There Are Bad Times Just Around The Corner

The Council of Mortgage Lenders (CML) has warned that approximately 53,000 homes will be repossessed this year (a 15 year high).

Add in the public sector cuts, rises in taxes (both direct and indirect) and we are going to have a tough time. The smiles and bonhomie of Clegg and Cameron will not be enough to ease the financial pain that will be visited on every household in the UK in the coming months.

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The False Dawn

The Ernst & Young Item Club has warned that the recent rise in house prices may in fact be a false dawn, they go on to say that property values will not return to their 2007 peak for at least another five years.

However, The Council of Mortgage Lenders (CML) report that the number of loans granted for house purchase in July was 19% higher than in July last year.

Seemingly, in the eyes of CML, this is the "first material annual growth" since early 2007.

The CML do admit that banks are still rationing the amount that they lend:

"The scarcity of mortgage supply and tough lending criteria is making it particularly difficult for first time buyers to enter the market.

Given that they typically purchase cheaper properties, this will have significant implications for those looking to trade up, clogging up the market and limiting the number of transactions taking place."

The banks, as they have always done, will only ever look after their own interests. Only if it is in their interests to kick start the property market, by loosening their lending conditions, will they do so.

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Mortgage Approvals Up 23%

The Council of Mortgage Lenders (CML) report that the number of mortgages for homebuyers granted in June was 45,000, and increase of 23% compared with May.

CML are of the view that the mortgage market had stabilised. However, they correctly caution that this is not the beginning of a new housing boom.

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Hopes of Housing Recovery Dented

Despite rises for three months, figures from the British Bankers' Association (BBA) show that the number of mortgages approved for house purchases fell by 25.3% in the 12 months to March and were down by 7% compared with February 2009.

26,097 mortgages were approved in March, down from 34,920 a year ago.

Last week the Council of Mortgage Lenders (CML) reported that 24,300 mortgages were approved in February, up from 23,400 in January.

As to whether this is a temporary "blip", or an indication that the "rally" was no more than a dead cat bounce, only time will tell.

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Negative Equity

The Council of Mortgage Lenders (CML) report that the number of people facing negative equity is coming close to 1M, at around 900,000.

Is this a bad thing?

Not necessarily:

1 In the last housing slump of 1993, the number peaked at 1.5M.

2 Many homeowners intend to "stay put", therefore the "value" of their house (unless they seek to raise capital from it) is irrelevant.

3 Approximately 66% of the 900,000 face shortfalls of less than 10%.

People need to grasp the essential truth that houses are not meant to be "pseudo investment" vehicles for raising finance for short term consumption, despite what the banks, loan companies and property porn shows would have us believe, but places to live in (ie homes).

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The Gloves Come off

The Times reports that Michael Coogan, director general of the Council of Mortgage Lenders, made a scathing attack on the government:

"To different degrees lenders are facing conflicting pressures to recapitalise against possible future losses, service government's preference shareholdings at 12 per cent, pay a premium to access the Bank of England Special Liquidity Scheme, show forbearance to borrowers in arrears, follow base rate moves down to help their existing borrowers, keep savings rates high to support existing savers, and provide competitive rates to new borrowers and savers to maintain economic activity in a recession.

And they are supposed to ensure their long term financial stability to help the UK economy rebuild itself when we are out of the recession.

Current policy objectives are conflicting and incoherent. The government needs to decide on its key priority. The tug of war with lenders being pulled in every direction at once needs to end."

I would normally have some sympathy for the banks, under different circumstances. However, this mess is entirely of their own making. Many banks have had to use taxpayers' money to stabilise their finances, and now are partly owned by the taxpayer.

The rules of the game have changed, banks need to face up to the fact that politics now supersedes balance sheets and bottom lines. They have become subject to the whims of politicians and the "public mood" as gauged by the media.

Good luck to them, this will get worse before it gets better.

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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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Home Reposessions Highest Since 1999

The Council of Mortgage Lenders (CML) reports today that the number of homes repossessed in Britain in the first six months of the year has risen by almost 50% (compared with last year), to the highest since 1999.

Repossessions rose to 18,900 from 12,800. Although this is not good news, it needs to be put in context. In the first half of 1991 home repossessions hit a peak of 38,900.

Homeowners are continuing to face difficulties, as they try to refinance fixed rate mortgage deals that have run out.

Alastair Darling and Gordon Brown's solution, to date, has been to leak an idea about possibly suspending stamp duty. All well and good except:

1 It does not help those who cannot find mortgages.

2 The uncertainty over whether this is a genuine proposal or not will cause people to delay purchase, thus further undermining the market.

A little more thought would be best, before they leak any more ideas.

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Kick Starting The Mortgage Market

The ongoing mortgage drought has caused pain not just to those seeking to borrow, but also those wishing to lend (less loans means less commission and less interest).

Finally those in the mortgage industry appear to be waking up to the fact that they need to do something about this mess. The Council of Mortgage Lenders (CML) want to free up UK banks and building societies to offer new home loans, to do this it wants the Bank of England to guarantee a market in mortgage-backed securities and covered bonds.

The CML claims that the key issue is the lack of available funding to support new mortgage lending, the proposal would cover new mortgages.

"The CML firmly believes that with quick and decisive implementation of the mortgage market funding proposal, the Government could mitigate the difficulties that households and the housing market will otherwise face, as well as helping to restore greater confidence to the financial system as a whole."

A nice idea. However, I doubt that the government or Bank of England will rush to act on it.

Speed and decisiveness is not the hallmark of the current administration.

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Mortgage Lending Falls Further

The Council of Mortgage Lenders (CML) report that mortgage lending to first time buyers and existing home owners fell during the first quarter of 2008, to its lowest level for more than 30 years.

Mortgage lending from January to March slumped to 142,000, in Q1 1975 the total was 140,000 and in the recession of 1992 it was 146,000.

Without mortgages, people cannot move; a frozen property market impacts all areas of the British economy.

We need a thaw, and we need it now.

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The Perversity of The Housing Market

Despite the ongoing credit crunch, and the tightening of lending conditions and reduction in credit it seems that the housing market in the UK may be a little more resilient than some pundits have been claiming.

The Council for Mortgage Lenders (CML) reports that gross mortgage lending rose in January to £26.5BN, an increase of 11% compared to the £23.9BN in December.

However, this amount is still lower than most months in 2007.

The CML is expecting lower lending volumes over the course of 2008.

Michael Coogan, director general of the CML, is quoted:

"Gross lending held up well in January. However, there is considerable uncertainty in the housing market at the moment and we expect lending volumes to be lower in the coming months.

Home buyers might be more inclined to transact if their moving costs were reduced and the government has the opportunity to address this by raising stamp duty thresholds and cutting the rates of stamp duty in next month's Budget."

A nice wish, but an unlikely reality.

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Mortgage Lenders Beg For Help

The Council of Mortgage Lenders (CML) are begging the government to "urgently" support homeowners who are struggling to pay their mortgage, and restore confidence in the financial system.

CML's director general, Michael Coogan, spoke at the annual conference and said that increasing support for struggling mortgage borrowers is one of the key issues the government must face to encourage home ownership as confidence continues to falter.

Quote:

"The government needs to recognise and act to address the shortfalls in the safety net of state support for mortgage borrowers in most financial difficulty.

Waiting nine months for partial support is simply not good enough to help sustain home ownership."

The CML also noted that confidence in the mortgage market and wider financial system has been badly hit by the turmoil of recent months, and said that both lenders and the authorities must work to restore trust in the system.

Maybe so.

However, much of the confidence in the financial system has been eroded by the financial service providers themselves; viz:

-Excess bank charges
-Excess charges for credit and mortgage arrangement fees
-The endowment scandal
-Northern Rock
-PPI scandal
-Cold calling to sell unnecessary financial products and services
-Sub prime lending
-The self inflicted liquidity crisis etc

It is down to the financial service providers, who have destroyed the credibility of the financial services industry, to restore confidence in it.

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Banks Get Tough

Britain's ever popular and "respected" banks are starting to "get heavy" with those in debt.

The number of home repossessions and county court judgements are rising, while personal insolvencies (IVA's) are dropping. This is a sign that the banks are growing weary of the IVA culture that has sprung up in the UK over the past year or so.

The Council of Mortgage Lenders (CML) reported that the number of home repossessions across the UK has risen to its highest level in eight years, in the first 6 months of 2007. Approximately 14,000 homes were repossessed by banks and building societies in the period Jan-June 2007, this represents a rise of 30% on the same period last year.

CML attributes this to the increase in sub prime lending, ie loans made to people who would normally be considered to be a db credit risk.

Michael Coogan, CML director general, said:

"The greater risks inherent in sub-prime lending are resulting in significantly higher levels of repossession in that part of the market compared to mainstream experience."

It is not just the mortgage market that is feeling a credit squeeze, but also the unsecured loan market as well. There has been a fall in the number of people being allowed to reduce their borrowing by entering into an Individual Voluntary Arrangement (IVA).

The Insolvency Service has reported a 15% reduction in the number of IVAs issued in the second quarter of 2007 to 10,698.

The Registry Trust has reported that the number of county court judgments (CCJs) issued to consumers in England and Wales increased by 5% in the first half of 2007 to more than 420,000.

The credit squeeze will get worse over the coming months. Those that are thinking of increasing their debt burden should make sure that they fully understand what they are committing themselves to.

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Mortgage Lending Down

Mortgage lending fell by 14% in December, compared to November, according to figures released by the Council of Mortgage Lenders (CML).

The CML said £28.6BN was lent by banks, building societies and others to homebuyers during the month; £33.2BN was lent in November.

The figures show that a typical first-time buyer would now expect to take out a home loan 3.31 times the size of their salary. This means that first-time buyers are struggling to enter the market, despite this they accounted for 36% of all home purchase loans in 2006.

Michael Coogan, director general of the CML, said:

"The monthly figures clearly show the cumulative effects of the gradual worsening in affordability for first-time buyers, and the ever-rising proportion of them who are caught by stamp duty.

Although the mortgage market performed extremely well in 2006, the effect of rising interest rates and the continuing decline in affordability are likely to dampen activity somewhat in 2007."

As the first-time buyers are priced out of the market, so will the downward pressure on house prices increase. In other words, the housing market is due for a major correction in the next 18 months.

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