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| Homeowners face shock tracker rise |
Brokers warn of repayment increases, so what to do if you have a super-low deal mortgage, savings or are looking to move
Hundreds of thousands of homeowners with super-low trackers face a payment shock of as much as £7,000 a year in the next two months — even as the Bank of England indicated last week that interest rates could remain at lows for some time.
Brokers are warning some borrowers to brace for a sudden rise in repayments of as much as £583 a month — or £6,996 a year on a typical £200,000 interest-only loan — as loss-making deals on offer in 2007 expire. Their rates could shoot up from 0% to as much as 3.5% if they default on to their lender’s standard variable rate (SVR). On a £500,000 mortgage, the payment shock would be £17,496.
However, Mervyn King, the Bank’s governor, said in last week’s inflation report that the economy could face a “slow and protracted” recovery with inflation staying low for the next two years.
Economists interpreted the report as indicating the Bank would keep interest rates at 0.5% until autumn next year. Brokers therefore said there was less pressure for borrowers to snap up a cheap fix.
Ray Boulger of John Charcol, the broker, said: “We’re telling clients Bank rate will be low for some time. I’m not expecting a rise this year and it could be two.”
Borrowers with Halifax face one of the biggest payment shocks, according to Moneyfacts. They took out its market-leading deal at 0.51 percentage points below Bank rate in April and May 2007 and will revert to an SVR of 3.5%. Monthly payments will rise from £667 to £1,001 — an increase of £334 a month or £4,008 a year on a £200,000 repayment loan.
We offer advice to borrowers and savers.
I have a super-low tracker, what should I do now?
It depends what rate your deal reverts to. Cheltenham & Gloucester and Nationwide have the lowest SVRs at 2.5%, while Halifax’s is 3.5%. The average is 4.14%, said the Council of Mortgage Lenders.
The best two-year fix is from HSBC at 2.89% with a ÂŁ1,499 fee. It also has the best five-year deal at 4.39% with a ÂŁ999 fee.
Those coming off super-low trackers with C&G and Nationwide therefore have an incentive to stick with their SVR and see if better deals come on to the market.
Capital Economics said last week mortgage rates could fall 0.50 points as competition returns to the market when banks become more willing to lend.
Trackers are tempting, too, but the best, Woolwich’s offset at Bank rate plus 1.99%, or 2.49%, carries a 1% early-redemption penalty which could end up costing you any savings you make from taking out the deal now.
I’m moving house, what should I do?
If you have to remortgage, because you are moving or need to borrow more money, experts advise going for a fix.
Louise Cuming of Moneysupermarket, the comparison site, said: “You are buying some insurance against rates going up, which they inevitably will at some point in the cycle.”
Boulger recommends a seven-year deal from Skipton building society at 4.79% with a fee of ÂŁ895 for those with a 40% deposit.
And what about my savings?
Competition has improved in the fixed-rate market. Last week, ICICI, the Indian bank, went to the top of the best-buy tables with a two-year bond at 4.35%, beating Birmingham Midshires at 4.25%. Experts said there is no guarantee savings rates will stay this high, however, because money market rates have since fallen, so it could be worth fixing for two or even three years.
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| House prices 'could fall by further 55 per cent' |
By Robert Winnett, Deputy Political Editor
Last Updated: 10:02AM GMT 12 Mar 2009
People who bought buy-to-let flats are expected to “begin panic selling” and the average home value could drop below £100,000.
The predictions in a 298-page report from Numis Securities, a City investment bank, are the bleakest yet on the deteriorating state of the British property market.
House prices have already fallen by about 20 per cent over the past year.
However, in the note written last month, Numis said: “Despite UK house prices already having fallen 21% from the peak, we do not believe that the correction is anywhere near over.
“Our core headline forecast is that UK property prices remain between 17% and 39% overvalued based on fair valuation. Moreover, history has shown us that when property…which has experienced a price bubble corrects, the price tends to fall below fair value for a period of time, as confidence in that market remains low. Prices could fall a further 40-55% if the over-correction was as bad as the early 1990s in our view.”
The report warns that “city centre flats” and “new executive homes” are likely to record the biggest reductions and describes investing in buy-to-let property as a “poor man’s hedge fund”.
“It is the action of these amateur investors over the next few months which we are most concerned about,” the report says. “We expect some to begin panic selling their portfolios, with the peak volume as is almost always the case with private investors, being at the market trough.”
Yesterday, Alistair Darling, the Chancellor, warned that the world is facing the most difficult economic conditions for “generations”.
However, the Numis report is scathing of Government attempts to help the economy.
“The Prime Minister and Chancellor have publicly stated that they want banks this year to lend at 2007 levels,” it said. “We think this is a crazy policy, given that too much debt was one of the prime reasons why the economy has its current problems.”
It also criticises the huge debts being run up by the Government to pump money into the economy. Yesterday, John Lewis, the retailer, said that the £12.5 billion cut in Vat has not made “any long term difference at all”.
The Numis report says: “The bankruptcy of the UK is a very real probability as the UK Government is trying to stimulate a greater debt burden in a grossly indebted economy. We believe the scale of the macro imbalances in the UK means there is no prospect of a recovery in 2009 and we expect the UK to be mired in a deep recession through all of 2010.”
Last night, the Conservatives said that the Numis analysis increased the pressure on the Prime Minister to apologise. Grant Shapps, the shadow Housing minister, said: “This is a devastating critique of the Government’s record and how Gordon Brown’s credit bubble will lead to a mountain of debt, a wave of repossessions and negative equity misery. Labour Ministers must take direct responsibility for fuelling buy-to-let speculation.
“Gordon Brown’s fingerprints are all over this economic wreckage and he should now have the decency to at least apologies for his mistakes.”
Yesterday, it emerged that the number of borrowers falling behind with their mortgage repayments has already doubled in the past year. According to Moody’s Investors Services, borrowers more than 90 days in arrears have increased to 1.5 percent of all home loans compared to 0.6 percent a year ago.
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| House prices 'will drop 35%' |
A leading market analyst announced recently that the chances of the housing market returning to strength next summer are low, instead claiming that there is a greater chance that prices will fall for another two years.
George Buckley, chief UK economist of Deutsche Bank, added weight to many previous arguments that the housing market will only bounce back once the market value has dropped a full 35 per cent.
Such a claim is at odds with more recently optimistic ideas taken from the rising number of first-time buyers and low interest rates, which suggest that a bounce back could be seen in mid-2009.
"If you look at what happened in the early nineties it is arguable that like then we had had a big boom, but this time we've also got a credit crunch and a global recession on top," Mr Buckley explained in an Evening Standard report.
"Property was massively overvalued. It was always the elephant in the room that nobody would admit to."
Those hoping to sell a property sooner to avoid negative equity could achieve a cheaper deal and higher price by advertising their property online.
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| Interest rates cuts: Interest rates need to fall to 1pc to kick-start housing market |
The Bank of England's move to cut rates to 2pc is not sufficient to restore confidence in the housing market with prices expected to fall a further 15pc.
Housing experts today warned that The Bank of England needs to cut interest rates further to 1pc in order to get the housing and mortgage markets back on track.
Today’s announcement brings the base rate to the lowest level in the last half century, but experts say that without the co-operation of the lenders, the housing market will not recover. New figures today show that house prices have fallen by 16.1 per cent in the past year, meaning the typical home lost almost £31,500 from its value.
Peter Bolton King, chief executive of the National Association of Estate Agents (NAEA) said: “This cut, in reality, won’t do enough unless the banks play fair and pass the cut on to the homeowner. The NAEA is, once again, calling on all of the major lenders to commit to passing these savings onto the consumer.
Mr Bolton King said that while low rates will increase confidence in the market, it will not increase mortgage approvals.
He said: “Bringing buoyancy back to the market lies not only with low interest rates but crucially also in new lending. Government and lenders must do more to encourage first time buyers on to the property ladder in order to reverse the current downturn in the market.”
Liam Bailey, head of residential research, at Knight Frank said that the cut is unlikely to have any immediate effect on the housing market – although it may tempt some buyers to make a decision.
He said: "Prices will continue to fall into 2009, and we believe they have a further 15pc to fall. However, by limiting the extent to which the economy contracts, and minimising the level of business failure and job losses, the cut will help to prevent a more serious slump from occurring.
“Much depends on whether the new rate is passed on to borrowers. Libor has decreased in recent months but remains highly volatile. Until it stabilises lenders will resist reducing rates or increasing mortgage availability, although pressure from the Financial Services Authority is likely to increase. The housing market remains at a standstill. Many home owners are unable to remortgage, while first-time buyers are finding it almost impossible to provide the high levels of deposit now required by lenders.”
Mform.co.uk, the online mortgage company welcomed the reduction but said it is just a “temporary staging post” on the way to a base rate of 1pc in 2009.
Eamonn Rice, chief executive of mform.co.uk, said: “The Bank of England has accepted the case for a dramatic step change in interest rates and now has to go the extra mile.
“More needs to be done to stimulate the housing and mortgage market and the evidence so far is that last month’s record rate cut has had little effect on consumer confidence or the volume of transactions.”
Jonathan Cornell, managing director at Hamptons International Mortgages, said: “The MPC’s decision this month is as much to cover up a potentially ill thought out Government plan as to return to its initial duty of keeping inflation at 2pc.”
However, Mr Cornell said that he is concerned that many consumers are now increasingly blasé and uninterested with regards to the direction of the base rate.
He said: “Borrowers have seen little respite in their mortgage repayments following successive base rate cuts and many tracker deals are being removed from the market for new borrowers. Praise this week, however, must be passed to Cheltenham and Gloucester who has claimed that it will pass on the cut to all existing borrowers with variable or tracker rates. If other lenders could take a leaf out of their book the market cogs may once again be allowed to turn.”
The average house went from a valuation of more than £195,000 to £163,605 in the 12 months to the end of November, according to Halifax, Britain's biggest mortgage lender. The average value fell 2.6 per cent last month – the biggest drop since September 1992.
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| Property prices: Average house lost ÂŁ31,500 of value in past year |
House prices have fallen by 16.1 per cent in the past year, meaning the typical home lost almost ÂŁ31,500 from its value, new figures show.
The average house went from a valuation of more than ÂŁ195,000 to ÂŁ163,605 in the 12 months to the end of November, according to Halifax, Britain's biggest mortgage lender. The average value fell 2.6 per cent last month - the biggest drop since September 1992.
The figures were worse than had been expected by most analysts, prompting fears they signaled rapidly deteriorating economic conditions as Britain heads into recession.
Martin Ellis, Halifax's chief economist, said: "The combination of high house prices in relation to earnings, constraints on householders' incomes and spending power and the decline in the availability of mortgage finance since the summer of 2007 has curbed housing demand. These factors are major contributors to lower house prices and activity."
However, the lender added that its figures suggested the housing market may be stabilizing in its current dire state. It found that the number of mortgages approved to finance house purchases in October was 32,000, a figure it described as "broadly unchanged for the fourth successive month" given seasonal adjustments.
The number of home sales in England and Wales in August was 64 per cent lower than a year earlier, according to the Land Registry.
The average house price is still 124 per cent higher than ten years ago, with the typical price more than ÂŁ90,000 higher than in November 1998.
The figures come as the Bank of England is expected to again reduce interest rates in an attempt to revitalize lending to businesses and would-be homebuyers.
Howard Archer, the chief UK and European economist at IHS Global Insight, said: "The very sharp fall in house prices reported by the Halifax adds extra late pressure on the Bank of England to deliver a very large interest rate cut today.
"The Halifax data also contrast markedly with the surprisingly small 0.4% month-on-month drop in house prices reported by the Nationwide in November and reinforces the belief that the housing market remains under substantial pressure."
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| Banks pull most generous mortgage deals, despite pleas from Gordon Brown |
Britain's biggest banks have pulled their most generous mortgage deals for new customers, as tensions mounted between the Treasury and the lenders about passing on the benefit of the lowest interest rates for more than 50 years.
Their move came within hours of the Bank of England cutting rates from 3 per cent to 2 per cent, taking interest rates to their lowest level since 1951 when Clement Attlee was in Downing Street.
The drastic lowering of rates is proof of the increasingly dire state of the economy, experts warned, with the Bank of England itself hinting it might need to take yet more radical action.
HBOS and Lloyds TSB, which have received more than ÂŁ11 billion of taxpayers' money between them, pulled all their tracker rate mortgages for new customers. They were joined by Abbey and Alliance & Leicester, who did the same, denying new customers the chance to get a mortgage rate of below 4 per cent.
The decision will hit the thousands of borrowers that are coming to an end of their mortgage deal in the next few months, as well as any potential first time buyers that wanted to take advantage of plunging house prices and get on the housing ladder.
Meanwhile Halifax, the country's largest lender provided yet further evidence that house prices were in freefall. The average price has fallen by 16 per cent in the last year to hit ÂŁ163, 000.
Rates have never been any lower since the Bank's foundation in 1694.
Melanie Bien, broker at Savills, said: "If this is all about helping first time buyers, it isn't going to work because they are not going to be able to get any good rates."
Just three banks promised to pass on the cut in full to their standard variable rate customers, with two of them – HSBC and Barclays – only lowering after they failed to do so last month.
Halifax, the country's largest lender, and recipient of taxpayers' money, has announced it is cutting rates to its standard variable rate customers by just 0.25 percentage points.
The real winners are the estimated 4.2 million people on tracker-rate mortgages.
The move will save anyone on a ÂŁ 200,000 tracker-rate repayment mortgage just over ÂŁ100 a month. Someone on an interest-only mortgage would save even more.
Some experts were worried that many tracker-rate customers would not benefit because of lenders' "collars" – a small print condition which stops rates falling very low.
However, it would appear that there are far fewer than 1 million of those customers caught by this small print.
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