http://yahoo.charcol.co.uk/ Ray Boulger's Blog provided by Charcol en http://yahoo.charcol.co.uk/fileadmin/templates/images/favicon.ico http://yahoo.charcol.co.uk/ Ray Boulger's Blog provided by Charcol TYPO3 - get.content.right http://blogs.law.harvard.edu/tech/rss Fri, 19 Feb 2010 17:44:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/strong-rumours-of-an-early-election/4275/ The 2 Labour Ministers (Mandelson and Bradshaw ) who were due to attend this weekend's BAFTA ceremony have pulled out this afternoon (Hat Tip: Iain Dale).The most logical reason for such a mass withdrawal (OK, I know it is only two but it 100% of those who were due to attend) would be that it is the day the Prime Minister will call a March election and this adds to the strong rumours in Westminster yesterday afternoon that the election would be on 25 March or in April. We know already that Brown is making a speech tomorrow announcing Labour's four themes of the election (which have already been leaked), together with Labour's election slogan. An election before 6 May would also explain why the Chancellor hasn't yet announced Budget Day (It is normally announced before the 2 week half term recess) and would avoid: The Chancellor having to produce a Budget which would clearly not be able to be a vote winner. Avoid the risk of the 1st quarter GDP figures due to be announced on 25 April sinking us back into recession before the election. If you are interested in politics it could be an interesting weekend! Miscellaneous Fri, 19 Feb 2010 17:44:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/the-conservative-party-fails-to-apply-the-sense-check/4261/ It was clear from the Mortgage Market Review that the FSA had a very limited understanding of the value of a self cert mortgage for many, primarily self employed, people. Before finalising any new policy, even though the actual term “self certified” appears to be irretrievable tarnished, the FSA will no doubt reflect on comments made during its roadshows and in the consultation process. Just because there was some abuse of the product doesn’t mean the product itself is fatally flawed. A more appropriate solution would have been to clamp down on the abuse, especially where it was fraudulent, but in the good times the FSA failed dismally to adequately discharge this part of its regulatory responsibility and consequently feels the need to overact. A significant part of the blame for this regulatory failure has to lie with Gordon Brown. Despite blaming everyone but himself for our economic problems, “which started in America,” as Chancellor he dictated the “light touch” policy to be followed by the FSA. Of course, most of us in the industry were happy with a light touch policy but perhaps not that it should have been quite as light as it was. Many mortgage practitioners were well aware of some of the companies whose business plans basically only worked if they adopted some dubious practices and there is no reason why the FSA couldn’t have been much more proactive in identifying which companies should be targeted for more active monitoring with a view to “educating” if possible but disciplining if necessary. On the only occasion I reported a blatant breach of the rules to the FSA no action was taken over the next month and so I wrote about it and then very rapidly the company took action itself, possibly without the FSA ever getting involved. So even when given information on a plate the FSA proved itself unable or unwilling to act promptly. A key test any half competent broker or lender would always apply to a self cert application was a ”sense check”. For example is it reasonable for someone who describes their occupation as a cleaner to be earning £80,000 p.a.? Maybe, but only if that person owns the company rather than does the actual cleaning! Yesterday we had another example of politicians making a fool of themselves by failing to apply the sense check. This time it was in a document from the Conservative Party detailing the gap between the Britain's richest and poorest areas. Conservative Central Office released information claiming that more than half of girls – 54% – in the most deprived communities fell pregnant before their 18th birthday. This claim was not only untrue but also breathtakingly ignorant. A crucial decimal point was missing – the real figure is 5.4%. Now if you had asked me before yesterday what the correct figure was I would not have known but my common sense would have told me that 54% looked highly suspect. Had a sense check been applied to the document by a competent person before it was released the document would have been corrected before it was published. So, surprise, surprise, politicians can make mistakes as well as mortgage brokers and lenders, but of course they don’t have a regulatory body costing an arm and a leg looking over their shoulder and so won’t actually be disciplined. Politicians’ motto appears to be “do as I say, not as I do.” Fortunately there is a sanction against crass mistakes by politicians. It is called The Media and with the mass ranks of the blogosphere and/or newspaper web sites now often picking up politicians’ cock-ups within minutes at least politicians are subject to as much, if not more, scrutiny than their subjects. Politicians may not be fined when they make crass mistakes but they stand to lose something more valuable - their reputation. Miscellaneous Regulation Tue, 16 Feb 2010 17:05:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/bank-of-china-reassures-its-tracker-passes-on-rate-cuts/4173/ Bank of China (UK) has an advert on p.9 of Metro today promoting its Bank Rate + 2.3% lifetime tracker, available up to 75% LTV. If one assesses competitiveness purely on rate and ignores the criteria this rate is market leading for LTVs between 70.01% and 75%. What caught my eye in the advert was the statement that “Since January 2008, we have given borrowers the benefit of every reduction in Bank of England base rate. In 2010 we wish to give you more...A New Year Gift Lasts For Lifetime.” However, there is then nothing in the advert to say what the “more” than it offered previously is. Furthermore, although I know that the Government of China has an extremely dubious record on human rights I find it surprising that Bank of China feels consumer confidence in its brand is so low that it needs to reassure prospective borrowers that it actually complies with the terms of its lifetime tracker mortgage and really does pass on Bank Rate cuts as required in its mortgage contract. Having said that I welcome Bank of China as a relatively new intermediary mortgage lender in the UK and hope they expand their lending this year as extra competition can only be good for borrowers, but maybe its key advertising message should be refined. Bank of England Interest rates Mortgages Regulation Mon, 25 Jan 2010 12:00:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/can-that-really-be-true/4165/ To promote lower rates from today on a third of its 2 year fixes (those with a maximum LTV of 80%) Santander has put out a press release headlined “Demand for tracker deals plummets as homeowners look to make fixed rate hay while the base rate shines.” I take little notice of most surveys from product providers, whatever type of business they are in, because in most cases the main purpose of the survey is to help promote a particular product. Nothing wrong in that if the survey is robustly done but it is so easy to influence the answers to any survey by, for example, asking the key question in a particular way or by asking certain loaded questions before asking the key one. Therefore, unless exact details of questions asked in the survey are disclosed, and of course normally they are not, it is impossible to evaluate what value a survey has. However I looked closely at this Santander survey because the headline caught my eye (and so full marks to the Santander PR team for attracting my attention with a good headline) because it was saying something which was the exact opposite to our experience. In fact so far in January the proportion of John Charcol clients choosing a tracker is even higher than the 81% who took trackers last month. If a broker rather than a lender had conducted this survey, and assuming one accepted the results as being robust, the headline would probably have been something like “The don’t knows win by a huge margin.” Only 36% of respondents said they would choose either a fixed or a tracker rate. Therefore, unless a significant number of people said they would choose a capped or discount rate, which seems unlikely, I conclude that nearly two thirds of respondents were don’t knows. It seems a reasonable assumption that most of these will seek advice. Therefore this survey is good news for brokers, and of course it was put out by Abbey for Intermediaries, although the press release made no reference to this good result for brokers. The other figure in the press release which struck me is the suggestion that “Over 880,000 UK homeowners on tracker or fixed rate mortgages, could be looking to remortgage in the next six months.” With Skipton doing their bit to beef up the remortgage market the volume of remortgages is probably getting somewhere near its nadir, but in November there were only 31,000 remortgages, according to the CML. Annualizing this produces a figure of 372,000, or 186,000 in the next 6 months, and so a figure of 888,000 remortgages in the next 6 months seems a tad on the high side. It could, of course, be that 888,000 people will look to remortgage in the next 6 months and over three quarters of them will be rejected, but perhaps the real answer is that the press release uses that magic word “could” and so while “over 888,000 homeowners could be looking to remortgage” equally “over 888,000 homeowners could not be looking to remortgage!” Finally, the company carrying out the survey, Opinium Research LLP, doesn’t appear to be a member of The British Polling Council as I assume if it was it would say so on its web site. I always have more confidence in polling/survey results from members of the Council because they have to abide by certain minimum standards of transparency. House and home Interest rates Mortgages Fri, 22 Jan 2010 16:58:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/one-third-of-us-households-in-negative-equity/4119/ Rasmussen (One of the top USA polling companies) yesterday released its latest findings on what US consumers think about their housing market and it is not positive news. They have little confidence in the housing market, either in the short or medium term, with only 55% of adults saying that buying a home is the best investment families can make, a percentage that has fallen steadily from 79% as recently as June 2008. In fact belief in a family home as an investment has declined to its lowest point since the survey started asking this question and 65% of people think it will be at least 3 years before house prices recover. Most homeowners expect little change in values over the next year, with 19% of homeowners expecting their home will be worth more in a year and 20% believing it will be worth less. Even looking 5 years ahead only 53% expect the value of their home to increase and 12% expect it to be lower. Perhaps the most interesting figure from this survey is that only 54% of homeowners believe their home is worth more than the mortgage. 28% think they are in negative equity and presumably the rest are don’t knows. Bearing in mind the tendency of people to overestimate the value of their property in a downturn and the number of don’t knows this would suggest that around a third of US homeowners are in negative equity. This confirms that the US housing market is still in a far worse position than the UK market, where, based on the latest estimate from the CML and allowing for subsequent price movements, well under 10% of people are now in negative equity. In the US some borrowers who benefitted from the Government programme persuading lenders to write off some of the debt, and also lower the interest rate on the remaining balance, are now again in default. Furthermore there are still many Option ARM mortgages due to be reset at higher interest rates this year. With housing being such an important factor in consumer confidence none of this bodes well for the speed of the economic recovery in the US, despite their banks repaying the emergency government loans much quicker than UK banks. Because the USA is such a powerhouse in the global economy, if it is slow to recover from the recession it will make it that much harder for the rest of the world’s economies to improve. This is a further indication that UK interest rates are likely to stay very low for quite some time and yesterday’s news from Germany that its recovery is already faltering adds to concerns about the global economy. Bank of England House and home Interest rates Property market Thu, 14 Jan 2010 11:14:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/santander-implies-consumers-dont-value-the-abbey-brand/4103/ Santander Group this morning sent an email to brokers confirming the re-brand of Abbey and Bradford & Bingley branches to Santander, and indeed the branch in Holborn near my office has already been rebranded. The second paragraph says: “our research has shown that you value the relationships that we have built under the ‘Abbey for Intermediary’ brand. Therefore, we believe that it is in your best interests if we retain the brand just for you, and continue to offer Abbey branded mortgages exclusively for your clients.” Promoting a new “improved” product or a re-brand always presents a PR challenge. How do you promote the improved product or new brand without effectively criticising the old? In Abbey’s case it has decided to keep the Abbey for Intermediaries brand but junk the Abbey name on the High Street. Having done research on the value of the Abbey for Intermediaries brand it seems reasonable to assume that Santander would also have done similar research on the value of the Abbey brand. In the light of the statement that the Abbey for Intermediaries brand is being retained because “our research has shown that you value the relationships that we have built under the ‘Abbey for Intermediary’ brand the only logical conclusion is that the research into the value of the Abbey brand did not show that sufficient consumers valued that brand. Abbey has had some well publicised administration problems in certain areas over the last few years, particularly with ISAs, but I would nevertheless find it surprising if most customers didn’t put a reasonable amount of value on the brand, particularly after the fairly recent re-brand from Abbey National. There is obviously greater value for consumers in a more global proposition for a current account than a mortgage, despite the EU’s crass belief in harmonising everything that moves, and so I can completely understand the logic in adopting the Santander brand for the branches. In particular Santander’s new Zero current account offers excellent value, specifically because the debit card allows overseas withdrawals without the usual fees. I merely the question the message about the Abbey brand implied by today’s email to brokers. Miscellaneous Mortgages Personal finance Mon, 11 Jan 2010 13:19:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/nationwides-real-house-price-index-ends-year-with-a-04-fall-1/4081/ December is usually the month when Nationwide’s widely reported seasonally adjusted House Price Index shows the largest upward adjustment from the real figure and this year was no different. Thus a real fall of 0.4% in December is translated into a seasonally adjusted rise of 0.4%. This is the first real monthly fall since the market bottomed out in February and leaves the index 5.9% up on the year. Over any 12 month period the Real and Seasonally Adjusted figures must agree and so 5.9% is the annual rise on both bases. The Real index ends the year 12.9% down from its October 2007 peak but 9.7% up from its February 2009 floor. Virtually all of the bounce took place in the seven months between March and September, with the index increasing by only 0.2% in the last 3 months of the year. The seasonally adjusted figure for the first month of next year will be adjusted upwards from the real figure and so with no signs yet of any significant weakness in the market Nationwide may well report another small seasonally adjusted rise in January, even if the real figure shows another small fall. Nationwide has also released its quarterly regional survey and, as usual, this shows some substantial variations throughout the UK. It is important to note that compared to the national figures there are some significant differences in the way the regional and sub regional figures are calculated. In particular the regional figures are based on average prices in the last quarter rather than the figure for the last month. Although the increase in prices in the last quarter of 2009 was small there were large falls in October and December 2008 and although these falls will of course have fallen out of the national year on year comparison they are still partly reflected in the regional figures. Hence the annual percentage change in the regional index is only +3.4%, a significant 2.5% less than the figure in the national index, and this must be remembered if one tries to compare the regional and sub regional indices with the national one. In broad terms it means that the benchmark to assess whether a region has outperformed or underperformed is 3.4%, not 5.9%. The strongest regional performance was, not surprisingly, Greater London, with a rise of 7%, followed closely by the Outer Metropolitan region at 6.4% and then the Outer South East at 5.5%. The worst performing region, and by a substantial margin, was Northern Ireland, with a fall of 6.7%, followed by the North of England with a 2% fall. It should be noted that the North excludes Yorkshire & Humberside and the North West. It actually covers just County Durham, Cumbria, Northumberland, Teeside and Tyne & Wear. The best performing sub regions were Tower Hamlets with +14%, followed closely by Camden at +13%, whereas the worst performing sub regions were Northern Ireland (West) with -14%, and then Barking and Dagenham at –12%. Tower Hamlets includes Canary Wharf and much of Docklands and so it would not be surprising to see it underperform next year as the issue with bankers’ bonuses occurred too late this year to have impacted the figures. What is surprising is the substantial underperformance of Barking & Dagenham. This remains the cheapest borough in London and hence the one that should have benefitted most from the temporary increase (until today) in the stamp duty threshold to £175,000. The following table shows the recent trends: The Nationwide House Price Index – The Real Figures and the Seasonally Adjusted Ones Month Average price (£) Real Change Seasonally Adjusted Change Difference 2008 Jan 180,473 - 0.9% - 0.6% + 0.3% Feb 179,358 - 0.6%, - 0.9% - 0.3% Mar 179,110 - 0.1% - 1.2% - 1.1% Apr 178,555 - 0.3% - 1.2% - 0.9% May 173,583 - 2.8% - 3.0% - 0.2% Jun 172,415 - 0.7% - 1.3% - 0.6% Jul 169,316 - 1.8% - 2.0% - 0.2% Aug 164,654 - 2.8% - 2.0% + 0.8% Sept 161,797 - 1.7% - 1.8% - 0.1% Oct 158,872 - 1.8% - 1.5% + 0.3% Nov 158,442 - 0.3% - 0.2% + 0.1% Dec 153,048 - 3.4% - 2.6% + 0.8% 2009 Jan 150,501 - 1.7% - 1.0% + 0.7% Feb 147,746 - 1.8% - 1.7% + 0.1% Mar 150,946 + 2.2% + 1.2% - 1.0% Apr 151,861 + 0.6% - 0.2% - 0.8% May 154,016 + 1.4% + 1.4% Nil Jun 156,442 + 1.6% + 1.0% - 0.6% Jul 158,871 + 1.6% + 1.4% - 0.2% Aug 160,224 + 0.9% + 1.4% + 0.5% Sept 161,816 + 1.0% + 0.9% - 0.1% Oct 162,038 + 0.1% + 0.5% + 0.4% Nov 162,764 + 0.4% + 0.5% + 0.1% Dec 162,103 - 0.4% + 0.4% + 0.8% Price Changes Over Real Changes Seasonally adjusted changes 2009 + 5.9% The last 6 months + 3.6% + 5.3% The last 3 months + 0.2% + 1.5% The last month - 0.4% + 0.4% Fall from peak - 12.9% - 12.2% Increase from 2009 trough + 9.7% + 8.9% Property market Thu, 31 Dec 2009 18:40:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/bank-payroll-tax-on-big-bonuses-will-impact-top-end-of-property-market/4055/ The main impact of the Pre Budget Report on the housing market will be at the top end, primarily in London & the South East. The 50% bank payroll tax on discretionary bonuses over £25,000 will surely have some impact either on bonus levels or when they are paid. The new tax will only apply to bonuses awarded between today and 5 April 2010 however, and so banks may simply defer awarding and paying this year’s bonus until 6 April and then pay what they always planned to pay. If banks were to award a bonus now they would have to reduce it by nearly one third if they wanted the net cost to them to be the same, after allowing for payment of the bank payroll tax and a slightly lower National Insurance charge (as this will be based on the lower gross amount of the bonus). If the bonus is awarded and paid on or after 6 April next year the employer will avoid the 50% bank payroll tax but the employee, if earning over £130,000, will be subject to an additional 10% income tax. Therefore, although in general those employees earning over £130,000 who get a bonus in excess of £25,000 will pay an additional 10% tax if the bonus is deferred until at least 6 April they will still be much better off, assuming their employer has a set amount available to pay the bonus and any additional employer tax on it. It should be borne in mind that in addition to banks the bank payroll tax will apply to building societies and UK resident investment companies and financial trading companies in a banking or building society group. The bank payroll tax will be applied to bonuses paid to “Relevant Banking Employees,” who are defined as individuals “employed by the Taxable Company in a ‘Banking Employment’”. “For this purpose, Banking Employment means an employment which wholly or mainly involves duties that relate either directly or indirectly to activities that are “Relevant Regulated Activities”. This new tax will create uncertainty, both in the short term and in terms of what attacks there may be on bonuses in future years. It will in many cases reduce the ability and/or willingness of those whose bonuses are deferred, or are less than they expected, to buy an expensive property in the next few months. It also increases the likelihood that some employees caught by this new tax will leave the UK and consequently not buy a property they planned to, or perhaps sell one they already own. The prime London market has been particularly buoyant recently in anticipation of a return of big bonuses and so this attack on high value bonuses has the potential to hit that sector of the market hard, at least in the short term. If so there will be some trickle down effect. Despite many calls for the extension to £175,000 of the stamp duty land tax 0% threshold to be continued, these calls were more in hope than expectation and so seeing the threshold revert as previously announced to £125,000 from 1 January 2010 is no surprise. It is disappointing, but again not surprising, that yet again Darling has followed in Brown’s footsteps and refused to make stamp duty fairer by moving from the current system to an income tax style one where the higher rates only apply from their actual starting level. The Chancellor also confirmed today that the standard interest rate used for payments on the ISMI (Income Support for Mortgage Interest) scheme would continue for a further 6 months at 6.08% and claimed that this will continue to benefit around 220,000 homeowners. However, according to the CML the number of borrowers currently being helped by the ISMI is only 100,000, but another 113,000 older home-owners are receiving help with their mortgage through pension credits. It is not clear whether the figure of 220,000 claimed in the PBR is arrived at by adding these two figures together or whether 220,000 is the total number of borrowers expected to benefit from ISMI over the course of a year, bearing in mind that many will only benefit for part of a year. The PBR gives no figures for the number of borrowers in The Homeowner Mortgage Support Scheme, the new scheme announced by Gordon Brown last November without any consultation with mortgage lenders. This lack of consultation and the many flaws in the proposed scheme the PM had overlooked led to a delay in the announcement of the full details of this scheme until some 5 months later. Anecdotal information from lenders suggests that the number of borrowers put on this scheme is tiny. House and home Personal finance Property market Regulation Thu, 10 Dec 2009 19:22:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/margaret-beckett-dislays-her-ignorance-of-the-housing-market/4045/ I watched the repeat of Question Time on BBC Parliament yesterday and two points in relation to the housing market in general and the Lib Dems’ revised proposals for a Mansion tax in particular struck me as being worth commenting on. In response to a question about the Lib Dems’ proposed Mansion tax, Margaret Beckett, after saying she couldn’t believe the figure but would share it with us anyway, said that the Land Registry figures showed that there were only 86 properties worth over £2m. It had to be pointed out to her that that the Land Registry figures were quoted in thousands and therefore one had to add three noughts to the figure. It is not only pretty stupid to quote a figure on national television that you say you don’t believe, but in particular most people’s common sense would have told them that there must be more than 86 houses in the country worth more than £2m. It is a damming indictment of this Government’s understanding of the housing market that someone who was Minister of State for Housing and Planning until as recently as 5 June this year has so little understanding of such a basic fact relating to the housing market. The other rather amusing point was seeing Kirstie Allsop get the better of Vince Cable in the discussion on his Mansion tax. House and home Property market Mon, 07 Dec 2009 12:27:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/chelsea-b-s-in-advanced-talks-with-yorkshire/4037/ Yorkshire Building Society has announced it is in “advanced talks” to takeover, sorry, merge with, Chelsea Building Society. This is not yet a done deal and the statement was no doubt rushed out as a result of a leak reported by Mark Kleinman, City Editor of Sky News, who makes the important point that although the FSA has, as one would expect, been kept informed of negotiations it has not forced the Chelsea into these discussions. This news is disappointing as it reduces competition, but it is far from surprising. When Stuart Bernau was parachuted into Chelsea in July as Chief Executive he instituted a strategic review saying he would look at all options for the society including possible mergers. Chelsea’s problems stem from bad commercial lending, significant fraud in its Buy to Let book and a £55m exposure to the failed Icelandic banks. £44.3m of this £55m was written off in the 2008 accounts, although £9m was written back in the first half of this year. I understand much of this exposure was in the form of a 3 year term deposit with what was then a highly respected British bank, Singer & Friedlander. The fact that Singers was subsequently acquired by Kapthung demonstrates the danger of placing medium to long term commercial deposits with even quality banks and potentially inhibits the FSA’s push to get banks and building societies to extend the average life of their deposits. In its 2008 accounts Chelsea also wrote off £15.4m from the 2007 acquisition near the top of the market of BCS Loans and Mortgages Limited, previously known as Britannia Capital Securities, a second and first charge mortgage broker. The effect of all these write offs, including a £10.2m contribution to the Financial Services Compensation Scheme, was that Chelsea reported a net after tax loss for 2008 of £29.2m. Nevertheless, in its Review of 2008, included in its 2008 accounts Chelsea said “Chelsea has total group capital in excess of £700 million and members can be assured that we have more than adequate capital to sustain the business.” As a result of a £41m provision against fraud on some Buy to Let lending made between 2006 and 2008 Chelsea reported a loss of £26m in the first half of this year. However, the losses reported for 2008 clearly did not worry depositors as Chelsea increased its savings balances by 5% to £10.06bn in the first half of 2009 and the number of savers by 6.7% to 606,000, no doubt comforted by the guarantee provided by Financial Services Compensation Scheme. Britannia’s merger with the Co-op left the Yorkshire as the second largest building society, with a Group Balance Sheet total of £23bn at the end of last year. This compares with Chelsea’s £13.56bn at 30/6/09, which is just over £1m less than its 31/12/08 figure. If the merger goes through the combined society will have assets in excess of £35bn, easily the second biggest society but way behind Nationwide’s £201bn. It will also improve the geographical coverage offered to the members of both societies. Buy to let Miscellaneous Mortgages Regulation Tue, 01 Dec 2009 16:17:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/more-on-the-mmr-non-advised-sales-and-equity-withdrawal/3991/ Below is my November column for Money Marketing, published last week: Lobbying from the AMI and others helped persuade the FSA in its Mortgage Market Review (MMR) not to adopt some of the uninformed suggestions from certain politicians. Thus the MMR does not propose loan to value or loan to income caps. Some other proposals are very sensible, including the new names for different types of advised and non-advised sales, and the FSA’s belated recognition that individuals giving advice or information to borrowers should be registered at the FSA as approved persons. However, I suspect there is a catch 22 situation in the proposals for non advised sales. On the face the new proposal to use the term “non advised sale” should be clear to borrowers, but then so should the current term - “information only.” The more questions a customer is asked before a “non-advised sale” takes place the more likely it is that they will think they have had advice, whatever they are told regarding the type of sale. With the MMR proposing more questions should be asked to establish affordability, including on non advised sales, it may be necessary to go further to make sure customers understand when they have not had advice. The MMR’s emphasis on oral information is sensible but will be difficult to monitor. Maybe on all non-advised sales customers should sign a short one paragraph statement confirming they understand they have not advice and the implications in respect of access to the Ombudsman. On the negative side two proposals in the MMR which need to be challenged are the banning of self cert and fast track and restrictions on equity withdrawal. The former appears to be based largely on a failure by the FSA to fully understand the difference between self cert and fast track. The justification for the later is that “by (2007) home purchase equity withdrawal replaced home purchase as the main purpose of mortgage borrowing” and that “39% of all mortgages sold in 2007 were advanced for this purpose.” I couldn’t work out how the FSA got this 39% figure and wondered if “home purchase equity withdrawal” was something different to “equity withdrawal.” I asked the CML if it understood this figure but it was also puzzled and consequently it asked the FSA for clarification. The FSA response was that including the words “home purchase” was a “drafting error” and that 39% was based on Bank of England figures of £42bn for housing equity withdrawal (HEW) and £108bn for net lending in 2007. Thus the justification for restricting equity withdrawal is based on the out of date figures of a single year. I can’t imagine why the FSA didn’t use the latest figures, i.e. 2008. Surely it can’t be because the latest figures don’t support its hypothesis! In 2008 HEW was negative at minus £9.1bn, with net lending at £40bn, thus indicating that the market self corrects, with no need for regulatory intervention. Or maybe it simply couldn’t work out what percentage of sales a negative figure was. Lies, damn lies and statistics! Mortgages Regulation Mon, 09 Nov 2009 14:42:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/qe-extended-by-25bn-but-it-is-savers-who-bring-relief-to-mortgage-borrowers/3983/ With today’s Bank Rate decision a forgone conclusion, the only question we had to wait until midday to get the answer to was whether the MPC would extend the Quantitative Easing (QE) programme and, if so, by how much. The committee will have had sight of the draft Quarterly Inflation Report, to be published in 6 days time, and so today’s decision to extend the QE programme by £25bn suggests there is little, if anything, in the Report in the way of optimism to counterbalance the depressing third quarter GDP figures showing that the UK has now been in a recession for the longest period since records began, and on the watch of the man who claimed he had abolished boom and bust! However, the fact that the intention is to take 3 months to spend this extra £25bn, compared to the £50bn spent in the last 3 months, indicates that the MPC is at least less bearish on the outlook for the economy than it was 3 months ago. Fortunately the picture for mortgage borrowers looks a little brighter, despite Libor rates having edged up over the last month, with 3m Libor up from 0.55% to 0.60%, and swap rates having risen quite sharply. For example 2 year swaps are 0.30% higher at 2.07% and 5 year swaps are 0.35% up at 3.45%. Despite these significant increases in swap rates both fixed and tracker mortgage rates have fallen over the last month. Prior to the credit crunch increases in wholesale rates on this scale would certainly have resulted in the cost of fixed rate mortgages rising. The two reasons why they have not are that savings rates are now funding a much higher proportion of mortgage lending and competition in the mortgage market has increased considerably. Taking the 5 year savings bond market as an example, according to Moneyfacts 7 banks or building societies are offering a rate of 5% or over, with the top rate being 5.35% from Skipton B S. Although competition in this market has increased to the extent that the number of banks or building societies offering over 5% has grown, the top rate available has remained in the very narrow range of 5.3-5.4% for several months. The relative stability of savings rates has helped to avoid mortgage rates increasing. Couple this with the significant increase in competition over the last month from a resurgent Northern Rock, which has been cutting some rates twice a week. The impact of that competition has been to force other active lenders to cut their margins on new lending or miss their lending targets. Some have chosen to offer more rates at the higher LTVs rather than compete too aggressively for lower LTV business and so borrowers across the LTV spectrum have benefitted. Northern Rock’s third quarter statement yesterday said that it’s gross lending in the first 9 months of this year was £2.3bn. Now terms have been agreed with the EU it wants to get as close to £4bn as it can for 2009 lending and its 2010 target is £9bn. The deal agreed with the EU is that it will not have any mortgage products in the Moneyfacts top 3 for the relevant category but this does not come into force until January next year and its old limit of 2.5% of total gross lending is effectively redundant. Thus it has a window until the end of the year to be as competitive as it needs to be to hit its targets. This is having more impact on competition in the mortgage market than is likely from the forced sale of some Lloyds Banking Group and RBS branches, and at a time when the extra competition is badly needed. Northern Rock’s 4.99% 5 year (to 31/12/14) flexible fixed rate up to 70% LTV looks attractive for borrowers wanting the security of a fixed rate but despite the cost of 2 year fixes also falling, short term fixes such as these offer few attractions compared to the significantly cheaper rates available on the best trackers, with lifetime trackers in particular looking attractive. Bank of England Interest rates Mortgages Thu, 05 Nov 2009 15:33:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/nationwides-real-house-price-index-rises-by-only-01-in-october/3951/ Nationwide’s “Real” House price Index increased by 0.1% in October, compared to the more widely reported 0.4% seasonally adjusted rise. This is the smallest monthly rise since the market bottomed out in February but nevertheless takes the run of unbroken monthly increases to 8. October marks a sharp slowdown in the rate of increase after the previous 5 months when prices rose between 0.9% and 1.6% every month. The seasonally adjusted figures for November and December will total about 1% more than the real figures, with most of this adjustment taking place in December. Although it is always dangerous to read too much into a single month’s figures the slowdown in the rate of increase shown by the October figures is healthy as monthly increases on the scale of those seen since March are clearly unsustainable. The Bank of England in particular will be pleased to see the rate of increase in house prices slowing because if prices were to continue rising at their recent pace the possibility of an earlier than expected increase in Bank Rate would have had to be considered and any such increase would be very harmful for the rest of the economy, which is likely to need support from low interest rates for a considerable time. Although mortgage supply is still constrained conditions in the mortgage market have continued to improve over the last month, stimulated by some aggressive pricing from Northern Rock, which has pushed several other lenders to respond to protect their market share. This increased competition has even extended to the higher LTVs, with Nationwide in particular improving its proposition in this sector. I don't expect the recent FSA proposals in the Mortgage Market Review (MMR) to have a significant impact on the market in the short term for two main reasons: The mortgage market has already tightened up considerably as a result of limited funding and so much of what the FSA is proposing is already a fact of life. The FSA is looking ahead to when more funding is available and lenders might become less restrictive.Some aspects of the FSA's proposals will almost certainly be amended because the MMR is a discussion document and there is no point the FSA consulting on it unless it is prepared to reassess its original proposals to take account of the views expressed. (I recognise that the Government sometimes completely ignores responses to a consultation process, such as with the introduction of HIPs, but the FSA has a much better record on taking account of responses to its consultations) Nationwide's Chief Economist, Martin Gahbauer, points out that there is a strong correlation between consumers' future house price expectations, as measured by Nationwide's monthly Consumer Confidence Survey, and actual house price movements. The latest figures from this index have continued the recent trend showing more confidence returning to the housing market and twice as many people now expect house prices to rise over the next 6 months compared to those expecting a fall. This supports my expectation that house prices on a national basis will continue to rise in the short term, but significant regional variations are likely to continue. After a surprisingly strong recovery this year the rate of increase is likely to continue at a slower pace but as long as a majority of people expect prices to rise there is a clear incentive for those people who want to buy to do so sooner rather than later, providing of course they can get adequate finance. The following table shows the recent trends: The Nationwide House Price Index – The Real Figures and the Seasonally Adjusted OnesMonthAverage price (£)Real ChangeSeasonally Adjusted ChangeDifference2008Jan180,473- 0.9%- 0.6%+ 0.3% Feb179,358- 0.6%- 0.9%- 0.3% Mar179,110- 0.1%- 1.2%- 1.1% Apr178,555- 0.3%- 1.2%- 0.9% May173,583- 2.8%- 3.0%- 0.2% Jun172,415- 0.7%- 1.3%- 0.6% Jul169,316- 1.8%- 2.0%- 0.2% Aug164,654- 2.8%- 2.0%+ 0.8% Sept161,797- 1.7%- 1.8%- 0.1% Oct158,872- 1.8%- 1.5%+ 0.3% Nov158,442- 0.3%unchanged+ 0.3% Dec153,048- 3.4%- 2.6%+ 0.8%2009Jan150,501- 1.7%- 1.1%+ 0.6% Feb147,746- 1.8%- 1.7%+ 0.1% Mar150,946+ 2.2%+ 1.2%- 1.0% Apr151,861+ 0.6% - 0.3%- 0.9% May154,016+ 1.4%+ 1.4%nil Jun156,442+ 1.6%+ 1.0%- 0.6% Jul158,871+ 1.6%+ 1.4%- 0.2% Aug160,224+ 0.9%+ 1.4%+ 0.5% Sept161,816+ 1.0%+ 0.9% - 0.1% Oct162,038+ 0.1%+ 0.4%+ 0.3% Price ChangesOverReal ChangesSeasonally adjusted changesThe last year+ 2.0%2009+ 5.9%+ 4.6%The last 6 months+ 6.7%+ 6.7%The last 3 months+ 2.0%+ 2.8%The last month+ 0.1%+ 0.4%Fall from peak - 12.9%- 13.2%Increase from 2009 trough+ 9.7%+ 7.7% Bank of England Mortgages Property market Fri, 30 Oct 2009 22:36:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/barclays-acquires-standard-life-bankat-229-discount-to-nav/3927/ The announcement this afternoon that Barclays are acquiring Standard Life Bank is sad news for consumers, not because of anything negative about Barclays but because it means that one of the dwindling number of brands still active in the mortgage market will no doubt disappear next year when the sale is concluded, or soon afterwards. Standard Life Bank is one of the few lenders still offering mortgages with fixed rates for longer than 5 years and is also one of a relatively small number of lenders still in the Buy-to-Let market. It is still a young bank, having been launched only 11 years ago, but has been innovative, with one of its initial products being a 25 year capped rate mortgage. However, its rates have been uncompetitive for some time, which is an indication it currently has little appetite to lend. In the current market the stronger banks like Barclays are in prime position to pick up assets cheaply and that is certainly what Barclays appears to have done here. It is paying £226m for the profitable Standard Life Bank, based on its estimated £293m of tangible net assets, i.e. a 22.9% discount to net asset value. With outstanding mortgage balances of £8.8bn Standard Life Bank only has about 0.7% of total UK residential mortgage balances but its average indexed LTV of 48% indicates a good quality book. A better assessment of quality could be made if a breakdown of the proportion of mortgages in different LTV bands was provided, but even though Standard Life offered mortgages to 100% LTV it only offered these to a fairly limited range of professionals and so I would expect even its high LTV book to be of good quality. Buy to let Mortgages Mon, 26 Oct 2009 15:01:00 +0000 http://yahoo.charcol.co.uk/knowledge-resources/ray-boulgers-blog/article/view/my-take-on-the-rest-of-the-mmr-proposals/3913/ Following on from my blog post on Monday on the MMR I note that less than 24 hours after post the FSA have amended the figure I queried for the increase in property prices over the 10 years to the onset of the credit crunch from 300% to 200%. As foreshadowed in that blog I will now comment on aspects of the MMR other than self cert and fast track. In the foreword to the MMR the FSA says “We recognise that the market has worked well for many consumers: the vast majority of mortgage borrowers will come through this recession meeting their mortgage payments.” This should be born in mind when assessing the changes the FSA is proposing. Although regulation obviously needs to address issues at the lowest common denominator level, that should not be at the expense of an unnecessarily negative impact on the “vast majority” of mortgage borrowers by piling extra costs on firms, which inevitably will be passed on to consumers. It also should not prevent a consenting borrower from entering into a contract with a consenting lender, subject to appropriate safeguards. Defining what those safeguards should be is a challenge but a good starting point is the requirement in The Financial Services and Markets Act (FISMA) that the FSA should have reference to the “general principle that consumers should take responsibility for their decisions.” They can only be expected to do this if the benefits and risks of any particular mortgage are explained clearly to them and it is encouraging that the FSA now recognises that consumers do not use the KFI as they intended, i.e. for shopping around, but mainly rely on the oral advice or information they receive. Most lenders already base the maximum amount they will lend on an affordability calculation, sometimes using actual expenditure as disclosed by the borrower and information from the credit reference agency and sometimes using averages from the National Audit Office. The FSA wants to go much further and make the mortgage application process far more intrusive by requiring borrowers to disclose not only committed expenditure (which lenders generally already require) but also discretionary expenditure on “food and drinks, alcohol and tobacco, clothing and footwear, household goods and services, health and personal care, transport, recreation, culture, restaurants and hotels, holidays and other miscellaneous goods and services.” Going through a detailed budget planner with some clients, particularly first time buyers, can be a helpful exercise for the client as well as the adviser, but for others a regulatory requirement to do so is insulting. Advisers and lenders should be given discretion as to how much of this detail is necessary, depending on the client’s status. In any case most people don’t say that my discretionary expenditure is £x and so I have £y left for my mortgage. They look at how much their mortgage and other committed expenditure is each month and then work out how much is left to spend on non essentials or save. Furthermore, rather than trying to micro manage people’s budgets, the interest rate assumed for the affordability calculation is much more important. The FSA is prescribing 2% as the increase in rates to use for affordability purposes but the danger of this is that by specifying a rate some consumers will rely on it for their own budgeting purposes. For anyone taking out a tracker today a 2% increase is too low a rate to use, whereas for someone taking a 10 year fix it would be fair to use the actual rate they are paying. The FSA is also proposing that all affordability calculations should be based on a 25 year repayment mortgage. Why? With the retirement age increasing it will be perfectly feasible for people to take out a mortgage for a longer term than was sensible a few years ago. If a 25 year old with a retirement age of 68 wants a 40 year mortgage to keep initial costs down what is the problem? The FSA has recognised that many borrowers whose mortgage is processed on a non-advised basis think they have had advice and also that some sales recorded by firms as non-advised are really advised. It accepts that some consumers do not want advice and it would be wrong to force them to have advice. It therefore proposes retaining both advised and non-advised sales but enhancing “the protections consumers have in a non-advised sale by imposing a basic standardised affordability and appropriateness test.” This seems sensible but I worry that if the information on discretionary expenditure demanded from clients for an advised sale is as intrusive as the FSA proposes more clients will choose the non-advised route. I suspect this is the exact opposite of what the FSA would like. Once a borrower has been asked more questions about affordability he/she will be even more likely than now to think they are getting advice to take a particular mortgage. Most lenders aren't keen to offer advice to their direct customers because of the more onerous regulatory and staff training requirements and so any extra questions they have to ask the customer will present a challenge to lenders (and those brokers who do primarily non-advised sales) to make sure their customer knows they are not giving advice. The proposal to require all mortgage advisers to become approved persons with individual broker registration is very sensible and should enable the FSA to deal much more quickly with the minority of rogue elements in our profession. The only surprising thing is that the FSA choose not to do this from day 1, in line with the policy of its non statutory predecessor, the Mortgage Code Compliance Board.Gordon Brown’s proposal early this year to cap LTVs at 90% was naïve and this review very sensibly recognises that LTV caps would be inappropriate. Affordability is the key issue and proper risk based pricing is required for higher risk mortgages, not a ban. Logically if mortgages above 90% LTV were banned all unsecured lending would have to be banned as well because that type of lending is obviously even riskier! Likewise, once it is accepted that affordability based lending is appropriate a loan to income cap would have been superfluous.Some of the changes the FSA is proposing are no doubt partly based on its re-assessment of the role of the consumer. Previously it assumed consumers would act rationally to protect their own interests but now it believes consumers have "behavioural biases.” Because the loan is a means to an end, for example a home or a car, they fail to focus on the details of the loan and hence the regulator needs to become "more interventionist to help protect consumers from themselves".It also suggests that consumers need "re-educating away from the idea that renting is bad and home ownership good, and away from seeing property as an investment." I suspect it will struggle with that one!The FSA suggests its scope should be extended to regulate second charge mortgages and buy-to-let (BTL) mortgages. The former is long overdue and it is almost unbelievable that the reason The Treasury originally decided that the FSA should not regulate second charge loans was that “your home is not normally at risk with a second charge loan.” Bringing BTL mortgages under the FSA umbrella will pose many challenges and when The Treasury consults on this shortly I expect the responses to be much more mixed than those which will be received on second charge lending. BTL is an investment and so should the regulation be as an investment or as a mortgage, or both? There is a huge difference between the amateur landlord with one or a few properties and the professional with perhaps over 100. If one is going to regulate mortgages for the landlord with, say, 100 residential properties and also a couple of shops or office blocks, why regulate one but not the other? I think it may be necessary to find a way of regulating BTL mortgages for the amateur landlord but not the professional, which then presents the problem of where to draw the dividing line. The FSA says that “We are not seeking to pre-empt the outcomes of the debate: the aim is to stimulate a wide-ranging discussion.” Unlike the Government, whose so called consultation papers have often been a sham (just think of HIPs) the FSA has demonstrated a willingness to listen to responses to its consultation documents. For example the final version of MCOB had some significant changes from the original and more recently the huge response from brokers, encouraged by AMI, to the massive increase in FSA fees originally proposed for brokers for this year resulted in much revised figures with only small increases. Therefore I would encourage every reader to engage with the FSA and answer the questions summarised in Annex 1 by the deadline of 30 January. Why not also encourage clients who think they will be adversely affected by any of these proposals to also respond to those questions which concern them. The more responses to this discussion paper the FSA gets the more influence they will collectively have on its final rules. Buy to let HIPs Interest rates Mortgages Personal finance Regulation Wed, 21 Oct 2009 22:45:00 +0100