UK house prices have dipped for the third month in a row and a recent report has revealed that the slowdown is even being felt in the most expensive parts of London. And for those house buyers UK, things are not looking much better across the Atlantic where arguably the whole crisis started.

A cataclysmic event in the US housing market, sparked by a series of bad mortgage loans to people who could never realistically make the payments, caused the recent worldwide recession as the debts were packaged up by the City dealers and sold as prime investment vehicles.

And now comes news that new home sales in the US in the month of August has been one of the worst on record since way back in 1963.

America may just be staving off the dreaded double dip itself, but record levels of unemployment, tight credit and low house prices in general, means that there is little money around to buy new homes. Figures released by the US Department of commerce showed that the seasonally adjusted annual sales was 288,000 – static on July 2010. What’s more worrying to experts though, is that had the figures not been adjusted upwards (to take into account the season), then they would have been the worst on record.

The August figure was off the pace by some 29% compared with August 2009, aptly showing the degree of downturn experienced in the US housing market.

And these figures come after a boost from central government which between January and April 2010, introduced tax credits to help things along. It helped, but when the scheme stopped in April, things turned worse again.

On a slightly brighter note, the number of new homes being built is up 29% from April 2009, although this is nearly 75% off the record seen in January, 2006.

So it’s likely that house buyers UK will have to feel the pain for that bit longer over the coming months.

Guest Article by Neil Camp 

The Financial Services Authority has slapped the wrist of the Goldman dealers because they failed to disclose that they were under investigation for alledged fraud by the US regulatory authorities. It all harks back to the infamous mortgage investments which were basically dodgy bets dressed up to look like A grade opportunities. For many observers, this was the straw that broke the Camel’s back and sent most of the globe into a massive recession which kicked-off in 2008.

The fine is just a fraction of the $550 levied by the US authorities – the Securities and Exchange Commission – but is concerned more about disclosure, than any wrong doing that might be discovered, including the alledged fraud.

Goldman Sachs should have come clean say the UK about the charges in the US. The mortgage investments in question were complex mechanisms designed to put the best possible light on a worrying housing crisis in the US. Many of the investments were sold just prior to the US housing market suffering a major rupture and becoming completely unstuck within months.

The problem arose because the mortgage borrowing market was being ‘alledgedly’ rigged, effectively allowing anyone to gain a mortgage. Previous safeguards such as credit checks went out of the window. Unlike the UK, householders in the US can just hand back the keys and walk away from the borrowing commitment, meaning that the whole situation was being built on a fragile and weak base. Catastrophe seemed the only likely result.

The FSA fine is one of the largest ever imposed by the authority. They were annoyed particular that a trader under investigation in the US who was said to behind the allegedly ‘dodgy’ mortgage derivatives, had been moved to London and therefore came under the auspices of the UK authorities.

Goldman Sachs has kept mum about both fines and has always maintained that it has not done anything wrong legally. The US case centres on the fact that a Goldman Sachs client had major input into a mortgage portfolio which was then sold to clients. What the Bank did not do was then admit that its client – a major hedge fund – had then bet that the value of the securities (which they had helped choose), would fall. The mortgage vehicle known as Abacus went onto lose around £1 billion when the US housing market suffered its inevitable collapse.

The huge US fine did not see any admission of legal wrong-doing from Goldman Sachs, who instead claimed that the marketing material for the Abacus fund had been incomplete.

Many experts feel that Goldman Sachs were given not so much a get out of jail free card, but nonetheless should have been more aggressively prosecuted for fraud. They say that the fines should be seen against a backdrop of profits which saw the Bank book a staggering $3.5 billion gain in the first three months of 2010. And although profits dropped to just over $600 million for the next three months, no-one can say that Goldman Sachs is near the bread line.

One thing is for sure, the US mortgage debacle is likely to haunt Goldman Sachs – and indeed Wall Street and the City of London – for many decades to come.

Guest Article by Neil Camp

It was in March 2009 that the rates first dropped to their lowest point ever, but news of the latest interest rates have coincided with calls that they must now be increased in order to curb inflation.

The Monetary Policy Committee’s decision this month to leave rates where they were surprised no-one in the City.

But the clouds on the horizon include the CPI inflation figure for July which was 3.1%; way above the 2% target set by the Bank of England.

Furthermore, for the third month in a row, the minutes of the last Monetary Policy Committee meeting revealed that one member, Andrew Sentance, had voted again for a rate rise.

And there was good news for fans of the Bank of England’s quantitative easing scheme which has so far seen some £200 billion committed to its ideals. The Bank confirmed that they were continuing with QE and that it may well be further expanded.

Graeme Leach, chief economist at the Institute of Directors, said:
“The Bank of England has held fire for another month, but we think the quantitative easing gun is about to be reloaded and the order to shoot given. Whilst above target inflation has stopped the MPC pulling the trigger on a further extension in QE this month, the economic threat from weak money supply growth looms ever larger.”

Other independent forecasts, including the National Institute of Economic and Social Research, have confidently stated that the Bank of England will keep interest rates at the current record low until the middle of next year, but if inflation becomes an issue, this may well look optimistic.

And as another negative, observers point to a sluggish UK rate of growth, with a not unreasonable 1.2% in the second quarter is expected to be eclipsed by a worse figure in the third quarter, giving rise to fears of a double-dip recession.

The CBI spokesman, Lai Wah Co, came out with the following view:
“In recent weeks there has been more talk about the need to expand monetary policy, amid concerns about how quickly growth momentum will fade in the coming quarters at home and abroad. However, economic indicators still suggest the UK recovery is on track, although we expect it to be bumpy and slow.”

And the British Chambers of Commerce applauded the fact that the latest interest rates remain unchanged. Their chief economist, David Kern, said:
“The government’s tough deficit-reduction measures, although necessary to repair the public finances, will increase the threat of an economic setback. Since sustaining the recovery must remain the priority, it is absolutely vital that the MPC maintains the current low level of interest rates until the middle of 2011 at the earliest.”

Guest Article by Neil Camp

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

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

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

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

Indeed, they go on to say that there are some high-street banks in the UK who are charging double the amount for their life insurance than if they were organising it via an independent broker, or general insurance company.

And London & County, to prove their case that by paying too much for life insurance consumers are being not treated fairly, have released an example.

Take life insurance for a man, say aged 30, and covering a mortgage worth some £150,000. For that, HSBC would at the time of writing charge £17.05 a month. And RBS, again at the time of writing, would charge £15.95 a month.

Yet, for the same cover, Aviva would cost £8 a month at the of writing, and even better, Legal and General would put you back only £7.73 a month at the time of writing. And those differences translate into yearly savings of around £100, or over £2,500 if taken over the 25-year life of a mortgage.

Which seems to prove the case that people are paying too much for life insurance from their banks, and should shop around.

“Anyone who has bought life insurance from their bank should review whether it represents best value for money. The simplest way to see if they could save money is to use L&C’s hminute Life Insurance Check calculator This will show them quickly if their current premium can be beaten for equivalent cover. Anyone currently applying for a mortgage via their bank should get independent quotes for life insurance – the savings could be substantial.”

Incidentally, to help judge whether London & County are right in their view that people are paying too much for life insurance, they have won a number of awards, including:

• Best Mortgage IFA/Adviser of the Year – Money Marketing, 2004, 2005, 2006 and 2008
• Best Technology Adviser – Money Marketing 2007
• Best Mortgage Broker outside London – Mortgage Strategy, 2004 and 2005
• Best National Broker – Mortgage Introducer 2005, 2006 and 2007
• Best Overall Broker – Mortgage Introducer 2005
• Overall broker of the year – Pink Home Loans, 2006 and 2007
• Top 100 company in the Sunday Times Fast Track 100 for 2004 and 2005
• Business of the Year – The Bath Business Awards 2005
• Growth Strategy of the Year – National Business Awards (Wales and West) 2008
• Business Leader (Broker) – British Mortgage Awards – 2008
• Online Mortgage IFA of the Year – Financial Adviser – 2008

So, if you’re convinced that people are paying too much for life insurance, talk to London and County and others like them.

Guest Article by Neil Camp

Although for many people, some still trapped in negative equity, that can only be a good sign and what’s more, it reverses February’s dip.

The figures come from the Nationwide with an explanation from their chief economist Martin Gahbauer. He issued the good news, saying that the fall of 0.8% of the price of a typical UK property was mostly reversed by the 0.7% rise in March. The average price of a typical UK property is now £164,519 which is actually 9% higher than a year earlier.

Mr Gahbauer said:
“The last two months are consistent with a relatively flat profile for house prices, and in line with the recent drops seen in buyer enquiries and house sales. Preliminary figures show that the number of loans taken out for house purchases failed to recover from January’s large dip, suggesting that weakness in house sales at the start of the year may have been due to more than just the snowy weather. With greater than usual political and economic uncertainty ahead of the upcoming general election, potential homebuyers are proceeding cautiously.”

Furthermore, he points out that the number of houses for sale coming onto the market has not dramatically increased. This means that lower buyer activity trends has not had too negative an effect upon house prices as a whole. Should this state of affairs continue, then prices should hold up, but few properties will change hands.

When considering the impact on the market of the stamp duty holiday, Mr Gahbauer said that the Nationwide believed that the raising of the threshold from £125,000 to £250,000 for strictly first-time buyers, would make an average saving of £1,368.

Mr Gahbauer said:
“For first-time buyers, this initiative effectively represents a larger and longer version of the stamp duty holiday in place between September 2008 and the end of December 2009 for properties bought for less than £175,000. Looking back on the previous tax holiday, the evidence on its success in boosting transactions is mixed. Intuitively, one might expect a stamp duty holiday to boost total house purchase activity, with a disproportionately greater increase in transactions at the lower-priced end of the housing chain.

“Undoubtedly this new measure will be welcome relief for aspiring first-time buyers. However, based on past experience it may not be enough on its own for the housing market to make a full recovery.”

So there you have it; some good news, some bad, but the trend does look to be improving.

Guest Article by Neil Camp

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