Previous articles have warned of the "Credit Crunch" and the arrival of a mortgage famine - they are now "fait accomplis".
Our supine government has made no attempt to reign in rapacious bankers intent on replenishing the profits frittered away on ill advised adventures here and overseas from their impotent domestic customers. Having swallowed Brown and Darling's 50 billon pound funding support the lenders unanimous response has been to increase rates further to give themselves an ever widening margin over bank base. Not content with charging anything up to 2% over the 5% base rate their greed is compounded by savage increases in mortgage arrangement fees - as much as a further 2% being added to the loans offered. Abbey who have well earned their sobriquet "Shabby" are now charging a BP 2,500 arrangement fee along side a 7.04% rate for admittedly high percentage 5 year fixes. First time buyers are being driven from the market by these sort of charges and a necessity to come up with larger deposits. It is now the bank of "Mum and Dad" that are having to make home owning a reality for their children. Mortgage sourcing systems show that in September 2006 there were just 22 fixed rate mortgages requiring arrangement fees in excess of BP 750. That figure has now multiplied to 322! Our bankers are intent on squeezing until the pips squeak. And nothing is done to stop them!
Lenders do not have to raise all their money on the money markets they have recourse to their own depositors savings and via loan repayments. This is a great strength of building societies where commonly 70% of loan funds are raised "in house". Unfortunately it's only the less run well run institutions who are benefiting from the recent government 50 billion pound lifeline. Hopefully mutual building societies who have continued to manage their books sensibly will benefit from that inherent strength in the coming months. Funds are still available from a handful of these worthy institutions at circa 6% on loan values to 80% with modest sub BP 500 arrangement fees. That includes buy to let propositions where greedy bankers are looking to achieve rates in the mid 7% range accompanied by the previously mentioned 1-2% completion fees.
Those former giants of the mutual building society world Halifax, Abbey, Alliance & Leicester, Bradford & Bingley and Northern Rock have really done well by joining the banking big boys. Their managements were never equipped to swim with the sharks in their waters. Northern Rock was an exceptionally well run building society - as a bank they have been brought low by management hubris and stupidity. It is obvious that the Alliance and Leicester and Bradford & Bingley have narrowly escaped their fate - so far! Abbey are the Santander's latest play thing and Halifax now part of the giant HBOS combination notable recently for their volatile stock market performance. They may not be loved by their customers or shareholders but they are certainly loved by the short sellers and insider dealers who have profited so much from their vulnerability.
A recovery in the property market is unlikely until the lending crisis is brought under control. Whilst a dramatic general property value collapse remains unlikely owners and prospective buyers in previously identified vulnerable areas are in for a very miserable time. Our government must bear a heavy responsibility for encouraging developers to concentrate their efforts on inner city apartments and the fruit of their policy is evident in the thousands of new build apartments for sale at discount prices in Leeds, Manchester, Liverpool and other urban centers. Gordon Brown's latest declaration that we should be seeing a minimum of 240,000 new properties being built over the next few years is laughable currently the figure is running at 80,000 for this year and builders whose share prices have been in free fall as much as the lenders are meeting Brown's exhortation by laying off their workforce and refusing to build at all until they can see some sign of buyers reappearing. There is little point in them looking overseas for customers as our media have succeeded in convincing would be overseas investors that the UK is best left alone for the foreseeable future.
As always every cloud has a silver lining and there will be opportunities galore for those with the cash to invest in "distressed" property situations. There is a case for investors who signed up for off plan bargains in recent years to simply walk away from their deposits rather than complete and reinvest elsewhere. They should find it relatively easy to renegotiate purchase terms with builders who will willingly reduce prices rather than lose a sale entirely. Funding will become easier and re-mortgagers and purchasers should not be panicked into taking fixed rate deals with high arrangement fees. That's what the banks want and that's what should be avoided.
Opinion seems equally divided on the movement of interest rates and ideally tracker deals should be sought with no early redemption penalties to preserve flexibility. It is very likely that when the dog days of the new year come around there will be lenders looking to balance their books and get a start for 2009.
Expats wishing to compare their own loan package with what is currently available should click on IMPXs website at www.international-mortgage-plans.com which gives an overview of the current marketplace, lenders comparable terms and incorporates a cost and commitment free 48 hour acceptance in principle. Alternatively email [email protected]