Negative Equity Fears for Millions
Almost 1.2 million UK homeowners could be facing negative equity if house prices continue to fall at the rate they are currently doing.
UK mortgage borrowers are facing the risk of negative equity and higher mortgage payments. The Bank of England’s Financial Stability Report (FSR) reports one in 10 homeowners could be left with their mortgage debt being more than the value of the home, due to the decrease in house prices.
About 3% of homeowners are currently in negative equity. But if house prices drop by another 15% from their record high in October 2007, this figure could sharply increase. Those who are most at risk of negative equity are first-time buyers who have recently purchased their first home.
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Mortgage Payments Priority for Brits
Mortgage payments and fuel bills top the list of things which Brits are most concerned about, according to research published by Abbey.
In the time of the credit crunch, it is no surprise that 41% of those surveyed admit that paying their monthly bills is their most important priority. Keeping tabs on their debt management issues was viewed more important than having a good work/life balance or having a pleasant home.
Phil Cliff, director of Abbey Mortgages, commented that: “Concerns about the economy are definitely being reflected in the UKs spending habits as Brits would rather put money into their home and ensure they can pay their monthly energy and mortgage bills.”
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Utility Bills Causes Concern for Renters
Eight out of ten renters worried about their utility bills, according to a new report by the Department of Communities and Local Government.
The average UK household will pay the equivalent of 20% of their rent on their utility bills. But many private renters feel as though their landlord doesn’t care about energy efficiency, which is leading the renter to forfeit the inflated bill.
The Government is set for change as this month sees the start of Energy Performance Certificates (EPC) required for all new tenancies after 1st October. The EPC means that landlords will have to provide their tenants with information about energy efficiency and carbon emissions, in a simple rating of A-G.
Communities minister Iain Wright commented that this new move should be “welcomed by tenants who are looking for better value and more energy efficient rental properties, as well as landlords who are, more than ever, keen to attract responsible and committed tenants.”
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15 Years for First-Time Buyer Loan
It looks as though more first-time buyers are going to have to take better control of their debt management, as new research suggests that it could be 15 years before a first-time buyer loan agreement is reached, due to the time it takes to save for a deposit.
A poll by the Fair Investment Company revealed that the average first-time buyer only saves £1,668 a year. House prices are now at an average of £175,000 and many mortgage lenders are now looking for a 15% deposit.
Sharon Bratley, a chartered financial planner with Fair Investment Company, said: “My advice to prospective first time buyers is to save, save, save, our research shows that it could take years, so the earlier you start the better. It is also worth shopping around for a high interest savings accounts.”
The research also found that women would normally take longer to save for a deposit than men, with the average woman saving just £121 per month. However, if a male and female couple combined their savings, they could achieve a 15% deposit in just seven years.
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Many Homes Could be in Negative Equity
Falling house prices could be that many homes could be in negative equity.
Nationwide building society have releases figures which show that average house prices have fallen by 1.7% in September. There has been a decline for 11 months in a row, and the average house value now stands at £161,797, compared to £164,654 in August, meaning that many homeowners could now be in negative equity.
These figures reflect a drop in consumer confidence and the possibility of rising debt due to the global economic crisis, which is likely to effect the housing market for the months to come.
Nationwide’s chief economist Fionnuala Earley remarked that: “We would need to see a significant shift in consumers’ sentiment before we begin to see any real recovery in activity and subsequently house prices.”
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Mortgages for First-Time Buyers at a New Low
The number of first-time buyers in the UK has hit a new low.
The most likely cause for the new low in mortgages for first-time buyers is because of the size of deposit which is required to secure a mortgage deal, which now stands at 15% of the property value. On average, first-time buyers are borrowing 3.24 times their income, which is the lowest multiple since July 2006.
Figures from the Council of Mortgage Lenders (CML) show that just 17,300 first-time buyers purchased a property in July 2008, the lowest level since records began in 2002. The number of first-time buyers has almost halved over the past year.
CML director general Michael Coogan said: “Tighter lending criteria have clearly made it more difficult for first-time buyers to enter the market.”
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Renters Tenancy Deposit Protection
The average renters deposit in the in the UK is £670, but many consumers do not have this desposit protected. This is despite the fact that it is a legal requirement for landlors to ensure that a tenants’ deposit is financially protected.
Almost a third of tenants are not covered by tenancy deposit protection (TDP), according to research by LV=. The main reasons that many tenantss go unprotected is because of the lack of awareness around the scheme.
During the poll, over half of those who lived in rented accomodation were unaware of TDP and it’s pupose. This is very worrying in a time when many are suffering from debt management problems and cannot afford to lose this deposit.
John O’Roarke, managing director of LV= comments: “This research highlights the need for the Government to raise the profile of this legislation and for it to be more strictly enforced, to protect both renters and landlords, as awareness is currently very low.” (more…)
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Home Improvement Loan Applications Increase
In light of the changes to the housing market, homeowners are more likely to stay in their home to make renovations than purchase a new home. According to a survey by Lloyds TSB, there has been a 19% increase in the number of loan applications for house renovation compared with the previous year.
The research also revealed that 59% of homeowners who were considering selling their home have put these plans on hold. Half of these now plan on carrying out additional home improvements in order to avoid debt management problems and increase the value of their property. The top improvements which new buyers have shown the most interest in are new kitchen or bathroom.
David Wishart, director of personal loans at Lloyds TSB, commented: “In recent months we have seen a significant increase in home improvement personal loan requests. For the last decade homeowners have been able to sit back and rely on rising property prices to increase the equity in their home but sadly this is no longer possible.”
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Men take Financial Control when Moving Home
Women are more likely to sit back and let their man take charge of finance and organising debt when moving home. Research from Halifax Estate Agents shows that 48% of men in a relationship will typically take financial control, compared to 34% of women.
But most couples are equal when it comes to decisions to move home, as 65% of UK co-habiting adults will make a joint decision when deciding to sell or move, whether buying a new home together or renting a property. Yet only 36% of couples are equal when sharing the responsibility of their finances. Joint decisions tend to decrease with age, 72% of 16–24 year olds prefer to make a joint decisions, compared with just 58% of over 65s.
Gordon Edwards, managing director, Halifax Estate Agents, said: “Buying a house is the biggest purchase most of us are likely to make. If you are deciding to sell your home, purchase a new property or sorting the finances for a move, it’s important to involve your partner in the decision-making process.”
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Homelessness for those struggling with Debt
Those who are at risk of repossession could end up homeless, as mortgage lenders try to recover the debt through repossession of their property and selling additional assets.
If you cannot afford to pay your utility bills then the service will be cut off, and if you cannot afford to pay your unsecured debt then you may end up with bailiffs at your home or with a CCJ. Credit Action said that in other countries, those who have mortgage arrears and are unable to pay thier secured debt may face prison. However, in the UK it is much more likely that you would end up homeless.
Chris Tapp, the charity’s director, says: “If you’re talking about mortgages and any sort of secured debt, the lender can force you to sell the property or they might repossess the property, so people could actually end up homeless.”
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Mortgage Arrears Advice
The ongoing credit crunch means that many of us are finding less money in urr pockets at the end of the month. But, for some, this drop in disposable income may mean that they can no longer afford their mortgage and will suffer from mortgage arrears.
According to recent analysis from Standard and Poor, the number of UK mortgage arrears in the subprime mortgage market has increased by over 23% in the second quarter of 2008. Those who have more than three months of mortgage arrears have increased to over 12% of this total. Standard and Poor have described mortgage arrears as “a way of life” for many subprime borrowers.
Are Mortgage Arrears a “way of life” for you?
If you find yourself struggling with mortgage arrears, then it is important that you tackle this problem as soon as possible. Your mortgage is a priority debt which means that failure to make payments to your mortgage means that you are at serious risk of repossession. (more…)
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Credit Crunch Increases Credit Rejections
More and more people are making multiple applications to get accepted for credit, such as a consolidation loan to deal with unsecured debt, mortgage or credit cards. According to new research by GE Money Home Lending, in the last 18 months almost 450,000 of mortgage and loan applicants needed to apply four or more times to get accepted.
As banks tighten their lending criteria, it may come as no surprise that over 412,000 people could not accepted, despite trying repeatedly. Many consumers who found it easier to get accepted for credit in the past, are finding it more difficult to get accepted as 12% went on to make multiple applications with no success.
Mark Maguire, spokesman for GE Money Home Lending, warned against making multiple credit applications over a short space of time. Failed applications are logged on your credit file and may mean that you have less chance of getting accepted in the future.
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Brits Dream about their Ideal Home
Brits are shunning debt worries as they dream about owning their ideal home, yet only 15% are living the dream.
Legal & General’s Home Sweet Home survey revealed that for one in five respondents, a country house would be their dream home, followed by a detached house with a garden in the suburbs or a self-build home.
Location wise, the most popular places were in a village, countryside or by the sea. Five counties share the top spot for the location of a dream home, with an equal number of people saying that they would like to live in Cornwall, Devon, Greater London, Surrey or Yorkshire.
Garry Skelton, marketing director for Legal & General’s general insurance business, said: “The survey would indicate that people are still quite positive about the future housing market given the number of respondents who still wish to live in their dream home. However, probably reflecting financial concerns, the number of Brits who do not expect to ever live in their dream home has risen from just over 20% to 30% since the last survey.”
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Homeowners Looking to “Overpay Mortgage”
Despite the financial fears that the credit crunch has bought us, such a decrease in disposable income, it appears that not everyone is battling with their finances, as many homeowners are planning to clear their mortgage debts quicker.
Research by Abbey Mortgages shows that 12% of homeowners are looking to overpay their mortgage in the next 6 months, so that they can control their own debt management issues. This figure is surprising, as it compares to the 4% who are taking a payment holiday or are underpaying their mortgage due to their financial problems.
Phil Cliff, Director of Abbey Mortgages, said: “It’s great to see that people are quite rightly prioritising their mortgage payments ahead of other financial commitments - having a smaller mortgage can mean you get a better deal when you remortgage and of course reduces future monthly outgoings.”
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Homeowners Need Deposit of over 20%
First time buyers are becoming more stretched as the credit crunch limits the amount of best buy mortgage deals available. According to research published by This is Money, the average homeowner needs a deposit of £40,000 before they can get a mortgage deal at a good rate.
The figure is up 43% from the previous year where the average deposit to secure a lending rate was £20,980. This is because, although house prices are falling, lenders have scaled back their loan-to-value ratios. This means that those who are looking to purchase a home need to raise 20.75% of the asking price.
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Mortgage Approval Drops 65%
The number of mortgage approvals has declined by 65% over the past year, with July figures almost matching the record low in June. The British Bankers’ Association (BBA) said the number of mortgages approved in July totalled 22,448, which represents a 10 year low of the value of mortgages approved at £3.2 billion.
The number of remortgage deals which are going through is down 21%, but this still makes up for half of all mortgage activity as more people are wishing to consolidate their debt with a remortgage.
BBA statistics director David Dooks said: “The monthly numbers of approvals for house purchases, which have fallen by some two-thirds over the last year, levelled off in July.”
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Negative Equity may cause Divorce Rate Decline
Credit crunch financial woes, debt problems and equity worries means that the number of divorces in the UK could potentially fall, according to Consilium Financial Planning Ltd.
Managing director, Kevin Morgan said that the problem would be that “equity” in a marriage is property which becomes a problem if there is negative equity in the home and this would lead to a drop in divorce rates because “If it can’t be sold, it’s substantially more difficult to release funds.”
According to the Office for National Statistics, the divorce rate is now at its lowest since 1984, and this figure could drop even lower as more couples try to work through their differences as remortgaging their home becomes almost an impossibility.
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Repossession should be a “last resort”
The number of homeowners who are facing mortgage arrears and repossession is on the rise, and the Financial Services Authority (FSA) are urging mortgage lenders to be fairer to their cash-strapped customers so that repossession is only a “last resort”.
The FSA accuse many specialist lenders of ignoring the personal circumstances of an individual, with many lenders turning to the courts far too quickly. 9,152 homes were repossessed in the first three months of this year, up from 6,471 over the same period last year.
Many lenders fell foul of adding extra charges and penalties to customers who are facing high levels of debt and struggle to meet their mortgage payment. Figures released show that more than 300,000 people are dealing with mortgage arrears, doubling last years figures. This rise is being blamed on the credit crunch, as soaring living costs are outstripping the average income.
Lesley Titcomb, FSA director for mortgages, said “More people are struggling to meet their mortgage payments and it is vital that firms treat them fairly. This means paying attention to their individual circumstances and not repossessing their homes when there may be an alternative solution. Repossession has to be the last resort.”
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Tenants Causing Landlord Debt
Landlords are being urged to carry out reference checks on potential tenants to ensure that they do not end up in unecessary debt. The National Landlords Association (NLA) said that up to £6,000 worth of debt could amount if a tenant does not pay their rent over a period of 6 months.
This could put many landlords in the red as they struggle to meet this drop in cash flow, leading them to seek additional debt advice in order so that they can keep on top of their finance problems.
Chairman of the NLA, David Salusbury, commented that landlords who check the financial history will enable them to “to make an informed decision about (the tenants) ability to keep up with rental payments”.
Details which a landlord can find from these checks include many important details about someone’s financial history, such as if they have declared bankruptcy or have CCJs (County Court Judgments) against them.
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Bankruptcy Risk for Indebted Homeowners
Millions are risking bankruptcy as homeowners are seeking out loans in order to make mortgage and rent payments. As the cost of living is continuing to rise and £30 billion worth of fixed rate mortgages are due to expire within the next month, it is likely that many will need to seek bankruptcy advice in order to regain control of their finances.
Research from MoneySupermarket.com reveals that 1.8 million households in the UK are getting themselves into more debt by taking out unsecured loans so that they can afford their rising mortgage or rent costs. A further 2.3 million people have increased their spending on credit cards as the credit crunch begins to pinch.
Tim Moss, head of loans and debt at the website, said: “It’s a very serious situation when you have people turning to a short-term solution to fund a long-term product. Having a roof over your head has to be your top priority but to be funding that with a loan you might default on or with a credit card that will eventually charge you interest of over 15% isn’t the solution in the long term.”
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Home Owning is an “Impossible Dream”
Low income couples will find it “almost impossible” to afford to buy their own home, due to a mixture of high house prices and large deposits which are being requested by lenders.
The Royal Institution of Chartered Surveyors (RICS) have reported that a couple with a low income (£27,516 after tax) would have to save more than a 100% of their annual income (£27,738) in order to save up for a deposit. This figure is well up on the 21% of pay needed in 1996. It is now almost as difficult to get on the housing ladder as it was at the worst ever level, the third quarter of 2004.
House prices have increased an average of 10% a year since 1996, whereas the lowest incomes have increased by just 3.5%. But affordability has improved for those who are already on the housing ladder, and the credit crunch
David Stubbs, senior economist at RICS, comments: “With mortgage approvals declining, the picture does not look like improving in the latter part of 2008 and first-time buyers will find their path to home ownership increasingly blocked.”
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Negative Equity Crisis
More than 23,000 people who took out 100% mortgages at the peak of the property boom could be facing a negative equity crises. New research from the Council of Mortgage Lenders (CML) says that for these homeowners, falling house prices mean that their mortgage on their home could be more than their home is worth
The figures released from the CML are only lightened by the fact that these type of mortgages only represent a very small section of the mortgage market, as they reflect just 2.5% of the total lent.
Negative equity means that the loan against the home is more than the property is worth. This only really becomes a problem when the owner wishes to move house or can no longer afford to repay their mortgage. New research shows that very few homeowners are planning to move home with the fewest transactions per estate agent since records began in 1978.
CML spokesperson, Sue Anderson adds that: “The housing market isn’t a homogenous whole - prices behave differently in different areas. And most people who bought in the past year probably won’t be looking to move yet anyway.”
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House Prices Not Low Enough for 1st Time Buyers
House prices may be falling throughout the UK but this is not enough for first time buyers. New research shows that more than one in four of those looking to get onto the property ladder are out priced in their local housing market.
Hometrack, the property information group, report that almost 30% cannot afford even the cheapest property prices in their area. In places this figure reached 41% in London to more than 50% in other areas.
These affordability issues are being blamed on rising mortgage costs, the banks unwillingness to lend and strong house prices compared to the average pay packet. Mortgage costs for first time buyers rose by 12% in 2007, meaning that almost 35% of a monthly wage will go to the mortgage payment.
Richard Donnell, director of research at Hometrack said: “Until such time as mortgage rates start to fall then lower house prices will be the only real driver of improved affordability for first time buyers.”
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New Low for Mortgage Approvals
The number of mortgages being approved is now at a record low and almost half the rate of 12 months ago, according to new research from the Bank of England.
April saw just 58,000 new mortgages were approved, 8% down on last month. This number is at the lowest since comparable records began in 1999. Mortgage approvals are expected to slump further due to the credit crunch and the reluctance to lend money.
The Royal Institution of Chartered Surveyors have warned that property sales this year would fall by between 35% and 40%. Their chief economist, Simon Rubinsohn said: “Lenders are continuing to tighten up on the conditions accompanying new loans making it hard for first-time buyers to take advantage of the modest fall in house prices seen over the part few months.”
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Mortgage Help Soaring
The number of homeowners seeking help with repaying their mortgage has soared by 35% in the last year. Research by the Citizens Advice Bureau suggests that more and more households are struggling to meet the basic costs of living, leading to fear over an increase in the number of repossessions.
This figure reflects recent research by The Royal Institution of Chartered Surveyors (RICS) who estimate that there will be an average of 123 homes reposed everyday as people struggle with their payments.
Increases in the cost of fuel, household bills and mortgage payments are stretching people to the limit, with 215,000 new debt problems being reported in the first two months of 2008 alone.
Mortgage Help From One Advice
If you find that you are struggling with your mortgage payments then it is important that you seek expert advice as soon as possible. One Advice can offer you free advice on your finances and try and help you get your debt in order, as there are ways to reduce your monthly outgoings without risking losing your home as a consequence of missing mortgage payments.