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HSBC has pledged £500million of extra mortgage funding to help get first-time buyers on to the UK property ladder.

Figures announced yesterday by the Bank of England  revealed that mortgage approvals fell in August for the first time in 10 months.

HSBC has already loaned £1billion this year to buyers who can only raise a 10% deposit, helping make the banking giant the UK’s largest mortgage lender in the first half of 2009.

Martijn van der Heijden, head of mortgages, said: “Prices seem to have bottomed out and rates are low – so many of those who put off buying last year are looking around.”

HSBC’s 10% deposit deals are just for those who are buying a house, not for remortgaging. Its best two-year fixed rate mortgage is at 5.99%, with a £599 arrangement fee.

The Building Societies Association has called for the Government to remutualise Northern Rock.

The move comes following a report published by the Centre for Mutual and Employee-owned Business at the University of Oxford, which concluded that there are three economic arguments for a stronger mutual sector as part of a mixed financial system: ‘bio-diversity’, risk appetite and competition.

A financial system with diverse ownership and governance structures is better able to weather the strains of the business cycle than one which is plc-dominated, according to the report. Mutuals can counter-balance the short-termist pressure of the City and also help reduce the concentration of financial sector resources and employment in the City, dispersing wealth and welfare to regional and local economies.

The report also found that mutuals tend to adopt a lower risk profile because their objective is safety and fair pricing for members, not profit extraction for shareholders. Also, keeping a reformed Northern Rock independent of the big banks would be good for competition. A remutualised Northern Rock would help the Government to meet its policy objective of supporting competition and diversity through the maintenance of a strong mutually-owned financial sector, according to the report.

Commenting on the report, The Rt Hon John McFall, MP, chairman of the Treasury Select Committee, said: “This is a timely contribution to the debate on the future of our financial services sector. If ever there was a time for an expanded mutual sector, it’s now. We desperately need to restore faith in financial services in this country”

Adrian Coles, director-general of the Building Societies Association, said: “The Government has said that financial mutuals can provide a robust alternative to financial services companies in the future – what better way to demonstrate this than to seriously consider returning Northern Rock to the mutual sector?

“Given that remutualisation would strengthen competition and create a more diversified financial sector, it could be expected to generate an advantage to the taxpayer over the long run in excess of the immediate benefit of any capital proceeds in the short run.”

With fixed rate mortgages refusing to fall much in price, variable rates or discounted rates mortgages continue to be flavour of the month in August. Read the rest of this entry »

Lloyds Bank pulled off the first significant mortgage securitisation deal yesterday since  the start of the recession and global credit crunch.

They managed to sell a book of “prime” grade home loans that were advanced by Halifax, the subsidiary that came to the company when it merged with HBOS.

The sale, to institutional investors, was two times oversubscribed at 170 basis points over Libor – the rate at which banks lend to each other – which stood at 0.561 per cent yesterday.

Given that the loans are graded “prime” – a classification given to the most credit worthy borrowers who have a low risk of default – that is expensive particularly when compared to pre-crunch prices.

However, the securitisation market – a key source of funding for lenders – had all but dried up and the fact that the bank has successfully managed to get a sizeable deal away means other lenders may attempt similar moves over coming weeks.

The success also gives further evidence of the recovery of the financial services market place. Lord Turner, the chairman of the Financial Services Authority, said at Mansion House that it was no longer on the critical list.

The issue attracted investors from 16 different countries, although they mostly came from the UK and continental Europe. Securitisation involves the packaging up of products like loans and their sale to institutions who buy them to secure a regular coupon in return.

The London InterBank Offered Rate, dropped again this week, reaching 0.57%. It has fallen gradually since the start  of July, hitting a new low almost every single  day.

The Bank of England has kept interest rates on hold at 0.5 % and economic experts from the city suggested Libor is just days away from falling to the same level. as the Bank of England Base Rate. 

Mortgage lenders are enjoying  low cost wholesale borrowing but are currently refusing to pass on the savings to borrowers, with customers paying an average of 3.8 % on a two year tracker mortgage.

Figures that were made available to  for The Daily Telegraph show the difference between three month Libor and the average two-year tracker was 0.29 % at the beginning of the credit crunch in August 2007.

Showing a rise to  3.21 %, according to the research by personal finance website Moneyfacts.co.uk.

The profit margin on mortgages has risen dramatically during the financial crisis as lenders fear that home owners will default on their loans.

Michelle Slade, a spokesman for Moneyfacts, said: “Lenders are taking, what appears to be an excessive margin for risk from those homeowners that are struggling the most. Falling house prices has dwindled away the equity in their homes and they are being dealt a further blow by having to pay mortgage rates at similar levels to those available two years ago when bank rate was 5.75 %.

“Libor and bank rate are at an all time low, but tracker rates, similar to fixed rates have not fallen in line. The margin taken on trackers has moved to an all time high as lenders are concentrate or repairing their balance sheets rather that helping borrowers.”

Hannah-Mercedes Skenfield, a spokesman for personal finance website Moneysupermarket.com, said: “This might just mean the market is returning to pre-crunch conditions, and we could even see Libor fall below the Bank Rate in the near future – meaning inter-bank lending will be cheaper than the official lending rate which the Bank of England offers to the market. Theoretically, consumers should reap the benefits of reduced mortgage rates.

“However, there is still no evidence of rate cuts being fed through to the consumer. Banks can no longer hide behind higher Libor rates as an excuse for keeping mortgage rates artificially high, but I fear consumers will still be forced to pay through the nose for credit of any kind.”

Nearly 90% of landlords who tried to take out a buy-to-let mortgage during the last quarter to the end of August said it was more difficult to get finance than during the previous three months.

Only 3% of BTL Investors said they had found it easier to get a mortgage, while 8% said nothing had changed, according to specialist lender Paragon Mortgages.

With wholesale markets drying up during the recession, the buy-to-let mortgage market has been hit really hard.

The amount  of BTL mortgages available for buy-to-let properties has dropped by 94% since August 2007, when the credit crunch struck, to just 196 now.

But while there are signs that conditions may be improving in the wider mortgage market, the availability of buy-to-let mortgages has continued to fall in recent months, dropping from 218 in May.

John Heron, Paragon Mortgages‘ managing director, said: “Product availability in the general mortgage market has improved slightly in recent months, but has worsened for the buy-to-let market.

“Mainstream lenders are reducing their focus on this sector and specialist lenders are still unable to access the wholesale funding markets to enable them to offer new products.

“We know that there is demand from investors to purchase new property, particularly with returns from savings products being so low, but they are being frustrated by a lack of mortgage supply.”

He said buy-to-let lending levels had slumped, and warned that there was a real danger the private rented sector could start to contract, particularly if so-called accidental landlords began to sell their homes now that the housing market was picking up.

He said: “This would be disastrous for those sectors of the population that rely on the private rented sector for their housing needs.”

The UK mortgage market is showing slight signs of recovery with the number of mortgage products increasing gradually.

However, only borrowers with a minimum deposit of 25% or more are likely to feel the benefit.

Research since the beginning of April, has shown the number of deals on the market has increased from 1209 to 1329.

While there is evidence of improvement, this figure compares with almost 12,000 home loans available in July 2007.

Todays market still remains dominated by deals for those borrowers with at least a 25% deposit as mortgage lenders look to pick and choose the best customers.

Borrowers seeking a 90% loan to value (ltv) mortgage now have just over 100 products available from, The best mortgage deal on offer for a borrower with just a 10% deposit is 2% higher than that available to those with a 40% deposit, adding over £170 per month to the cost of a £150,000 mortgage.

The lack of any competition in the mortgage market place is having a huge impact. None of the large mortgage lenders seem to want to be the first to cut mortgage interest rates as they are worried they will be inundated with applications.

Abbey and Alliance & Leicester Intermediary Sales have reduced rates on some of their three year fixed rate and tracker mortgages.

A&L launched a three-year fixed rate mortgage for remortgages at 4.88% at 70% LTV and with a booking fee of £995, and is also offering the same product withthe choice of a 1% booking fee instead.

Abbey for Intermediaries is also offering the 4.88% deal with the £995 booking fee.

It is also offering a 3.19% tracker for three years for both remortgages and purchases.

The deal is available at 75% LTV and comes with the same £995 booking fee.

Both ranges will be available from today.

The latest Lloyds TSB Scotland Business Monitor shows the Scottish economy on track to exit recession by the end of 2009.

This figures for the three months ending 31 August 2009 shows 40% of firms surveyed reported a downturn in turnover, 33% reporting static turnover and 27% reporting an increase, giving a net balance of -13%, a marked improvement on the previous quarter’s figure of -21%.

Service businesses show the most obvious signs of improvement, with businesses reporting a net balance on turnover of -7%, compared with a figure of -19% in the last quarter. Volumes of both new and repeat business have improved in the last three months.

Production businesses showed a slight improvement in turnover with a net balance of -24%, compared with -26% in the previous quarter. Output in the production sector is still in decline but the rate of decline is lessening.

Expectations of increasing turnover in the next six months remain negative for the fifth consecutive quarter, but at -1% and only just negative, they have improved markedly. Three months ago, this figure stood at -10%, six months ago at -28% and nine months ago at -44%.

In the service sector, for the first time in 15 months, more firms expect turnover to increase in the next six months than decrease. If these expectations are realised, the Scottish economy should exit recession and return to growth by the year end. Expectations of production businesses have improved but remain negative and significantly worse than for service businesses with the net balance standing at -10 %, up from -15% in the previous quarter.

For the whole of 2008, businesses were increasingly pessimistic about the level of demand for their products and services. This has reversed for three consecutive quarters with firms indicating a further fall in the importance of weakening demand in the latest quarter. This coincides with the improvement in forward looking indicators in the Business Monitor and is consistent with a return to economic growth by the end of this year.

Professor Donald MacRae, chief economist, Lloyds TSB Scotland said: “The Scottish economy last year entered the worst recession for decades. Output decline has been sharp and large. However, this latest Business Monitor shows the service sector about to emerge from recession with production businesses some way behind. Most forward looking indicators are showing an increase in expectations for the remainder of the year suggesting a return to economic growth for the Scottish economy by the end of 2009.

“The effects of the recession are fading but the Scottish economy has yet to fully emerge from decline into growth.”

The Woolwich has launched a  new mortgage range including a one-year tracker at 1.98 % , Barcleys base rate plus 1.48%.

This is just lower than the HSBC deal of 1.99 % which was launched a few weeks ago.  But although the mortgages under 2 % look great at first glance, there are some nasty exit fees. Woolwich’s loan carries a heavy penalty for those wanting to get out in the first three years.

The early repayment charge is 2 % of the amount outstanding. With the minimum loan being £200,000, homeowners wanting to leave within three years would have to pay at least £4,000. 

The danger is that after the first year the loan reverts to Barclays’ base rate plus 2.49 %, which would make it 2.99 % currently. But there’s no guarantee that the bank’s base rate will exactly mirror the Bank of England base rate over this time, so you could find yourself trapped in an expensive mortgage.

The arrangement fee at £999 is cheaper than HSBC’s at £1,199.

Total cost of the mortgage over three years on a £200,000 mortgage repaid over 25 years is £33,923 with HSBC and £33,794 with Woolwich making it slightly cheaper by £129.

Both Woolwich and HSBC restrict these mortgage rates to 60% LTV. 

The other major difference is that HSBC’s loan is available only to home purchasers, while Woolwich is offering it to remortgagers aswell . To me it doesnt look like such a great deal so be aware of the cost to exit early.