What's The Similarity Between Mortgage Providers and Ratings Agencies?

The Telegraph reports that Ray Boulger of mortgage broker John Charcol thinks that house price indices, provided by mortgage providers, are a farce.

"The way providers of house price indices seasonally adjust their figures is a farce (or, seasonally adjusted, a comedy).

In many months the seasonal adjustment skews the real figures so much the result is that the comment generated is often misleading."

The issue runs much deeper than seasonal adjustments.

Mortgage providers' statistics are to the housing market, what ratings agencies' ratings are to sovereign debt. Both parties use their "ratings/stats" to manipulate the market to make money out of it.

Of course the statistics are unreliable!

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House Price Rise

Halifax, a company with an interest in a buoyant property market, has stated that the annual rise in house prices to January in the UK has almost touched 10% (9.9% in fact).

The low supply of properties, coupled with demand from those with sufficient deposits, has brought about this rise. The question then arises as to whether the recovery is sustainable.

Answer?

No.

As more people are tempted to sell their properties, on the upswing of a rising property market prices, will fall as there are simply not enough people around with sufficient funds to buy them.

The property market during 2010 will in fact be flat, and the 10% rise be seen as a dead cat bounce.

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House Prices Rose in 2009

The Halifax claim that the average values for houses in the UK rose by £10K in 2009, to £169,042.

Halifax predict that house prices will be flat this year.

However, the economy and its "recovery" rests on very shaky economic and political ground. Quite what will actually happen to the economy during 2010 is beyond anyone's predictive capabilities.

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Bargain Basement

Lloyds Banking Group has sold the Halifax estate agency business for £1 to LSL Property Services. The 460 staff who currently work there are expected to be made redundant.

The government, or rather the taxpayer, owns 43% of Lloyds; and it is for this very reason that Lloyds has offloaded this lossmaking business.

Were the group to keep it on its books, it would be forced to participate in the Government's Asset Protection Scheme (APS) which would cost Lloyds £15.6BN and an increase in public ownership to 63%, in exchange for the government underwriting £260BN of assets.

It is not clear as to whether it will be Lloyds or LSL that picks up the bill for the redundancy costs.

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House Prices Rise

The Halifax report that there was a 1.6% increase in house prices for September, this being the third consecutive month in which prices rose.

However, before champagne corks are popped, it should be noted that prices are still down by 7.4% year-on-year.

It is likely that the value of property will be subject to some unnerving bounces over the coming months. Anyone hoping for return to the unfettered rises of the boom years will be sorely disappointed.

As I have noted before, houses are for living in; those who try to use them as an investment vehicle, to fund their lifestyles/retirement, may be sorely disappointed.

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Lloyds May Give Up Halifax

The European Commission, in the guise of Neelie Kroes (the Competition Commissioner), has warned that Lloyds Banking Group may have to split off Halifax as punishment for the state aid that it received in 2008.

Gordon Brown waived competition rules in September 2008 in order to allow Lloyds to take over HBOS in a rescue deal. Although this will be deemed yet another personal blow to this deal that he orchestrated (ie he twisted arms to save his political skin), splitting off Halifax will increase competition within the banking sector.

Doubtless Sir Victor Blank, ex Chairman of Lloyds, who was conned by Brown into merging with HSBC and also paid a price as he was forced to stand down as chairman, will not be shedding any tears for Brown's hurt "pride" if the EU get their way.

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The Banking Rip Off

As I have noted before, the financial services industry in the UK has an unfailing knack for digging itself deeper into its own shit.

Not content with foisting endowment mortgages, PPI, excess credit card rates, bank charges and other insults on its hapless customers it now seeks to milk them further by "imaginative" and outrageous profiteering charges on mortgage arrears.

Many thousands of homebuyers, many of whom are unemployed, face profiteering penalty charges on top of their regular monthly mortgage repayments.

The Council of Mortgage Lenders (CML) report that the number of mortgages in arrears by three months or more has reached 270,400 (compared with 152,700 at the end of the second quarter of 2008).

Moneysupermarket.com report that Lloyds Group is charging £206 for repayments three months or more in arrears.

GMAC and Abbey charge penalties of £50 and £40, respectively, when the borrower is only one month in arrears.

Halifax charges £35 for every call/letter wrt mortgage arrears, and then has the barefaced cheek to charge £100 for debt advice.

The FSA has a Code of Conduct that requires that lenders treat customers fairly sympathetically.

Evidently the banks haven't read that code, or simply do not care about it.

The Treasury Select Committee is not impressed with either the banks, or the hapless and hopeless FSA. It has attacked the FSA for sitting on its hands.

Britain's financial services industry is rotten to its core.

Until the FSA is expunged from history, and replaced with a more pro active assertive regulatory body, the hapless British consumer can only expect more of the same and continue to be ripped off.

Those who currently are enjoying the fruits of their profiteering should bear in mind the wise adage:

"What goes around, comes around".

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Dirty Tricks

Further to my article yesterday about Britain's much maligned "rip off" financial services industry gouging its own self inflicted wounds wrt reputational damage, the Times reports today that Halifax has been accused of undervaluing customers' properties when they come to remortgage, forcing them on to more expensive deals.

"Brokers say borrowers may see as much as 40% wiped off the value of their homes, although prices have fallen by an average 21% from their August 2007 peak, according to Halifax’s own house-price index.

The down-valuations mean borrowers no longer qualify for the lender’s best deals. Halifax charges 5.29% for its five-year fix if you have equity of 5% or less, compared with only 3.99% at 25%, a difference of £2,600 a year on a £200,000 interest-only loan."

Quite how much damage to their own reputations that those working in Britain's much maligned "rip off" financial services industry are prepared to self inflict is not yet clear. However, what is clear is that Britain's financial services industry will self implode in the coming years if they don't sort themselves out wrt customer care, honesty and ethics.

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Banks Refuse To Pass on Rate Cut

Unsurprisingly many banks have refused to pass on yesterday's interest rate cut of 1%. The Times reports:

"Hundreds of thousands of borrowers will be denied the full benefit of yesterday’s cut in interest rates because many banks are refusing to pass on the whole one-point cut to all mortgage customers.

Britain's biggest mortgage bank, which received billions of pounds in taxpayers' money, failed to respond in full to the latest move by the Bank of England. Halifax cut its standard variable rate (SVR) by only 0.25 percentage points, while Nationwide will trim its rate by 0.69 points.

A borrower with a £150,000 loan paying Halifax’s SVR will see payments drop by only £25 a month.

Only Lloyds TSB, HSBC and Woolwich said that they would cut their SVR by one percentage point. However, HSBC and Woolwich failed to pass on last month’s 1.5 percentage point cut."

It seems that the banks have not yet learned that the rules of the game have changed. In the "good old" days they could more or less do as they pleased to their debtors/customers, safe in the knowledge that very few people "that mattered" would kick up a fuss.

However, two fundamental changes have occurred:

1 The banks, as a result of their greed, stupidity and ignorance, have jeopardised the financial system of the the Western world by unleashing a lending frenzy and by gambling trillions on complex financial instruments that they didn't understand. In the event that these deals unravel completely, as they may well do, the losses incurred will exceed the annual GDP of many middle to high ranking economies.

2 The UK government now owns shares in some of the major banks. It has been reluctant, thus far, to call the shots; but as time goes on it will become increasingly interventionist.

Like it or not, no matter how hard the banks may squeal that they are barely able to make a living in the current economic environment and that they must take account of the higher risks, the issue is not simply a matter of capital base and margin differentials between base rates and LIBOR.

The higher risks that the banks complain of are due to the fact that they all but ignored risk in the past, and went on a lending and gambling binge. All very well, but it is not right that the debtors/customers are made to pay for the greed and short termism of the banks.

The issue now is one of politics, culpability and people's livelihoods/homes. The fact that the banks have yet to grasp that point indicates that they are still in denial.

My advice to the banks is wake up now, the rules of the game have changed, or you will soon be on the receiving end of a very nasty wake up call.

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Halifax Collar Unenforceable

The Times reports that the 3% mortgage "collar" imposed by Halifax on over 500,000 of their tracker mortgage customers, which allows Halifax to evade passing on rate cuts below 3%, may in fact be unenforceable.

Jon Pain, the FSA's retail market manager, said that collars should be included in a lender's key facts illustration (KFI). Halifax, rather oddly, removed the details of its collar from its key facts in 2005.

Mr Pain told the Council of Mortgage Lenders (CML):

"If it is not [included] you run the real risk of both breaching our disclosure requirements and having an unfair contract term you cannot enforce."

The question is will the FSA follow their warning through, if Halifax and others ignore it?

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Halifax Profiteers Out Crisis

Halifax decided to ignore government pleas to pass on rate cuts, and instead chose to double the margins on some of its most popular mortgages last night.

Halifax reintroduced two year tracker deals for borrowers with a 25% deposit at a rate of 5.14% (2.14% above base, Halifax's best tracker a month ago was 1.04% above base).

Halifax's five year tracker for borrowers with a 25% now has a rate of 5.39% (2.39%, a month ago Halifax was offering five year trackers at 1.25% above base).

Shades of profiteering?

Halifax, needless to say, blame Libor.

Oddly enough Libor is at it lowest point in four years.

Maybe someone should tell Halifax that?

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Decision Day

In less than an hour the Bank of England Monetary Policy Committee will announce their decision about interest rates.

Most pundits expect them to remain unchanged. However, the decision comes against the backdrop of Darling's suicidal warning about the state of the economy over the weekend, the announcement by the OECD that we are facing recession, Brown's ineffectual economic revival package and figures released by the Halifax that show that house prices fell by 12.7% in the year to August.

Given the above, one wonders quite how bad things must become before the MPC is prompted to cutting rates.

If and when they do, it might be the time to really panic!

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A Small Ray of Hope

The beleaguered property market and those attempting to buy/remortgage were offered a small ray of hope yesterday as First Direct, part of HSBC, resumed selling mortgages to new customers six weeks after it suspended sales on 1 April.

The suspension arose because of the deluge of new applicants that it had received.

Chris Pilling, First Direct's chief executive, told the BBC that they had processed a year's worth of applications in just three months.

"Last month we took the bold decision to withdraw from mortgage sales to non-customers to allow us to process the huge number of enquiries we had received.

We've now assessed all the loan applications outstanding from 1 April and earlier and let everyone know the outcome."

In another glimmer of hope, the Halifax will reduce interest rates by 0.15% on some offers for existing borrowers seeking to remortgage as from Wednesday.

Not much maybe, but for hard pressed borrowers at least it is in the right direction.

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HBOS Give Brown The Two Fingered Salute

Following on form yesterday's breakfast meeting between Gordon Brown and senior bankers, a follow up to Darling's public pleadings for banks to reduce the costs of borrowings, HBOS will give its response tomorrow.

It is reported that Halifax Bank of Scotland (HBOS) will increase its two-year fixed and tracker mortgages by as much as 0.5% from tomorrow.

It seems that Brown and Darling are being ignored.

As I said yesterday Brown and Darling are "nothing more than hopeless and helpless observers wringing their hands as the British economy and banking system collapses around them."

The Bank of England and the government need to appreciate that, no matter what thier concerns over "moral hazard" are, issues of governance can be dealt with later. Their prime mission must be to prevent the economy from collapsing.

If your neighbour's house is on fire, even if he started it himself, you do not sit idly by watching and waiting for your house to burn down as well; you help him put it out.

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House Prices Fall

The Halifax reports today that house prices fell by 2.5% in March, the largest monthly fall for 15 years.

It is expected that when the Bank of England MPC meets on Thursday it will announce a cut in interest rates of at least 0.25%.

All well and good.

However, given that the banks and building societies are not passing on these cuts to their borrowers and are in fact increasing their rates, it will have little positive effect on either the housing market or the economy as a whole.

Until the government and Bank of England grasps the nettle of frozen liquidity, and pump in real confidence into the money markets, drip drip rate cuts will have no effect.

Bold actions, such as those taken by the Fed, on an internationally co-ordinated level are required.

The Fed is capable of bold leadership, regrettably the Bank of England is not.

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Mortgage Woes

As the liquidity freeze continues, thanks to the ponderously slow response and inaction of the Bank of England, banks and building societies are rationing/withdrawing mortgages and in some cases profiteering.

Halifax is raising rates on trackers and fixes, and will target people with small deposits.

A two year fix for remortgagers with a 5% deposit will increase by 0.45% to 6.79%. However, borrowers with deposits of more than 10% will see smaller increases and those with more than 25% could even see rates fall slightly.

Halifax has also raised rates on its two-year trackers for borrowers who have a 10%, deposit by 0.25% to 6.74%.

NatWest raised its offset mortgage rate by 0.25% to 6.45%, even though Bank rate has been on hold and is expected to fall.

Skipton building society added a £799 fee to its standard variable rate deal offer at 6.7% for new borrowers, unheard of for variable rate mortgages.

Needless to say, this is having a very damaging effect on the already troubled housing market; as people who thought that they could afford to buy a house now find that they can't.

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Mixed Signals From The Housing Market

Chancellor Alistair Darling told parliament yesterday that the housing market was cooling, as price growth slows down. However, he tried to balance that point by noting that it remains fundamentally strong.

Quote:

"Yes it's true that house prices are slowing down, but this is on the back of many years when house prices have been growing at 10 percent or even more in some parts of the country for many years.

I believe the housing market in this country, although it will slow down, is fundamentally strong."

Well he would say that, wouldn't he?

The Halifax report that house prices fell by 0.3% last month (analysts had predicted a 0.2% fall).

The annual rate of house price growth is now 4.2%.

However, the buy to let sector (which to a large extent has fuelled house price growth) seems to be feeling the effects of the credit crunch, as sources of loans for new entrants are drying up.

The Royal Institute of Chartered Surveyors (RICS) said that the number of landlords instructing estate agents to rent out their properties had fallen by 1% during the final quarter of 2007. This is the first decline in ten years, and compares very unfavourably with the 11% increase the previous three months.

Banks and building societies have increasingly stopped offering buy to let mortgages.

A mixed picture, which indicates unsettled times ahead for landlords, property owners and house hunters.

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