Remortgages and Mortgages

Repossessions soar as rate rises bite.

12th October 2007, 12:01

Rising interest rates and higher taxes are taking a toll on parts of the housing market, according to data yesterday that revealed a recent surge in the number of repossessions.

But the overall market is continuing to present a mixed picture, with separate figures from Nationwide building society suggesting that the mainstream is demonstrating robust if moderating health.

The Royal Institute of Chartered Surveyors reports the number of residential properties offered at auction rose by 32 per cent between the first and second quarters of this year. The increase was pushed by repossessions, "as affordability conditions deteriorated following interest rate hikes", suggesting that a minority, especially those coming off low fixed-rate deals, are in distress.

The RICS estimates repossessions could rise to in excess of 45,000 in 2008, amounting to 124 repossessions per day. The highest concentration of auction activity was in the North-west of England, where 826 properties were sold. This area has seen the biggest quarterly pick up in repossession orders and Merseyside has seen a particularly acute rise. However such repossessions remain at historically low levels.

courtesy of www.nes.independent.co.uk

by Seam O'Grady, Economics Editor

The broader picture is more upbeat. The Nationwide's survey showed house prices rose slightly more than expected – up 0.6 per cent on the month in August against the 0.5 per cent expected by analysts. Bank of England figures showed that banks approved thousands more mortgages for new homes than the City had expected in July. Consumer credit rose at its fastest since last November.

"Housing market activity has held up very well in the face of the five rate hikes seen over the past year," Peter Newland, an economist at Lehman Brothers, said. "The outlook remains very uncertain, but our best guess at the current juncture is that the impact [from the credit crunch] on the real economy will prove to be limited and the Bank of England will see cause to hike rates one more time."

George Johns, an economist at Barclays Capital, said: "Any further moderation in house price inflation is likely to be a very gradual process, rather than an abrupt downturn."

The Bank of England said consumer credit rose by more than £1 bn in July, above forecasts. But retail sales growth eased this month to its weakest pace since November, the CBI said.

Banks accused of credit card con.
17/10/07

The overdraft charges case goes to the High Court next year

Some banks are deceiving customers who try to reclaim default charges on their credit card bills, campaigners allege.

They say the banks have been telling courts to halt their cases, because of a separate decision affecting efforts to reclaim overdraft charges.

Most cases involving overdraft charges have been suspended, pending a High Court test case next year.

But banks are falsely applying this to credit card cases as well, says the Moneysavingexpert.com website.

"Many banks are outrageously trying to apply the hold on bank charges reclaiming, to credit cards reclaiming, even though the Office of Fair Trading already sorted this out back in April 2006," said Martin Lewis of Moneysavingexpert.com.

The British Bankers' Association said this should not be happening.

"This only applies to current accounts and should have no effect on credit card claims," said a spokeswoman.

"The Financial Services Authority is monitoring how this is working," she added.

'Disgrace'

Mr Lewis has been a leading campaigner against excessive penalty fees being levied on bank accounts that go into the red.

"It's a national disgrace," he said.

"The FSA made it plain the hold only applies to bank charges, yet banks' lawyers are disgracefully trying to bully customers, using it as an excuse to suggest it applies to credit card cases too," he added.

In April 2006, the Office of Fair Trading (OFT) said it would not challenge the legality of credit card default fees, so long as they were set at a level no higher than £12.

In practice, most banks have reduced their default fees to that sum, but some customers are still trying to recoup the money they paid out in years gone by.

Lorraine Kay from Warrington described her experience after trying to reclaim £465 from Monument credit card.

"After I applied through MoneyClaim online, the court came back saying there was a stay on the claim," she said.

"I told them that it doesn't apply to credit cards, so they sent me a form to fill in and said I even had to pay to challenge the stay.

"I'm on income support, but I have to go down to court and prove this or I'll have to pay to challenge," she added.

High Court

Hundreds of thousands of people have successfully sued their banks for the return of overdraft fees, imposed when they go into the red without permission.

The wave of litigation in the district and county courts hit a peak in the first half of this year, when an estimated 329,000 people reclaimed approximately £570m from the main high street banks.

That prompted the OFT and the banks to agree a test case, to be heard in the High Court in 2008, to decide if the regulator has any jurisdiction to rule that the charges are unfair.

Part of the deal was an appeal to the judiciary to halt, for the time being, all outstanding and any new overdraft claims.

Some of these have been channelled through the courts, while others have been directed to the Financial Ombudsman Service.

This policy has generally been successful for the banks, with most judges agreeing to stay proceedings for the time being.

Abbey blames rate rise on markets.
Sept 07

Abbey expects its rivals to follow suit

Abbey has become the first UK High Street bank to raise its mortgage rates as a direct result of the continuing turmoil in the financial markets.

The lender raised interest rates of its tracker mortgages for new customers by between 0.1% and 0.2% in response to current "market pressure".

Rival groups Standard Life and Halifax soon followed suit.

Bank of England boss Mervyn King warned that both homes and firms should now expect higher mortgage and loan rates.

We have seen significant changes to the money markets...and this has increased the cost of borrowing internationally

Standard Life

However, in a paper to the Treasury Committee, Mr King added that it was "too soon to tell how persistent and how large any change in credit conditions for household and corporate borrowers will prove to be".

Yet he concluded that if managed properly, then the current credit turmoil "should not threaten our long-run economic stability".

'UK market volatility'

Higher mortgage rates and loans are now likely across the board because the current global credit shortage has made it more costly for UK banks to borrow funds.

Mr King does not want to bail out risky lenders and heavy spenders

"These changes reflect moves in the market that have been experienced," said Abbey's head of mortgages Nici Audhlam-Gardiner.

"We expect that these current trends will be sustained over a significant period and that other companies will follow immediately."

Standard Life, which made its announcement just hours after Abbey, said it was repricing a range of its mortgages as a result of "the current UK market volatility".

"We have seen significant changes to the money markets in the last few months and this has increased the cost of borrowing internationally," said Standard's sales and marketing director, Allison Crawford.

US centred

The global credit squeeze has centred on the crisis in the US sub-prime mortgage sector, which specialises in higher risk home loans to people with poor credit histories, or those on low incomes.

As US mortgage rates have risen sharply over the past year, the sector has seen record levels of loan defaults.

The reason the crisis has spread beyond the US sub-prime sector, and across the Atlantic, is because such sub-prime debt has usually been resold around the world as part of a wider debt package.

As a result, some UK banks may have directly lost money, meaning they have had to stockpile funds to cover any liabilities.

Mr King reiterated in his comments that the Bank of England - unlike the US Federal Reserve or European Central Bank - would not bail out any lenders that have allowed themselves to become too exposed to the problem.

He said this would wrongly penalise the more prudent banks, and mistakenly encourage excess risk-taking again in the future.

In addition to those UK lenders directly exposed to the US sub-prime crisis, other British banks are now unwilling to lend money until the full impact of the situation is known.

All UK banks are also finding it harder - and more expensive - to secure their usual investments from insurance and pension funds.

The combined result is that lenders are facing a squeeze on their day-to-day cash flows, with the rising cost of household mortgages being an almost inevitable knock-on effect as the lenders need to recoup more cash.

Abbey is a part of Spain's Banco Santander Central Hispano.

Courtesy of the BBC

November 21st

UK rates stay unchanged at 5.75%

Graph showing the direction of UK interest rates

The Bank of England has kept UK interest rates unchanged at 5.75% for the fourth month in a row in a widely expected move.

The Bank's decision is likely to have been influenced by the surging oil price, now close to $100 a barrel, which increases the risk of inflation.

Despite continuing uncertainty in financial markets, inflation has once again taken a front seat, analysts say.

UK rates have been on hold since July, when they rose to 5.75% from 5.5%.

No explanation for the decision to leave rates on hold was released.

It would have been very unsettling if, in the week oil prices nudged $100, the MPC reduced rates

Graeme Leach, chief economist, Institute of Directors

But recent comments from one of the Bank's policy makers Kate Barker suggests the Bank is currently more concerned about the risks that higher energy costs will feed into consumer prices and wage demands than the possibility of a weakening economy.

"No change to interest rates was not unexpected as neither the outlook for inflation nor the economy clearly justified a cut," said Ian McCafferty, CBI chief economic adviser.

Economic chinks

In the run-up to the Bank's announcement, some analysts had begun to consider that the Bank's rate-setting Monetary Policy Committee (MPC) could surprise by announcing a rate cut.

They based their view on recent data suggesting that certain parts of the UK economy were struggling.

This week, figures from the British Retail Consortium showed consumer spending in October was its lowest for a year, while recent reports on the housing market have all indicated that house prices have reached a peak.

Fresh fears have also been raised about the health of the banking sector, after the chief executives of Merrill Lynch and Citigroup were both forced to quit within a week.

The banks had confessed to staggering losses as a result of investments linked to bad US home loans.

For these reasons, the British Chamber of Commerce said it "regrets" the Bank did not reduce rates this month, particularly given that the most recent inflation data showed the Consumer Prices Index stood below the government's 2% target

Conflicting concerns

Others agreed that a "wait-and-see" approach was justified given that there have been few signs that the problems at Northern Rock, caused by its inability to finance its business at the height of the global credit crisis, will be echoed at other mainstream UK banks.

Chancellor Alistair Darling this week asserted that the UK economy was strong enough to weather "an unparalleled period of financial uncertainty".

He added that years of big profits at UK banks meant their balance sheets were sufficiently solid to withstand any losses linked to the slump in the US housing market.

"It would have been very unsettling if, in the week oil prices nudged $100, the MPC reduced rates," said Graeme Leach, chief economist at the Institute of Directors.

"The impact of the credit crunch in the UK remains highly uncertain and consequently, the MPC is waiting for more information on the extent of economic slowdown before lighting the stimulus fuse, by reducing rates."

All eyes will now be on the Bank of England's Quarterly Inflation Report released next Wednesday and the minutes from the two-day MPC meeting, which will be scrutinised for clues to the future direction of interest rates.

15/02/08

House prices in 2008 - up or down? Courtesy of the BBC

Analysis
By Ian Pollock
Personal finance reporter, BBC News

The new year may bring cheer to those priced out of the market

House prices could be even more of a talking point than usual in 2008.

For the first time since 1995, this could be a year in which property prices actually fall.

However, that is not what most experts are predicting.

On the whole they think that prices will be flat, or may rise slightly over the next 12 months.

But the plain fact is that prices have taken a sudden downturn since the summer.

And that opens up the possibility of further falls in the coming months.

Further slowdown

At the start of 2007, all commentators were expecting that the UK's house price boom would finally run out of steam.

Pundits were expecting successive interest rate rises from the Bank of England to have their effect at last - and for more and more people to become priced out of the market.

The long-overdue housing market correction now appears to be underway

Capital Economics

In fact, this process took rather longer to play out than expected.

It was only over the summer that annual house price inflation started to fall.

Capital Economics, the consultancy led by one of the City's leading economists, Roger Bootle, has long been predicting that the UK house price boom would come to an end.

This past year, it thought that prices would rise by only 3.5%, and as it turns out, it could be on target.

But citing a slowing economy, expensive prices, stricter lending and more mortgage defaults, Capital Economics has revised its predictions for 2008 downwards.

"In view of the recent news flow from the market, coupled with growing evidence that the economy is on the verge of a sustained slowdown, we have cut our forecasts," said the consultancy's Ed Stansfield.

"We expect house prices to fall 5% next year and by a further 8% in 2009, wiping out the gains of the last 18 months.

"The long overdue housing market correction now appears to be underway," he added.

Lenders

Two of the most widely-followed measures of house price movements are the monthly surveys published by the two biggest lenders, the Halifax (part of the HBOS banking group) and the Nationwide building society

The Nationwide forecasts that annual house price inflation will have dwindled to nil by the end of 2008, describing this as a "significant slowdown".

Only Scotland, in its view, will still experience rising prices, while the recent spectacular boom in Northern Ireland will crash to a halt, with prices falling.

The other big lender, the Halifax, also believes that property inflation will be flat by the end of the coming year.

Interest rates now seem on a new downward curve and may fall to as low as 5% in the Halifax's estimate.

But it thinks the market has yet to feel the full effect of the previous increases and this will manifest itself, it says, in a 15% drop in sales across England and Wales.

The mortgage tap

Two months ago, the Council of Mortgage lenders forecast a mere 1% rise in house prices over the course of 2008.

Banks may release funds in the New Year that they are currently hoarding

Bernard Clarke, CML

Since then, it has become very worried about what has become known as the credit crunch - the unwillingness of banks to lend to each other in the wake of the sub-prime mortgage crisis in the US.

Its most high-profile victim so far has been the Northern Rock, along with a number of very small sub-prime lenders in the UK.

But the CML is concerned that the mortgage tap may simply be turned off in the UK if banks can no longer borrow from each other to lend on as mortgages.

The figures are stark.

The industry expects demand from the public for another £90bn or so in new mortgages this coming year.

Only £60bn or so can be satisfied by lending the money that people actually save with banks and building societies.

So, in theory, the rest will have to be borrowed from other financial institutions.

But what if they are unwilling to lend?

"It is a fast-changing environment," said Bernard Clarke of the CML.

"There has been lots of action by central banks to kick-start the wholesale funding market, and banks may release funds in the New Year that they are currently hoarding."

That is the optimistic scenario.

But if the freeze in lending between financial institutions continues, then there could be a real shortage of mortgage money in 2008, with a consequent slump in house sales.

Rate cuts

With the authorities apparently alert to the danger that a freeze in lending would pose to the wider economy, and not just the housing market, the Royal Institution of Chartered Surveyors (Rics) is one of the many bodies predicting further cuts in interest rates to 5%.

In its view, that should offset any short-term downturn in sales and prices, and will eventually lead to prices being flat over the course of the next 12 months.

"2008 will prove a difficult year for the housing market, but with falls likely in the base rate, the housing market should be provided with a stable platform," said the Rics chief economist Simon Rubinsohn.

"The effect of the credit crunch will dissipate slowly, meaning that those seeking to obtain finance in the first half of 2008 may struggle.

2008 PREDICTIONS CML +1% Halifax 0% Nationwide 0% Rics 0% John Charcol -2% Capital Economics -5%

"However, the employment picture should remain firm throughout the year, helping to prevent significant numbers of repossessions and the subsequent influx of supply into the market," he added.

A year of two halves is also forecast by Ray Boulger, of big mortgage broker John Charcol, who suggests prices will end the year 2% lower than they started.

He thinks the first half of the year will be particularly tough, with sales continuing to slump.

"I predict the net result is that house prices will fall a little in the first half of the year - by up to 5%," he said.

"But by June, the fall in bank rate and an easing of the liquidity squeeze will stabilise the market, although it will still be very difficult for sub-prime borrowers.

"In the second half of the year, transaction levels will improve and prices will partly recover, ending the year down 2%," he added.