Borrowers face new hurdles
June 9, 2010
Buyers returning to the housing market and homeowners trying to remortgage face an increasingly complex maze of rules and criteria imposed by mortgage lenders.
However, brokers have warned that people buying or remortgaging face a series of hurdles when trying to secure a home loan because of lenders’ ultra- cautious approach to approving deals.
Borrowers are still frequently hit by damaging and inaccurate down valuations — when a lender decides that your property is worth less than you thought it was — reducing the amount you can borrow, pushing up the cost of your mortgage or leading to loan rejection. Builders complain that buyers of new-build properties, favoured by first-time buyers, are particularly likely to face a down valuation in the current market.
Buyers also face a growing blacklist of properties, areas and even developments that are shunned by lenders.
Surveyors have warned that it is difficult to produce accurate house price estimates when there are so little transactions in the market.
Lenders often carry out “desktop valuations”, using automatic valuation models that guess how much a borrower’s property is worth using house price data and transaction figures.
Buyers who want a new-build flat face the greatest likelihood that a mortgage lender will cut the estimated value of a prospective home. A number of lenders insist that valuations of new-build properties are based on the estimated value of the home on the secondhand market. Builders argue that this is difficult to estimate accurately, created uncertainty and confusion for buyers.
Down valuations can hit borrowers with higher mortgage costs or lead to a loan rejection. Someone who needs to take out a mortgage worth £75,000 to purchase a property costing £100,000 will apply for a deal with a loan-to-value ratio of 75 per cent. However, if a valuation suggests that the house is only worth £95,000, the mortgage exceeds the loan-to-value tier. A lender that will not offer loans with a loan-to-value ratio of more than 75 per cent on new-build properties may reject the application. Other lenders might force the borrower to take a loan with a higher maximum loan-to-value ratio, leading to higher monthly repayments.
Borrowers who suffer from a down valuation may be able to appeal and apply for a second opinion from another surveyor. Lenders that conduct desktop valuations, such as Halifax and Woolwich, will send a valuer to conduct an internal and external assessment of the property, although borrowers are expected to pay the bill themselves. It is also possible to submit supporting information that suggests the original valuation was inaccurate, such as evidence of sales in the same street or new-build developments in the past three months.
HIPs were suspended from 21st May 2010
June 7, 2010
Home Information Packs (HIPs) will no longer be required for house sellers from 21st May 2010.
The costly packs were introduced in 2007 in England and Wales, despite strong opposition from the Royal Institution of Chartered Surveyors (RICS) and National Association of Estate Agents.
The final good-bye to the HIP involves legislative changes and the immediate reprieve takes the form of a suspension, although the Energy Performance Certificate will remain as it is required under European law.
Meanwhile, HIP providers face a very uncertain future; many have set up their own businesses or paid for their training and will no doubt be seeking compensation.
Finally, the recovering UK housing market may not benefit from a surge in speculative sellers that could follow the suspension of the HIP.
New instructions for sales are already outstripping new buyer enquiries, according to the RICS.
The dreaded Housing chain
April 21, 2010
There is one phrase guaranteed to strike fear into the heart of anyone trying to sell a house: the broken chain.
Put simply, a chain is a line of buyers and sellers involved simultaneously in property transactions that are linked to each other. If one transaction falls through or is delayed, the chain breaks and the effects are felt up and down the line.
For example, if you are waiting for a buyer to complete the purchase of your house before you complete the purchase of your new house, and your buyer pulls out, you may have to pull out, which could cause problems for the vendor of your new property. And so on. The result is a grim mix of financial and psychological angst.
It’s a common problem. Government figures estimate one in three property transactions in England and Wales falls through, while a survey for trade event the Homebuyers Show found that 36% of people feared getting stuck in a chain more than any other aspect of moving house. It’s an expensive problem too, given that the surveyor, estate agent and legal fees involved in buying property are non-refundable.
What breaks a chain?
Most deals fail because of tight deadlines for paperwork being missed or finance falling through at the last minute.
The buyer can simply withdraw his or her offer. Until contracts are exchanged, the buyer is under no legal obligation to buy the home and does not have to pay for any of the costs that you as the seller may have incurred.
Another common reason is that the survey – currently undertaken late on in the process – reveals some previously unknown problem with the property.
The gazunderer is back. Gazundering occurs where a potential buyer reduces their offer at the very last minute before contracts are exchanged.
The National Association of Estate Agents has warned that this phenomenon is rising as the UK housing market cools. Increased knowledge of property prices and a glut of properties for sale means buyers are more frequently springing a nasty shock on sellers and risking a lower offer.
Ironically, gazundering by first-time buyers whose ace card is that they have no chain behind them is also contributing to the increase. It is not illegal but it is unethical.
If this happens before contracts are exchanged it is up to the seller to decide whether or not to accept the lower offer. Once contracts have been exchanged the buyer is legally committed to paying the price stated in the contract. They can still pull out, but will forfeit the 10% deposit they paid when contracts were exchanged.
The seller may accept an offer for their house and then inform the buyer that they have been offered a higher price by someone else. This is known as ‘gazumping’.
There may be a delay in the lender making a formal mortgage offer to the buyer. Until the mortgage offer is made, contracts cannot be exchanged.
How can I avoid getting caught in a chain
There are a number of steps you can take to minimise the risk.
Avoid chains in the first place. Find out the status of potential buyers and decline their offer if they are stuck in a chain.
Find out the status of the people you are buying from too as chains can break either way.
To avoid becoming the weakest link yourself, have your mortgage offer in place before you start making offers.
If necessary, arrange for a bridging loan. This is a short-term loan which covers any financial shortfall and smooths the process. It can usually be arranged very quickly and will typically charge interest of 1.5%-2% a month.
This can provide the means to allow you to buy a new property before you have actually sold your existing one. It is an expensive way of borrowing money however, especially if you don’t know exactly when you’ll be paying it back.’
Be prepared to lower your asking price. Most property is sold within three months of being put on the market. If your home is still for sale after this period, your asking price may have fallen out of line with local levels. Check the prices of as many comparable properties as you can and adjust accordingly.
.Some sellers do this by selling their property and opting for rented accommodation whilst they search for their new home.
House sale instructions drop due to lack of buyer interest
April 8, 2010
The UK housing market experienced a shift in the balance between supply and demand in February, with new instructions outpacing buyer interest for the second consecutive month.
According to the Royal Institution of Chartered Surveyors’ (RICS) latest housing market survey, a net balance of 15% of surveyors reported a rise, rather than a fall, in new instructions, compared with a negative balance of 5% in January.
Surveyors are still reporting house price gains in most regions but the RICS points out that “net balances are a little less positive than they were”.
The North, Yorkshire and Humberside, Wales and the West Midlands are the exceptions, with house price falls still prevalent.
In terms of price expectations, February’s balance remains in positive territory although at its lowest since July 2009.
However the magnitude of the gains going forward is likely to continue to ease reflecting the fact that new supply coming onto the market is starting to outstrip fresh demand.
Customers face difficulties in securing loans
April 8, 2010
Consumers looking to take out a loan could find that it gets more difficult as banks become more selective about who they will give money to.
The price comparison site reported that, although it has seen the number of people searching for a loan increasing by 20 per cent since the end of last year, in the same period, the British Banker’s Association has reported the number of loans had fallen by 28 per cent.
Many banks have restricted their lending to existing customers and the supermarkets, which often have the best levels of interest, will increasingly only accept applications from people with good credit histories.
The most important thing to remember is that the APRs quoted by lenders are “typical” and the rate you see may not be the rate you are accepted at.
For those who rely on overdrafts, reports that only two of the top eight banks have changed their charging system in the last year to make them fairer for consumers.
Banks oppose FSA over plan to ban Self Cert Mortgages
March 25, 2010
The Financial Services Authority is facing fierce objections from some of Britain’s biggest lenders over proposals to ban self-certified mortgages.
The City watchdog said that large banks and building societies had opposed a ban on the so-called liars’ loans that allow borrowers to state their own income without documentary proof, because it would be unfair on the self-employed and could lead to an increase in mortgage fraud.
The loans, which accounted for half of all lending at the peak of the housing boom in 2007, were blamed for playing a large part in the resulting collapse, after borrowers who had overstated or lied about their income on applications subsequently defaulted on repayments.
However, consumer groups, small lenders, brokers and trade associations supported the ban and argued that “everyone should be able to verify income, even if the income sources are diverse or the income streams irregular”.
The critical response will come as a blow to the FSA, which announced its intention to review the mortgage market last October. The regulator first looked at the loans in 2003, when they accounted for 20 per cent of the market, but ruled out a crackdown.
Sell your house for cash
March 19, 2010
Selling a house for cash is becoming a popular alternative for homeowners who need to sell their property quickly. With the current credit crunch and sluggish market, many sellers are finding it difficult to locate qualified buyers. Instead, they are turning to investors who are able and willing to buy with cash.
Selling a house for cash is no different than selling to a buyer who obtains traditional financing. However, there are benefits with cash transactions that cannot be obtained when the buyer requires funding (mortgage) through a bank.
The primary benefit of selling your home for cash is the deal can be closed in a matter of days instead of weeks. There are no long forms to fill out with the lender and no waiting for approval. Currently, banks are placing tighter restrictions on borrowers. In order for buyers to obtain mortgage approval today, they must have a faultless credit score and able to provide a down payment of at least 20-percent.
It’s no secret the economy is in the dumps. With the ever-growing unemployment rates, people are afraid to buy property for fear they will lose their job and then their home. They aren’t willing to take that much of a risk. Nearly every homeowner is feeling the pain from lack of qualified buyers.
On the other hand, property investors like Equity fast are buying houses all across the UK. Many of them are purchasing properties with cash simply because traditional lending sources have dried up. Although the media likes to project financial gloom and doom, there is still an abundance of private money available. Established investors are able to tap into that money to expand real estate portfolios for their self and clients.
When selling property to a private investor, the seller benefits from their expertise. Many investors are skilled in foreclosure and short sale transactions. Both require extensive knowledge and developed relationships with various lenders.
Short sales are particularly tricky and require specific documentation. Homeowners who have obtained short sale approval aren’t able to profit from the sale of their home. Instead, they must locate a buyer in exchange for the lender accepting less than is owed on the loan. Working with a short sale specialist can increase a successful outcome ten-fold.
Another benefit of selling houses for cash is there is no need for an estate agent. This alone can save thousands of pounds in commission fees.
Total UK personal debt
March 19, 2010
Total UK personal debt at the end of January 2010 stood at £1,463bn. Total lending in January 2010 rose by £2.0bn; secured lending increased by £1.5bn in the month; consumer credit lending increased by £0.5bn
Total secured lending on dwellings at the end of January 2010 stood at £1,237bn. Total consumer credit lending to individuals at the end of January 2010 was £225bn.
The average household debt in the UK is ~ £8,939 (excluding mortgages). This figure increases to £18,623 if the average is based on the number of households who actually have some form of unsecured loan.
Average household debt in the UK is ~ £58,040 (including mortgages). The average amount owed by every UK adult is ~ £30,306 (including mortgages). This is 129% of average earnings.
Britain’s interest repayments on personal debt were £68.3bn in the last 12months. The average interest paid by each household on their total debt is approximately £2,710 each year.
Average consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to £4,667 per average UK adult at the end of January 2010.
Further rises in house prices are likely to be held back as more properties enter the open market
March 10, 2010
The Royal Institution of Chartered Surveyors (Rics) says new instructions outpaced inquiries from new buyers in February, this being the second month in a row that this had happened.
The rise in house prices during the past year has been attributed by many commentators to a shortage of stock for sale.
Despite the suggestion that the balance between buyers and sellers may be changing, Rics still found more surveyors reporting rising prices than falling prices last month.
The magnitude of the gains going forward is likely to continue to ease, reflecting the fact that new supply coming on to the market is starting to outstrip fresh demand.
Prices
Rics said it was the first time in two years that new sale instructions had outstripped inquiries from would-be buyers in a sustained manner.
The actual level of sales recorded by its members was still hampered last month by the knock-on effect of the cold weather.
As a result, the number of sales per Rics member remained at 1.4 per week.
In the course of 2009 prices rose by 5%, according to the surveys published by two of the major mortgage lenders, the Nationwide and the Halifax.
Both reported a dip in prices in February, which they blamed on the recent very cold weather and on a rush by buyers to push their purchases through before the restoration of the old stamp duty threshold in December.
Rics suggested that this would be just temporary.
The country’s credit card debt is rising!.
March 4, 2010
The latest Bank of England figures showed that in January people owed a total of £61.5bn to credit card companies.
This currently is an increase of £8bn on last year. The current interest rates being charged on overdue balances is 18%! This means that credit card holders are being expected to find over £900m in interest every month.
Experts say that credit was not a problem “when it is used responsibly”. The vast majority of credit card holders behave responsibly and around two-thirds of them pay off their balance in full every month.
On numerous occasions it is the case that credit card companies and store card companies are behaving irresponsibly in the way they are encouraging people to get into debt.
The Government had just finished a consultation on “credit and store card practices” and the response would be published on April 20.
A retired professor of economics, added “Is it not just case of people having to learn, as the Government itself has learned, that if you borrow, you eventually have to repay it.
Blaming the credit card companies, in my judgment, is not always the case. It is people themselves who have be told that ‘I must have it now’ is not a satisfactory way of buying.
