ROOF Blog

Housing associations could face higher loan repayments and reduced access to funds as a result of tougher banking rules, housing experts fear. The Financial Services Authority wants lenders to hold higher levels of capital and liquid assets in reserve, and this may push up interest payments across social housing as loan agreements allow lenders to pass the costs of additional regulation to their customers, and with ‘virtually all’ of the sector’s loans having the clause, costs for associations are likely to be impacted.

Borrowers with tracker or variable rate mortgages have benefited from a 17 per cent fall in the cost of owning a home in the past year. However, everyone else including tenants and those on fixed rate deals, have faced an increase of 4.5 per cent in the cost of household expenses. Energy costs rose by 13 per cent, water by 5 per cent, council tax and domestic rates by 3 per cent and the cost of repair work by 5 per cent, but for borrowers whose mortgage repayments have fallen these increases have not be enough to offset the 47 per cent they saved on interest repayments, the average mortgage rate falling to 3.62 per cent in April this year, from 5.8 per cent at the same time last year.

The (RLA) is warning buy-to-let investors that lenders may try to change their borrowing rates as property values fall. The RLA says some mortgage agreements allow lenders to alter their rates if the loan to value (LTV) changes significantly. Alan Ward of the RLA said lenders may look for large repayments of capital as well as charging more expensive interest rates.

Moves by banks and building societies to tighten up mortgage deals and raise interest rates is hampering borrowers’ ability to re-enter the housing market. Brokers have reported a higher number of mortgage applications being turned down – as many as 30 per cent being rejected against 20 per cent a year ago. In the past three weeks, Woolwich, Lloyds and RBS have withdrawn loans for purchase and not replaced them.

Millions of homeowners with mortgages set to expire in the coming year will be forced on to standard variable rates, increasing the risk of a jump in repossessions, analysts warn. The shortage of mortgage funding has meant that many borrowers are being rejected for new deals, and economists are predicting the cost of borrowing will increase as the economy recovers. Melanie Bien of Savills Private Finance called the situation a ‘ticking timebomb’.

Council of Mortgage Lenders (CML) research shows a sharp rise in the number of mortgages in March. Around 31,000 mortgages were granted, up 29 per cent n February, although down 33 per cent compared with year on year figures. CML said that the cost of paying interest on home loans was at its lowest level since 2004, encouraging some 12,500 first-time buyers to take out a mortgage in March – or 40 per cent of all loans – the highest number since April 2005.  Low interest rates and house prices means that interest repayments equal 15.1 per cent of first timers’ income.

The Institute for Fiscal Studies (IFS) warned that Britain faced ‘two parliaments of pain’ as it calculated a £45 billion ‘black hole’ in the government finances following the Budget, requiring either a tax rise of £1,430 per family or massive spending cuts. When the effect of the 8 per cent annual growth in debt interest payments and rising spending on unemployment benefit are taken out, spending across government departments will have to fall by an average of 2.3 per cent a year in real terms – the largest spending cuts since the 1970s. The IFS has calculated that by 2017/18 the losses will be the equivalent to £2,840 a year for every family, of which only half has been accounted for by the government.

State benefits for homeowners struggling to pay their mortgage after losing their jobs are to be paid more quickly and will be paid to more people from today, the government has announced. Support for mortgage interest benefit has been extended to include mortgage up to £200,000, double the previous limit, while the waiting period to qualify has been reduced by two-thirds to 13 weeks. At the same time eight lenders have joined a separate government scheme allowing mortgage holders to defer part of their interest payments and designed to cushion the blow of an economic downturn.

The banks are pressing the chancellor for clarity on a scheme to let homeowners facing repossessions defer interest payments. There is confusion over who would be eligible, how claims will be policed and whether banks will be charged a fee. The banks main concern is establishing which borrowers will be eligible for the two-year holiday from interest payments, and limiting fraud.