Posted on April 12th, 2013 | Categories - News
No house price surveys to report this week, instead we focus on news that mortgage arrangement fees are on the rise, whilst a lack of savings is leaving millions of mortgage borrowers hugely exposed if they lose their job.
We also bring you research which goes someway to dispel the myth that first time buyers rely on the bank of mum and dad for their mortgage deposit.
Mortgage fees on the rise
Despite interest rates on the most competitive mortgage products falling over the past few months, mortgage arrangement fees have continued to rise.
Mortgage interest rates have been falling since the government introduced the Funding for Lending Scheme last summer. However, in an attempt to maintain their profit margins, mortgage lenders have increased arrangement fees.
According to Moneyfacts the average mortgage arrangement fee now stands at £1,522, the highest level for 25 years.
The average mortgage arrangement fee has risen by 8% since January. However, borrowers with the smallest deposits, typically first time buyers, have been hardest hit, with an average increase of a whopping £500 since January alone.
In the face of rising fees, especially for mortgage products with the lowest headline rates, experts have warned borrowers to avoid being seduced by low rates and factor in all costs. Indeed experts suggest that the best mortgage product for most borrowers, with the lowest overall cost, is unlikely to have the lowest headline rate.
Fewer customers for bank of mum and dad?
Since the credit crunch, the bank of mum and dad has been a popular stopping off point for many first time buyers hoping to get on the housing ladder.
However, new research shows that younger people actually borrow less from friends and family than older generations.
The research from StepChange, showed that of those people who had sought help from the debt charity, under 25’s owed an average of £1,761 to friends and family, much lower than the £3,458 owed by people age between 25 and 39; over 40’s owed even more.
The charity also found that the amount under 25’s owed to friends and family was actually decreasing.
Experts point out that as it has become harder to get a mortgage, many first time buyers will now fall into the 25 – 39 age category.
Delroy Corinaldi, of StepChange, said: “While large numbers of young adults rely on their parents to provide the funds for a deposit on their first home, they are a lot more financially self-reliant than the idea of a ‘bank of mum and dad’ suggests.”
Corinaldi continued: “If anything these figures show that young people are not as willing to rely on their parents financially as previously thought and are only seeking help from the ‘bank of mum and dad’ as a last resort when trying to buy their first home.”
Millions of borrowers and tenants left exposed by a lack of savings
Another charity has produced shocking research, which shows just how exposed millions of homeowners and renters are if they lose their job.
The research carried out by YouGov, for the housing charity Shelter, showed 35% of the 2,000 workers surveyed have insufficient savings to meet even a single mortgage or rental payment if they lost their job. This means over eight million people would be left exposed if they were suddenly to be made redundant and couldn’t immediately find another job.
Even worse, 18% of those surveyed said that if they lost their job this month, they wouldn’t be able to pay their rent or mortgage at all.
Families are even more exposed; of those people questioned who had children, 43% said they didn’t have enough savings to pay their rent or mortgage for more than a month, whereas 23% had no savings at all to use towards the cost of housing.
The results of the survey show how exposed many renters and homeowners are if they were to lose their job. Most financial advisers recommend that people hold a least three month’s pay in a suitable savings account, which can be used in an emergency, such as being made redundant. However, the tough economic climate, rising living costs and stagnant wage inflation has made this impossible for many.
Campbell Robb, Chief Executive of Shelter, said: “These figures paint an alarming picture of a nation where the buffer between having a home and potentially becoming homeless is a single pay cheque.”
“The depth of the financial pressure and insecurity felt by people across the country means that millions are living on the edge of a crisis, only secure in their homes for a matter of weeks.”
Robb concluded: “More and more people are coming to Shelter desperate for advice on how they can stay in their homes, and our services are straining to meet the demand. Anyone who can’t meet the payments on their home should seek advice as a matter of urgency.”
Attempted mortgage fraud on the rise
The number of fraudulent mortgage applications rose by 9% in 2012, compared to 2011, according to the credit rating firm Experian.
Experian say that the majority of fraudulent mortgage applications were from applicants exaggerating their income, or other aspects of their personal finances. Indeed almost 90% were from people making false claims over their personal circumstances.
Perhaps due to the tighter mortgage lending criteria seen since the credit crunch, the number of fraudulent mortgage applications has actually risen from just 18 per 10,000 in 2007 to 38 for every 10,000 applications in 2012.
Regulator warns that interest-only crackdown has gone too far
Despite the Financial Services Authority (FSA) previously warning lenders over the number of interest-only mortgages they granted, the replacement regulator appears concerned that things may have gone too far.
Since the FSA warned over the dangers of an interest-only ‘time bomb’, many mortgage lenders have stopped offering this type of loan, where the monthly payments made by the borrower are just interest and separate provision needs to be made to repay the debt at the end of the loan.
A raft of mortgage lenders, including many high street names, such as HSBC, Natwest, Yorkshire Building Society, Coventry Building Society and Co-Operative Bank, have either stopped offering interest-only mortgages or restricted them to a handful of borrowers.
Since the peak of the housing boom, when interest-only mortgages were hugely popular, fewer and fewer mortgages have been arranged on this basis. However, the Financial Conduct Authority (FCA), which has replaced the FSA, appears concerned that the number of lenders withdrawing from the interest-only mortgage market may cause harm to consumers.
Although interest-only mortgages have fallen in popularity for residential loans, with less than 10% now arranged in this basis, they are still widespread in the buy to let market and remain readily available.
Martin Wheatley, Head of the FCA, said: “There are two sides to the risk equation – consumer detriment arising from the wrong products ending up in the wrong hands, and the detriment to society of people not being able to get access to the right products.”
Our mortgage adviser, Linda Wood, is here to help you. If you would like advice on your options or you are affected by any of the stories in this week’s housing round up please call Linda today on 0115 933 8433, alternatively enquire online or email firstname.lastname@example.org
Your home may be repossessed if you do not keep up repayments on your mortgage.
For providing mortgage advice we will charge an application fee of £300 and we may also be paid a fee from the lender, any fee paid by the lender will be disclosed to you. Alternatively we will charge an arrangement fee of 0.5% of the loan and refund to you any payment received by us from the lender.