Although this may serve as a sobering base, confidence overall is still on the up. House price rises, mortgage activity increases and rates incredibly falling even lower have kept those of us who are more optimistic for the year as a whole smiling a little less nervously than last year.

In fact, as things have become busier it has given rise to certain service issues, especially within lenders who no longer have the staff available to cope with increasing numbers of transactions. The good news here however, is that most lenders are now working hard at trying to solve this, updating processes and employing greater numbers of staff which should hold them in good stead going into next year.

There is one issue to be aware of, however, that is more difficult to solve in a shorter space of time, especially as the market gets busier, which involve the people many either love or hate; valuers.

During the height of the credit crunch many valuers who were twiddling their thumbs were made redundant or took early retirement, especially as the average age of a valuer seems to be over 50.

This means that there is now a serious shortage of qualified valuers, which is beginning to cause service issues. So much so, that in some areas of London, especially in the KT and SW postcodes, we have seen instances of valuers not able to book in a survey for an incredible 3 weeks after instruction.

This of course can seriously derail an urgent purchase.

Whilst we have been able to pull in favours for the most urgent transactions, as lenders are generally tied to their own panels of valuer firms, this is yet another aspect that borrowers need to consider when choosing a lender and something agents and solicitors need to be aware of.

Of course the main issue is that there is no short fix for the problem as qualified valuers do not just appear overnight and young blood needs to be attracted into the industry. In fact, at least one company we know of has had to persuade a couple of 70 year old valuers to come out of retirement to assist with the growing demand.

I do know that this is an issue that has the attention of the very top-level in our industry, but it seems that for a while at least, delays in the valuation process may be here to stay.

Until this is all rectified, if you were considering a change or career or have kids wondering what to do with their life, you can do a lot worse than considering qualifying as a surveyor!

Whilst it is of course concerning that there are many borrowers on interest only loans who have not as yet made any concrete provision to repay the loan, this is an issue that is containable and can be dealt with over the longer term.

The good news is that there seems to be no evidence of mis-selling and the majority of borrowers do understand that they have an interest only loan and all that entails. This, together with the length of term of the average mortgage, means that there is time to address any potential issues and the onus is on mortgage lenders to be flexible enough to assist those before problems occur.

Whether this involves moving borrowers on to part-repayment schemes, reviewing the standard age limits a loan can be extended past or being more flexible where current affordability calculations are concerned remains to be seen, but lenders do have the power to avoid future problems now.

All lenders are being urged to contact their customers now and engage in meaningful conversations to help borrowers to find ways to address any potential short-fall.

For many who are concerned the first port of call may well be an independent adviser who can look through all the options available to the borrower and assist in dialogue with their lender if needs be, but borrowers should not bury their heads in the sand and ignore this.

As for a “ticking-time bomb”, this seems wide of the mark as borrowers are aware of the product they have and have time to do something about it now.

With apologies to James Carville, the title is of course a slight variation of the phrase “The economy, stupid” which he coined as a campaign strategist of Bill Clinton’s successful 1992 presidential campaign against sitting president George H.W. Bush.

A perversion it may be, but it is the one subject that is guaranteed to get a bevy of brokers, (if that is the right collective term), most animated when discussing the market.

Whilst justifying to prospective clients what an independent broker does, apart from the obvious and most important advice part, service is the secondary selling point.

We are meant to take the stress out of the house buying process; the fulcrum that pulls together the client, lender, valuer and solicitor, in other words, the one that everyone shouts at!

Buyers rely on not just our advice, but our ability to smooth over issues and to position them with a lender who can meet the deadlines set to ensure they move into their new dream home unflustered.

Not only do we placate Estate Agents who want a valuation done yesterday on a 3 day exchange contract, (although to be fair to them, with good properties still something of a scarce recourse especially in high demand areas, there is often always another buyer ready to jump if clients falter at the first fence); but also attempt to motivate the cheaper, rural solicitor who believe everything is still done via snail mail and close for lunch.

Why we get upset then, is when a lenders service falls behind to an extent that we have to go back and “re-position” a client, something that never goes down well.

Across the board there are some worrying signs that lenders are struggling to cope with levels of business as they are now.

Seeing or hearing the words “it will take us 5 days to look at anything submitted today”, strikes fear through any brokers’ veins.

To me, the problem could be one of two things. First the rise in levels of business has caught lenders short as they have lost staff in recent years that they are reticent to replace, so those working there are simply over-burdened. Alternatively, or a combination of both, the front end systems are now becoming out of date or at the very least out of sync with the new underwriting regimes. This I understand cannot be solved without massive investment and takes time.

The question is however, whatever the reason, is it right that we should ever have to go back to a client and say it will take 5 days for them to get round to even looking at your payslip?

Don’t get me wrong, brokers are often complicit in this with poor packaging or assumptions on underwriting policy and I know for a fact that this is not something the majority of lenders take lightly and are busy trying to rectify the situation.

Whilst we need to keep pressure on lenders to sort out unacceptable delays, we do need to keep working with them constructively to deal with issues when they arise and not cry wolf when perhaps a case is not quite as urgent as it is made out to be.

Also, a pet hate of mine, there is no point shouting at the hard workers on the other end of the phone, (if someone did that to me I may also be inclined to accidently “misplace” that document).

But lenders need to understand the reason for our angst; being stuck in the middle and coming between a buyer and their dream home, is no picnic sometimes.

In my opinion, lenders have been steadily increasing fees over the past few years in order to counter a reduction in the headline rate, make more profit and remain top of Best Buy Tables.

As a result a growing number of so called Best Buys can be deceiving and can actually end up costing a borrower more over the initial period of the loan, once the fees are taken into account, than a product with a slightly higher rate.

This renders many such tables as pretty meaningless other than being a very rough guide.

Any decent, genuinely independent broker will be able to do a quick calculation to see whether a borrower is better off with a lower rate and a high fee, or with a slightly higher rate but with a lower fee or no fee product.

Taken together with the huge variances in service I have spoken about previously and the question of flexibility, whilst a borrower may think that they have found the “best” product for them, usually this is based on nothing more than it seems to be the cheapest headline rate.

As everyone knows, cheapest does not mean the best or most suited, so a 10 minute chat with an independent  broker could well save not only a pretty penny for the borrower, but ultimately  the whole transaction.

Shared equity – a shot in the arm of the housing economy

Regular readers of this blog will have seen the recent response of its editor Andrew Montlake to the government’s Help to Buy Scheme (see the previous post).

The initiative could provide a welcome boost to the housing market, Andrew concluded, but the devil will be in the detail.

For what it’s worth, we at Castle Trust agree. But we also see the initiative as an endorsement of an entire system of funding home buying – that of shared equity.

So what is shared equity?

As with traditional repayment mortgages, it’s a way of buying a home. The difference is that the buyer takes out a traditional mortgage from a primary lender for a portion of the amount they need to buy the property and secures the rest, in the form of shared equity, from a second lender.

In the case of Castle Trust’s shared equity Partnership Mortgages, the primary lender lends up to 60%, while Castle Trust lends 20% and the buyer provides a deposit of at least 20%.

With shared equity, there are generally no ongoing payments. Instead when you sell your home the shared equity provider is given a share of any increase in value or they will share any downside, effectively insuring against the chances of falling into negative equity.

We believe there are three obvious winners from using shared equity for home buying:

1. The customer. Ownership with a mortgage is a very risky thing; most people do not appreciate that the risk attached to an individual house is similar to that of investing in the FTSE 100 index. Shared equity reduces risk. It can also help reduce monthly mortgage payments, lessen the impact of interest rate rises and insure against the chances of negative equity.

2. The banking system. Because banks and building societies are lending proportionately less in each transaction, shared equity takes a significant proportion of the house price risk out of the banking system, reducing credit risk and credit losses.

3. The economy. Banks lending less per mortgage frees up their capital, allowing them to lend to more customers for the same amount of capital or to increase lending to other sectors of the economy.

So, as you can see, shared equity provides benefits throughout the economy, not just for individual home buyers.  Government endorsement of shared equity should provide a welcome shot in the arm for the UK economy by freeing up banks’ capital to be put to good use.

There was an interesting report last week that Building societies are now dominating best buy tables with 83 per cent of the most competitively priced products being offered by them rather than the larger lenders.

This is important as Building Societies also tend to operate on the old fashioned principles of understanding the customer and service, unlike the tickbox, factory style approach of many of the larger lenders. Now they have become more competitive once more, this gives consumers some real choice.

Also, pleasing was another report by the Bank of England that “credit availability” for borrowers looking for loans above 75% Loan To Value has increased recently. In other words, it is now easier for buyers with smaller deposits to borrow and there is more choice available.

This is all good news for the property market and we have also had a number of “off-the-record” conversations with lenders who want to target London borrowers as a means of getting more business through the doors. So watch this space to see how this unfolds.

At first glance this will not just have house builders dancing in the streets, or first time buyers eager to take advantage of ever decreasing mortgage rates, but also those “mortgage prisoners” trapped with little equity who have been wondering how they will be able to move.

Although there is a danger that this will artificially push up the price of housing, or make buyers decide to hold their purchases until the second part of the scheme starts in January; taken together with a potential extension of the Funding for Lending Scheme this could give the housing market a real boost.

In brief, this scheme is in two parts; the first provides an equity loan to those buying a new build property of up to 20% of the purchase price. Therefore is you have 5% deposit the governments loan means you only need to borrow 75% from an appropriate lender. This loan is interest free for 5 years, but then costs 1.75% per annum which increases each year by RPI inflation plus 1%.

Funny that RPI has been chosen as this is apparently no longer an official statistic and it will be interesting to see what inflation rates are in 5 years time given the unknown effects of Quantitative Easing etc.!

The second part is the more contentious bit. This is a mortgage guarantee scheme that the government provides to the lender, in essence insuring up to 15% of a loan above 80% Loan-To-Value as long as the buyer has 5% deposit. This Mortgage Indemnity Guarantee should give lenders the impetuous to offer more high LTV loans and is available for all borrowers, (apart from Buy To Let), up to a property value of £600,000.

However, the devil really is in the detail and detractors have already pointed out some issues that need to be ironed out.

For this scheme to really work for example, there needs to be capital relief for lenders in conjunction with the scheme. In other words, as the government is insuring up to 15% of the loan why should lenders still have to provide the same amount of capital to be put aside as they do now for higher LTV borrowing? If this does not change then this does not really address one of the major issues lenders have.

One of the other main questions around the scheme will be whether or not lenders will impose the same tight credit scoring guidelines they currently adopt for high loan-to-value lending which continues to make it difficult for many to pass through the process unscathed. Hopefully the new scheme will allow them to return to less draconian but ultimately sensible underwriting processes that really will open up the doors for first time buyers and mortgage prisoners to take advantage of competitive rates.

There is also the question of policing the scheme. We know that Buy To Let mortgages will not be allowed and interest only mortgages barred from the scheme, but there is also a question over whether it can be “abused” by those looking for second properties for example.

No doubt there will be changes before this part of the scheme goes live in January and it strikes me as strange that schemes like this are released without the Government seemingly having spoken to anyone in the industry. After all any decent mortgage broker could have pointed out some of the issues straight away.

As they say, it is good to talk and it surely can’t be because they are afraid of any leaks!

For the full details, or what is available officially so far anyway, see the link here http://www.hm-treasury.gov.uk/10012.htm .

The latet is that Accord are pulling out of Interest Only entirely from Sunday.

This is a group wide policy so will affect Chelsea and Yorkshire BS as well with all applications needing to be with them before the closing date.

Andrew Montlake, Director at Coreco Independent Mortgage Brokers commented, “It was interesting to note that this move was communicated on Budget Day, presumably in the hope that it would be passed over with other news, but this is another big blow to those who believe there is a place for interest only.

Given the positive news in the Budget with the announcement of the Help To Buy Scheme I hope that this negative news does not lead to more lenders who have already set a sensible interest only policy reviewing their stance yet again.”

Rates rose and fees seemed to spiral higher as the lending market jerked backwards in response to the number of issues that were being uncovered in this sector.

For the most part however, lenders that had sensibly supported the buy to let market found that arrears were broadly similar to the residential market and therefore lenders saw the higher prices and fees being charged for little extra risk as being very profitable.

As the market has started to return we have seen more lenders re-entering the Buy To Let sector, or even enter into it for the first time, with a view that this area of the market will become more and more significant once more.

As rental yields have continued to remain strong and demand for rented accommodation increased due to issues with first time buyers getting on to the housing ladder themselves, it seems the stage is finally set for a rebirth of this market.

On the back of the Funding for Lending Scheme, which has sent mortgage rates tumbling in the residential sector, the Buy To Let market now looks to be the latest beneficiary. This is good news for both those looking to keep their existing property and buy somewhere else, the “Let To Buy” sector, as well as professional landlords looking to increase their portfolios.

You can now obtain a Buy To Let product fixed at just 3.18% for 2 years, (5.3% APR), with fees that have also come down recently, at £1,995. This is a marked difference from just a couple of years ago and shows the growing importance that lenders are putting on the Buy To Let Sector this year.

There are now a plethora of lenders offering competitive Buy to Let options and we are already seeing landlord enquiries increase as they feel the time is right to extend their portfolios further.

It is not just product rates and fees that are changing either; lenders are also beginning to tweak their criteria, with on the one hand, for example, increasing Loan-To-Value bandings whilst on the other producing different underlying income requirements.

In this market, the use of an independent and suitably qualified expert who understands this area of the market is imperative, especially if you are looking at building a portfolio or remortgaging your existing properties. Choosing the right lending partners early on can really make all the difference.

So whether the goal is to move without selling a property, supplement income in retirement or to build a large property empire, it seems that the time is once again right for Buy To Let.

Although there are still some negative undercurrents around the economy, with the odd whiff of a banking scandal still emanating around certain quarters, the property and mortgage markets seem almost buoyant, especially in the busy London market.

One Prime London Estate Agent, whose applicants we help to secure finance, recently told me that they had no fewer than 62 viewings on one un-modernised property in Notting Hill, which subsequently went to sealed bids.

So whilst the market for quality property is moving, the good news is that this is being further supported by even more lenders re-entering the market.

Last month, for example, saw the release of two more mainstream lenders moving back into the Large Loan Market which is great news for many buyers in London. For loans between £1m and £2m this area of the market has been neglected for a while by the High Street, with borrowers having to jump through the hoops of Private Banking institutions, which can slow down the process, involving both the transfer of bank accounts and assets.

The return of High Street lenders into this niche avoids all this and with others set to follow suit in the next few weeks it could be a competitive time to obtain a large loan.

As has been mentioned before, this all makes sense to High Net Worth individuals who may have been traditional cash buyers. After all, why tie up all your cash when you can borrow 50% to 60% loan-to-value easily at just 2.24% fixed for 2 years, (4.4% APR) or 2.89% fixed for 5 years (4.8% APR).

In fact, there is every evidence that rates are set to get even lower, with at least a couple of lenders now offering rates below the 2% level.

ING Direct, for example, who are about to be swallowed up by Barclays, are nonetheless going out with a bang in offering the lowest tracker product priced at a tasty 1.94% for 2 years, (3.7% APR).

With Investec the latest big name entrant to release their new large loan offering competition in the Large Mortgage loan space is certainly hotting up.

The real question is how, or even if, Private Banks will hit back. Whilst one school of thought is that they will remain happy and calm in the shadows, we have already seen signs of some of them starting to loosen up on their criteria which demands assets under management. This is a very interesting move and whether this leads to a 2 tier private banking lending market remains a possibility.

What is evident, however, is that this year is gearing up to be one of the most competitive years in the High Net Worth market for many years, if not ever.