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BM Solutions annouced today that it is pulling out of the sub-prime and self-cert mortgage markets. 

We understand that the changes are to be implemented on the back of mass criteria changes that will take effect across the Lloyds Banking Group.

BM Solutions has however vowed  that it will continue to be the biggest buy-to-let lender in the UK.

The changes are being made and similar moves are being made by other lenders.

They stated that over the past 12 months atleast 20 lenders have withdrawn from the self-cert market, and 22 have withdrawn from sub or near prime market.

The Lloyds Banking Group said they cannot continue to write the business left behind by those lenders who have pulled from the market.

Lloyds Banking Group offers one of the biggest mainstream residential ranges of mortgage products currently available.

In addition, the LTV for mainstream new build properties will be reduced from 90% to 80%, whilst the LTV for new build buy-to-let properties will be reduced from 75% to 65% in Halifax, Bank of Scotland, BM Solutions and Intelligent Finance.

Nigel Stockton, managing director of BM Solutions and Intermediaries within Lloyds Banking Group says: “Over the last 12 months, there has been a real reduction in the number of active players in the specialist sector.

“We have no option than to respond to ensure we continue to lend in a prudent and proportionate manner.”

The Woolwich has launched its lowest fixed rate ever at 2.29%, 1.5% lower than its previous rate for the same mortgage.

The product is a  one year fixed rate and then reverts to a tracker at bank base rate plus 2.29% for the remaining term of the mortgage. It is available at up to 60% LTV.

The has an early redemption charge of 2% for the first three years, with an application fee of £995.

It is available under Woolwich’s Switch & Save facility, which allows borrowers to remortgage without incurring legal or valuation fees.

Andy Gray, head of mortgages at Woolwich says: “We are seeing some of the best mortgage rates in a generation. This is down to increasing competition and the falling cost of lending for the banks.”

House prices dropped by 16.6% year-on-year. 

The average house price in the UK  is now  £150,501, down from the £153,048 in December.

Martin Gahbauer from the Nationwide, said “In the past, approvals have tended to move in line with new buyer enquiries.

“More recently, however, the relationship between buyer enquiries and approvals has broken down, with buyer enquiries recovering quite strongly in recent months while approvals have shown little sign of recovery.”

Gahbauer also  added: “The fall in house prices and the parallel reduction in interest rates has probably made many households curious about what is currently available in the market.

But many are likely to be hesitant to commit in a recessionary environment of rising unemployment and increasing uncertainty about future incomes.”

The FSA does not anticipate that borrowers on tracker mortgages could end being paid by lenders even if the Bank rate falls to 0%.

Katherine Webster head of FSA’s unfair contracts legal team was adressing  issues for mortgage lenders earlier this month and stated  that individual contract terms would determine the outcome. But the view of the FSA was that they saw it was   unlikely that  lenders would start paying the borrower on tracker rate mortgages.

In today’s  unusual market conditions, the reality is that the Bank rate no longer reflects lenders’ funding costs.

Wholesale funding markets are  still closed as banks no longer wis to lend to each other so lenders are relying heavily on retail deposits and need to maintain savings rates that are attractive enough to deliver a flow of funds that they now require. In addition the lenders also have costs involved of administering their mortgage and savings products and running their businesses in  general.

With Bank rates falling to such historically low levels , margins for deposit-taking lenders come under pressure. There is a risk of unpredictable savings trends, which could affect future lending.

Lenders try protect themselves in exceptional circumstances.  They often apply a collar to tracker mortgages, below which the rate paid by the borrower will no longer be adjusted to the Bank rate. It is important to understand that lenders may only be able to offer attractively priced products for “normal” market conditions if they are able to hedge against volatile market conditions.

Collars are a normal form ofprotection for lenders - just as, in the different circumstances of rising interest rates, capped mortgages provide sensible protection for borrowers from higher mortgage costs. When rates are rising, customers choose capped mortgages for precisely those reasons.

Borrowers on tracker mortgages that may have reached their floors are now paying very low rates historically. With house prices declining, borrowers should consider taking advantage of these lower rates to over-pay their mortgages, depending on their individual circumstances. Similarly, borrowers with interest-only loans could take advantage by switching to a capital repayment option.

The FSA acknowledges that collars are acceptable if they are clearly explained in the sales process when a mortgage is applied for.

Tracker mortgages without collars that leave borrowers paying little or no interest will please those mortgage costomers  that do benefit, but do nothing to increase the flow of new lending or help stabilise the housing market and the wider economy.

It could be argued that a collar across the whole mortgage market would enable savings rates to be maintained more effectively at levels that would continue to attract new funds and maintain stability in the market for retail deposits. Clearly, however, that could only happen if the government and regulatory authorities agreed that it was fair and appropriate given the prevailing market conditions.

Almost 40% of would be first-time buyers are increasing the rate at which they save up a deposit this year with the average saving of £20,000, research from Abbey Savings shows. 

38% of customers  saving towards a deposit say they are looking to increase the rate at which they put their money away in 2009.

40% of people without any deposit stated that they had now decided to start saving this year.

With house prices looking increasingly affordable, those with a deposit said that they intended to try and save on average an extra £203 each month this year in order to get on to the property ladder, while those who were just beginning to save a deposit said that they intended to put away £123 on average each month.

When asked how much they believed they would need to save the average first-time buyer stated that they were working towards building a deposit of £20,000.

Homeownership is beginning to look like a much more realistic goal for thousands of first time buyers with the recent drop in house prices.

“Building a deposit is no small task, but those who have chosen to start putting extra money away are clearly better prepared to make an offer on a property when they see their opportunity.

“Savers need to be aware that a large deposit will make it easier for them to be accepted for the best mortgage deal. Abbey’s First Home Saver has been specifically designed to help savers build up a reasonably size deposit, allowing you to put money away regularly up to a sum of £50,000.”

The amount of  mortgages approved by the UK’s banks to new mortgage customers dropped last year by 52%.

The British Bankers Association  announced that  the number of approvals went up from 17,000 in November to 22,000 last month.

However, this was still down nearly 50% on December 2007.

The BBA said the December rise did not suggest a real recovery in lending and was “more likely to reflect delayed activity from November”.

“The banks approved less than half the 2007 number of loans for house purchase, reflecting falling demand from households facing greater economic uncertainty and double-digit falls in house prices over the year, which led to a wait-and-see mentality,” said David Dooks of the BBA.

Can a mortgage broker still help you find the best deal - or are you better off going direct to the lender?Only 18 months ago mortgage brokers were indispensable to the UK mortgage market, introducing 70% of all business. But since the credit crunch kicked in many of them have suffered massively and many are struggling to stay in business.

Broker benefits

Just because brokers don’t get paid commission on direct-to-consumer products doesn’t mean they cannot give you best advice. Some might choose a different commission method, like charging you an upfront fee instead of receiving commission from the provider, which you may or may not be happy with. But it would mean that you could benefit from whole-of-market advice and the broker could still get some money if the best deal for you is one where they won’t get any kick-back from the mortgage lender.

Also while there are some key markets that the broker may not be able to help at the moment (such as high Loan To Value borrowers), other customers can still benefit massively.

How can they help?

Mortgage brokers are fully qualified professionals, and have to pass exams in order to give advice. They also have to be authorised by the Financial Services Authority and comply with statutory regulation.

A mortgage broker is therefore by far the best place to go if you want full whole of market mortgage advice, where somebody will look in detail at your circumstances and search the market to find a deal that suits you. They will advise you on the best product, which may not be the case when you visit a high street bank or building society.

Most lenders provide an information-only service where they ask you pre-determined questions and, based on your answers, they give you information on which of their own products may suit you.

This is often not fully authorised advice, and it means you don’t have the same rights with the Financial Services Ombudsman should you have a complaint.

A mortgage broker searches the whole mortgage market. Depending on the software they have some can even search the direct-to-lender products and advise on the best deal regardless of whether they can introduce the business to the lender. Even if they only search products they can introduce, brokers still have access to thousands of deals which just are not available on the high street.

Mortgage advisers also come into their own when it comes to service. They will help you fill in the application form, deal with the lender and use their clout to push the deal through if you need things to move quickly.

Lord Turner, chairman of the Financial Services Authority tried to address the root of the current global financial meltdown and set out the implications for regulation and the future shape of the financial system in.

He also spoke of the issues that he would deal with in his review of the regulation and supervision of the banking system, which will be published in March.

In The Economist’s inaugural City Lecture, Lord Turner said he believed the “originate and distribute” model of financing lending had a role to play in the future, but needed to be reformed, with less complexity and opacity. He added that over the last decade the scale of proprietary trading had created risks and that financial innovation had in many cases delivered minimal economic value and had increased the dangers of financial instability.

Lord Turner also outlined three key long-term regulatory initiatives to reduce the probability and severity of future financial crises:

New approaches to capital adequacy, entailing more capital held against risky trading strategies and counter-cyclical capital requirements to build up adequate buffers during good economic times, which can be drawn on in bad;

A new liquidity regime focused not just on individual firms’ liquidity but also on market-wide risk; and

Ensuring that financial activity is regulated according to its economic substance not its legal form.

Lord Turner said that these themes would be outlined more fully in the Turner Report which will set out the changes the FSA has already made, those where there are proposals in principle but need consultation, and those where the regulator has defined objectives but needs to play a role in achieving international agreement.

Thousands of Lloyds TSB and Cheltenham & Gloucester customers are making over payments to their mortgages as interest rates are so low.

Since the Bank of England’s decision to cut base rate in November, Lloyds TSB has received over 27,000 requests from customers to set up an overpayment on their mortgage account.

Later this week, tracker and SVR customers will receive a letter from the lender confirming it will pass on January’s base rate cut in full and stating their new lower monthly payment. The letter will direct customers who would like to start making overpayments in February to the lender’s website at www.cheltglos.co.uk where they can download and complete a form.

Overpayments are an increasing trend  in November the lender received 7,000 requests while in December over 12,500 requests were made. In the first two weeks of January, 7,900 requests were made and the number is expected to grow further over the coming months as customers get used to lower monthly mortgage payments.

Lloyds TSB and Cheltenham & Gloucester have passed on all cuts in the Bank of England base rate to existing tracker and variable customers. Since base rate began to fall in December 2007, the average customer on a £150,000 mortgage is now saving £380 a month.

The combination of low interest rates and making overpayments can significantly reduce the term of a mortgage. A customer who took out a variable rate mortgage in 2007, and maintained their payment at the level it was in December 2007, would have already reduced their term by 11.5 years. If Bank of England base rate stays at today’s level of 1.5 per cent, and the customer continues to overpay at the same level for the rest of the year, they would take a further year off the term.

Stephen Noakes, C&G marketing director said, “Homeowners with a tracker mortgage are hundreds of pounds a month better off. For those who can spare the extra money, making overpayments is a smart move. Not only can it trim years off your mortgage term, but with house prices falling, overpayments will help to protect the equity in your home.

“A year ago, a number of homeowners were extending their borrowing with further advances. We’re now seeing a definite switch to paying down your mortgage debt.”

In December, Bank of England statistics highlighted the trend amongst homeowners to pay down their mortgage debt. Figures showed homeowners paid a record £5.7bn off their mortgages in the three months to September, the largest figure since 1970s and more than double the £2bn repaid in the second quarter of 2008. The Bank said it is only the second time in 10 years that consumers have injected cash into mortgage debt rather than increasing borrowing.

Nationwide Building Society has today said that they will be cutting the rate of its fixed rate mortgage deals by up to 1%.

Starting on 21 January the society will drop the rates on its two, three and five year fixed rate mortgages. They are also withdrawing its five year fixed rate mortgage with £1,999 fee and making changes to the loan to value (LTV)  on its mortgages.

Nationwide will also extend the choice of mortgage products available to existing borrowers who are switching at the end of their current deal at higher loan to values (LTVs). These changes will be effective from 21 January 2009.

Matthew Carter, divisional director of mortgages at Nationwide, said: “Recent reductions in swap rates have enabled us to cut the price of our fixed rate mortgage deals by up to 1.00%. The financial climate remains volatile so we will continue to monitor market conditions, offering lower mortgage rates and deals where it is prudent to do so.”