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The UK's largest building society today said it expected house prices to continue to fall next year as it announced it had cut lending by more than two-thirds.

Nationwide Building Society's chief executive Graham Beale said house prices would continue to fall by 1% to 1.5% a month for the rest of the year and there would be further price drops in 2009-10.

Last month, the society said prices were down 14.6% year on year, with the average price of a home now almost £30,000 less than a year ago.

Beale said interest rate cuts, which Nationwide has so far passed on to customers in full, would help the market.

"Rate cuts will help to minimise payment difficulties and alleviate payment shock as borrowers reach the end of their existing deals.

"Reducing prices will improve affordability, which should bring about a recovery in the first-time buyers' market."

Releasing its interim results for the six months to September 30, Nationwide said it had advanced £1bn worth of mortgages, when repayments and redemptions were taken into account.

Read the full article at Guardian online

Labels: credit crunch, House market, Mortgage rates, Nationwide

The Bank of England governor, Mervyn King, yesterday warned the government not to try to artificially support the mortgage market as that could further prolong the year-long credit crunch. He also held out little immediate prospect of interest rate cuts to boost the flagging economy.

Appearing before parliament's cross-party Treasury committee, King said the Bank did not have the resources to underpin lending across the entire financial system and thereby boost mortgage lending.

The Treasury has commissioned Sir James Crosby to report on steps that could be taken to encourage more mortgage lending which could help prevent house prices from tumbling further.

King said there were only two choices for the government - either to let the Bank's special liquidity scheme (SLS) help the financial system gradually return to health, or to fund the mortgage market through a state-run bank.

Article continues at Guardian Online.

Labels: Bank of England, Mervyn King, Mortgage rates, property prices, uk housing

Mortgage rates have fallen back to the level they were before the credit crisis sent the price of home loans soaring last year.

The average interest rate on a two-year fixed-rate mortgage - the most popular deal taken out by home owners - has dropped from a peak of 7.08 per cent at the beginning of July to 6.39 per cent, according to Moneyfacts.co.uk, the financial website.

Two-year rates have not been this low since July 2007, before Northern Rock was forced to borrow £26 billion from the Bank of England and the phrase "credit crunch" entered everyday use.

The figures confirm that while the economy and the housing market continue to slide downwards, the worst seems to be over in the mortgage market.

It follows two months of steady rate-cutting from the UK's leading banks.

Read more at Telegraph Online

Labels: Bank of England, credit crunch, Mortgage lending, Mortgage rates, property prices, uk housing, uk mortgage market

In the past decade, home buyers have paid the government £32bn in stamp duty, with the annual amount rising dramatically as the housing market soared and increasing numbers of properties were caught by the tax.

According to the Halifax, just over a quarter of the privately-owned homes in the UK, more than 5.5m, were valued above £250,000 at the end of last year, the threshold at which stamp duty is levied at 3% of the property's value. In 2002, there were just 1.8m properties valued above £250,000.

A family buying the average-priced home in Greater London, currently £291,500, would pay the Treasury £8,745 in tax.

The government has enjoyed a large increase in revenue from stamp duty since Labour came to power in 1997. That year, the yield from residential properties was just £675m. Increases in the rate of tax combined with the impact of rising house prices meant the Treasury collected £6.4bn from stamp duty on homes last year. However, that figure will fall dramatically this year as the housing market has hit a wall and the number of transactions has plummeted to record lows.

Under the current regime, there are four stamp duty bands. Buyers of homes worth less than £125,000 pay nothing. Between £125,000 and £250,000, buyers pay 1% on the price of the home; between £250,000 and £500,000, buyers pay 3% of the price; and above £500,000, they pay 4%. There were 1m properties in the UK valued at more than £500,000 at the end of last year, a threefold increase in the past five years, according to the Halifax.

Consumer groups, mortgage lenders and house builders have lobbied for the lifting of the current thresholds to keep them in line with rising house prices, and those calls have become louder as the housing market has been paralysed by the credit crunch. First-time buyers are under particular pressure as the banks' lending criteria have become tougher and they are being forced to find much larger deposits.

If the higher stamp duty thresholds of £250,000 and £500,000 had increased in line with house price inflation since July 1997 when they were introduced, they would now stand at £720,000 and £1.44m, the Halifax said.

Read more at Guardian Economics

Labels: Alistair Darling, Bank of England, credit crunch, Gordon Brown, Halifax, House Tax, Mortgage rates, negative equity crisis, property analysis, Stamp duty changes, uk housing

Britain is on course for a re-run of the negative equity crisis of the early 1990s, with one in seven UK homeowners facing the prospect of having a property worth less than their mortgage, the ratings agency Standard & Poor's said today.

The company predicted that house prices would tumble by a further 17% over the next year, prompting a rise from 70,000 to 1.7m households in negative equity - the same as at the depth of the housing-market meltdown of the early 1990s.

Andrew South, a credit analyst at S&P, said: "The downward trend in UK house prices now seems well established, and we expect prices to continue falling in the near term".

House prices have been falling at their fastest rate on record in recent months, but the previous boom in property values means that only a fraction of Britain's home-owners - 0.6% - are currently in negative equity. The average UK mortgage is for 54% of the value of the home.

S&P warned, however, that for every further percentage point fall in house prices, a further 0.5%-1.5% of borrowers (between 60,000 and 180,000) could enter negative equity. Noting that the trough in the cycle would not be reached until 2009, S&P said: "At this point, we expect 1.7 million borrowers - around 14% - would be in negative equity."

The company said borrowers in the buy-to-let and sub-prime sectors were most at risk from negative equity. "A further 17% decline in house prices could put around 24% of noncomforming borrowers into negative equity, compared with only 13% of prime borrowers."

Read the full article at Guardian Property news

Labels: Mortgage rates, negative equity crisis, property prices, S and P, Standard and Poor, sub prime borrowing, uk housing, uk mortgage market

More and more households are hitting trouble with their debts, says Julian Knight, but there are better solutions than IVAs or sale and rent-back.

People feel the bills mounting up and then they are falling behind with their mortgage. Often they do not face up to it until they are being taken to court. Sadly in about one in five cases we advise on, we have to tell people they will lose their home."

These are the words of Frances Walker at debt charity the Consumer Credit Counselling Service (CCCS), which recently launched a helpline for people in mortgage trouble (0800 138 1111) as the rising cost of living drains their resources. Likewise, the National Debtline charity reports a 23 per cent rise over the past year in the number of people coming to it citing mortgage arrears.

Paul Mullins, chief executive at National Debtline, says some lenders, facing the new reality of falling house prices and tighter personal finances, are now giving people in mortgage difficulties a more sympathetic hearing: "Attitudes have changed from a couple of years ago. The lenders know that, in the current market, they won't get much for a property repossessed and then sold at auction."

But Ms Walker says that lenders – particularly in the sub-prime market – are still expecting too much of those in debt difficulty, applying pressure and loading late- payment penalty charges.

Under these circumstances, it's easy to see how the old maxim "desperate times call for desperate measures" might appeal to some borrowers. However, some of the radical solutions available to people in arrears can often backfire. In particular, critics have rounded on providers of individual voluntary arrangements (IVAs) and sale and rent-back schemes.

In recent years, more and more people have taken out an IVA – a type of insolvency where the debtor agrees with his creditors to repay a certain percentage of his borrowings over a set period. Sometimes, up to 75 per cent of the debt can be written off. However, IVAs are highly controversial because the firms that act as go-between often charge hefty fees and impose penalties for missed repayments. Some in the banking and debt charity sectors have also accused IVA providers of in effect mis-selling the products, persuading people to sign up when other options may be better.

All in all, says Mr Mullins, this is not a "magic bullet" solution. "If you can't pay your mortgage, an IVA won't help. Your lender has a secured charge against your property which an IVA can't get you out of. You may be able to reduce your outgoings through an IVA so you can better concentrate on the mortgage, but in reality it is unlikely to work like that."

Even greater problems can arise for those tempted by sale and rent-back. These schemes promise to pay a proportion of a home's value, normally around 70 per cent, so quick cash is obtained to pay off the mortgage company. At the same time, the seller is offered the chance to remain in the property as a tenant for at least 12 months. But Ms Walker says the CCCS does not recommend sale and rent-back to as it is "completely unregulated".

Even those in the industry acknowledge there are big pitfalls. "For starters, sellers are offered around 70 per cent of what is, in effect, the purchaser's own valuation of the property," says Dougie Lister, chief executive of sale and rent-back firm the UK Housing Alliance. "What's to stop the valuation being under the odds. In addition, most only offer a 12-month agreement, at the end of which they can chuck the tenant out." He adds that his firm offers 10- year tenancies and uses independent valuers.

So what can people in arrears do? The truth is that this is a long slog, and Mr Mullins offers the following tips: "First look at your income – are there any benefits or tax credits you're not claiming? If you have a spare room, rent it out. Then draw up an expenditure budget; you can show this to your lender and, as a last resort, you may want to ask it to extend your mortgage term." However, this will mean more interest will have to be paid. An alternative is to ask for a payment holiday. "This is a temporary halt designed to give the borrower some breathing space to sort out their finances," adds Mr Mullins. But it's completely at the lender's discretion whether they grant a holiday or not."

Unfortunately, no matter how proactive borrowers are, they are at the mercy of their lender. "Attitudes vary markedly," says Ms Walker. Some lenders expect arrears to be paid back – as well as the normal monthly repayments kept up – within a year. Others will allow longer."

And some lenders, she adds, are quicker than others to go for the nuclear option. "We hear of cases where people have only been in arrears for a short period and repossession proceedings are started. But as a rule, around three months is when lenders get very serious."

According to Mr Mullins, lenders that do rush for repossession are likely to get short shift, but only if the borrower acts. "Courts want people to stay in their homes and don't look kindly on lenders that want to repossess after a month or two of arrears. The problem is that fewer than half of people who face repossession turn up for the hearing. The courts allow 85 per cent of people who do turn up to remain in their homes."

Read more here.

Labels: CCCS, House market, IVAs, Mortgage lending, Mortgage rates, property prices

The stream of bad news coming out of the housing market has grown into a torrent in recent weeks, with stories of falling house prices, withdrawn mortgage rates and warnings about payment shocks.

This week, even Prime Minister Gordon Brown felt he had to defend the state of the UK's housing market.

Halifax, the country's largest mortgage lender, announced that house prices fell by 2.5 per cent between February and March, which prompted the PM to concede that "there are difficulties in the housing market" but that a 2.5 per cent drop "is containable".

To help you separate fact from fiction, we reveal the truth behind the assumptions that could cost you money in a falling market.

All the best mortgage deals have vanished

Nationwide recently announced it was restricting its best rates to people with more than 20 per cent deposit but it is not true to say that there are no competitive deals available.

"For borrowers with either a large deposit or a good amount of equity in their home there are still competitive deals available," says Denise Harvey, a mortgage analyst with independent financial comparison service Moneyfacts

West Bromwich Building Society is currently offering 4.99 per cent fixed for two years, for loans up to 75 per cent of a property's value, although there is an arrangement fee of £1,999 to contend with. And Abbey is offering a one-year discounted variable rate of 5.24 per cent with a maximum loan to value of 75 per cent and a fee of £499.

And even for borrowers with less equity in their homes there are still some good deals available. For those with a 5 per cent deposit there are competitive deals available. The Cheshire Building Society is offering a three-year fixed rate of 5.49 per cent, with a fee of £899.

One thing that has changed, however, is the speed with which these rates are being withdrawn and to take advantage of the best rates borrowers have to be prepared to move quickly.

"If borrowers are looking to re-mortgage or move they should be in as good a position as possible. When they are in a position to submit an application they should have everything more or less 100 per cent perfect," says Harvey.

Don't buy now

For first-time buyers struggling to get on the housing ladder falling house prices are very welcome. However, unless prices start to fall at a consistently fast rate the decision to wait could be a false economy, warns Melanie Bien, of mortgage broker Savills Private Finance.

She says that unless you are living with parents, the amount that a prospective buyer pays out in rent, particularly in parts of the South-east, can offset any decrease in the purchase price of a house.

Someone paying £800-a-month rent, for example, would pay an extra £4,000 by delaying a purchase for five months.

"While you would have been paying a mortgage if you had bought instead of renting, you will still want to make sure you end up in front once the difference is deducted from the potential fall in property values," adds Bien. "First-time buyers would be better off making their decision based on affordability and finding a suitable property."

Andy Pratt, chief operating officer of mortgage broker Alexander Hall, says prospective buyers should talk to a mortgage broker and work out how their rent compares with the cost of buying. Buyers should also consider that buying a home is a long-term commitment and not a short-term speculation on house prices.

"Unless you believe house prices are going to correct by 20 per cent or more, it is a long-term investment and people should be out there looking. It is a buyers' market and there are some bargains to be picked up," says Pratt.

No deposit – no mortgage

Mortgage lenders have been keen to move out of higher risk areas of lending and, as many first time buyers are now finding, high loan to value mortgages are one of the areas they are avoiding.

First to go were those deals offering more than 100 per cent of a property's value, as a combination of a mortgage and personal loan, and the last two weeks have seen an increasing number of lenders move to withdraw loans offering up to 100 per cent of a property's value.

"In essence, all the 100 per cents have disappeared and there are fewer lenders offering 95 per cent. So there are some mortgages available but their criteria for 90 per cent or higher are far tighter than they were before," says Pratt.

To get around this, he suggests speaking to family to try to raise the deposit. "Be prepared to consider parents and family for deposits or look at finding some other funding, such as savings they have made for a rainy day, and use as much as they can for a deposit," Pratt adds.

Buy-to-let landlords are fleeing the market

Many commentators have predicted a deluge of buy-to-let property coming back on the market as landlords try to exit the market, encouraged by a combination of low rental yield, falling house prices and a change to the capital gains tax (CGT) rules – which means many owners of second homes will pay only 18 per cent instead of 40 per cent CGT on the profits of a sale.

Alexander Hall's Pratt says long term professional landlords are in the market for the long term and are not put off by market jitters. But part-time landlords, with only one or two properties, will be looking at the exit.

"The dynamics have fundamentally changed. A large proportion of those will consider selling and looking at other investments," says Pratt.

However, while the tax changes will encourage some "profit taking", demand for rental property is still high and the majority of landlords are in it for the long haul, adds Bien "Most landlords see property as a viable alternative to a pension, as a way of saving for retirement, so regard it as a long-term investment," she says.

Is there going to be a house price crash?

Prices are certainly coming down. The 2.5 per cent drop reported by the Halifax is the biggest single drop in house prices since the price crash of 1992.

But this is not an exact picture, as prices are still 1 per cent higher than they were last year and there are big regional variations. Prices in Greater London are up by a further 1.6 per cent this month, and in the East Midlands they are up by 2.2 per cent. But this is offset by some big falls, with prices in Wales and the West Midlands down almost 5 per cent.

Martin Ellis, chief economist at Halifax, says that a house price crash is unlikely. The crash of the early 1990s had a different economic profile with rapidly rising inflation and big increases in interest rates and unemployment.

"That's a long way from where we are at the moment," Mr Ellis says. "Yes, we're expecting to see the economy slow over the course of 2008, and that's likely to see some upward movement in unemployment but we don't expect this to be dramatic." His prediction is for "low, single-digit" house price falls this year.

But others estimates are not so optimistic. The International Monetary Fund suggests in a report published this week that the UK housing market will follow the US example, but on a two-year time lag. This would be very bad news for UK homeowners as the US house prices fell by more than 11 per cent in 2007.

For more info visit the original story here.

Labels: Alexander Hall, Halifax, House market, IMF, Mortgage lending, Mortgage rates, Nationwide, property prices, uk housing