Tag Archives: lending
Over half of UK home borrowers will struggle if interest rates rise, says new poll
Some 52% of borrowers in the UK believe they will struggle or fall behind with mortgage repayments when interest rates rise, according to new research published by the Building Societies Association. The survey has revealed that one tenth would experience real financial problems. A further 14% said they would be able keep up with repayments, but it would be a constant struggle, while almost a quarter, 23%, said that they would experience difficulty from time to time. When questioned about the impact on their lifestyle, 18% of borrowers said they will have to cut back on essentials such as food or clothing in order to make their monthly repayments. A further 15% said they will have to work more hours in order to keep on top of their mortgage commitments. ‘Concern from borrowers is natural when it comes to interest rate rises. There are at least 1.85 million home owners that have never experienced a rate rise, we have a record low Bank Base Rate for so long, it is unsurprising that some people are concerned that a rise in rates will affect their lifestyles and ability to make mortgage repayments,’ said Paul Broadhead, head of mortgage policy at the BSA. ‘Clearly some of the actions borrowers say they would take may not be within their control, for example working additional hours. Our advice to those concerned about interest rate rises is to start thinking about how they will manage the increased costs. This could include creating a household budget, to taking a look at mortgage calculators and rescheduling unsecured loans such as credit cards. Free money advice is available for those that are concerned,’ he explained. ‘The good news is that the results of our survey show nearly a quarter of borrowers will not have to make any changes to their lifestyle when interest rates rise. With the economy more stable than it has been for years, this is a positive result,’ he pointed out. ‘That said, with inflation near zero and the Monetary Policy Committee voting by a majority of eight to one to maintain the Bank Rate at 0.5%, it is looking unlikely that things will change before well into 2016,’ he added. Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline, said that after years of low rates, borrowers’ minds are beginning to focus on the prospect of higher interest rates, and what this will mean for their finances. ‘Nevertheless, many mortgage payers are still in for a big financial shock when rates do start to climb and we remain concerned that many will fall into problem debt as a result. We must not forget that renters, too, are likely to be affected as extra mortgage costs are passed on by landlords,’ she explained. ‘Households now have a window of opportunity to re-assess their budgets, look again at their borrowing and think about how they will cope with higher interest rates. It is crucial… Continue reading
US existing home sales fall after three months of growth
Following three straight months of gains, existing home sales in the United States dipped in August despite slowing price growth and a positive turnaround in the share of sales to first time buyers. Total existing home sales, which are completed transactions that include single family homes, town homes, condominiums and co–ops, fell 4.8% to a seasonally adjusted annual rate of 5.31 million in August from a slight downward revision of 5.58 million in July. While none of the four major regions saw sales increase in August, the index report from the National Association of Realtors (NAR) says that sales have risen year on year for 11 consecutive months and are 6.2 % above a year ago. Lawrence Yun, NAR chief economist, explained that home sales in August lost some momentum to close out the summer. ‘Sales activity was down in many parts of the country last month, especially in the South and West, as the persistent summer theme of tight inventory levels likely deterred some buyers,’ he said. ‘The good news for the housing market is that price appreciation the last two months has started to moderate from the unhealthier rate of growth seen earlier this year,’ he added. The index also shows that the median existing home price for all housing types in August was $228,700, which is 4.7% above August 2014 when it was $218,400. The market has now seen 42 months in a row of year on year gains. The report also shows that total housing inventory at the end of August rose 1.3% to 2.29 million existing homes available for sale, but is 1.7% lower than a year ago. Unsold inventory is at a 5.2 month supply at the current sales pace, up from 4.9 months in July. ‘With sales and overall demand higher than a year ago and supply mostly unchanged, low inventories will likely continue to limit options for those looking to buy this fall even with the overall pool of buyers shrinking because of seasonal factors,’ said Yun. The percent share of first time buyers rebounded to 32% in August, up from 28% in July and matching the highest share of the year set in May. A year ago, first time buyers represented 29% of all buyers. Yun believe that when the Federal Reserve decides to lift short term rates, which is expected later this year, the impact on mortgage rates and overall housing demand will likely not be pronounced. ‘With job growth holding steady, prospective buyers can handle any gradual rise in mortgage rates, especially if today's stronger labour market finally leads to a boost in wages and homebuilding accelerates to alleviate supply shortages and slow price growth in some markets,’ he added. NAR released a study earlier this month that examined new home construction in relation to job gains. The findings revealed that home building activity is currently insufficient in a majority of metro areas and is contributing to the ongoing housing shortages and unhealthy… Continue reading
Research shows interest only mortgage numbers in UK are falling
Concerns have been growing in the UK over the number of home owners with interest only mortgages who do not have enough finance to cover themselves when their loan comes to an end. But new research shows that over the past two years the total number of interest only loans outstanding has fallen by over a quarter with a 16% reduction in the number of loans over the past year alone. According to the Council of Mortgage Lenders the progress that has been made and the ongoing steps that are being taken by the industry to check that borrowers with interest only mortgages have plans for how they will repay their loans at maturity is encouraging. As at the end of 2014, CML members reported that there were around 1.9 million pure interest only mortgages outstanding, and around 460,000 part interest only mortgages. This was around 300,000 fewer pure interest only mortgages and 160,000 part interest only mortgages than a year earlier. The CML research suggests that a quarter of this reduction is down to natural attrition, which is loans maturing and repaying at the end of their term. Around a third can be attributed to full redemption of loans not set to mature until at least 2028, suggesting that many borrowers are taking action well before problems could arise. This also suggests that a significant group of borrowers are successfully remortgaging onto full repayment terms without falling foul of new affordability rules. Of those loans that have matured, few have failed to repay. In total, there are fewer than 16,000 loans outstanding which have matured but not yet repaid or restructured and previous experience shows that most such loans subsequently redeem within a relatively few months of maturity. However, the CML said there is no room for complacency and members are continuing to think about the options for customers who may not be able to repay their mortgages. This includes more partnering with third party advice providers, including equity release firms, and product innovations that may help some borrowers. The CML also pointed out that it remains a challenge to get borrowers to respond to lender contact designed to help them plan for their mortgage's repayment at maturity. Lenders contacted around 427,000 interest only customers between April and December 2014, about 17% of all interest only borrowers. During 2014, the focus of lender communications moved beyond those whose mortgages are due to mature by 2020, and included borrowers whose mortgages are not due to mature until after this. Response rates by borrowers varied. Around 27% of those contacted whose mortgages are due to mature between 2021 and 2028 responded but only a disappointing 2% of those whose mortgages are not due to mature until after 2028 did. However, where lenders did succeed in getting customers to respond, 86% of those who responded had a repayment strategy, and those who did not appeared responsive to making changes such as switching to repayment terms,… Continue reading
