Is the message from the Bank of England - that the housing market can only be rescued with lower rates for borrowers - at last getting through to big lenders?
By Jeremy Gates
When Nationwide BS started flagging a round of cuts on fixed rate loans over two and five years, Britain's biggest building society indicated that big lenders might start to follow the Bank base rate downwards. This came after several months in which the two moved in opposite directions.
With savers' money gushing into building societies, some might feel this move is long overdue.
Actually, it is a dip in swap rates on funds raised on money markets, which enables Nationwide to offer two-year fixes from 5.95% for buyers, and from 6.15% for remortgagers, both with a £599 fee and maximum loan to value (LTV) ratio of 90%.
On three-year fixes, Nationwide might allow an LTV of 95%.
Nationwide's move, hard on the heels of smaller falls on fixes at Abbey and Royal Bank of Scotland (RBS), is "a meaningful reduction", reckons Ray Boulger at leading brokers Charcol.
Fixed rate loans are currently far more popular with borrowers than tracker rate loans: Charcol figures show that 78% of mortgages it arranged in April were fixes - "mainly because fixed rates were a quarter to half a percent cheaper than trackers, which mostly start above 6%".
Hamptons Mortgages, a rival broker, confirms that fixed rate mortgages have nearly doubled their share of loans arranged since January.
Boulger says: "Soaring demand for fixed rate loans might imply borrowers are nervous about the strength of the economy and fear rates will soar as they did in the early 90s. But such a hike is extremely unlikely."
Another ray of hope for borrowers is HSBC's decision to extend its Rate Matcher mortgage for a further six weeks until June 29. This is available to all UK homeowners whose fixed rate mortgages mature before August 31. With a maximum LTV of 80%, Rate Matcher enables any borrower at the end of a fix to refix at the same figure for a further two years.
In theory, the re-fix could be as cheap as 4.54% - although any borrower taking the maximum £250,000 from Rate Matcher at that rate pays a fee of £4,599.
HSBC, which has written over £100m of mortgage business each working day since launching Rate Matcher on April 14, says two-thirds of its new customers pay a fee of less than £1,000.
Any reduction in rates is helpful - but Boulger insists "we are only now nearing the end of the beginning of the crisis caused to housing markets by the credit crunch.
"The bigger issue is the change in criteria which buyers must satisfy to get a loan. There were 25 lenders offering 100% loans in January, and now there are only two - Bank of Ireland and Bristol and West, which require a parent or grandparent named on the mortgage deed in an enhanced guarantor scheme.
"There is still strong demand for 95% loans, but buyers at that level must pay a much higher price.
"Typically the premium for borrowing 95% of price as opposed to 75% now runs at 1%, against an average 0.4% before the credit crunch, and borrowers taking 95% loans can expect to have a higher lending charge (about 1.5% of mortgage advance) added to their mortgage at the start."
Charcol figures show that a borrower with a £150,000 mortgage and a 10% deposit pays £93 more in interest each month than a borrower with the same mortgage who put down a 25% deposit.
Andrew Haggar at Moneyfacts says the drastic fall in the supply of 95% loans - from about 900 providers a year ago to barely 200 today - has caused the market to grind to a halt.
"Lenders still want to carry on mortgage business but they are far more selective on LTV limits and credit scoring," he says.
"Eventually one lender will decide to lend more bullishly, and others will follow, but all lenders are waiting for somebody to make that first move.
"I don't see anything happening for at least three or four months."
Nobody knows exactly where the market is heading. As the notes of Housing Minister Caroline Flint revealed this week: "We can't know how bad it will get."
Boulger thinks recovery is at least a year away.
"Bank base rates could fall to 4%, against 5% today, with borrowers paying 4.75% on mortgages up to 75% LTV, possibly 5.75% if they need 95% LTV," he says.
"First-time buyers will be largely absent from the market for two years, from June 2007 to mid-2009, at which point the market could begin to stabilise and values cease to decline.
"Until then, first-time buyers fall into two categories: those getting financial help from parents, and those who aren't. To make much difference in present circumstances, parents have to provide about 10% of purchase price to give a son or daughter access to mortgage finance at a reasonable price."
Boulger urges would-be first-time buyers to monitor the housing market closely in the hope of finding a distressed seller ready to accept perhaps 10-15% below what a property is really worth.
"If you find the right property at a good price, there is no reason not to buy now," he says.
"For existing owners, the question of moving is far less critical: as the market weakens they can sell for less to buy for less, and they may save on Stamp Duty too - although it has become much harder to keep chains together, and the stress of moving has plainly got worse.
"For some fortunate owners, moving perhaps from Scotland, where the market has held fairly firm, to the Midlands, where prices have already fallen, there can be real advantages to moving."
INFORMATION: Charcol (0800 718 191/www.charcol.co.uk) offers a Remortgage Check to ensure borrowers are on a good mortgage deal; Nationwide BS (08457 302 010 and local branches); HSBC (0800 169 6333 and local branches).
POUNDNOTES
:: Try not to think about retirement, it's financial hell, suggests a survey looking into how older workers view the impending years when they will put their feet up.
Two-thirds of people approaching retirement suffer from a syndrome called FRED - Facing Retirement Earnings Doubts - says a new analysis from LV=, the friendly society formerly called Liverpool Victoria which manages around £8bn for 2.5m customers and members.
It reckons that on average people think they need £20,100 a year for a comfortable retirement - but they expect to have only £16,900.
It looks as though many older folk have decided it is too late to change their savings habits.
The survey reveals that 25% of those who are worried don't save at all, 40% are not increasing savings despite their worries, and half the people facing retirement are under pressure from other family members for financial support.
LV= reckons the army of anxious 50-plussers could number 6.5m - with 5m particularly alarmed by rising food and utility bills.
Says LV= chief executive Mike Rogers: "The combined impact of the rising cost of living, fears of a recession, and widespread media coverage of the credit crunch, has created an anxious majority of people facing retirement."
:: Tuxedo Money Solutions, a leading prepaid debit card provider who works with Newcastle Building Society, has provided the technology for a card that enables gap year travellers to keep their money a bit more secure.
The STA Travel Cashcard, the first branded prepaid cash card, enables travellers to hold up to £5,000 in a secure online "eccount" from where it can be safely moved onto the card by text, internet or phone as and when it is required.
The card features chip and pin, giving complete security for internet use and everyday banking. As a worldwide travel card it offers access to 1.3m ATMs and 25m merchants. Up to £500 can be withdrawn from ATMs daily and the card promises good value on exchange rates and foreign ATM charges.
The card also enables parents to credit a son or daughter over the web from home if they run out of funds on their travels. Applicants for the card receive a welcome letter, paying in book, user guide and card in their name for £9.95.
Further details available from STA Travel (0845 872 0812/www.statravel.co.uk) or at STA Travel High Street branches.
:: Many small investors persuaded to put ISA funds into corporate bond funds run by High Street banks have seen the value of their investment plunge, claims fund analyst Moneyspider.com.
"Older investors pinning their hopes on income paying funds to support their retirement could be particularly badly hit," claims Moneyspider's Tony Ahearne.
"Corporate bonds are the second biggest ISA sector, boasting hundreds of thousands of investors," he says.
"Our rating system shows how several of the UK's biggest bank funds performed in the past one three and five years, and highlights the dangers of simply relying on well-known names to deliver good returns."
Over the past year, claims Moneyspider, funds falling in value include Halifax Corporate Bonds Fund D (-6.78%); Scottish Widows Corporate Bond B (-5.24%); Insight UK Corporate Bond A (-5.48%); and Scottish Widows Corporate Bond B (-5.24%).
"The fact that base rate has been so historically low over the past five years or so has given bank sales teams an opportunity to push corporate bonds as a way to maximise income," Ahearne says.
Moneyspider enquiries: 01784 264 220/www.moneyspider.com.
:: HIGH FIVE SAVERS
Phone No Rate Account Period Deposit Interest paid
Icesave icesave.co.uk FixedRateSavings 1Yr Bond £1,000 7.01% Onmaturity(OM)
B'ham Midshires askbm.co.uk DirectInternetFixedRate 1Yr Bond £1 6.88% OM
B'ham Midshires askbm.co.uk DirectInternetFixedRate 6MthBond £1 6.83% OM
Icesave icesave.co.uk FixedRateSavings 2Yr Bond £1,000 6.60% Yearly
Abbey abbey.com InstantAccessSaver Instant £1,000 6.50% Yly
:: TOP FIVE BORROWERS
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494999 5.43% (FTB) for 2 years 90% £999 Yes
Principality BS 0845 0450006 5.58% to 30.6.18 75% £999 Yes
Mansfield BS 01623 676345 5.65% for 3 years 75% £599 Yes
Barnsley BS 01226 733999 5.69% for 2 years 85% £750 Yes
Egg 0845 6000290 5.75% for term 90% - Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T- Operated by Telephone
*W- Operated by Internet
*H- Operated by Internet/Telephone
*S- Available only to those aged 50 or over
*R- Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice)
