The FSA Wants To Ban Self Certification

So the FSA want to ban self certification mortgages.

This to me appears to be no good thing.

What appears to have been missed in all of this is the fact that the self employed need lenders that understand the way they work and problems they face in running small/medium size businesses.

On the face of it banning loans where an income is not declared appears to be logical and in fact in may seem completely bizarre that we ever entertained the idea of no proof of income on mortgage applications.

We are forgetting that we will need businesses to expand and invest and recruit in the coming months to help us out of a recession.

We will need new businesses to be formed. Under this new proposal our banks (some state owned) will no longer support them? If you invest and your net profit falls for a year or so you will be deemed u mortgageable under these proposals?

How about if you own several shops and one is underperforming and it takes 12 months to close the shop, but having taken the tough decisions a business owner has to you will be declined a mortgage. This may be despite the fact that the net profit has returned to normal levels. Is this right?

How do you define income for the self employed? Are retained profit income? Dividends? If you split the income between husband and wife, how should this be viewed? If you carry a loss over in an accounting year that is offset against the current years trading (many businesses will be doing just this), should we be remortgaging these people?

We need our banks to support businesses and the owners of businesses. Historically (10-15 years ago) we had specialist lenders that were experts at lending in this market.

There were no great mountain of arrears and this is where we need to return to.
Properly qualified Senior Underwriters assessing applications is what is needed for this sector.

The very people that had the skills to underwrite mortgage applications properly have been replaced by computers and scoring systems. To make mortgages work in this is arena we need the human element brought back.

If we return to underwriting mortgages this will make mortgages more expensive as head counts go up and mortgages are priced according to the risk they pose to the lender concerned.

This could leave the self employed who need self cert with higher rates and needing bigger deposits to help lenders balance their risk.

But this sounds fair and sensible to me. Preventing new or existing business owners from having mortgages is completely un helpful and is definitely not what is required sits at the opposite end of the scale.

I hope they consult and then review and amend their recommendations based on their findings; failure to do so will put unneeded pressure on the housing market just as it appears to be steadying.

If you would like to discuss the implications these changes may have for you then contact http://www.house2housefinance.co.uk/.

Base Rate Remains At 0.5%

　　
Interest rates are approaching a crossroads, but how quickly??


The minutes from the Bank of England’s (BOE) meeting regarding the current interest position is an interesting one.


As you would expect the BOE discussed many aspects of the UK economy and there was much to be up beat about. It felt that the contraction in job market had slowed. Consumer spending was up. House prices had risen by just over 1%, according to both the Halifax and Nationwide.

More interesting they felt “reasonably” confident that inflation would remain low, although there are many factors that could cause them to change their position on this.


The inflation figures we are seeing reflect a time when we had extremely high oil prices. Therefore it is no surprise that inflation is showing a big fall and of course we have seen huge discounting right the way through the high street. There are many different aspects that affect the price of oil, but very few feel there is scope for big falls in the cost of oil, or at least not ones that would effect consumer pricing, as for the high street, they will want their margins to return as soon as possible, so medium to longer term we are looking at price rises.


Parts of Asia that have seen strong growth in their economies and this may well put pressure on global commodity prices. This could assist reversing the current position, although this was considered low risk.


So far we have failed to mention QE. - Quantitative Easing. We are still seeing mega money being put into the UK economy. If the Governor of the BOE had his way then the amount of £50 billion would have been higher, by a whopping 25 billion. Justified by the argument that if this proved to be successful (and possibly too successful) then through other policies set by government and by Base Rate rises this could be controlled. With base rate at 0.5% there is certainly plenty of scope there.


Is was argued that it would be better to spend too much on QE then too little.


This does tell us that despite there appearing to be improvements in the economy we have a long way to go. It also tells us that in the short term the BOE does not have any real fear of inflation and although there is the risk of inflation increasing all the current indicators are pointing to low inflation for the foreseeable future.


What is un known and hard to predict is when inflation will be a “problem”. By this I mean inflation increasing and needing to be controlled. When will that money start to re appear in the economy? When will lending return to a solid position? When will people feel secure in their jobs? When will the 4 days weeks and reduced hours be replaced with overtime and extra shifts?


There is no doubt that we are a little way off this, but the indications are that the process of the econemy moving forward may well have begun, but we may well have engine trouble along the way, the experts will need to tinker with the economy to get us running smoothly, but none the less we are moving forward.


What does this mean for UK interest rates?


The BOE has indicated that it is not fully subscribed to the talk of a recovery. With further Quantitative Easing announced it clearly felt that further help was required and although the rate of unemployment appears to be slowing the increases we are seeing is still quite significant. This will mean base rate is likely to remain low in the short term, with rates rising in line with the pace of recovery, so slowly and gradually, picking up momentum as it goes along.


People reviewing their current mortgage situation should consider where base rate might be in 2-3 years, this is much harder to predict then ever before, but what is clear they will be at a higher position then we are in now - some may not be able to afford the gamble, for some the gamble may be worth while.
　
To discuss your mortgage contact http://www.house2housefinance.co.uk/ where all consultations are free and without obligation.　

Down Valuations

A report by the National Association of Estate Agents (NAEA) has shown that mortgage lenders are down valuing properties.


The association goes on to say that this is having a detrimental effect on the property market and suggest that undervaluing could be happening by as much as 10%. Many of the associations members have had a problem with down valuations, in respect to property valuations for mortgages.


Such problems can have dire consequences for the seller, as this will reduce the amount of equity they have in their property.


Peter Bolton King, chief executive of the NAEA, says: “Our members have heard in several cases that lenders gave specific instructions to their valuers as to how they should approach these valuations.Although estate agents might be crying foul why might this be a necessity?


During the so called boom times lending soared. Prices rose. In fact they increased ahead of any form of inflation, including wages. This has made buying a property incredibly hard for many people, mainly due to the increase in deposits which the lenders insist on and the decrease in house prices.


We are now seeing increases in unemployment and wage deflation which is forcing lenders to be more aggressive with their under writing as a consequence. Can they really be expected to take 100% of bonus’s or all of an individuals commission as part of their affordability calculation?


With people not being able to (or afford to) borrow as much from lenders and the outcome for the jobs market not looking so secure in the short term, it is no surprise that lenders expect prices to fall further, and therefore no surprise that valuers are probably valuing on the cautious side.


But should we really be seeing large scale down valuations?


Well, there was a key word that I missed out from the word valuation and that is the word “mortgage”. Lenders when considering a mortgage application request a “mortgage valuation” to be undertaken on their behalf. This is paid for by the borrower (normally) and used by the lender to assess the property.


It is for lenders to assess if they feel the property represents a good risk to the bank. They may give the surveyor specific instructions, which can include asking for a forced sale price as well as the open market price. If the forced sale price is within a certain tolerance the application will proceed to offer. This helps to ensure the bank lends on quality property.


Each lender will have its own lending criteria to ensure the application meets their own lending objective and at the same time maintains the quality on its books. However, not all lenders are the same and not all will aggressively value your dream home - but some might.
　
With such a lack of quality property on the market we are seeing asking prices hold and people willing to pay the price that is being asked. Estate agents and vendors may not have considered the effects the changes in lending policy is having on the property market.


It has been widely said that the market dictates the price. This point is only true in a cash market, not when you are reliant on a bank having the same view as you, if the bank does not agree you could find yourself with a shortfall.


The average price for a property is in the region of £150, 000 and the average salary is approximately £24,000. You would need to borrow 6.25x salary to achieve this, beyond most lenders income multiples. A substantial deposit of 50k would also make the purchase possible, something that is only achievable through equity for most people, something that has been shrinking.

So in reality are the banks being really aggressive in valuing, perhaps not. The prudent approach that was required over the last decade is now potentially being implemented and this is being played out (in some instances) in the form of how they expect the mortgage valuation to be carried out.


As a result we are now seeing some down valuations and other forms of increased case assessment, which may in turn put further pressure on house prices as purchasers find it harder to raise the finance to the kind of levels we have seen previously.


This will mean prices will have to fall a little more before the wheels begin to go round at any real pace. Prices holding because of a lack of property is not a sound basis for a recovery.

House prices will ultimately be underpinned by employment and the ability to borrow. Employment is on the increase and banks are being encouraged to be more prudent.


This has a direct effect on how lenders set their lending policy and in particular how they value property in a decreasing market. So in reality for a variety of reasons down valuations are here to stay - for a short while at least!
　
House 2 House Finance offers free advice to potential buyers and sellers of property who may be considering obtaining a new mortgage.　
　
If you would like more information then please contact us via the blog or the website www.house2housefinance.co.uk/mortgageenquiryform