Fall in House Prices

Despite the difference between the UK and the US, there are still some reasons why the UK could suffer a housing slump. (more…)

Original post by Tejvan R Pettinger

• Business for lenders who specialise in lending to low income groups has increased as many high Street banks make it more difficult to borrow. About 7 million people in the U.K. have difficulties obtaining mainstream credit, according to the British Financial Services Authority.
• However, many Mortgage Lenders are reporting difficulties in borrowing enough money in the money markets to finance the demand for mortgages. The CML said that there was £24 billion worth of mortgages in February. This is 7% lower compared with the previous month and 6% down on the previous year.
• There are also problems in the buy to let sector. With some investors reporting increased difficulties in attracting suffient rents to pay for the cost of mortgages. This article in the Guardian highlights one of the former boom areas which has now switched to bust
  

Mortgage repossession orders in Manchester rose 11% to 1,035 last year and nationwide repossession orders exceeded 95,000, a level not seen since 1993. Knight Frank estate agents estimates there has been a 15%-20% “correction” in Manchester house prices in the last six months.

• The Fed has many difficult choices to face. Despite its valient efforts to bail out the financial sector there are many who worry that another bail out only stores up more problems for the future. - The problem with bailing out finance sector

Original post by Tejvan R Pettinger

the recent news that HSBC lost £8.7bn as a result of the American credit crunch shows the extent of the problem. Not only have the banks lost money on buying secured subprime loans, but they are also finding it very difficult to secure the securitisation of new mortgage loans. Therefore, they are having to raise finance from elsewhere. This helps to explain why:

• Mortgage companies are increasing the cost of mortgages. (My mortgage lender didn’t pass on the recent interest rate cut)
• Ending 125% and 100% mortgage. Firms are increasingly wanting 10% and 25% deposits, making it very difficult for first time buyers to get on the property ladder
• Weakness in house prices. The increased difficulty of getting a mortgage means there are less first time buyers coming onto the market. Therefore, house prices are likely to continue their downward trend. However, there is also a trend for the housing sector to be dominated by property and buy to let investors. i.e. there is a change in the composition of the housing market - increasing the likelyhood of an increase in the size of the renting sector.

• Why Subprime crisis happened
•  Losses of HSBC at BBC
• Subprime mortgage crisis

Original post by Tejvan R Pettinger

Nationwide recently announced they will be charging higher rates to first time buyers who don’t have a 25% deposit (link). This is bad news for long suffering first time buyer. If you consider that average house prices are £200,000, a 25% deposit represents £50,000. For nearly any aspiring homeowner in their 20s, to save £50,000 is nearly an impossible task. (unless you can get help from your parents) If you consider that you could leave university with £5-10,000 of debts. Then if you add the cost of renting, it makes it very difficult to save any real amount for a deposit.

If the trend set by Nationwide continues, it will make first time buyers increasingly take out more expensive mortgages or no mortgages at all. The problem is that mortgage deposits will take a very high % of people’s income making things like saving for a pension very difficult. (The first thing I did on taking a mortgage was to stop any private pension contributions)

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Original post by Tejvan R Pettinger