ROOF Blog

Homeowners facing repossession or struggling to meet mortgage payments after losing their jobs will continue to receive extra support from the government following the pre-Budget report.

The government has said it will freeze the standard interest rate used to calculate its Support for Mortgage Interest (SMI) at 6.08 per cent for a further six months. It said the SMI scheme has benefited around 220,000 homeowners.

From April this year, the government said it would cover the monthly interest due on mortgages of up to £200,000 for borrowers who have been out of work for three months and were having difficulty meeting their payments.

Previously it only offered support to homeowners with mortgages of £100,000 or less.

The number of people defaulting on loans has risen and are expected to increase in the coming months, a Bank of England survey has uncovered. A poll of banks and building societies found more people unable to repay mortgages and other debts because of rising unemployment. However, financial institutions expect the availability of credit to rise in the next three months, and households are likely to be offered and demand more secured credit. A rapid return to the pre-credit crunch lending levels remains extremely unlikely.

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.

Shelter has rereleased research showing that thousands of homeowners with high risk sub-prime mortgages could lose their homes before the end of summer, after a survey found that more than 22 per cent of respondents are struggling to pay their mortgage. More than 160,000 households are either struggling or falling behind on payments are resorting to borrowing from friends, using credit cards or taking out loans to pay, while more than 35 per cent – the equivalent of 260,000 households – say they would be unable to met their mortgage payments if their income dropped significantly.

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.

State-owned lender Bradford & Bingley has confirmed that one in 20 of its mortgages are in default, and the rate is set to go higher. Chairman Richard Pym said the proportion of borrowers more than three months behind on their repayments had worsened since March, from a rate of 4.6 per cent to more than 5 per cent now, and estimated that loan losses this year would be between £600 million and £700 million, up from £500 million last year.

Following a sell-off in the government bond markets, banks are likely to face increasing pressure to put up fixed mortgage rates. Yields on five-year gilts have risen to their highest level since the end of February, and a rise in yields tends to force banks and building societies to increase their fixed rate mortgages because mortgage rates are calculated using swap rates, which in turn move in line with government bond yields.

Margaret Beckett has announced a proposed amendment to the law that would give tenants whose landlords are facing repossession more time to find somewhere else to live. Under the new proposals tenants will be given two months’ notice by mortgage lenders who have taken possession of the landlord’s home. The Council of Mortgage Lenders has warned that a number of tenants will slip through the cracks, especially those renting a property unofficially.

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.