In recent years as many as 4 out of 10 mortgages have been taken out on an “interest only” basis. Many of these borrowers expected that assumed growth in house prices would help them pay off their loans – but something went wrong. Instead of house prices increasing they went into reverse. Over the last two years many properties have lost as much as 25% of their pre credit crunch value.

The Financial Services Authority (FSA) has estimated that as many as 4.2 million borrowers have to face the possibility that their interest only mortgage could mean that they’ll not be able to move for some years to come as the sales proceeds from their home would not leave them with sufficient to fund the deposit for their next home. Indeed, some would be left still owing money to their lender after selling their home due to negative equity.

To make the situation even worse, as unemployment has risen, it is inevitable that some of these borrowers will have become unemployed or have been forced to take new employment on lower wages.

At the moment many mortgage advisers are advising clients to switch from interest only deals to conventional repayment mortgages. But if they cannot afford to do this they should either over pay on their current mortgage or start up a regular saving plan.

If you are caught in this “interest only” basis then please do not ignore the problem. It’s a ticking time bomb.

Economists say that the average age of a first time buyer who isn’t receiving financial help from their parents is 37 compared to 31 for those who are lucky enough to get help from Mum and Dad.

This is not surprising bearing in mind that the latest figure from the Council of Mortgage Lenders shows that the average deposit for a first time buyer has increased from £13,194 in September 2007 to £31,875 now.

And even when a buyer has their offer accepted, the problems don’t stop. Despite recent increases in sale prices, surveyors are still down grading house values and frequently the value they attach to the house for lending purposes is lower than the agreed sale price.

The Halifax has reported that house prices grew by 1.5% during the summer but the price of flats and maisonettes popular amongst first time buyers grew by nearer 2.5%. This is due to a shortage of affordable properties suitable for first time buyers.

The figures also show the affect of the lenders tightening up on lending multiples combined with lower prices post credit crunch. The average advance to first time buyers has fallen from £118,750 to £95,625.

All this is not good news for the property market. A healthy property market relies on all sectors of the market being buoyant.

Building Societies are beginning to introduce some cheap mortgage deals – but you’ll have to get up early to bag one.

The Newcastle B. S. and the Coventry have stolen a march on their competitors by launching some fantastic rates but there are signs that the Newcastle could their deals very soon and the Coventry withdrew theirs after just seven days,

The basic problem is that the building societies are unable to borrow in the money markets and all their mortgage lending have to be funded by investors savings and mortgage repayments from their clients. So if their deals turn out to be very popular, the money runs out in a flash.

And first time buyers still shouldn’t get too excited either. They may be the first to get out of bed and queue at the building society, but all these deals still require a deposit of at least 20% and a near perfect credit history.

The credit crunch remains with us.

Just imagine. You’ve been to the show house, fallen in love with the housing development and signed up to buy a house off plan for £500,000 and paid the 10% deposit. The only problem you may have thought was that you’d have to wait 12 months to move in.

Ten months later the letter arrives to say that the house will be ready in 8 weeks. But things have changed. House prices have fallen and the building society values the house at £425,000 and, as business is not so good, your income has fallen too.

What do you think the building society will say? Yes, you guessed it – no mortgage! But you have signed a contract to pay the balance of £450,000 for your new home and the builder wants his money and you’ve signed a legal contract to pay.

This sort of situation does happen. Berkeley Homes is in the process of taking an unknown number of it’s clients to court to recover the money they are owed.

So please be very cautious if you are tempted to buy a home off plan especially if you are having to raise a hefty mortgage to complete the deal. And also be aware that, despite the recent upswing in house prices, some commentators are still forecasting that house prices will go into reverse again next year.

Please be careful.

In the last six months we have witnessed a dramatic change in mortgage choices. In May this year 8 out of 10 new borrowers chose a fixed rate mortgage with the remainder opting for a tracker or discounted mortgage.

Yet just six months later consumer choices have totally changed. Last month 8 out of 10 new borrowers selected trackers or discounts and just 2 went for a fix.

This has all come about because general financial opinion thinks that low interest rates are here for a few years as the British economy claws itself out of recession. Everyone knows that the Bank of England’s Base rate cannot remain at 0.5% for ever – it will rise – but expectation now has those increases pencilled in for a few years hence (probably up to 2011).

So will those borrowers who locked into fixed rates at under 4% for 5 years back in April and May, be the eventual winners? Let me have your views.

Those homeowners paying a variable rate mortgage need to keep an eye on their monthly repayments because some lenders are increasing their standard variable interest rates (SVR).

For example, Accord which is part of the Yorkshire Building Society has recently increased its SVR by 0.65% to 5.99%. This follows a number of rate increases by the Cambridge, Scottish and Ipswich building societies. Other mortgage lenders are expected to follow suit.

More people are now paying SVR’s after completing their fixed rate deals as the new tracker and fixed rates available are often to expensive. But there can be a big gap between the best and worst SVR’s. The nationwide is currently holding their SVR at 2.5% for existing borrowers although it is 3.99% for new borrowers.

The average SVR over 15 of the largest lenders is 4.8%. This means that a mortgage of £150,000 over 20 years at this average SVR would cost £973.

Yes, on the quiet the Post office has moved into mortgages. You should now be able to find details of their mortgage products in every Post Office whilst mortgage advisers are on hand to assist with applications in 250 of the largest Post Offices.

They have ten varying mortgage deals varying from 5 year fixed rates to “life of loan trackers”.

They charge a fixed application fee of £599 on every mortgage application including buy-to-let mortgages. However, you must have at least a 20% deposit to apply for any of their mortgage products.

The Conservative Party has said that it will abolish Home Information Packs at the start of a Conservative Government but sellers will still have to produce an Energy Performance Certificate (EPC) – that’s presumably because EPC’s are mandatory under an EU Directive.

We are yet to find out whether the EPC would have to be renewed every time a property is put on the market or whether it will be valid for a fixed period of time. What is clear is that the cost aspect of a EPC will be only a little less than the current cost of a HIP.

That’s because it’s the energy saving element of the HIPs that costs the most money to provide. But does the public have any confidence in the energy ratings? It seems that EPC assessments can come out with very different ratings depending on who surveys the property so it clearly is not a reliable assessment.

And in any case, when we’re off shopping for a new home do we really bring energy assessments into our selection criteria? Certainly not me!

But could there be another reason for EPC’s? I can just forsee some green politician suggesting that properties be subject to a new energy tax based on their EPC rating!

Some borrowers are finding it impossible to gain access to the best mortgage deals, loans and credit cards despite having paid all their bills on time. Why? Because the credit reference agencies have made errors on the credit file they hold on that person.

Nobody gets everything right one hundred per cent of the time and this applies to the credit agencies as well. They make mistakes – but you pay dear for their mistakes!

Confusing you with someone else, recording other peoples’ credit problems on your file and general inaccuracies can wreck your credit rating and cause you untold headaches.

Our advice is check your files held by the three main credit reference agencies – Equifax, Experian and Callcredit. You are entitled to receive a copy of your file for an administration fee of £2 - and go through it with a fine tooth comb. If anything is wrongly recorded, the agencies have procedures you can follow to have your file corrected. The problem is that it all takes time and is a pain in the neck!

But until your record is corrected credit will either cost you more or even be refused. So once you have your record spot on, it’s a good idea to make the same check every year.

The FSA wants to reform the way mortgage lenders agree new mortgages. It’s proposals include a ban on self-certification mortgages and more detailed verification of the borrowers income.

The FSA’s 7 points are as follows:
1. A ban on self-certification mortgages which some have labelled “liar loans”.
2. Borrowers to provide far more detils about their income.
3. Abolish fast-track applications where mortgages are approved without detailed checks.
4. More stringent affordability checks to ensure borrowers can cope if interest rates rise.
5. Buy-to-let mortgages to be regulated.
6. All second charged loans to be regulated
7. All non-bank mortgage lenders to be subject to new and more rigorous, capital requirements.

Jon Pain, the FSA’s Managing Director is reported as saying, “We have to, learn from the lessons of the past. Affordability tests are important as we want to be sure that a borrowers net income is enough to cover the prepayments.”

According to a recent report from the housing charity Shelter, banks are still prepared to offer a mortgage of up to 5.5 times your annual salary if your credit history and your job are both good enough.

Having said that anyone taking such a weighty mortgage would have great difficulty getting their family budget to balance and places them in serious danger of becoming financially overwhelmed.

Back in more conservative banking days, a big mortgage was judged at around 3.5 times annual salary which left the homeowner to comfortably afford the other family bills.

There are concerns that bank staff are being increasingly pressurised to drive sales and both Barclays and Santander were prepared to offer a 5.5 multiple. The Royal bank of Scotland (RBS) and NatWest both offered 4.75 multiples and Direct Line, a subsidiary of RBS offered 4.8. (Info from Shelter)

Good news for mortgage hunters! Last week a number of mortgage lenders cut their rates as the Bank of England kept its bases rate steady at 0.5%.

Northern rock cut up to half a percent off its trackers and 0.3% off its fixed rates.

Then Nationwide cut 0.31% off its fixed rates and 0.2% off its trackers.

Then Alliance & Leicester cut trackers by 0.4%.

To us this looks like the lending market sharpening up its act following criticisms that their rates were far too out of line with the BoE’s base rate. If we are right more is to come!

However, we anticipate that the brake will only be released on people who have substantial deposits and perfect credit records. It’s going to remain tough for the rest.

If your mortgage lender is part of one of the nationalised banks such as Intelligent Finance (which is part of Halifax a rescued bank) or Northern Rock, the odds are you’ll b told to get a new mortgage elsewhere if you want to move home.

Mortgage clients at Northern Rock who took out their mortgage after 12th may 2008 are only being offered refinancing if the remortgage is of the same value as the clients existing mortgage.

Whereas Intelligent Finance has informed its clients that if they want to remortgage, they have to go to other lenders owned by Lloyds Bank (such as Scottish Widows or the Halifax). If they go elsewhere they could face exit penalties. And as from April 2010, no one with a mortgage with Intelligent Finance will be able to refinance their deal wit IF.

The Financial Services Authority is expected to announce a new crackdown to head off irresponsible mortgage lending of the kind that was witnessed pre credit crunch.

The central recommendation is expected to be a requirement for all lenders to undertake detailed affordability checks before lending and make the lenders responsible for showing that the borrows can afford to repay the loan. This recommendation sounds the death knell of the self-certified mortgage which previously enabled borrowers to get their mortgage without providing proof of income.

Self-certified loans were popular with the self employed and accounted for over a third of all new mortgages back in 2007. But defaults on them have run at a far higher level than ordinary home loans so the FSA has decided to call “time” on them.

Other changes being considered by the FSA include extending regulation to second charge lending and the buy-to-let market.

According to a recent report published by the Economic and Social Research Council, the recent rises in house prices are going to be reversed. As the government has to cut it’s expenditure, economic recovery will waver and house prices will fall again.

This in turn is expected to create a spiral as potential sellers take their house off the market and buyers find it harder to find what they want and, disillusioned, they too effectively leave the market. Then as household wealth falls, consumer spending falls and this again impacts on house prices.

The Council predicts that it could take three years for UK house prices to sustainably break out of this spiral.

If this is true, it is going to be three four, or even five, years before we see the mortgage lenders pluck up enough courage to accept low deposits as in a falling housing market. When markets fall, the equity homeowners have in their property can be eaten up very quickly leaving them in negative equity - and leaving the mortgage lender facing a potential loss on their lending. For the time being we are unlikely to see any lenders reduce their deposit requirements and this is not good news for first time buyers.

Let’s hope that the Economic and Social Research Council has got it wrong!

First time buyers have been dealt a further blow as Britannia, the mutual mortgage lender, withdraws its low deposit mortgages. It has decided that it will not now lend to anyone who has less than a 10% deposit.

This leaves only a very few mortgage lenders offering to finance homes with small deposits – lenders such as the Yorkshire bank, HSBC and the Cheltenham & Gloucester. And even then the interest rates on offer are sky high.

So life remains tough for cash strapped first time buyers and even where deals are publicised, some borrowers can’t get the funds when they apply. Lenders are remaining very picky as to who they accept and who they don’t.

At the other end of the spectrum, if you are remortgaging with a good credit record and 40 or 50% equity in your home, then there’s a who host of lenders waiting to welcome you with open arms!

As commentators remain concerned at the margins that are pushing up mortgage interest rates, lenders have also started sneaking in a few hidden charges. Here are four for starters:

1. You have to move your current account to your lender – and unless you pay in a specified minimum amount each month you get charged a monthly service fee a month for the account.

2. You have to buy the lenders home insurance package along with the mortgage. And don’t expect internet premiums – the lenders premium will be VERY expensive.

3. Very high redemption fees – as much as 2% - if you want to move your mortgage within a fixed number of years. This fee is charged if you move for a new deal – or if you move house.

4. Everyone is getting used to high application fees. What we now sometimes see is a lower “reservation fee” or a “booking fee” taking the place of the application fee - but watch out for sky high “completion fees”.

Our advice is if the promoted interest rate looks really keen, the lender will probably increase their income some other way – so be vigilant!

Remember the old adage – if the deal sounds too good to be true, it probably isn’t true!

The cost of mortgages is on the up despite bank’s costs falling to record lows. The cost of three and five year fixed mortgages has risen again despite bank’s paying less to obtain the funds they lend.

It means that for a £100,000 mortgage, the banks are making £515 more annual profit than they were just nine months ago in January. Figures show that the average price of a three year fixed rate mortgage increased from 4.67% in July to 4.81% at the end of August. For five year deals the price increased from 6.68% to 5.72%.

At the same time, the three year interest rates paid by the banks on the wholesale money markets was 3.3% and five year rates were 2.6 %.

But the biggest cash cow for banks are tracker mortgages. Banks are borrowing funds for these products at 0.7% and lending it out on tracker mortgages at 3.84%.

In our view these represent market forces where the demand for mortgages simply exceeds the volume of funds which banks, post credit crunch, are prepared to supply. Until demand and supply come more into balance, we are likely to see the banks making hay whilst the sun shines and taking the opportunity to boost their profits and balance sheets.

According to a recent survey 1 in 8 homeowners expect their house to fall in value during the next 12 months. This is despite 5 months of upbeat market reports from mortgage lenders and even the land Registry.

Confidence is lowest in the Midlands and Wales but even in more affluent London just over 50% think prices will rise with 31% expecting them to stagnate.

The latest Hometrack survey which is conducted amongst 6,000 estate agents and surveyors suggests that price increases were restricted to just 11% of the country – primarily in the south east. Across the rest of the UK, prices remained level.

The constant talk in the press about “green shoots” appears to be centred in the south east and amongst those in whose self interest is served by price rises. Hello Mr estate agent!

Estate agents and others in the property market have consistently criticised Home Information Packs (HIPS) as an irrelevant add-on to the home selling process. But does a hidden agenda explain the Government’s lack of hearing?

Rumours abound that HIPS certificates are to be pressed into service to raise more cash for the government. Since October last year, anyone renting or selling a property has had to have a HIP certificate and an energy rating certificate. Some are predicting that the autumn budget will see the stamp duty on the sale of houses rescheduled to take into account the property’s energy rating. And we all know what “re-scheduled” means – it’s a rise!

And this could open the flood gates! If the government can use HIPS to increase stamp duty they could also use it for increasing property valuations for council tax purposes. Now wouldn’t that get the mini mandarins at the town halls salivating!