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 Foreign banks are starting to return to the UK mortgage market with the likes of the bank of China ready to lend.

Israel’s Leumi, and Handelsbanken of Sweden have returned to the UK market and are starting to undercut  British high street banks with their continued reluctance to lend money into the UK mortgage market. Whats more these foreign banks are also relaxing their lending criteria, which means that self-employed borrowers as well as those, receiving substantial bonus income, are eligible for best-buy mortgage deals.
Bank of China is offering its clients direct deals of up to £1 million. The bank’s trackers start from 3% for borrowers with a 25% deposit (the deal includes a fee of £995). Moreover, the bank is also beating UK lenders on buy to let deals as it only asks the borrower to provide a 100% instead of 125%, required by the majority of UK banks.
Leumi, Israel’s bank, offers a market-leading tracker rate of mere 1.625% above 3-month Libor (a rate at which banks borrow from each other). Given the fact that last week the Libor stood at 0.93%, the Leumi’s interest rate amounts to just 2.56%. It is important to note that despite the fact that Libor is slightly more volatile than the base rate, the two have traditionally moved in tandem. Leumi requires its customers to provide a 25-35% deposit.
As for Handelsbanken, it has increased its maximum loan size to as much as £2.7 million – the figure exceeds any of those, offered by British banks. Unfortunately, Moody’s –the rating agency – claimed it might review the bank’s AA1 rating for a potential downgrade as the Swedish bank is not a full Financial Services Compensation Scheme member.
In general, British analysts are determined that as a lot of money can be made from mortgages, it is now high time for international and foreign banks to enter the UK mortgage market because British lenders are unable to service their clients.

Mortgage applications have continued to rise the Yorkshire stated today. This is mainly down to a range of initiatives introduced to help support their customers.

May and June 2009 saw a 28% rise in mortgage approvals compared to the same period last year.This rise in mortgage approvals follows Yorkshire Bank’s announcement last week to make an additional £1bn of new lending available to mortgage and business customers.

The lender has been offering initiatives to support borrowers. These have included fee-free mortgage deals and best buy pricing, plus the firm remains one of the few lenders that continue to offer 95% LTV mortgages to first-time buyers.

Gary Lumby, head of retail banking for Yorkshire Bank, said the initiatives underlined its commitment to provide competitive mortgages.

“These values have been met with a positive response from customers with continued growth in the number of mortgage applications we are receiving.”

He added: “In line with our traditional approach to lending and our commitment to remain open for business, Yorkshire Bank also remains one of only a handful of lenders supporting the first time buyers market with 95% LTV mortgages.”

Short-term, Low Rate mortgages are in thing  this summer. Lloyds TSB have a mortgage where the low fix expires in  just seven months, while Nationwide has a one that lasts a year.  

Analysts say it is hard to argue with the rock-bottom rates on the new mortgages. But they also warn that the small print in the offer could make them far more expensive than they first looked.

The Lloyds TSB mortgage is for first-time buyers and those who are looking to purchase larger houses. It comes with eye-catchingly low rates of 2.49% and 2.59% depending on how much you have to put down.

The fixes only last until the February 2010, a maximum of seven months even for those who sign up straight away.

At that point borrowers are automatically moved on to new fixes set at either 5.49 or 5.59% until November 2012.

That’s at least 0.5% more than other three year fixed deals from Alliance & Leicester and Woolwich.

Nationwide’s deal is less complicated, but could be equally expensive in the long term.

At remortgage time the building society’s existing customers are being offered a one-year fix at 3.59% for loans of up to 95% of their property value. That’s far higher than the 2.5% they would pay if they simply reverted to Nationwide’s SVR, so is best avoided.

New customers with max 75% LTV borrowing can fix at 3.99% for an application fee of £495. That’s one of the lowest fee and rate combinations around.

But any savings it produces over the next 12 months are likely to be wiped out by the new application and remortgage fees borrowers will have to pay when the fixes expire next summer - and fixed-rate deals may have gone up and the choice gone down.

There is also the question of whether it makes sense to fix at all if it is for 12 months or less. Few if any experts predict that interest rates will rise during this period.

Many feel rates may stay at or close to current levels into 2011, and some predict they will have barely risen by 2012.

That’s why five-year fixes tend to be the experts’ choice this summer - and why a few brokers are currently tipping trackers again after several months in the shadows.

Abbey, Halifax and the Post Office are good choices for longer-term fixes while First Direct, HSBC and Woolwich have good medium to long-term trackers.

There has been a massive fall in the amount of available mortgage products in the UK despite previous claims of ‘green shoots’ in the housing market moneysupermarket claimed today.

Tracker mortgages fell by an amazing 81 % since July 2008, whilst the number of fixed mortgages has fallen by close to 50%.

The largest number has been in the number of one year tracker mortgages, which fell from 522 on July 2008, to just two remaining today, a fall of 99.6 %. Over the same time scale the amount of two and three year tracker mortgages has dropped by 74 % and 73 %.

A spokesman for moneysupermarket.com said: “The fall in tracker mortgages highlights how the last 12 to 18 months have seen a complete meltdown in the mortgage market. The figures show that four out of five tracker products available 12 months ago, when the Base Rate was at five per cent, have disappeared.

“Whilst it may not be surprising to see lenders pulling these products, it is a stark reminder that lenders call the tune and competition is no longer the name of the game. The flight of borrowers to fixed rates has definitely been precipitated by lenders who have decimated the choice of tracker rate alternatives.”

Over the last year we have seen tracker mortgage rates rise in relation to the Base Rate. The average of the best two year tracker from each of the main providers currently stands a little more than 2.5 per cent above the Base Rate, where a  year ago the figure was just 0.9 % above the Base Rate.

Moneysupermarket.com also stated “Banks which had large number of tracker mortgages on their books have had their fingers burnt by the dramatic fall in the Base Rate. It isn’t surprising that they are now a little unwilling to get back into that market, especially with the Base Rate remaining so low. At the same time, customers may be concerned that a tracker mortgage at 2.5 % above the Base Rate could quickly become very expensive.

“My concern remains around the lack of choice. Fixed rates, tracker rates and SVR products all have a place to meet individual needs which are all different. Now more than ever there can not be a ‘one size fits all’ solution to increasingly complex needs. Unfortunately, given the low appetite for volume lending, providers no longer have the competitive drive to deliver choice. In the end, this means borrowers suffer.

“For consumers looking for a new mortgage, the near entire absence of tracker products shouldn’t put you off looking around for them; the trackers that are still available are generally much cheaper than the equivalent fixed rate deals.

“The decision between a tracker and a fixed rate is always somewhat of a gamble, and whilst some people like the certainty a fixed rate mortgage affords, the savings on offer from tracker mortgages are hard to ignore. Almost everyone agrees that the Base Rate must eventually rise, but no one knows quite when this will happen, and if rates remain flat for another six months or so, those opting for tracker may save hundreds of pounds.”

RICS Cheif Economist today commented on recent data released by the British Bankers Association, which shows a further rise in the number of mortgages approved for home purchase.

“The increase in mortgage approvals for June, over 35,000 mortgages were approved for the purchase of homes - the highest monthly figure since March last year, follows the positive lead provided by the RICS ‘new buyers enquiries’ series which is continuing to show growing levels of interest in the housing market. Indeed, the reading on this indicator in the June survey was sufficiently strong to suggest that mortgage approval activity will rise further over the coming months. That said, it is important to recall that the absolute level of mortgages being sanctioned is still low by historic standards and consistent with a relatively fragile housing market.

“Meanwhile (non-financial) company borrowing contracted a little over the month, pretty much reversing the modest increase in May. The continuing problems facing the construction industry were visible in the sixth consecutive monthly drop in lending to the sector. Meanwhile although borrowing by the real estate sector edged up again, the suspicion is that this reflects the use of pre-existing credit lines rather than any enthusiasm on the part of banks to raise their exposure to this part of the economy.”

Tesco supermarket is pushing its banking arm by applying for a separate credit rating for Tesco Personal Finance, allowing it to accelerate a move into mortgage market. 

Giving Tesco’s banking arm its own credit rating would enable them to borrow from the money market direct, rather than through the supermarket parent company.

Senior Tesco executive Andrew Higginson told the Financial Times that wholesale funding would let Tesco Personal Finance speed up growth into the UK mortgage business.

But Tesco will not pursue the risky strategy that led to the demise of Northern Rock, which was heavily dependent on the money markets and hit by the credit crunch.

Higginson, chief executive of Tesco’s retailing services arm, which includes TPF, told the FT: ‘We are very much moving towards being a standalone bank. If you’re going to build a sizeable mortgage book, you would have to think about wholesale funding.’

Tesco Personal Finance, which bought out Royal Bank of Scotland’s 50% stake in the then joint venture for £950m last year, would remain part of the supermarket chain and not be separately listed on the stock market.

The bank has substantially grown its savings business over the past year, with deposits rising from £2.5bn last October to £4.5bn today, thanks to its perception as a safe port in the banking storm and a table-topping savings offering in late 2008.

Tesco boss Sir Terry Leahy has said he wants to turn TPF into ‘the people’s bank’, and the supermarket knows it could make big profits from public disillusionment with the major UK banks.

Tesco is reported to be planning to launch mortgages within the next two years and a separate credit rating would give it more clout in securing money market funding for its mortgage book.

Higginson would not comment on rumours that Tesco was considering buying Northern Rock, but said that ‘Big acquisitions are not the Tesco way.’

The total mortgage lending in the UK  rose in June compared with the previous month, according to latest figures from mortgage lenders.

The amount lent in the UK reached £12.3bn in June, up from £10.5bn in May.

However figure was still 48% lower than in June 2008.

A separate Bank of England report suggested a subdued UK credit market.

Mortgage rates are rising to their highest since the Bank of England cut interest rates to a record low.

Meanwhile the London interbank offered rate (Libor) is down to its lowest level 1986, but still mortgage rates are not dropping.

Consumers are increasingly faced with a situation where lenders increase rates when their costs rise, but do not drop them when rates fall.

Libor yesterday stood at 0.97 per cent – but the average mortgage rate, according to moneysupermarket.com, is at 5.29 per cent – creating a 4.32 per cent margin.

Meanwhile, on March 10th average mortgage rates were 5.63 per cent when Libor was at 2.03 per cent – a difference of 3.6 per cent.

Louise Cuming, head of mortgages at moneysupermarket, said: “Banks and building societies are benefiting from the lowest borrowing rates for two decades but this isn’t being passed on to consumers.

“Libor has fallen below one per cent yet all three key average mortgage rates (for two and three year fixed products and two-year tracker deals) have actually increased in the past week alone.”

Swap rates – which are used by lenders when setting fixed rate mortgages - have also been falling.

The Council of Mortgage Lenders (CML) this week defended the industry by stating other costs were keeping mortgage rates up.

The body claimed the cost of increased forbearance to more homeowners who are struggling with their mortgages, the needs for more capital, and the higher funding costs from competition in the savings market and on wholesale markets were holding up rates.

“As lenders will face increasing costs for some time, upward pressure will remain on mortgage spreads on new products,” a CML spokesperson said.

“It is misleading to assume that higher fixed rates simply reflect a desire to increase profitability.”

Ray Boulger, at mortgage broker John Charcol, explained money market rates have dropped in the last month over fears the recession will last longer and interest rates will have to stay low for longer.

“It now looks as if Bank rate will stay low - although not necessarily at 0.5 per cent - for at least two to three years and the general view is that the risk of inflation returning soon has also diminished, although of course these two factors are closely linked.”

He added since the end of last week a few lenders, including Woolwich, Lloyds TSB/Cheltenham & Gloucester, Halifax and Britannia have announced small reductions of 0.1 per cent to 0.3 per cent in selected fixed rates.

“But in general lenders have at best left their fixed rates unchanged and some, including Northern Rock, have further increased their fixed rates, as a result of which many now look expensive,” Mr Boulger said.

The debate now stands over whether borrowers looking to buy or remortgage should opt for a fixed rate mortgage or a tracker.

“Many fixed rates are now beginning to look expensive and trackers generally look better value for borrowers who don’t need the security of a fixed rate,” Mr Boulger said.

“Too much of the anticipated rise in interest rates is now factored into fixed rates.”

He stated the trackers offering the best value were generally lifetime trackers, either those with no early repayment charges (ERC), such as HSBC, or a low ERC, for example Woolwich and Abbey, or alternatively those with a droplock option, which is only offered by Nationwide and RBS.

“Any of these options will leave borrowers free to switch to a fixed rate without significant costs when fixed rates again start to look attractive,” he said.

“An alternative would be a 2 year tracker as the ERCs will only last for two years, but this is a more risky option because if it looks right to switch to a fix within two years it would be expensive because of the ERC.”

Quarterly sterling LIBOR has dropped under the 1%  for the first time ever. 

In its quarterly sterling update today the British Bankers’ Association reveals that it has now plunged to 0.99%. Three-month LIBOR has been steadily falling over the last year, but as the CML explained yesterday there are a wide range of factors inhibiting lenders from lowering rates.

The fall below the 1% mark is the first time since the inception of the three-month LIBOR index on January 1 1986.