Building on a Happy New Year!

Despite the continuous bad news headlines churned out by the lenders and the media, it’s heartening to hear that the average person can now see a light at the end of the property tunnel.

With the prime interest rate sitting at an all time low of 0.5% it’s easy to forget that in April 2008 the prime interest rate was sitting at a whopping 5% having been reduced from the previous July’s 5.75%!

There has been a lot of talk about the UK recession in 2009 and while British consumers anticipate the unexpected in property, it seems we are set to continue to enjoy the impact of the current low interest rate for some time to come along with other positive 2010 predictions.

Reasons for optimism

- House prices have risen in 2009 despite the double dip warnings and we look set to enjoy a more moderate pace of house price increase in 2010

- The interest rate will remain at 0.5% which is way down on the 5.5% we had in May 2007. This should last at least nine more months allowing us all a bit of extra cash and clearing the way for more money printing and continued low rates

- The buy to let market is seeing strong signs of improvement

- A weak pound has made British products cheaper, helping exporters

- The UK economy has shrunk less than we actually thought

- Loan lending is down due to lack of supply not demand!

- Offset mortgages are now being offered

- HomeBuy Direct has received an £80m extension. This is the government shared equity mortgage scheme where up to 10 000 first time buyers are helped to buy specified newly built homes. This scheme has already received interest from over 32,000 people since September

- Green housing measures are increasing dramatically which can only improve our living standards

- A powerful stock market rally has boosted confidence.

- Natural disasters are at their lowest in a decade globally

- Unemployment rises have been smaller than originally forecast.

- The upcoming election will keep all parties on their toes and the power with the people – so vote!

- The effects of Quantitative Easing take nine months to work. QE began in March so we should start to enjoy its benefits around the New Year onwards.

- The ‘libor’ rate (a measure of bank trust) has fallen back to BELOW pre-crunch levels.

- France and Germany are just out of recession along with South Africa, Japan and the US

Obviously one of the biggest factors for 2010 is the upcoming election and all indicators are that the Conservatives will sweep the board with an overwhelming majority. Considering their election promises of abolishing stamp duty and raising the threshold on inheritance tax, freezing council tax for two years and providing tax cuts for new jobs to get people back to work, it could be a better 2010 under their guidance for home owners and first time buyers.

In conclusion, 2010 should see us well on our way to recovery!

Where households are saving money

With the ongoing credit crunch, it's interesting to see how consumers are pulling in their financial belts.

According to a Legal & General survey, 93% of Brits are making major financial cutbacks in the home to survive the economic turmoil, with buying cheaper food topping the list.

At a time of market uncertainty, when UK homes have been hit by a string of major cost of living hikes, the new research suggests the majority of British families are responding with Churchillian resolve. Across age groups and across the regions, Legal & General's research points to widespread, positive action being taking across the UK to tackle the market downturn head on.

The poll of more than 4,200 people - as part of Legal & General's Changing Face of British Homes research - asked what steps people were taking to keep living costs down in response to the various recent rises in the cost of living.

The top 10 ways to beat the downturn across the UK:

1. Buying cheaper food 65%

2. Savvy initiatives to keep fuel bills down 65%

3. Cutting down on takeaways / eating out 50%

4. Switching to cheaper utility/energy providers 39%

5. Shopping around for cheaper home insurance 32%

6. Walking or cycling more 29%

7. Putting off home improvement projects 27%

8. Having a car boot / eBay sale 22%

9. Making energy saving/ home improvements 22%

10. Growing my own fruit and veg 20%

How are different age groups reacting? What are their savvy strategies?

Whilst most adults agree on the importance of taking positive action to tackle the cost of living hikes, the Legal & General research revealed that there were marked generational differences in how people sought to balance the budget.

Among older people, there was a strategy of frugality, perhaps reminiscent of the days of post-war rationing. The more affluent middle aged Britons were more likely to switch service providers than fundamentally change their way of life. The under 25's were more prone and, arguably, more able to go without things - living life without a car, without new clothes or electrical and cutting our rent or mortgage payments by moving back to mum and dad's.

Regional Highlights:

In every region around the UK at least 89% of people are applying measures to cut the cost of running the home, although particular strategies were more popular in certain areas.

1. People in the West Country were most likely to embrace car boot sales, 30%.

2. In the North West, people were most likely to take domestic environmental initiatives to beat the downturn like turning off the lights and showering instead of bathing, 70%.

3. Households in East Anglia are those most likely to cut down to one family car, 10%, whereas those in Scotland and in London said they were most likely to walk or cycle more, 31% for each.

4. The canny Scots were also more likely to shop around for cheaper energy suppliers, 44%.

5. When it comes to food and drink, people in the North East are most likely to spend less on their weekly food shop, or buy cheaper food, 73%.

6. East Anglians are the people most likely to be turning their gardens into allotments, growing their own fruit and veg, 33%.

7. People in Scotland, 37%, the North West, 34% and the Midlands 34%, were most likely to shop around for cheaper insurance.

8. With rents rising, people in London were most likely to move back in with mum and dad, 5%.

Personal measures

In addition to the mainstream measures being undertaken, a number of survey respondents volunteered to put forward their own tips on beating the crunch and some of these anecdotes volunteered included:

1. Going to charity shops more / buying second hand goods

2. Mending and patching clothes

3. Stopping charitable donations

4. Keeping chickens

5. Using cloth nappies

6. Using night timers on white goods to enjoy cheaper electricity

7. Cutting subscriptions to clubs

8. Cancelling Sky TV and using Freeview

9. Changing mobile phone deal

10. Emigrating!

Ruth Wilkins, Director at Legal & General commented: "The last few months have been a difficult time for most homeowners. In addition to seeing house prices fall, most homeowners have also had to contend with a wide range of cost of living hikes that put real pressure on balancing their household budget. With Christmas and its associated costs only a few months away we are delighted to note from our research that, across the board, Brits are meeting these challenges head on through a wide range of savvy, cost-cutting initiatives. Thousands of people are looking to save money on insurance and to help out here we have launched an online calculator to help people balance cost savings with the level of cover they need.

"Over the last 18-months our Changing Face of British Homes research has tracked changes to the way people in Britain live and use their homes. Whilst the various cost-cutting initiatives being employed to beat the credit crunch will help people balance the books, it is also likely that, as a consequence, these measures will further change the face of the modern home."

Lending for purchases plummets whilst re-mortgages stay resilient.

Mortgage lending for house purchase has dropped almost 50% in March this year compared to the same month last year.

Data from the Council of Mortgage Lenders released this morning shows the number of loans for house purchase dropped 48% to 46,500 in March this year from 89,000 in March 2007.

It was also down 1% from 47,200 in February, but the CML says remortgaging levels held up well in the face of funding constraints.

Today’s figures relate to March mortgage completions.

The CML says the continued decline in lending for house purchase is partly due to the shortage of funding in the mortgage market as a result of credit market conditions.

Gross mortgage lending was £75bn in Q1, down from £83.9bn in Q1 2007.

The number of loans to first-time buyers declined in March to 17,800, down 1% from 17,900 in February and 45% from 32,500 in March last year.

Loans to home movers declined to 28,700, down 2% from 29,300 in February and 49% from 56,300 in March 2007.

Remortgaging activity has remained relatively resilient, increasing during Q1 2008 to £33.3bn which accounted for 44% of gross lending, up from 35% in Q1 2007 and the highest share in three years.

This is likely to be driven by the large numbers of borrowers exiting short-term fixed rate mortgages.

The proportion of other lending, which is predominantly made up of buy-to-let loans and further advances, increased in March to £7.2bn, accounting for 30% of gross lending and up from £6.3bn in February and £7bn in March 2007.

The average first-time buyer borrowed 89% of the property’s value and 3.35 times their income in Q1 2008.

Michael Coogan, director-general of the CML, says: “House purchase transaction volumes will continue to deteriorate in the coming months as recent approvals data from the BoE has shown.

“Since the introduction of the Special Liquidity Scheme, there has been a slight improvement in credit market conditions with LIBOR moving in a more helpful direction. But LIBOR still remains high relative to base rate and any improvement in credit market conditions will take time to feed through into the mortgage market.”

More mortgage deals are withdrawn

More banks have withdrawn mortgage deals following First Direct's decision to suspend its entire range.

The bank, which is part of HSBC, said the withdrawal was to allow it to cope with the unprecedented demand for its range of mortgages.

The Co-operative Bank appears to have had the same problems and has withdrawn its two-year mortgage deals.

The US investment bank Lehman Brothers is also withdrawing from the UK mortgage market.

Its Southern Pacific and Preferred Mortgages will stop taking new business at the end of the day.

First Direct stressed that it is only temporarily ending mortgage offers to people who are not already its customers.

Many providers have withdrawn mortgages or raised interest rates this year, leaving some smaller banks and building societies unable to cope with demand.

First Direct says applications have been five times its usual levels.

"The flood of interest in our mortgages has meant we're taking longer than we'd like to handle applications, especially from people who are not existing customers," said First Direct's CEO.

We want to be back in the market as soon as possible

"Rather than increase interest rates dramatically to discourage new applications, we've decided to withdraw temporarily from offering mortgages to non-customers until we've cleared the backlog."

According to Moneyfacts, mortgage products on offer have fallen by 20% over the last week.

As a result of the continuing credit crisis, the interest rates at which banks lend money to each other are, unusually, far above the Bank of England's base lending rate.

And the banks are finding it much more difficult to raise money from credit markets for mortgage-backed securities.

That has made it uneconomic for some institutions to carry on offering mortgages and thousands of products have been withdrawn already this year.

Figures on Wednesday showed the number of new mortgages approved for house purchase fell slightly in February to just 73,000. This figure was 39% lower than the same month a year earlier.

First Direct is the first bank to withdraw its entire range to non-customers, although the Bath and Earl Shilton building societies took the same step last month.

Last week, the Nationwide building society, one of the UK's biggest mortgage lenders, raised its interest rates significantly on new fixed and tracker deals.

It said this was both because of the increased cost of raising the funds and the need to cope with demand.

Many other lenders are demanding bigger deposits with mortgages of 100% or more of a property's value having all but disappeared.

Although the number of first-time buyers and other house movers has been falling, more than a million people will see their short term fixed rate deals expire this year.

As a result, they are starting to look around to find a better deal from other lenders, as well as their existing one.

The situation has been made worse by the near-collapse of the Northern Rock.

What we have seen elsewhere in the market is a continual leap-frogging of rates where lenders have been re-pricing upwards

What was the UK's busiest lender last year has now withdrawn from the market, leaving many of its customers looking for another lender.

First Direct had taken a drastic step to cope with demand.

From having over 25,000 mortgage products on my sourcing system about 6 months ago, there are now under 7,000 !

Inefficiencies at my cost really irritate.

I am amazed at how inefficient companies can be. I moved home (and office) last autumn, and I informed many organisations of my new address. Around the same time, I also changed the network that I affiliate my business through. You'd think that telling a company just once of the change of details would be sufficient, especially as on any product application I give them, it reiterates my current details. Today I received a cheque from Norwich & Peterborough Building Society, not only addressed to my old address, which I'd let over 6 months ago, but also for the wrong amount. The wrong amount was due to them not updating my Network details correctly, which I'd told them about in October. Luckily, I had arranged a mail re-direction service with the Royal Mail for 6 months, but this ended on the 20th February, even though I received this letter over 1 week after my re-direction service was supposed to end. So, it's not only the lender who was inefficient, but also the Royal Mail (even though I have benefited from their inefficiency). The time and cost of other people's inefficiency is something that really riles me, but this is the times we live in. I will continue to 'name and shame' the organisations that I deal with and who don't seem to make changes at the time of request, or are as efficient as I am, which cost me time and money. Why should I be the one to show them the error of their ways, at my time and expense? And don't get me started on 0870 numbers !!

Following on from last week's withdrawal of all 6 providers of 100%+ products, it's been announced today that RBS Intermediary Partners (that’s the Royal Bank of Scotland, Nat West bank, the One Account, and First Active) has lowered its maximum loans to 95% of the property value. They used to lend up to 100% of the property value. Another sign of the increasing 'credit crunch' and it's long-lasting effects. I fear they won't be the last to make such changes.

57 varieties

Interesting to note that since the Bank of England cut its lending rate two weeks ago from 5.5% to 5.25%, we have seen 57 lenders adjust their Standard Variable Rate (SVR) to reflect the 0.25 reduction. Encouragingly, Stafford Railway Building Society has done one better than the Bank of England by reducing its rate by a huge 0.35 per cent to make it the lowest SVR in the market at 5.99 per cent. However eight of these 57 lenders have cut their SVRs by less than a quarter point, including Northern Rock at 0.1 per cent and Britannia at 0.15 per cent. Most of these rate revisions will come into force in March. Northern Rock's failure to pass on the rate cut in full was no great surprise, with circumstances as they are at the moment meaning that new lending does not appear to feature in the stricken lender's strategy going forward, as now the focus is on their savings book and attracting more money into the coffers through competitively priced deposit accounts. On closer inspection, none of the top five biggest lenders has any current mortgage products linked to SVR.

As mentioned yesterday, there was just one lender left in the 125% product arena, namely Birmingham Midshires (who also call themselves BM Solutions). Lo and behold, today's new is that they too have withdrawn from this marketplace. This now means that it is only possible to borrow upto 100% of the property price, but not beyond it. Amazingly, Birmingham Midshires have announced this product withdrawal retrospectively, as the products were withdrawn last night ! So much for ANY notice period.

If the credit crunch continues, I can foresee lenders reducing their minimum lending to 95% only, which would enforce borrowers to have saved a deposit (which is always good advice anyway, as it saves literally thousands of pounds in associated fees).

This ties in nicely with other news today that First-time buyers (FTBs) are returning to the property market, with the National Association of Estate Agents (NAEA) reporting a fourth consecutive monthly rise in FTB's. New homebuyers increased their market share by 1.5 per cent between December and January, bringing it to 14.5 per cent overall. The increased optimism has been largely put down to the current financial climate with the drop in property prices in some areas acting as a platform for many those who may have otherwise struggled.

It is imperative that FTB's are able to afford property, as this class of borrower is who fuels the mortgage market from it's grass roots.

Interesting times, as always, in the mortgage market.