Monday, 9 January 2012
by Laura Berry
It seems that 2012 is going to bring more concerns over mortgage lending and the Financial Services Authority (FSA) believes the “real danger” is that bigger problems are being stored away for the future. Attempts to rescue the mortgage market have so far been unsuccessful and the worry is that ‘fire-fighting’ measures will not provide long-term stability.
As a result of the difficult economic conditions, lending criteria is set to become tougher. The FSA’s Mortgage Market Review states that loans should only be granted where there is reasonable expectation that the customer can repay the loan without relying on “uncertain” future house price rises. Furthermore, income will have to be verified in every application and lenders are being told to place greater emphasis on other regular outgoings. Potential borrowers will be scrutinised and their financial situation will be studied in even more depth. Changes also include the abandoning of “fast-tracked” mortgages (an accelerated approval process) and the removal of self-certification mortgages often used by self-employed borrowers.
In addition to these stricter rules, new stipulations mean that borrowers hoping to obtain mortgage lending which stretches past retirement age will be subject to extra “prudent and proportionate” checks. The FSA’s proposals intend to block any return to the risky mortgage lending of previous years and they come following whole sector analysis in which they found that: almost 1 in 10 mortgage holders struggles to pay their monthly bill; up to 9.2% of all home loans have payments overdue; in the next 10 years, 1.5 million interest-only mortgages worth around £120 billion will be due for repayment but 78% of all interest-only mortgages had no reported plan for repayment. These statistics are troubling and spell further difficulties for the mortgage and property markets.
Stricter controls on lending and more defaults on mortgage payments will mean that less people are able to buy and confidence in the market will be even lower. In a falling market already characterised by uncertainty, having even less buyers will lead to longer periods of time spent on the market, decreasing asking prices and a much higher risk of a sale falling through.
Monday, 19 December 2011
Mortgages are secured loans that use your home as collateral; inability to repay the loan will certainly lead to the repossession of your house. You have to shop around and take out a home mortgage loan so that you don’t settle with a loan that is beyond your affordability. Defaulting on loans not only has the risk of making the homeowner lose his homeownership rights but he also trashes his credit score in the long run. If you want to avoid taking out a mortgage refinance loan in the near future, you have to educate yourself on the types of mortgage loans that are available in the market. Check some out.
Fixed rate mortgage loans - The most common mortgage loan type is the fixed rate mortgage loan. As the name suggests, the interest rate on this loan will be fixed throughout the repayment term of the loan and therefore the monthly payments will also be fixed till you repay the loan and own your house. This is ideal for all those who are not good at managing their personal finances as you can stay sure about the exact amount to keep aside for your monthly mortgage installment.
Tracker mortgage - Tracker mortgages track the Bank Of England base rate, usually at a few percentage point above it. Could be considered a questionable option for mortgages at the moment, due to the fact that interest rates are very low (0.5%), and can only go up. Another potential downside of a tracker mortgage is the uncertainty of the changing rate, meaning that the monthly repayment amount can vary with interest rates. This means tracker mortgages offer less stability as fixed rate mortgages.
Variable rate loan - This mortgage is also based on tracking the base rate, as it is a rate that can vary during the mortgage term.
Interest-only mortgage - When you take out the interest-only loan in the UK, you only pay back the interest rate and not the principal amount. However, at the end of the term you’re supposed to repay the outstanding balance. How you’ll manage the payments depends on you. However, when you take out such a loan you should always consider whether you’ll be able to repay the entire balance at the end and if this will hurt your finances at the end.
Capped rate mortgage - With such mortgage loans, the rates are fixed but if the rates suddenly fall, you have to pay the lower rate and this kind of loan is good for those who follow a strict budget throughout the month.
You must be aware of the fact that getting a mortgage loan is the biggest responsibility on your shoulders and until you repay the entire amount that you’ve borrowed on your mortgage loan, you must keep on managing your finances in the most effective manner. If you think you may default on the payments, you can opt for a mortgage refinance only after considering the pros and cons.
Nationwide today reported a 0.4% rise in house prices in November, up 1.6% year on year.
The Nationwide's figures are contrary to the Land Registry's showing a slight fall in prices over 12 months.
Unsurprisingly, Nationwide predicts prices to be static or lower over the coming 12 months, with only a lack of supply proping up prices.
