The UK government will today change the terms of its support for mortgage interest scheme for mortgage holders who have suffered job losses over the course of the recent economic downturn. The scheme will see the average mortgage interest payment reduced from 6.08% to just 3.63% for some 220,000 people who have registered for the scheme, with the government expecting the banking industry to take up the slack.
Slowly but surely a number of changes to the UK mortgage arena are becoming clearer with the expectation that interest only mortgages could well become a thing of the past. The Financial Services Authority (FSA) is adamant that any risk in the UK mortgage arena needs to be reduced in the short, medium and longer term to ensure we do not see a repeat of the credit crunch. However, many believe that the FSA has effectively thrown the baby out with the bathwater and overdone new regulations.
A report by the Bank of England has today confirmed that UK banks tightened the criteria in relation to mortgage approvals over the last six months which has resulted in a significant reduction in the number of arrangements completed. While this in itself is a very disappointing development for the UK mortgage arena and the UK property sector, there may still be more bad news to come!
There has been growing concern regarding the profit margin available to UK banks and other mortgage providers in the UK, something which was highlighted by the Bank of England earlier this week. Despite the fact that UK base rates have remained at 0.5% for 18 months now it is not altogether clear whether previous mortgage profit margins have been stretched or at best maintained.
UK mortgage lending for August was down 22.3% against the corresponding period last year with just under 32,000 approvals. In total £11.4 million was injected into the UK housing arena although this was well down on the £13.3 billion just a month earlier. So what does this mean for the future of the UK mortgage market and the UK property market?
None other than the head of the Council of Mortgage Lenders (CML) in the UK has been in the press this morning attacking plans by the Bank of England and regulators to introduce restrictive guidelines for future mortgage arrangements. These tough guidelines are in effect new instructions from the regulator to the mortgage industry and will mean that more and more people will be unlikely to gain any mortgage funding for years to come.
As we covered yesterday, the Royal Bank of Scotland is looking to raise around £4.7 billion in the mortgage-backed securities market by issuing bonds which are effectively backed by the company's mortgage book. While only a few years ago a £4.7 billion securitization issue would not even have hit the headlines, this is by far and away the largest proposal regarding mortgage backed securities for some time. So are mortgage-backed securities back on the menu?
The Bank of China has this week made a play for the UK mortgage market by increasing its loan-to-value ratio from 75% to 80% on residential mortgages. The rate on buy to let mortgages has been increased from 65% to 75% and for commercial mortgages from 65% to 70%. While the Bank of China may not be the most recognised name in the UK mortgage market it does offer a number of mortgage instruments with rates ranging from 2.8% on the residential side to 3.88% from the buy to let division and 4% on commercial mortgages.
A report out this week has confirmed that mortgages taken out by first-time buyers in the UK fell by 2% in July compared to the previous month. While a total of 19,400 mortgages were still arranged in July there was a surprise increase in the level of deposit required which now stands at 24% after falling to 21% in the spring period. So are UK mortgage lenders starting to tighten their belts again?
Even though the vast majority of experts have taken for granted the fact that UK base rates will remain at 0.5% throughout 2010 and into 2011, at some point we will see UK base rates rise. Many experts are now encouraging mortgage holders, and potential property buyers, to consider whether they need to fix their mortgage rates at current levels or leave themselves open to the markets by remaining on variable mortgage agreements.
