65% of homeowners are not prepared for a rate rise in the next 2 years

The latest Legal & General Mortgage Mood survey reveals that two thirds of consumers (65%) are not financially preparing for an interest rate rise in the next two years.
At the same time, only 7% of those polled are considering re-mortgaging their home in the next 12 months. These findings form part of Legal & General’s latest Mortgage Mood survey, the quarterly study which looks at the attitude of homeowners across the UK on a range of mortgage related issues.

With speculation continuing as to when the base rate will rise, and many commentators suggesting it will be in 2015, lenders have already started to price in the change prior. These findings therefore suggest that borrowers may be missing an opportunity to secure a low interest rate.

Homeowners in the North West are the most financially prepared for an interest rate rise with 39% saying they are planning for one. In contrast, respondents in East Anglia are least prepared, with over three quarters (78%) saying they are not planning for an interest rate rise.

Further findings reveal that, of those who said they are considering to re-mortgaging their home, the most common reason is to reduce monthly repayments, with nearly a quarter choosing this explanation (18%). Only 9% cited financing home improvements and just 7% of homeowners said they were considering it to consolidate existing debts.

When asked whether they were considering re-mortgaging their home in the next 12 months, those in East Anglia were the most likely to do so, with 14% saying yes. Homeowners in the East Midlands are least likely to re-mortgage their home, with just 3% saying they are considering it.



Jeremy Duncombe, Director, at Legal & General Mortgage Club comments:
“It appears that borrowers have not yet woken up to the possibility of a rate rise. With rates likely to go up in the medium term, lenders are already starting to price in a change in base rate in advance. Therefore, the record low interest rates we have seen in recent times are not going to be around for long. By not preparing or re-mortgaging, homeowners might miss a good opportunity to secure a record low interest rate.”

Jeremy Duncombe, Director, at Legal & General Mortgage Club continues:
“It is also interesting to note that only a small proportion of people surveyed would re-mortgage in order to consolidate debt or to finance home improvements. Following the impact of the financial crisis, it seems fewer consumers are choosing to borrow against their housing equity to fund their spending. In line with this view, the level of housing equity withdrawal has seen a downward trend for the last few years in contrast to the boom years.”

Jeremy Duncombe, Director, at Legal & General Mortgage Club concludes:
“Although it is good to see borrowers exerting more caution, the reality is that there is only one way interest rates can go – and that is up. Now is the time for borrowers to consider their options. Speaking to a mortgage adviser is the best way to understand all the options available and to secure one of the good deals that are still around at the moment.”

Rate rise to push mortgage repayments up £2.2bn by 2015

UK homeowners will have to pay £2.2bn more in mortgage repayments by December 2015 in the wake of a "moderate" rise in interest rates, according to new analysis.

 

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The report from Barclays Mortgages and the Centre for Economic and Business Research (Cebr) suggests under the scenario that interest rates rise to 1.25% over the next 23 months - currently considered the most likely outcome by their economists - the average home will have to pay an extra 3% or £252 a year on their repayments.

Further reading

• this would take total annual mortgage repayments by UK homeowners to £71.4bn by the end of 2015, up from £69.2bn today.

In the most extreme case, a scenario that Barclays Mortgages and Cebr termed "Drastic but Potential" interest rates would rise to 1.75% in December 2015 and UK mortgage holders would have to pay £5bn more than they do today at the end of 2015.
Andy Gray, Barclays managing director of mortgages said: "In the face of a rise in mortgage rates and in the cost of living, it is vital for homeowners to review their current situation and get advice as to what their next mortgage step should be - so they remain financially flexible in the face of rate rises to come. The impending rise in mortgage rates that we can see from these scenarios will undoubtedly squeeze some homeowners."
The report found Londoners will suffer most from rate rises on a monthly basis as the cost of a mortgage in the capital will rise by £384 each year per household on average - increasing from £12,384 per year to £12,768 on the "moderate" model.
Under the "Drastic but Potential" scenario Londoners will see an annual rise to £13,308.
Mortgage holders in Wales currently pay the lowest at an average of £483 monthly or £5,796 annually, and they would see payments rise by £180 each year according to the "moderate" model.
Homeowners in the South West of England who currently pay an average of £683 monthly or £8,196 across the year would see their repayments rise more greatly by £252 each year.
Monthly mortgage repayments by region for average mortgage holders (£ per month)

REGION	Dec-13	Dec-15	Dec-15
		Moderate model	Drastic model
London	£1,032	£1,064 (+£32)	£1,109 (+£77)
South East	£836	£862 (+£26)	£898 (+£62)
East	£705	£727 (+£22)	£756 (+£51)
South West	£683	£704 (+£21)	£733 (+£50)
UK Average	£666	£687 (+£21)	£714 (+£48)
Yorks & Humber	£593	£612 (+£19)	£635 (+£42)
Northern Ireland	£589	£608 (+£19)	£629 (+£40)
West Midlands	£584	£603 (+£19)	£627 (+£43)
North West	£566	£584 (+£18)	£606 (+£40)
Scotland	£556	£574 (+£18)	£595 (+£39)
East Midlands	£554	£572 (+£18)	£593 (+£39)
North East	£487	£502 (+£15)	£520 (+£33)
Wales	£483	£498 (+£15)	£517 (+£34)

Source: Barclays Mortgages

Help to Buy sees 750 completions in 12 weeks

In just 12 weeks, nearly 750 homeowners have completed their purchases and hundreds were able to spend Christmas in their new homes.
Less than 3 months on from the start of the Help to Buy mortgage guarantee scheme, over 6,000 people have put in offers on a home and applied for a mortgage, Prime Minister David Cameron announced today.

In November, ministers published figures showing that in the first month of the scheme more than 2,000 people had put in offers on homes and applied for a Help to Buy mortgage. That number has now trebled to more than 6,000.

In just 12 weeks since the scheme launched, nearly 750 homeowners have completed their purchases and hundreds were able to spend Christmas in their new homes.

The new figures on the Help to Buy mortgage guarantee scheme show that Help to Buy continues to support responsible lending; on average households are looking to buy homes worth £160,000 which remains below the UK average house price of £247,000.
Applicants will face average monthly repayments of around £900 and have an annual household income of around £45,000; this means a Help to Buy mortgage represents 23% of borrowers’ gross income.

Help to Buy mortgage applications are still coming in from across the country, and around three-quarters are from outside London and the South East, and over 80% are from first time buyers

Prime Minister David Cameron said:

"The New Year is often a time when people look to make those big life-changing decisions like moving home or taking that first step on the housing ladder.

"But too many people have found themselves frozen out of the market in recent years as a result of the size of the deposit required.

"That is why as part of our long-term economic plan we introduced the Help to Buy scheme, so hardworking people with sufficient earnings can get on, fulfil their aspirations and enjoy the security of owning their own home.

"In less than 3 months, the scheme has already helped thousands of people.

"I want to see that continue in 2014 and for Help to Buy to help thousands more realise their dream of home ownership."

   

Brokers vent anger at FCA over opaque UK lending criteria

Mortgage Solutions | 02 Dec 2013 | 11:22

Julia Rampen

A Financial Conduct Authority mortgage boss has expressed concern after listening to brokers' struggles to meet unpublished and non-transparent lender criteria.

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Mortgage policy manager Lynda Blackwell heard brokers' tales of frustration with often-unpublished lender affordability criteria at The Mortgage and Protection Event 2013. Having apparently strong cases rejected with no explanation is a particular problem.

Further reading               

• Blackwell stressed the regulator only expected brokers to try to meet lenders' published ‘headline' criteria. She said the lack of explanation around rejected cases is a concern in terms of broker record-keeping: "We would expect the reason the application didn't proceed to be on file."

Brokers vented their anger at the conference after Blackwell addressed the issue of the difference between published headline rates and lenders' "black box" of internal affordability criteria raised by Legal & General housing boss Stephen Smith in a blog for Mortgage Solutions. Other concerns included the cost to clients if apparently strong applications fail and the impact on broker reputations.
Having forecast the Mortgage Market Review will increase opportunities for brokers earlier in her talk, she commented: "It seems the MMR is putting a spotlight on the way the relationship [between lenders and brokers] is not working very well at all."
The FCA is listening to broker representatives such as the Association of Mortgage Intermediaries and proposals such as date stamping cases in order to monitor criteria changes over time and more consistent published lender criteria. Blackwell said she is willing to hear from other broker groups as well.

Help to Buy will trigger 2014 rate war - broker

Borrowers will benefit from a Help to Buy-fuelled rate war in the first few months of 2014, a broker has predicted.

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Springtide Capital expects competition will intensify among lenders as more first-time buyers enter the market.

Further reading

• Help to Buy is not the only option – Peter Izard

• Value of first-time buyer lending up 50% year-on-year

• Bailed-out banks right to back Help to Buy 2 - UKFI chair

However, the broker anticipates rates will increase later in the year in reaction to a general improvement in economic conditions.
Springtide Capital managing director Henry Knight said: “I do not believe we are seeing the emergence of a housing bubble though we are clearly at the start of an improving market. Next year is set to be the year of the first time buyer.
“The Help to Buy schemes are going to present a great opportunity for people who have historically struggled with deposits. Our advice is to try to make the most of the first half of the year while rates remain low.”

RBS swamped by Help to Buy 2 calls

Mortgage Solutions | 14 Oct 2013 | 09:41

Paula John

Mortgage calls to the Royal Bank of Scotland doubled after the bank launched products linked to the second phase of the scheme last Tuesday.

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The bank received 10,0000 phone calls in four days from interested parties, and booked 5,000 appointments within three hours of the scheme going live.
RBS said that the average applicant for its 95% mortgages, which will be backed by the government scheme, was 32 years old and seeking a joint mortgage with a partner.
The youngest applicant was 19 years old and the oldest 42.
Lloyd Cochrane, head of mortgages at RBS and its NatWest subsidiary said:
"From the moment we launched our Help to Buy mortgage products, the response we've had from customers has been fantastic. "We knew there was pent up demand, from speaking to customers we knew there was a frustration and a desire for these products."
He added: "We expect demand for our 95% mortgage to continue, and with appointments for next week already filling up fast, from Tuesday over 740 of our branches will be open longer to make sure we continue to help as many customers as we can."
RBS is offering a two-year fixed rate charged at 4.99% and a five-year fixed rate charged at 5.49%. Both are fee-free and available throughout the UK. Other lenders already offer 95% mortgages not linked to the government scheme, some priced more cheaply, but they are few and far between and sometimes come with regional restrictions.
Halifax is so far the only other mainstream bank to have started offering Help to Buy 2 mortgages but Santander, HSBC and Barclays have all confirmed they will be taking part.
Smaller banks Aldermore, OneSavings Bank and Virgin Money are among lenders planning to launch Help to Buy-backed mortgages in 2014.
RBS has said that it plans to provide a total of 25,500 Help to Buy-linked mortgages via RBS and NatWest.
Speaking at last week's launch, Cochrane said it may only take "two to three weeks" for the first person to move in with a Government-backed mortgage

Help to Buy: what you need to know

The government’s Help to Buy scheme has been officially launched by George Osborne, Mortgage Solutions rounds up the key facts you need to know.

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Which lenders are offering Help to Buy mortgage guarantee products?

Further reading

• RBS/NatWest unveils Help to Buy products; rates from 4.99%

• HSBC and Virgin Money announce intention to join Help to Buy

• Osborne outlines safeguards to curb Help to Buy 2 risk

Royal Bank of Scotland and NatWest are the only lenders offering products at launch although Lloyds Banking Group brands Halifax and Bank of Scotland will offer mortgages using the scheme from Friday 11 October.
HSBC plans to offer products by the end of the year while Virgin Money and Aldermore will launch at the start of 2014, although the latter hopes to bring forward its involvement.
What products are available under the Help to Buy scheme?
RBS/NatWest was first to announce product details, the brands will offer a two-year fix at 4.99% and five-year fix at 5.49%, up to 95% LTV. Both products will be fee-free.
So far Halifax has announced a two-year fix at 5.19% with a £995 fee, more product details are expected to be announced shortly.
Which lenders will offer products through mortgage brokers?
RBS/NatWest made the controversial decision to restrict its products to direct channels only at launch but plans to offer Help to Buy through NatWest Intermediary Solutions by the end of the year.
This means brokers are only able to place cases through Halifax for Intermediaries at present. HSBC will continue its direct-only lending policy when it joins the scheme although Virgin Money and Aldermore are likely to offer products through brokers.
What fees are lenders being charged?
Lenders will be charged a one-off fee of 0.9% on all loans between 90-95%, 0.46% on all loans between 85-90% and 0.28% on all loans between 80-85% by the Treasury.
The percentage charged will be reviewed each year and could be changed depending on macro-economic conditions and data gathered from mortgages already using the scheme.
What do lenders get in return?
Lenders will be allowed capital relief on mortgages made using Help to Buy, this will depend on the size of the lending institution with major banks each given a different level of relief. Smaller lenders will also receive some capital relief.
What are the scheme's key rules?
All types of properties are eligible as long as the purchase price is £600,000 or less. The property must be located in the UK and lenders are only able to offer residential repayment mortgages, no interest-only or buy-to-let deals are allowed.
Borrowers must sign a declaration stating they have no interest in any other property to proceed with a Help to Buy mortgage. The scheme is not limited to first-time buyers and includes a remortgage element, intended to help mortgage prisoners.
What does the industry think?
Trade bodies including the Council of Mortgage Lenders and the Building Societies Association welcomed the scheme and the publication of its final rules, although CML's Paul Smee said further support for new housing was necessary.
"As the mortgage market continues to unfreeze, assisted by Help to Buy and Funding for Lending, an increase in the supply of new housing will be a crucial factor in success," he said. "The homes need to be there for people to buy, as well as the finance to buy them."
Others were more sceptical. Genworth, which already provides insurance on high LTV loans to smaller lending institutions, said: "The pricing structure is designed as a ‘one size fits all', not taking into account individual lenders' risk profiles, as commercial guarantors would.
"The problem with this is more prudent lenders will end up subsidising the rate for more aggressive lenders. And if those more prudent lenders do not participate in Help to Buy, the 'one size fits all' rate would be clearly insufficient."
Treasury Select Committee chair Andrew Tyrie said the government must monitor the progress of the scheme closely.
"Given the chequered history of government interventions in residential property, great care will need to be taken in both the construction and running of this scheme. Mistakes could distort the housing market or carry threats to financial stability," he stated.