Statistics show that Mortgage Lenders have turned down almost 9% of qualifying mortgage applications this year, compared to 2.3% in 2007.

Comparison website Moneysupermarket claimed that all the applications were vetted prior to submission and appeared to match the product criteria, but were subsequently rejected when lenders found further reasons to throw them out.

Louise Cuming, head of mortgages at moneysupermarket.com, said: “Lending criteria has become too strict – even vetted applications that we would expect to be accepted without a hitch are being rejected.

“Credit histories play an important part in the process and any blemishes will make finding a mortgage increasingly difficult. All debt repayments – credit cards, loans, store cards etc – must be made on time.

“Details of all missed repayments are held on your personal files for six years and may count against you when your credit rating is accessed.

“Assessing affordability is key for lenders and everyone has to be much more realistic about what they can borrow. The most anyone can reasonably hope for is four times their salary – anything over this is more likely to be rejected.

“And you can’t expect lenders to take overtime or commission into consideration when they assess affordability, they are likely to base the maximum lending purely on your basic salary.”

A number of lenders offer mortgages at a maximum of 90% loan to value (only requiring a 10% deposit), but unless applicants have a perfect credit history they are apparently being rejected for the slightest misdemeanours.

Recent research conducted by The Council of Mortgage Lenders (CML) reported that at the depth of the last housing market recession in 1993, 1.5 million households or more were estimated to have negative equity. Most sat tight, saved, continued to pay their mortgages and eventually recovered their equity position. And, according to the Council of Mortgage Lenders, this is what most of today’s borrowers with reduced or negative equity are also doing.

A new research article by James Tatch, senior statistician at the Council of Mortgage Lenders, suggests that about 900,000 home-owners currently have some degree of negative equity, although the majority of these - around two thirds - face only modest shortfalls of less than 10% (equating to around £6,000 for those first-time buyers with negative equity, and £8,000 for other home-buyers).

One myth that tends to persist is that there is a strong causal link between negative equity and mortgage repayment problems. There is not. Payment problems are typically associated with unexpected spending commitments, reduced income and changes in household circumstances. Negative equity, on the other hand, only surfaces as a problem if households need to move, or are also experiencing repayment difficulties.

While reduced and negative equity are likely to constrain the ability of affected households to move house, the overall scale and impact of this for the market as a whole needs to be kept in perspective - even in today’s weaker market, the CML estimates that home-owners still have around £2.1 trillion of unmortgaged housing equity.

Bob Pannell, CML head of research, commented:

“Although negative equity has resurfaced as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder.

“Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected. Where people needs to move house for job or other priority reasons, lenders can often be flexible to existing borrowers with low or negative equity, as long as their financial position is sound and they have a good payment track record. Otherwise, sitting tight and building up savings or overpaying on the mortgage are the strategies most borrowers are likely to adopt. It should be easier for households to rebuild their equity position than in the early 1990s, as low interest rates on their mortgage can help them to save or overpay more quickly.”

BBC News reports that the number of mortgages handed out by lenders rose slightly in February but activity in the market remains weak, according to a lenders’ group.

Loans for house purchases in February in the UK rose to 24,300, up by 4% compared with January, the Council of Mortgage Lenders (CML) said.

But the group warned that activity in the market remained at a “very low level historically”.  And first-time buyers had to find a record typical deposit of 25%.

“We are not convinced that underlying trends have shifted sufficiently to change our forecasts for mortgage market activity in 2009, but there are some positive signs for later in the year,” said CML director general Michael Coogan.

“Some large banks are making more funding available through enhanced lending commitments, which is helpful but will not satisfy consumer borrowing demand on its own.”

Remortgaging down

The number of home loans completed for all house buyers rose slightly month-on-month, but the total value of these homes remained unchanged at £3.1bn.

While the figures, which echoed earlier data on mortgage approvals, suggested some lift for the housing market, it remains in stark contrast with recent years.

The number of mortgages completed was running at about one-third of the average February total of 76,000 loans for house purchase between 2002 and 2007.

The CML also reported a 20% decline in the number of remortgaging deals, down from 44,000 in January to 35,000 in February.

Lenders’ standard variable rate (SVR) deals are tending to be more attractive than new fixed-rate deals for owners, with interest rates having plunged in recent months.

Falling house prices also mean householders have less equity, excluding these people from the best deals, which require a large deposit.

But with the Bank rate unlikely or unable to fall further, new home loan demand is shifting back to fixed-rate deals, rather than mortgages which track the Bank rate.

In February, 56% of new loans were at a fixed rate, up from 49% in January, while 31% were tracker products, down from 38% in January.

First-time buyers

The situation remained tough for first-time buyers. They typically had to find a deposit of 25% - a record amount - and so only 9,400 home loans were completed.

KEY STATISTICS
25%: Typical first-time buyers’ deposit
4%: Rise in mortgages completed in February compared with January
47%: Fall in completed mortgages for house purchases compared with a year earlier
Source: CML

“Such amounts remain out of reach for all but the most affluent buyers, for example people returning to home ownership after a period of renting, divorcees, or those who get financial assistance from their family,” said Mr Coogan.

This total of completed loans to first-time buyers was up 7% compared with January, but 46% lower than the same month a year earlier.

These figures are not seasonally adjusted. A pick-up in mortgages would be expected after a lull at the start of the year. The completion figures tend to lag behind other mortgage data.

Previously, the CML reported that gross mortgage lending in February was at its lowest level for any month since February 2001.

The CML said its members’ ability to lend was drying up, because too many savers were choosing to put their money in National Savings policies.

National Savings & Investments (NS&I) has raised much more than its original forecast as savers searched for a completely safe home for their money.

Commenting on the issue, the director of the Association of Mortgage Intermediaries, Robert Sinclair, said that the government must reinvent mortgage indemnity guarantees emphasising on consumer benefit.

He claimed this would allow lenders to increase their capacity to offer loans and would therefore extend the availability of mortgages to people such as first-time buyers.

In April’s Budget, he said it is crucial that the government considers both supply and demand side in order to re-boot the mortgage market.”

This month, Steve Turner, the head of communications at the Home Builders Federation, said that the banks should be more confident to lend money to consumers in the form of mortgages.

Doing this would make it easier for people to get home loans and would improve the state of the UK’s property market dramatically.

Mortgage rates will be cut after the Bank of England reduced the base rate to 0.5 per cent.
Cheltenham & Gloucester and Lloyds TSB announced that its standard variable rate (SVR) will receive the full 0.5 per cent cut.
This will drop it down to 2.5 per cent.
Stephen Noakes, commercial director for Cheltenham & Gloucester, said that the market has bottomed out for fixed rates, “give or take a little movement”, and advised lenders to try to get into a fixed-rate deal. “Even those who may currently be sat on a record low SVR should weigh up the immediate bonus it offers versus the longer term savings a five or ten year fix will secure,” he said.
Abbey mortgages are also having rate cuts, with the SVR being decreased by 0.45 per cent and existing variable rate deals cut by 0.5 per cent.
As with Lloyds and Cheltenham & Gloucester, the reductions will be made from the beginning of April.

There is no chance of the government including a stamp duty holiday for all in the next Budget, an expert has stated.

Peter Cosmetatos, director of finance and investments at the British Property Federation (BPF), said that the organisation is not campaigning for such a move.

“I don’t think there is the slightest prospect that the government would do it, so it would be a waste of time to ask for it,” he said.

While stamp duty brings in only half of what was expected, he continued, it still amounts to “hundreds of millions a month” and he pointed out that the “government’s coffers are pretty bare”.

Last September, the government announced a temporary suspension of stamp duty on properties worth up to £175,000.

The Land Registry has said that 32,985 transactions have been affected by this.

According to HM Revenue and Customs, stamp duty is now one per cent for properties bought for anything between £175,000 and £250,000.

Mortgage interest payments are consuming less of borrowers’ incomes as those able to get a mortgage are stretching themselves less financially and beginning to benefit from reductions in bank rate, according to the Council of Mortgage Lenders (CML).

Interest payments typically consumed 18.2% of a first-time buyer’s income in November, the lowest proportion since February 2007. Home movers in November typically spent 14.4% of their income on interest payments, the lowest proportion since April 2006.Lenders have cautiously tightened their lending criteria as a result of the shortage of funding and falling house prices. The improvement in affordability is largely due to the fact that borrowers who are able to obtain credit are lower risk and less stretched.There were 12,400 loans to first-time buyers worth £1.4bn in November, compared with 15,400 loans worth £1.8bn in October. The average first-time buyer put down a deposit of 18%, the largest it has been in 35 years of available data.There were 20,600 loans to home movers worth £3bn, compared with 24,600 loans worth £3.7bn in October. The average home mover deposit was 32%, the largest since November 2004.There were 33,000 house purchase loans worth £4.5bn in November, the lowest level of activity since the CML began collating monthly data in 2002. Gross lending declined 24% from October to £14.2bn, and down 53% from November 2007.Remortgaging declined by 25% from October to 52,000 loans worth £7bn. The CML expects remortgaging to continue to fall in coming months as reversion rates are attractive relative to many new products on the market and borrowers with low levels of equity will have fewer remortgaging options.CML director general Michael Coogan said: “Limited mortgage funding and reduced consumer demand will weaken lending activity further in coming months. The flow of funds to the mortgage market will not improve this year without further intervention by the Government.“Lenders are currently juggling attempts to help existing borrowers and savers, and maintain new lending and deposits. And the Government too is facing the difficult decision of how to share out limited resources to help small businesses as well as the mortgage market’s existing borrowers in difficulty and prospective borrowers shut out of the market.“Affordability is improving for those who are able to access a mortgage, but saving for a deposit will still be a constraint for many would be first-time buyers. Borrowers who are benefiting from lower mortgage rates should over-pay if they can afford it to reduce their mortgage balance and protect themselves against falling house prices. And now is also a good opportunity for borrowers on interest only mortgages to switch to repayment mortgages to use this period of low interest rates to start to pay down their loans.”

UK mortgage approvals fell to a fresh record low in November and banks reduced loans to households and businesses in the final three months of 2008 as a deteriorating economic outlook and falling house prices deterred lending, according to data from the Bank of England released yesterday.

Mortgage approvals fell to 27,000 from 31,000 in October, the Bank said. That was below expectations of 32,000 approvals and the lowest figure since the report began in 1999.

The Bank’s quarterly credit conditions survey, also published yesterday, showed that secured lending to households - largely in the form of mortgages - tightened again between October and mid-December and by more than had been expected in the previous survey.

The data came as Halifax, Britain’s biggest mortgage lender, reported that house prices were 16.2 per cent lower in the final three months of last year compared with the same period in 2007. That is the fastest pace of decline since Halifax began keeping records in 1983 and faster than during the recession and housing bust of the early 1990s.

Halifax reported that house prices tumbled by a further 2.2 per cent in December, after falls of 2.6 per cent in November and 2.4 per cent in October. Economists had forecast a 1.7 per cent drop in December and for prices to be 16.6 per cent lower over the past quarter compared with the year before.

The Bank said secured lending was expected to fall again in the next three months, and that unsecured lending - such as credit card debt - as well as lending to businesses had also been cut in the final quarter of last year.

Demand for mortgages and remortgage loans remained broadly stable over the period, while demand from businesses for loans for capital investment, mergers and acquisitions activity, and from the real estate sector fell.

“The further significant tightening of credit conditions for both households and corporates in the fourth quarter of 2008, and the expected continuation of these trends in the first quarter of 2009, bodes ill for business activity, investment, employment, consumer spending and housing market activity,” said Howard Archer, economist at Global Insight.

“Indeed, Bank of England governor Mervyn King has stressed that ongoing very tight credit conditions pose perhaps the most serious risk to the deeply struggling UK economy.”

The continuing weak economic data increase the likelihood of further rate cuts by the Bank next week.

Reported by:  Daniel Pimlott in Londo - Financial Times

UK house prices plummeted by 16.2pc in 2008 in the biggest drop for a calendar year on record, according to the country’s largest mortgage lender.

The average value of a home dropped by 2.2 per cent in December, according to the latest survey from Halifax. It’s the biggest year-on-year fall since the Halifax began recording its data in 1983. The lender said the typical price of a home now stands at £159,799, back to August 2004 levels and that it fails to see much in the way of respite for the once-booming market in 2009 as the economy tumbles into recession.

Martin Ellis, chief economist at Halifax, said: “Continuing pressures on incomes and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to exert further downward pressure on the market over the coming months.  “But a number of factors will help to support demand and should help to limit the downturn. Improving housing affordability and an easing in the pressure on the majority of households’ finances should support market activity and prices. The house price to earnings ratio - a key affordability measure - is at its lowest for five and a half years.”

The annual drop was sharper than during the recession of the early 1990s, according to Howard Archer, chief UK and European economist at Global Insight. He expects house prices to fall by a further 15pc in 2009, on the Halifax measure.  “It is still very difficult for many people to get a mortgage or find the required larger deposit,” Mr Archer said. “Even if government measures to get banks to step up their lending increasingly take effect, it will clearly take time for confidence to improve and mortgage lending to pick up significantly.

Andrew Montlake, of mortgage brokers Cobalt Capital, said: “It may be 2009 but the ghosts of 2008 will continue to haunt us, and for some time yet. The November mortgage lending figures from the Bank are just another grim reminder of the death, last year, of easy money and consumer confidence, and there will be many more in the months ahead.”

Halifax is part of HBOS, one of the UK banks forced to sell a large stake to the government in exchange for capital to shore up its balance sheet.

Separate figures showed mortgage approvals dropped to a record low in November, data from the Bank of England showed today.

By Myra Butterworth and Amy Wilson – Telegraph.co.uk

The number of people seeking to buy a home surged to a two-year high last month as bargain-seekers searched for repossessed and forced-sale properties at bargain-basement prices, new figures suggest.

However, the increased level of interest from potential buyers was not enough to perk up the dire situation in the housing market, with the number of sales slumping to a new 30-year low between September and November.

Estate agency branches sold an average of 10.6 houses each in England and Wales in the three months to November 30 - less than one house a week. That figure was down from 10.9 houses in the three months to October 31, a survey from the Royal Institution of Chartered Surveyors (RICS) showed. That is the lowest figure recorded since RICS began its survey in 1978.

As sales of houses fell, the prices that they achieved also continued to decline during the month, although the proportion of agents reporting price falls eased slightly. About 76.5per cent more surveyors reported that prices fell rather than rose in November, compared with 81 per cent in October.

In a symptom of the worsening outlook for house prices, which have already fallen by 18 per cent since the market peaked in summer last year, the Council of Mortgage Lenders said yesterday that it would not produce its annual forecast for house prices. The CML, which represents 98 per cent of residential mortgage lenders, said that prices would fall again next year but that the low level of transactions made it difficult to forecast how far.

Some experts said the decision could have been taken in an attempt not to talk down the market. Some economists have forecast that house prices could fall a further 15 per cent next year. One glimmer of hope in the grim RICS figures was the rise in the number of inquiries from new buyers, with more surveyors reporting that inquiries rose, rather than fell, for the first time since October 2006.

Inquiries rose sharply in the South West and the West Midlands but buyers in London and the East Midlands were still scarce, surveyors said.

There are hopes that Government plans to allow borrowers who fall into difficulties a two-year holiday on paying interest on a portion of their mortgage could reduce the number of distressed sellers, slowing the pace of house price falls. But Simon Rubinsohn, an RICS economist, said that could serve to depress the number of transactions further. House prices have been dragged down by the drought in the mortgage market, with lenders demanding large deposits.

There was a further blow to potential buyers as Lloyds TSB, which has received billions in taxpayers’ money, raised the rates on its tracker-rate mortgage deals by up to 0.4 percentage points, despite last week’s 1 percentage point cut in interest rates.

HSBC pledged to increase mortgage lending next year to £15 billion, 20 per cent above this year’s level.

But the misery for homesellers was compounded as the Government announced that its controversial Home Information Packs (HIPs) will be mandatory as soon as homeowners put their house on the market from April next year.

At present, sellers can market their home for 28 days without a HIP, which provides buyers with property information and costs about £300 to produce, if they have ordered one.

Northern Rock is the latest government-supported lender to cut its variable mortgage rate by less than one percentage point. Yesterday it announced a half-point cut in its standard variable rate to 5.34 per cent.

As reported in Times Online - Gráinne Gilmore and Rebecca O’Connor