ROOF Blog

Banks were today accused of profiteering from homeowners during the recession, as it emerged that the average interest charged on variable-rate mortgages is 4.2 per cent higher than the Bank of England’s base rate.

The average Standard Variable Rate mortgage now charges interest rates of 4.7 per cent, down only one per cent over the past year – when the base rate fell by 2.5 per cent. Vera Cottrell from consumer watchdog Which? said the variable rate market was ‘raising serious concerns’.

She said: ‘Lenders are getting away with charging very high mortgage rates right now, many have an incredibly high margin between base rate and the interest being charged. That’s offering consumers a poor deal.’

The Council of Mortgage Lenders (CML) has cut its forecast for the number of repossessions this year to 48,000.

Having anticipated 75,000 repossessions in 2009 in last year’s housing market forecasts, the forecast had already been revised down to 65,000 in June, but is now being cut again in recognition of lender forbearance, government measures and the beneficial effect of continuing low interest rates which are helping most borrowers facing difficulty to keep their homes.

Commenting on the latest arrears data and on the new forecasts, CML director general Michael Coogan said: ‘In terms of new lending next year, we expect a modest increase.

‘But it is difficult to see the case for a dramatic upturn in the absence of significant improvement in the wider economic picture. There is a risk that public spending cuts and higher taxes could choke off recovery. So, although we have become more optimistic, we remain cautious about market prospects.’

A subprime lender has agreed not to repossess for at least six years the home of a man who fell into arrears in what is believed to be the first legally binding deal of its kind in the UK.

Blemain Finance, an arm of the Blemain Group, reached the agreement in a High Court case with Peter Bentley, a carpenter from Bridgend who had lost wages as he cared for his sick father.

The deal is the latest victory by aggressive personal claims companies that are taking on companies responsible for a spate of lending during the credit boom to households that are now struggling to repay.

Personal insolvencies continue to rise, with almost 100,000 in the year to September.

Carl Wright, of Cartel Client Review, the Manchester-based personal claims company, which took Mr Bentley’s case, has been using a clause in the 1974 Consumer Credit Act to argue that many lenders have an ‘unfair relationship’ with uninformed consumers, who often sign up for loans they can ill-afford and which carry heavy penalty charges.

Fitch, one of the world’s most influential ratings agencies, said that the reforms proposed by the Financial Services Authority (FSA) could result in higher costs and greater inefficiencies in the mortgage market.

The rating agency said the FSA’s Mortgage Market Review ‘could have negative financial implications for mortgage customers instead of the intended benefits’.

Fitch said its concerns were specifically around the proposals for arrears management, which it said were too prescriptive and would take away ‘flexibility’.

Robbie Sargent, director in Fitch’s European structured finance operational risk group, said:

‘The assessment of borrowing capacity, and disposable income, along with the verification of income for all applications, will require a detailed methodology, and in all likelihood, the provision of some form of manual underwriting for all loan applications.

‘This will almost inevitably lengthen the mortgage application process and push up costs for the lender, which may in turn be passed on to the borrowers in the form of higher interest rates and/or product fees,’ said Sargent.

Research out today has found first-time buyers are taking out loans to afford the deposit. Thirteen per cent of 18- to 34-year-olds are considering buying a property for the first time in the next year, but of those, 16 per cent say they will consider taking out a loan to cover the deposit. Critics have warned that it is a ‘dangerous move’ and have called for lenders to assess the affordability of a mortgage on a case by case basis. The average deposit for a first-time buyer is £32,000.

Banks and building societies are under pressure to cut their mortgage rates, after the Libor rate fell to its lowest level in more than 20 years. Conversely the average two-year tracker rate mortgage increased from 3.73 per cent a month ago to 3.77 per cent this week, and lenders have also pushed up the price of fixed-rate mortgages to their highest level for at least 20 years. Critics have accused lenders of being ‘unfair’ to homeowners and threatening the recovery in the housing market. Libor is the rate at which lenders lend to one another.

Redrow and Barratt Developments accused the banks of downgrading valuations on new properties to restrict lending. Redrow said the practice of down valuation by surveyors representing mortgage lenders was ‘widespread’ and posed a ‘major obstacle’ in the recovery of the housing market. It blamed the gap in valuation for about two-thirds of its current cancellation rate of 20 per cent. A spokesperson for Barratt said the policy was creating a ‘two-scheme mortgage sector’ and added that house builders were asking for new builds to be valued ‘appropriately’.

The Bank of England (BoE) has kept the cost of borrowing unchanged at 0.5 per cent for the fourth month in a row. It added it was not planning to extend its quantitative easing scheme.

Nationwide has launched a new 125 per cent mortgage, for those in negative equity and wanting to move house. The building society described the product as a ‘niche’ offer and said that the new mortgage would only be available to existing mortgage holders and would allow homeowners to ‘carry over’ their negative equity. Experts say it could help people stick in their homes who need to move, and expect other lenders will launch their own versions in the coming months.

Research from the National Association of Estate Agents has revealed that nearly one in four people claim they are unable to get a mortgage due to the tighter lending criteria being used by banks and building societies. More than half of those asked believed that they would have more change of getting a mortgage if lenders had relaxed tough restrictions and accepted lower deposits.