Northern Rock may well be better known for its history in the mortgage business, but it has a whole raft of products on offer to customers, including a just launched Issue 2 of the Little Rock Fixed Rate Bond.

Its mortgage business aside, Northern Rock has been a major player in the children’s savings bond market and the launch of Issue 1 of the Little Rock Fixed Rate Bond, which was originally launched in early August, was a great success.

Northern Rock are keen to point out that Issue 2 of the Little Rock Fixed rate Bond is a three-year investment vehicle and offers a highly competitive rate of interest for only a one pound minimum deposit.

Anyone under the age of 16 can open an account, accompanied by the name of an adult acting as account trustee. Those holding an account are known as ‘Little Rockers’.

Those wishing to open an account can do so from a branch of Northern Rock, or via a postal application. A choice of free gifts are also available for those opening a new account.

Cash, cheque, or transfer can be used to open an account and no more than £20,000 can be paid in. Withdrawals are not permitted before 1 October, 2013, the time when the account reaches maturity. Northern Rock reminds its customers that the account is a limited issue which can be withdrawn from new entrants at any time. Also, the account is non-redeemable.

Interest is paid annually on 31 August and is offered at 4% gross per annum.

Given its recent difficulties and track record in the mortgage business of the original Northern Rock, it’s no surprise that the institution is at pains to highlight its new openness.

The announcement accompanying news of the Issue 2 of the Little Rock Fixed Rate Bond comes with the declaration:
“In keeping with Northern Rock’s commitment to providing openness, transparency, and fair treatment of customers, full product details for Northern Rock accounts are available on application in the Terms and Conditions.”

Guest Article by Neil Camp

Goldman Sachs has had a $550 million fine imposed on it to settle civil fraud charges after it was accused of misleading investors on major mortgage deals.

The huge investment bank raised concerns over the way it marketed the mortgage deals to investors at a time when the US housing market was about to enter stormy waters.

Levying the fine, said to be the biggest smack on the wrist for a bank in history, was the Securities and Exchange Commission which acts as the US finance watchdog.  The case centred on allegations that Goldman Sachs did not reveal key information when one of its clients, a firm named Paulson & Co and a major hedge fund, was party to choosing which securities were placed within a mortgage portfolio called Abacus, which was then marketed and sold to investors throughout 2007. The key information was that Paulson & Co had at the same time ‘bet’ that the value of the mortgage securities would fall.

And the securities did fall, losing the Abacus mortgage fund some $1 billion in the US housing market collapse. The $1 billion was paid to Paulson & Co, which had effectively stood on both sides of the deal as a ‘short’ investor; a fact not relayed to the investors in Abacus.

Some of the big losers in the deal will get some compensation. The Royal Bank of Scotland, which took a $840 million hit, will receive $100 million, still a huge loss, and the German bank IKB Deutsche Industriebank will get back $150 million, recouping nearly all their losses.

The US Treasury gets around $300 million of the fine proceeds when the deal is finally approved by a federal judge.

But although Goldman Sachs received the record fine, industry experts say that the investment bank got off lightly. Such is the level of the bank’s profits, that the fine would be effectively recouped in a matter of weeks. Also the Goldman Sachs share price rose nearly 5% on the news, meaning that they got a nearly one billion dollar boost to their market capitalisation.

This is unlikely to be the last chapter in the Goldman Sachs mortgage deals saga.

Guest Article by Neil Camp

The recent report from the Financial Services Association (published 13.07.10) made the point that the share of interest only mortgages has been increasing.

It said that at the peak of the market, over 30% of all mortgages taken out were interest only.

And what worries the Financial Services Association, is that many people taking out interest only mortgages do not have a suitable financial vehicle to pay them off once they are due. A large number of people rely on house inflation, or other plans (such as a windfall, or hoped for inheritance) to see them through at the end of the mortgage term.

These findings were part of a larger report which made a number of observations. Most worryingly was that nearly half of all households with a mortgage had either no money left, or indeed had a shortfall, every month after the payment of the mortgage and living costs.

This has encouraged the Financial Services Association to enforce lenders to ensure that people can actually afford the mortgage they are thinking of signing-up, has signalled the virtual ending of the self-cert mortgage (where people verify their own income) and told financial institutions to be more aware of possible problems with their borrowers should they start falling behind on payments. It stated that those borrowers with a damaged credit history were very vulnerable.

As for arrears charges for those that fall behind on their mortgage payments, the Financial Services Association conducted a review, as part of their report, and discovered that there was a wide variation in penalty fees across the market.

The Financial Services Association reminded lenders that mortgage rules exist which state that arrears charges should be based on reasonable costs incurred by the lender as a result of their customers being behind, rather than linked to punishing penalty charges. In other words, the charges should mainly cover the administrative cost of being in arrears.

The Financial Services Association is asking the mortgage industry and consumers for further views on interest only mortgages and the state of the industry in general. Responses should be completed by 16 November, 2010.

Guest Article by Neil Camp

In a move which many see as the ending of self certification mortgages, the Financial Services Authority has just outlined tough new proposals on mortgage lending.

The Financial Services Authority has said that it intends to ensure that all borrowers can afford to pay back a new mortgage.

In its new super role as consumer protector and day-to-day supervisor of the financial services sector, the Financial Services Authority is overseeing mortgage companies to make sure that responsible lending is once again the order of the day.

Observers see this as a direct attack on self certification mortgages which helped fuel the economic downturn. Many people taking out new mortgages were effectively encouraged to borrow too much by being able to quantify their own earnings. This resulted in inevitable abuse as borrowers were over generous in assessing their own income levels and some actually fabricated their own figures to gain a mortgage.

The Financial Services Authority, FSA director responsible for the mortgage market, Lesley Titcomb, said:
“There is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford to pay it back.

“While it is clear the mortgage market has worked well for many, we need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers.”

The Financial Services Authority main proposals are:

• imposition of affordability tests for all mortgages;
• enforce lenders to be ultimately responsible for assessing a customer’s ability to pay;
• insist on verifying the income of the borrower on every mortgage application, which will prevent self-certification abuse and reduce opportunities for fraud;
• create increased protection for customers who are vulnerable and suffering from poor credit histories.

Industry experts say that the Financial Services Authority is a little behind the times, as most lenders have either voluntarily tightened their lending rules, or have been forced into doing so because of the new economic realities.

The age of the self-certification mortgage is over.

Guest Article by Neil Camp

One of the beleaguered British banks no doubt anxious to spread some good news is Lloyds and in their role as the leading UK mortgage lender, they have launched a scheme to overpay their mortgages by up to 20% with no financial penalty.

This applies to holders of standard variable rate mortgages and according to Lloyds, there has never been a better time for most people to repay more on their mortgage than planned. This is of course because of the current historic low mortgage rates.

The new scheme will last until 31 March, 2011, and say Lloyds, as many customers as possible should take advantage. This is because of the low rate environment, which means that affordability has improved significantly. Lloyds make the point that mortgage payments (capital and interest) accounted for 32% of average post earnings in 2009 quarter four. But in quarter four 2007, they accounted for almost half, 47%. And when you do the maths, this means that the amount of money customers have remaining after tax has increased by 15 percentage points since quarter four 2007 across a range of mortgages.

And Lloyds have backed up their opinions with independent research, showing some 25% of mortgage consumers questioned on the matter in a recent survey, were already choosing to pay more off their mortgage. And of those choosing to do so, around half said that they were overpaying their mortgage to reduce its length. Furthermore, under a quarter said they were overpaying to pay less interest.

Stephen Noakes, the commercial director of mortgages for the Lloyds Banking Group said:
“With mortgage rates at an historic low, there has never been a better time for the majority of people to overpay their mortgage. The average mortgage repayment has dropped by around £188 per month. And those on tracker mortgages have done even better – on average they are just over £400 a month better off. Customers have a choice to make to gain maximum advantage from the extra cash in their pocket.

“We are seeing our customers behaving very rationally. A number of whom are not necessarily banking the reduction in their interest payments but are actually using that to pay down their interest. This is a very positive move. Not only can it help customers shave interest off their mortgage, it also means less of a payment shock should interest rates begin to move back up.”

Lloyds also provided some figures to support their argument and their new scheme. They said that on a £100,000 mortgage with an SVR of 3.5%, overpaying by just £50 per month will reduce the term of a mortgage by three years and six months. It will also save a customer £14,576.04 (£7,557.24 in interest and £7,018.80 in mortgage payments).

So if you’ve got some spare cash, you know what to do.

Guest Article by Neil Camp

The main reason for switching mortgages is to get a better deal and people should not always think that loyalty to one lender is the best approach, especially with a mortgage that can last 25 years.

A mortgage is a financial product just like any other and they are very susceptible to not only consumer market forces, but also the financial markets. Indeed, they could be seen as a fluctuating financial product that just because maybe they are based on a long term deal, does not mean that they are dormant.

The mortgage market itself is in a constant state of flux as lenders adjust their prices to keep abreast of external financial forces, including interest rate changes, and also to adapt to consumer trends and needs.

It is also a sophisticated market and one which requires a degree of research and care, so as to get the best deal. And with a mortgage switch leading to potentially hundreds of pounds less in payments – especially acted upon when good rates are around – it’s always best to do your homework and if you feel in any way intimidated, get professional advice.

And for people with certain types of mortgages – mostly those with a ‘suppressed’ payment element which have a limited time to run, which then revert back to another rate – the exercise of switching mortgages is more a necessity, rather than a luxury if they want to avoid higher repayments. Thus, standard rate mortgages, known as SVRs, tend to have higher payments, than the incentives types which are known as tracker mortgages, fixed-rate mortgages and variable rate mortgages.

And competitively priced mortgages are used as short-term marketing tools in order to get people signed-up. And once that period ends, often in two years, the rate reverts to the rates offered by the SVRS and this then is the most common time to switch a mortgage. Of course, when taking out a special mortgage deal, it is extremely difficult for the consumer to try and guess where the mortgage market will be once their special price has finished.

The worry in the current recessionary times for many people is that they were on such good deals offered at a time when the market was extremely competitive, but they will be forced into re-mortgaging when the market is in the doldrums and many lenders do not want, or cannot afford, to write new business at low rates. Therefore, for those people, switching mortgages is imperative.

If you’re asking yourself, which mortgage should I switch to, then it all comes down to personal circumstances; it is not a matter of one size fits all. It can be a fast and simple process, but it does require some paperwork. Always bear in mind that the cheapest looking deal is not necessarily the right one for you.

It may be that you fancy a repayment mortgage, because the idea of paying off the mortgage capital and lump sum together appeals to you. It may be that an interest only mortgage, which does not repay the capital, with some other financial vehicle should be in place to do so, might also be appealing. Such things as security and flexibility also play their part.

In practice, most mortgages are switched to a limited number of mortgage types. When you switch to a fixed rate mortgage, it means that, for an agreed period, you will be paying, as the name suggests, a fixed amount of money. On the other end of the scale, a tracker mortgage moves up and down tracking an agreed base rate, so can be a little bit of a gamble, but can, if taken out at the right time, save thousands of pounds. The other two products that people often switch to are discounted rate mortgages (an agreed discounted rate for a certain period of time) and variable rate mortgages (rate moves up and down in line with the rate dictated by the lender).

The actual cost of transferring is of course a consideration, but if completed properly, then these are usually outweighed considerably by the savings of the cheaper mortgage. But expect to pay such things as legal, product, arrangement and valuation fees. Also, some borrowers may charge for a switch, or moving out of a mortgage early. As always, read the small print if you want to avoid heavy penalties.

The simple message is, if you have a mortgage, consider swapping it, as you could save yourself a fortune.

Guest Article by Neil Camp

The Financial Services Authority (FSA) has come up with a number of proposals for major reforms of the UK mortgage market.

Their just published mortgage market review discussion paper is an attempt to make a better market for consumers and one that is more sustainable for the participants.

And the active involvement of the FSA in the mortgage markets reflects a changed approach for the regulator, one that is based on a more intrusive and interventionist style of control.

The key features of the review are as follows:

• introduction of affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay;
• ‘self-cert’ mortgages to be banned, meaning that a verification of income is required;
• removal of products that contain certain ‘toxic combinations’ of characteristics which put borrowers at risk;
• abolition of arrears charges when a borrower is already repaying and making sure that firms do not profit from people in arrears;
• mandatory that all mortgage advisers be personally accountable to FSA;
• wish to see FSA’s brief to cover buy-to-let and all lending secured on a home.

Jon Pain, FSA managing director of supervision, said:

“The mortgage market has seen extraordinary upheaval over the last 18 months and whilst it has worked well for the vast majority of borrowers, some have suffered great financial distress. We recognise that we need to bring about a step change in regulation and we need to act now to address the issues we have identified.

“The paper sets out the main findings of the FSA’s comprehensive analysis of the mortgage market. It clearly shows a rapid explosion in mortgage products; the emergence of high risk lending strategies which typically focused on higher risk borrowers; relaxed credit standards; and a mutual assumption by too many borrowers and lenders that the good times could not end.

“The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms.”

The review has also identified that the irresponsible lending practices seen in the market until recently will be curtailed by the FSA’s existing work on capital and liquidity.

The FSA make the point in their announcement that the proposals are aimed at tackling the current perceived problems with the mortgage market. And the regulator stresses that it has not ruled out further change if the initial proposals do not have sufficient effect, including caps on loan-to-value, loan-to-income or debt-to-income.
The FSA paper will be out for discussion until 30 January, 2010, during which time it will actively seek views from the mortgage industry, consumers and consumer groups. A further statement, outlining intended courses of action, will be issued in March 2010.

Guest Article by Neil Camp

The internet continues to influence people’s buying habits and recent research has shown that although more homeowners than ever want to apply for their next mortgage online, the financial services industry isn’t making things easy for them.

The research comes from Foolproof, the UK’s second largest user experience design company, who found that that 42% of those who currently have a mortgage had used the internet when they originally arranged it.

What’s more, the report stated that the number of people who said they had applied for their current mortgage online had risen considerably from 9% in 2007 to 18% in 2009. And of those questioned about their next mortgage, almost a half said they would expect to go as far as apply and buy online.

Then the problems start though, as the users high expectations are more often than not disappointed by what they find. The research found that the mortgage industry has made very little progress over the last two years in delivering what consumers require from their lenders

Tom Wood, founding partner of Foolproof, said:
“The last two years’ economic problems have focused consumers’ minds on the need for better quality information on financial products before committing themselves to a purchase. For mortgages, consumers are rightly trying to research thoroughly the changed market, product availability and lending conditions but are being hampered by the fact that the mortgage industry has failed to make any noticeable progress in improving its online content. The net result is that in 2009 the online mortgage offering is worse than it was in 2007.

“Because it is such a poor experience for most, they are being forced against their instincts and preferences to contact a mortgage adviser rather than being able to do-it-themselves. Sites such as moneysavingsexpert.com and moneysupermarket.com are proving popular in informing online consumers and Google is making some headway in making mortgage-related search results more relevant and rewarding. But the industry collectively needs to improve its game immensely if it hopes to make the online channel more accessible to mortgage shoppers.”

It seems that the online financial services sector has some way yet to go with offering a complete user friendly experience.

Guest Article by Neil Camp

The cost of home loans will rise steeply in the near future say mortgage experts.

The main lenders are expected to raise the cost of mortgages and brokers expect five-year fixed rates will be the main target, but also three and two year deals won’t be far behind.

The pressure comes as banks are having to pay more for funds and a significant rise in swap rates (which influence fixed rate lending costs). This is despite a low base interest rate.

Brokers are advising customers to sort out their best deals at the moment, before such offers are gone for good. For example, a good five-year fixed rate is currently just below five per cent, but this will increase shortly.

What concerns many financial observers is that the banks could effectively kill the recovery if they try to grab too much money from their customers via increased mortgage rates. With things at such a sensitive stage, banks trying to retain their margins will work against a major step forward in the housing market.

Guest Article by Neil Camp

For a long time parents have helped their offspring get on the housing ladder, but a new mortgage from Lloyds TSB has made such assistance official.

Their new mortgage product called Lend a Hand offers first-time buyers a generous 95% of the property valuation. Such a low deposit of only 5% has been effectively unavailable since the housing crisis started.

Offered at a fixed rate for three years of 4.39%, the catch (or opportunity is, whichever way you look at it) is that the borrowers’ parents deposit a sum of money with Lloyds TSB. The sum required is 20% of the property value and will be lodged in a savings account. Whilst there, it will pay a fixed interest rate of 3.5% and although the parents will retain the ownership of the savings, the bank will have legal charge over the money.

The bank will retain legal charge over the savings until the outstanding mortgage falls below 90% of the property value. This would usually occur with a mixture of monthly payments being made satisfactorily and an increase in property prices.

Once the 90% has been reached, the savings are freed up and the mortgage will operate normally for the three year fixed term, and then the holders would have the opportunity to switch mortgage products, or remortgage.

The arrangement fee for the Lloyds TSB Lend a Hand mortgage is a one-off £995.

Mortgage experts generally welcomed the new mortgage deal, although some did make the obvious point that it would only help those with parents who could afford £20,000 to be locked up in the first place. And if parents have such a some of money, they can always add it as a down payment, although it will not then necessarily making a decent return of 3.5% a year. They also pointed out that the Yorkshire building society also offer a 95% deal, although the interest rate is a lot higher at 6.99%.

On the plus side, it does allow the parents a good chance to get their contribution back, it offers a competitive interest rate and with the deposit, the credit score is not as demanding as a normal 95% mortgage, or even one for 80%.

Guest Article by Neil Camp