I'd better add the lunatic BoE base rate cut, and subsequent arm-twisting of the banks to the list of things that the government has done over the past two or three years to try and prop up property prices.
This might help the half of existing borrowers with a reasonable amount of equity, income and good repayment history who are on tracker rates or standard variable rate (but not those on a fixed rate, obviously), but not anybody else and certainly not first-time buyers. As Jack C explained over at HPC (comment 29) on Friday:
The lenders are starting to reduce the rates in response to Government demands however how much of this will filter through to customers is debatable because the lenders need to make as much margin as possible to help their re-capitalisation programme.
They will thus use a whole host of other tactics to avoid passing on the rate cut including the following: Lower loan to values (LTV's); Lower Salary multiples; Stricter valuation criteria ie if the valuer reports items that require remedial work the lender is now insisting it be remedied before they will advance any monies (retentions); Down valuations are much more likely; Income that was previously acceptable is now excluded eg Working/Child Tax credits, overtime/bonus.
I could produce a list which would ultimately run off the page. One of my close friends has 40 (Forty) re-mortgages (typically 2 year deal coming to an end) on his desk as I type and he can't place even one of the 40 because none of the fit the new lending criteria - so the drop in rates is IMO at this juncture irrelevant and backs other contributors suggestions that the tail wags the dog
(perhaps Lola can confirm or deny the accuracy of this as an overall picture?)
Sunday, 9 November 2008
Another day, another desperate throw of the dice (6)
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12 comments:
"(perhaps Lola can confirm or deny the accuracy of this as an overall picture?)"
Yes. Next?
Bloody hell, that was quick. Thanks.
...We've been encouraging clients to access low spread full term trackers with sensible (?) lenders for years, so we do not have any current rebrokering issues. (Pause for smug git moment). Any fool could see that Sterling would tank and the finances of the government, many individuals and the banks were doomed so interest rate cuts were a shoe in. The number of deals on our database has fallen from the 25000 (yes, twenty five thousand) plus of about a year ago to about 3000 now. And as my regular market checks show it is evident that all mortgage lenders are doing just as the poster on the other blog thread states.
And in the lenders position so would I. If as a lender I wanted to be sure of my security in the current house price market I would be very worried about LTVs > 60%. Wouldn't you?
The other main issue are the eye watering set up fees for many fixed and/or discounted and tracker deals. Essentially the lenders are financing the deal from the fees they are charging applicants by adding the fee to the advance at outset. So why bother to use one? The best I recently found for a client (before the recent rate cut) was a fee of £600 and a spread of 1.79% over BoEBR. From memory that was for the full loan term. It's not available now. The fees on other deals are typically £2000 and more (I've seen £5k) and if you divide that by the rate control period and add it back to the discounted monthly payment it brings it back up to almost what you would have paid at the SVR anyway. So if you add the interest cost of capitalising this fee, why bother with the deal?
(In re banks being doomed their share prices have been telling us that for some years. Markets do not lie.)
Any help?
Re 'low spread full term trackers', you've mentioned that before and your smug gits points are well deserved (feel free to mention it again in future). Re LTV, if I were lending my own money, 60% LTV would be the absolute upper limit, preferably 50%. Re up front fees, exactly, this is a really clever scam.
I Hate coming to look here..
Just you wait until I get Hazel to make you play follow the leader and report only the good news and none of the downsides.
May I also point out something about the past plethora of 2 yr fixed rates at a low rate. Almost universally these were sold by estate agents and banks and the Less Scrupulous Mortgage Brokers. The purpose of these was to (a) ensure that the estate agent got the property sold, or (b) for the banks to tie someone into their company by the virtue of the retention period penalties extending beyond the fixed rate period or (c) to provide a rolling 2 year commission earnings process from loan rebrokering for the LSMB's. Pretty well none, bar none of the deals we came accross after the event were in the absolute best interests of the client.
"Right, you say, that's clearly a case for more regulation then."
"Bollocks" I say "it is an absolute case for LESS regulation and more education of the citizen. If the citizen does not realise the commercial realities for Estate agents (for example) and how acting for both ends of the deal leads to conflicts of interest, well, what can I say."
The thing is the excessive, prescriptive, nationalisation lite type 'regulation' foisted on us since 1997 is absolutely to blame for a lot of this bad advice. The 'if the box can be ticked therefore it complies and is therefore good advice' mentality created by nannying FS regulation has allowed clients to abrogate responsibilty and abandon caveat emptor in such a cavalier way that they are just asking to be stiffed. Bringing back the fear of an open market where economic agents need to reposnsible for their actions will stop a lot of this nonsense. I mean no-one will ever trust a bank again, will they?
"Less regulation and more education", exactly.
And if this education amounted to no more than the broker pointing out how high mortgage rates have been in the past and handing over a little table showing how monthly repayments would vary at 4%, 8%. 12% and 16% interest, with a copy of That Chart stapled to it, well, that would be a start at least.
I think the expiry of the two-year fixes granted circa 2006 is going to uncover a lot of nasties.
We do that. It's called being an 'adviser'.
I have often thought that much of gummint 'policy' on FS - and dealing with the public generally - could be facilitated by screwing a little indicator to the back of the necks of blokes like me. Every week we'd go off to the local 'policy central' and the appatchik could grab us by the scruff of the neck, yank back the collar of the best Tweed and Van Heusen, lift up the failed short back and sides and read off the State of The Nation.
'Bloody Hell' they would say 'It looks like the Great Unwashed are being a bit lary with the borrowed readies, we'd better stick a percent on base rates'. Or, 'Crikey' everyone's stopped doing anything, we'd better cut taxes'. Or perhaps 'Cripes, Gordon's fucked. Better look for another job' (Actually John Tiner did this very thing a year ago).
It would be a public service I would happily render for a suitable - generous - rental fee.
MW/lola
I don't expect the Express or Star to be very informative about financial matters [cf MW's post at 14:05] but even the "quality" rags don't give the kind of info that comes out of this thread. Are financial journalists wilfully ignorant, lazy or just not very good at their jobs (or all three)?
Umbongo - Let's be clear here - most financial journos are looking for a story - not be of any use to anyone except the advertisers in their rags. I would not presume to take MW name in vain but I really just could give a load of dingos kidneys whether anyone thinks I am a good bloke or not nor do I need any advertising revenue so I just write down what happens in my life in the real world and what I have found actually effing works.
I wonder whether greater education of Her Majesty's Populace really is required.
One of the big negatives of the type of regulation of financial advisers we have currently is that the customer feels no need to think about the risks of the transaction because the adviser is (he believes) doing that for him. Being told of possible risks or being given a piece of paper listing the risks is rather different from actively having to consider them for oneself.
But that does not mean that HM Populace would not be able to understand everything they needed to understand if only they felt it necessary to undertake their own investigations.
Back in the days when caveat emptor applied there were, no doubt, some instances of people plunging into the largest transaction of their life without knowing what they were doing. But the vast majority were not in that position.
Those incapable of understanding will never understand. Those capable of it need no further education.
Couldn't agree more with...the thread I guess. It amazed me that people saw the fixed deals as some cheap option when it was quite apparent that nobody in their right mind was going to lend vast sums of money at inflexible rates without a series of protective catches tucked away. That isn't to say that capped/fixed deals are necessarily a bad thing but to presume that they all are to people of all circumstances is...well...something I'd expect of the Daily Express.
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