Safe Home Income Plans (SHIP), the independent trade body which represents the majority of the equity release market, has launched a discussion paper urging the Government to initiate a formal review into the sector to plug the huge gap in consumers’ pension provision.

Commenting on the launch of the discussion paper, entitled ‘Facing the Future, Redefining Equity Release to meet today’s social and economic challenges’, Baroness Patricia Hollis, a Labour member of the House of Lords, said: “It is rare for the public and private interests to coincide as they do with equity release. Equity release meets a truly urgent social need in the most decent way possible- government ministers should be singing its praises, and making it a core part of retirement funding planning.

“This report is a crucial first step in bringing equity release into the public policy arena. I recommend that equity release should develop partnerships with local government, and specialists in other areas to develop SHIP ‘kitemarked’ products. Finally, alongside a formal review of the industry, a government department should take responsibility for equity release and make sure that it is a major player at the table. Equity release must be transformed from a distress option, and taken mainstream.”

SHIP also believes that formal backing of equity release by the Government could bring the sector into the public eye and significantly increase the interest in equity release as an alternative option for pensioners looking to boost their retirement income.

One of the biggest equity release providers, Aviva, has also backed the calls for the Government to instigate a review of the sector to address a looming retirement funding crisis.  Group product manager for Aviva UK Life, Dominic Fraser-Smith, says that the sector has moved on from its inception in the early 1980s and that now is the time for Government to get more involved.

He said: “Two of the biggest hurdles to this market’s growth are public perception of these products stemming from historic issues and consumers fear that they may be financially worse off if they use equity release.  We believe that a review which looked to clearly define the government’s overall position on these products – and especially with regards to benefits – would engender much needed confidence.  This would see more providers, advisers and ultimately consumers entering the market – a vital step towards solving the looming retirement funding crisis.”

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© UKfinancemarket.co.uk

Consumers who are struggling with their finances and are thinking about appointing a debt management company to help them get out of debt – by re-negotiating terms with their creditors – have been warned to be aware of the charges involved in the process.

A report issued by Money Advice Trust has revealed that many debt management companies are guilty of poor practice.  Its report was based on research carried out by the Personal Finance Research Centre at Bristol University.  Money Advice Trust is a charity formed in 1991 to increase the quality and availability of free, independent money advice to people with debt problems.

The findings in the Trust’s report reveals many debt management companies failed to sufficiently highlight the costs and charges involved in arranging a debt management plan.  The key findings were:

• Some consumers were not fully informed of all the charges and costs involved in the arrangement until late in the process
• Some consumers even felt they were worse off than before they contacted the debt management company
• Some debt management companies did not make clear, from the outset, that in addition to an initial set-up charge, ongoing fees eat into the monthly repayments of those borrowers unable to meet former terms

Money Advice Trust said that it was important that debt management companies treat their customers fairly by providing information about charges and costs upfront in a clear and fair manner.  It also said that consumers struggling financially should also be made aware of the availability of free debt advice and debt management planning.  One such free service is National Debtline which the Trust funds.  National Debtline receives more than 40,000 calls every month.  Visit www.nationaldebtline.co.uk for more information.

The fee-charging debt management sector, which differs from simple debt consolidation firms, has grown threefold over the past decade.  There are now more than 150 debt management firms in the UK.  The Office of Fair Trading regulates the sector and is due to start a fresh investigation into debt management companies as its guidelines have not been reviewed for six years.

© UKfinancemarket.co.uk

A mystery shopping exercise study carried out by Which? has revealed that a shocking 66 per cent of equity release advisers failed its benchmarks for providing suitable advice.

Which? investigators visited 40 advisers providing equity release advice as part of its research.  This was broken down between 28 Independent Financial Advisers (IFAs) and 12 specialist equity release firms.

Of the 12 specialist equity release firms including Age Partnership, Aviva, Home & Capital Just Retirement, Key Retirement Solutions and Prudential, just over 41% passed the Which? mystery shopping exercise.  Of the 28 IFAs just over 28 per cent passed the test.

Which? said that 23 advisers failed to even complete a fact-find.  This is a document used by advisers to record details of a consumer’s personal and financial documents, and should form the basis of any advice given.  Some advisers failed to adequately explain how the equity release scheme would work including how quickly the debt would grow or discuss the effect of compound interest.  One IFA told a mystery shopper that there was no chance of using up all the equity in the customer’s home “unless you live to 150”.  Nearly 50 per cent of the advisers failed to discuss or dismissed out of hand home reversion plans.

Which? commented that its findings clearly indicated that there is significant room for improvement in the equity release advice process to ensure that consumers are receiving suitable advice.

© UKfinancemarket.co.uk

Equity Release>

One of the UK’s biggest mortgage lenders, the Nationwide, is permitting its existing customers who have fallen into negative equity, but still want to move home, a mortgage deal that will lend them 125% of the value their new home.

Negative equity is where the value of someone’s home is less than the value of the mortgage outstanding on it.  Therefore, if they sold there home at that lower value they would owe their mortgage lender money.  Negative equity is not really a problem unless the homeowner is looking to sell or re-mortgage, or if they are in financial difficulties and are forced to sell.

Nationwide says that its existing customers who are in negative equity and want to move can obtain a 95% loan to value mortgage deal at a rate of 6.73% fixed for three years or 7.48% fixed for five years.  They can then borrow up to an additional 30% with increased rates of 7.23% and 7.98%. 

The idea behind Nationwide’s 125% mortgage deal is to enable its customers in negative equity who would not otherwise be able to move, the opportunity to do so and to carry the negative equity over to the new home.  It maintains that the 125% mortgage deal is only suitable for a limited number of its existing customers and that since its launch in June 2009 none of its customers have actually applied for the deal. 

The industry’s reaction to Nationwide’s announcement has been mixed.  There has been widespread criticism of mortgage loans previously available prior to the credit crunch that were more than 100% of the property value since it immediately placed the homeowner in negative equity.  Northern Rock, the now nationalised bank, was notorious for lending 125% mortgage deals.  When house prices were rising dramatically between 2005 and 2007 there was no concern about being in negative equity for long and many homeowners expected house prices to continue rising. 

It is arguable that lending more money to a homeowner already in negative equity who owns an asset that could fall further in value is not particularly wise.  It is not expected that Nationwide will give the deal to many of its existing customers, which will in turn limit any potential losses. 

However, the head of mortgages at moneysupermarket.com, Louise Cuming, welcomed the deal.  She noted that Nationwide’s flexible approach should be applauded at a time when many other mortgage lenders are still being overly restrictive with their lending practices which is stifling the housing market.  She said the fact that Nationwide is only offering the deal to its existing customers is important too.  Because of this, Nationwide already has a relationship with its customer and will be able to assess the suitability of lending to those customers more accurately.

Key Retirement Solutions, an equity release specialist adviser, has released figures which reveal that new equity release lending has fallen substantial by £130 million compared to this time last year.  The figures are based on comparing equity release activity during Q2 for 2008 and 2009 (April to June).

Key Retirement Solutions noted that the significant fall in equity being released from homes is down to two factors; falling house prices, which has lead to lower amounts of equity available in homes, and equity release drawdown products, whereby homeowners have chosen to withdraw smaller sums of equity from their homes.

The number of new equity release arrangements sold during Q2 in 2009 has also reduced over the past year at 5,143, down from 6,747 for Q2 in 2008.

The firm also noted  there has been a shift in the way in which homeowners are using the equity released from their homes.  For many homeowners with such a scheme, releasing equity to help their children out financially is the most popular use.  Paying for home improvements remains the most popular reason.  Unsurprisingly, funding holidays remains another popular reason why homeowners release equity from their homes.

The research also revealed that the average age of those homeowners entering an equity release arrangement has fallen from 68 to 67 – this came as no surprise since the trend over recent years reveals that the homeowners are entering equity release arrangements at younger ages.  Only a few years age the average age was 70.

Many commentators suspect that the average age will continue to fall as those homeowners who have inadequate pension provision, which is perhaps not as well funded as the generation before them, consider other means of providing funds and income during their retirement.  The reason for entering an equity release arrangement for these homeowners will not simply be a case of funding nice holidays or to help their children out financially.  Rather, it will be because they simply have insufficient income during their retirement from other sources to live comfortably.

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A survey conducted by the Bank of England has revealed that the number of consumers defaulting on their loans and mortgages has increased and is expected to do so during the remainder of 2009.

Unsurprisingly, the Bank of England noted that state of the UK economy, including rising unemployment, was key to the rising figures.

It also noted that lending to UK businesses had not risen as fast as had been anticipated between April and June 2009.  However, despite this, lenders said they expected the availability of credit to UK businesses to increase between July and September 2009.

The outlook for consumers for the remainder of 2009 looks bleak.

While lending to consumers and businesses is expected to increase slightly over the next three months, it is generally accepted that lending levels will not be at a level such that that UK economy experience a strong and sustained recovery.  It is likely to be a few years until the UK economy recovers since it is clear that the pre-credit crunch lending volumes which fuelled the significant growth in the UK economy between 2005 and 2007 is very much unlikely to return.  Rather, lending volumes are likely to be much more conservative over the coming years which will lead to a slower and sustainable recovery in the long-term.

The Chairman of the Financial Services Consumer Panel (FSCP), Adam Phillips, has said that only 40 percent of homeowners experiencing difficulties with their mortgage repayments seek advice or help with their problems, following research carried out by the FSCP. 

The FSCP was set up by the regulator of the financial services authority, the Financial Services Authority, to advise the FSA Board on the interests and concerns of UK consumers and to report on the FSA’s effectiveness in meeting its consumer protection and public awareness regulatory objectives.  There are presently 13 members of the FSCP representing a broad range of consumer interests.  The FSCP is completely independent of the FSA and can raise its own concerns,  instigate its own research and publish its own reports. 

During his speech to the Council of Mortgage Lenders (CML), Mr Phillips also revealed that approximately 85 percent of those homeowners experiencing financial difficulties considered their position to be serious.

In light of these findings, Mr Phillips urged mortgage lenders to be pro-active in helping homeowners by providing them with access to advice and information about what to do to before their financial problems spiral out of control which will in turn become a disaster for both the homeowner and lender.

Of those homeowners who did seek advice and help with their financial difficulties, 65 percent went direct to their mortgage lender, while 25% went to the Citizens’ Advice Bureau (CAB). 

Those homeowners who went direct to their mortgage lender experienced varying degrees of assistance.  Some felt that their mortgage lender was unhelpful and inflexible in trying to help them, while other homeowners considered that their mortgage lender did all they could to help.  There is clearly a lack of consistency between lenders when dealing with their customers who are struggling financially – it would seem that it is literally pot luck if a homeowner is fortunate enough to be with a lender that is willing to do all that can reasonably be expected of it to help them if they suffer financial difficulties.  Clearly, there needs to be consistency in the way in which lenders deal with customers who are struggling with the loan and mortgage repayments.

Part of the problem with struggling homeowners not seeking help as soon as they ought to appears to be due the negative perception they have of financial businesses and advisers, which leads them to conclude that seeking advice is either a waste of time or inappropriate.

Mr Phillips noted that mortgage lenders are bound by the principles of the regulator the Financial Services Authority and that one of these principles is to treat its customers fairly.  This means that mortgage lenders have a duty to help their customers in financial difficulties, including arrears, and also to inform them about independent sources of advice.

He concluded his speech to the CML by adding that there is still significant opportunity for the financial services industry to highlight to homeowners the importance of seeking help as soon as possible if they are struggling with their finances.

Homeowners with an interest-only mortgage are very likely to have a savings or investment arrangement in place such as an Individual Savings Plan (ISA), endowment policy or a personal pension to provide funds with which to repay their mortgage loan at the end of it’s term. 

Homeowners are frequently warned that it is important they regularly monitor the performance of their mortgage repayment plan so as to ensure it remains on track in order to avoid any potential shortfall in funds available to repay the mortgage loan. 

If homeowners realise that it’s likely they’ll have a shortfall of funds available with which to repay their mortgage then there are a number of ways in which they can try and remedy the matter.  Here are the most common ways:

• Increase monthly contributions into the existing repayment plan and/or increase the term contributions are invested so that more contributions are invested than would have otherwise been the case

• Start a new, additional repayment plan, such as a cash ISA or stocks and shares ISA, to provide additional funds with which to pay off the shortfall

• Contact their mortgage lender and amend the mortgage deal.  Homeowners could: switch the whole of the outstanding mortgage to a repayment method; switch part of the mortgage and the amount of the potential shortfall to a repayment method; make ad-hoc lump sum over-payments; make regular monthly over-payments; or, extend the term of the mortgage loan. 

The best option for a homeowner will depend or their particular circumstances and attitude toward investment risk.

If it transpires that there will be a shortfall in funds available with which to repay their mortgage loan, the homeowner should speak to their mortgage lender as soon as possible.  If they do this then there is the possibility that the lender will agree a new repayment plan with the homeowner which should mean that the homeowner won’t lose their home due to the shortfall - so long as the homeowner maintains the monthly repayments on the agreed new repayment plan.  Homeowners who ignore the shortfall are taking the risk that they will ultimately lose their home.

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UK house prices are predicted to fall by a further 9.2% during 2009, according to Exact.

Over 500 mortgage brokers were asked by Exact for their opinion on the current state of the UK housing market and their views on the direction of  future house prices.  A substantial 72% of brokers said they thought UK house prices would continue to fall over the next six to twelve months for the remainder of 2009 going into 2010.  A further 57% of brokers said most UK consumers agreed with their view on the matter and also believed that the average price of a home would continue to fall before the bottom was hit in late 2009 / early 2010.

These findings are in stark contrast to the recent reports coming out from other sectors of the financial services industry who say that the green shoots of recovery in the housing market have recently begun to emerge.  Some commentators have noted that buyer interest is increasing, but this could prove to be nothing more than interest unless mortgage funding improves.  It is clear that the housing market will not begin to recover until the UK banks commit to improving mortgage funding – and it would seem that this is many months away at least. 

At present there simply isn’t the mortgage funding available to UK consumers to get the wheels of the housing market back in motion.  Exact is predicting that the average price of a UK home will have fallen by an overall peak-to-bottom fall of 37%.

The Association of British Insurers (ABI) has launched a campaign for UK households to increase the uptake of home contents insurance, particularly in the North West of the UK. 

The ABI has noted that a large number of households are taking a big risk with their financial security during the recession by not having or cancelling existing home contents insurance.  According to the ABI’s figures approximately 25% of households in the North West of England do not have home contents insurance.  Such a large number of uninsured households is clearly cause for concern. 

If disaster struck, such as a fire, flood or burglary, those homeowners without home contents insurance would have no cover or protection to replace the many personal possessions and contents in their homes, which could, in total, be worth ten of thousands of pounds.  It is therefore imperative that all homeowners have adequate home contents insurance in place at all times to protect the family possessions and contents. 

The ABI noted that while homeowners in social housing are much more likely to suffer from a fire or a burglary, it is this same group of people who are least likely to be able cope financially if disaster struck.  The ABI said that both it and the Government are keen to improve the number of UK homeowners taking out home contents insurance and is exploring all the options available with local authorities and housing associations.

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The latest survey from the UK’s biggest mortgage lender, the Halifax, has revealed that house prices are continuing to fall sharply.  The Halifax has noted that average house prices fell by 1.7% in April 2008, pushing the annual fall in prices from 17.5% to 17.7%.  This now means that the average home in the UK is now valued at just under £155,000  – some £33,000 less than a year ago.

The lender warned that due to rising unemployment, low consumer confidence and lack of available mortgage funds, house prices are likely to continue falling over the next several months before any improvement is seen.  However, despite this gloomy news, the end of the slump could be close since the number of new mortgages being approved, but not yet lent, have risen in the past couple of months, while many estate agents have been reporting increased interest from potential buyers.

The Nationwide Building Society has also noted that the typical home in the UK is now valued some 15% less than a year ago.

The Bank of England has recently reported that the number of mortgage approvals made in March 2009 increased by nearly 5% from the previous month, perhaps revealing signs for potentially for more activity in the UK housing market over the next few months.  Despite this increase in activity, current mortgage approvals are still some way down than compared with a year ago.

Halifax’s figures also reveal that most UK mortgage borrowers with tracker-style mortgage deals are paying less on their monthly repayments following the reductions in the Bank base rate since October 2008.  Based on the average outstanding mortgage loan of £107,000, the average mortgage borrower is paying approximately £110 less on their repayments than compared to October 2008.

Halifax is this week launching an exclusive mortgage deal for first time-buyers which will assist the buyer in paying Stamp Duty Tax for homes purchased between the price bracket of £175,000 and £250,000.  At the moment there is no Stamp Duty Tax levied on homes purchased under £175,000.

First-time buyers taking advantage of this new deal from Halifax will receive 1% of the purchase price of their home on completion of the mortgage deal, which is available on its five-year fixed rate mortgage for properties up to £250,000.  In order to facilitate a smooth process  Halifax will upon completion of the mortgage issue a cheque equal to the cost of the Stamp Duty Tax direct to the Solicitor conducting the conveyancing.

A survey conducted by Halifax shows that nearly a third of first-time buyers (31%) do not account for the costs of Stamp Duty Tax when assessing all the costs involved in buying their first home.  A fifth (20%) will make a rough estimate of the Stamp Duty Tax, while nearly a quarter (24%) actually sit down and work out the costs involved themselves.

In view of the results of this survey it is clear that this new mortgage deal from Halifax will help many first-time buyers looking to buy their first home up to a cost of £250,000 will benefit from having the cost of the Stamp Duty Tax levied being covered by Halifax.

Although this appears to be a competitive mortgage deal for first-time buyers, it is important that consumers compare mortgage deals to make sure they get one that is right for their particular circumstances.

According to figures released by HM Revenue & Customs (HMRC), the number of homes sold in the UK increased by a massive 40% in March 2009 compared to February 2009.

Does this mean that the housing crisis is now over and that there will be a strong revival in the housing market over the coming months?  Unfortunately, the answer to that question appears to be ‘no’.

Despite the massive increase in sales during March, house sales are still at their lowest levels since the early 1970s and are still less than half the level of sales seen in March 2007.  It is unlikely that the increase in activity will be sustained because of the ongoing banking crisis and a lack of mortgage funds available for homeowners – this will continue to have a negative effect on the housing market.  In addition, house prices are in fact still falling according to big lenders such as the Halifax and the Nationwide, and have dropped by around 20% since their peak in the summer of 2007.

Last week the CML reported that two million UK homeowners were currently unable to move home because they were either in negative equity, or they had insufficient equity available to raise a mortgage on a new property.  In addition, the Bank of England’s recent review of trends in bank lending reported that there had been only “limited” improvements in the supply of home loans since the start of 2009.  Despite the increased number of sales in March it would seem that until mortgage funding conditions improve, the housing market in 2009 will remain stagnant at best, or continue to fall at worst.  The rise in house sales during March has been attributed to seasonal factors – historically there is normally a jump in home sales during the spring.   

Even if access to mortgage lending was improved for homeowners, it would seem that the fear of falling house prices and rising unemployment would  still deter potential buyers from the market.

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The Government has announced details of a new rescue scheme for homeowners struggling with their mortgage repayments and who may be at risk of having their home repossessed by their mortgage lender.  The Homeowners Mortgage Support Scheme (HMSS) is aimed at borrowers who are beginning to struggle with mortgage payments due to a reduction in household income such as a partner losing a job, or a reduction in working hours or overtime.

The HMSS will permit mortgage borrowers who are struggling with their finances to postpone up to 70% of their monthly mortgage interest payments if they lose some of their income.  The deferred mortgage interest will be added to the outstanding mortgage loan.

The HMSS has so far been supported by Bradford & Bingley, Lloyds Banking Group, Northern Rock and Royal Bank of Scotland – all of which are now partially owned by the UK taxpayer.  While nearly all building societies, including the largest the Nationwide, and some banks, such as Barclays, HSBC, Abbey and Alliance & Leicester, have decided not to officially take part in the HMSS, they have agreed to offer a similar level of support for their customers if they encounter financial difficulties and are struggling with mortgage payments.  The Government says that about 80% of mortgage borrowers are therefore covered by some version of this extra mortgage support.

 To qualify for help, applicants to the HMSS will still need to have some income and be able to:

 - repay at least 30% of their mortgage interest payments

- have a mortgage of less than £400,000; and

- have savings of less than £16,000

The HMSS is not aimed at those borrowers who are unlikely to be able to reverse their dire financial situation and for whom repossession, and possibly, bankruptcy is inevitable.  Rather, the HMSS is primarily aimed at those borrowers who are viewed as only having a temporary problem with their finances and are expected to recover within a year or two – and then repay their mortgage loan as before, but with the deferred interest added to the loan.

While the Council of Mortgage Lenders (CML) commended the introduction of the HMSS, it indicated that only several thousand borrowers would apply for it.  In the CML’s view, the scheme appeared to be aimed at borrowers who were only experiencing temporary difficulties and were expected to remedy the matter and then recommence full mortgage payments within a year or two.

If any mortgage borrowers are currently struggling with their mortgage payments then they are strongly recommended to contact their lender as soon as possible so that they can agree a course of action to rectify the matter; talking to their lender will make things easier for them in the long run.

The public’s opinion towards the banks is currently at an all time low, with many people blaming the banks’ irresponsible lending and bonus culture of the past several years being the catalyst for the recession the UK currently finds itself in.  In order to take advantage of this negative feeling towards traditional high street banks, the UK’s biggest supermarkets are planning to increase the level of financial services they offer consumers.

In the mid-1990s, the UK’s supermarkets started offering financial services to consumers. At the time high street banks were initially worried that the supermarkets, with their identifiable brands and large customer base, would pose a significant threat.  However, until now the banking customer base of the supermarkets has remained pretty modest and nothing like the high street banks feared back in the 1990s.  This could change in the next few years.

The UK’s biggest supermarket, Tesco, which already offers a comprehensive range of personal finance products, such as credit cards, car insurance, life insurance, pet insurance, personal loans, and savings accounts, is planning to open 30 in-store bank branches by the end of 2009, starting in Blackpool, Bristol and Coventry.  By 2012, Tesco plans to provide its own range of current accounts and mortgages.  A number of other supermarkets, such as ASDA, Sainsbury’s and Marks & Spencer also offer competitive credit cards, personal loans and insurance.  They too may be planning on creating in-store banking facilities for their customers, but are likely to wait in the wings and see how successful Tesco’s in-store brances do first.

There is no doubt that the convenience of being able to conduct simple banking affairs while doing the weekly shopping – all under one roof – will appeal to many consumers.  Tesco said its aim would be to provide old fashioned banking with the back-to-basic offers that high street banks used to offer, but have failed to concentrate on over the past several years.  It has been shown that the credit cards on offer from the UK’s biggest supermarket’s charge less interest than the sector average of 17.7 %. Tesco is currently offering a credit card deal for balance transfers, offering 0 % for 14 months. It is clear that the desire from the supermarkets to concentrate on simple products and their aim to attract new customers means any future current account or mortgage deals they offer could be equally competitive.

It is worth noting that for consumers there should be no difference in the level of security or quality of service offered by supermarkets compared with banks.  This is because all financial services businesses in the UK must be authorised and regulated by the Financial Services Authority.  Currently, savings up to £50,000 are covered by the Financial Services Compensation Scheme – this same level of protection would apply to savings and bank accounts with supermarkets.

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Nearly 1 million UK homeowners are currently in negative equity – which means they owe more on their mortgages than their homes are worth.  A further 600,000 homeowners have just 5% equity in their home, and, in total, an estimated 2 million UK mortgage borrowers would not be able to raise a 10% deposit from their equity should they decide to sell their house.

With house prices expected to fall further during 2009, the number of home owners in negative equity could increase to well over 1 million before house prices start to recover.

Naturally, these figures would appear to be alarming for UK homeowners.  However, it should only really be of concern to those homeowners, with little or no equity in their home, who are seeking to sell their home or looking to re-mortgage in the near future.  Those homeowners who are in negative equity, but are not seeking to move home or re-mortgage should not be affected.  This is because the negative equity is not an ’actual’ loss, it is only a notional loss – with the passage of time house prices will recover and the spectre of negative equity should disappear….until the next crash in house prices.  For those homeowners currently in negative equity and otherwise financially sound, it would seem that sitting tight and building up savings or overpaying on their mortgage are the best strategies in the short term until house prices recover.

This view is echoed by the Council of Mortgage Lenders (CML) who have noted that the high levels of homeowners currently in negative equity should not be a reason to panic.  The CML noted that of the 1.5 million homes that faced negative equity in the 1993 recession, most sat tight and recovered their position.  Therefore, there is hope for those homeowners who currently find themselves in negative equity – so long as they are able to maintain their current mortgage repayments and are not forced to sell their homes for a price lower than their mortgage borrowing.

The CML estimates that 66% of those homeowners currently in negative equity face only modest shortfalls of less than 10%. This is the equivalent of £6,000 for those first-time buyers with negative equity and £8,000 for other homeowners.  However, there are some homeowners facing as much as £37,000 of negative equity.  The CML noted that those homeowners in negative equity should take advantage of the current low interest rates to increase their equity in their home by overpaying on mortgages, rather than paying the minimum required, to improve their equity position.

The National Association of Estate Agents (NAEA) has produced a 5 point rescue plan to help the UK housing market recover and has urged the Chancellor, Alistair Darling, to take note of its proposals before he announces his Budget next week.

In anticipation of the upcoming Budget, the NAEA delivered its rescue plan to Downing Street and urged the Chancellor to:

- abolish completely or increase the limit at which Stamp Duty Land Tax becomes payable on house purchases

- boost banks’ liquidity to provide more funds for borrowers

- improve access to funds for first-time buyers

- suspend or abolish completely Home Information Packs

 - help homeowners and tenants to stay in their homes when they encounter financial difficulties

The NAEA noted that the upcoming Budget provided the Chancellor with the perfect opportunity to consolidate and build on recent figures which reveal confidence is slowly returning to the housing market. The NAEA said that it firmly believed its proposed 5-point plan will help the UK housing market recover sooner.

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Figures released by the Council of Mortgage Lenders (CML) have revealed that mortgage lending increased during February 2009, up 4% compared to the previous month. 

While this news is encouraging, the CML said that mortgage approval levels for February were still at very low levels compared to previous years; for instance, the number of mortgage deals approved in February 2009 were approximately only a third of the level of approvals made during the same period in the housing boom years’ between 2002 and 2007.

The CML’s figures also reveal the significant impact lenders’ stringent lending criteria is having on the housing market.  The number of first time buyers able and brave enough to enter the housing market are now typically putting down a 25% deposit.

Despite the substantial drop in the price of an average home since the start of the credit crunch, the significant deposits now expected by lenders is undoubtedly making property purchase out of reach of most people, since, even with reduced average house prices, buyers will still need a significant deposit just to get on the property ladder and a cheap mortgage deal.  Clearly, the days when lenders would accept little or no deposit from buyers are well and truly over.  Although this is frustrating and painful to bear for those seeking to purchase a house at the moment, it is of course necessary so that we don’t return to the days of reckless lending which, in part, created the economic crisis we now find ourselves in.

In addition to requiring significant deposits, lenders are now also thoroughly assessing the ability of borrowers to afford their mortgage loan, rather than basing a decision to lend mainly on the value of the house being used as security for the loan.  Due to this change in how lenders are now assessing mortgage applications, first time buyers are now borrowing on average 2.95 times their income, down from 3.12 times income in February 2008.

It is also apparent that fewer borrowers are seeking to re-mortgage to cheaper mortgage deals.  There appears to be two reasons for this trend: first, due to the Bank of England recently reducing the base rate to a historic low of 0.5%, existing mortgage lenders have been reducing their standard variable rates to competitive levels which has persuaded many borrowers to remain with the lender; second, some borrowers are unable to switch to a cheaper mortgage deal with a different lender because the value of their home has fallen below the value of their mortgage borrowing, so they are, in effect, stuck with their existing lender until they either reduce their borrowing or the value of their property increases, which ever comes sooner.

Following the well documented downturn in the UK economy and housing market, the latest news from the mortgage industry reveals that the vast majority of lenders are still insisting that buyers put down significant deposits.

More than 66% of the 1,500 mortgage deals currently available on the market insist that the buyer puts down a deposit of at least 25% of the purchase price.  Even with the significantly reduced house prices, asking buyers to provide a deposit of up to 25% is still proving difficult for many potential buyers; based on the current average house price of £158,000, as recently reported by the Halifax, a 25% deposit equates to just under £40,000.

At the other end of the scale, just 10 deals are available on a 100% mortgage basis – this is a significant cut-back from the number of 100% mortgage deals, and in some cases up to 125% mortgage deals, that were available prior to the start of the credit crunch in October 2007.    Lenders are offering cheaper mortgage deals for those buyers with significant deposits since it reduces the level of risk exposed to the lender if the buyer defaults on the mortgage loan and the property has to be sold, usually at auction and at a discount to the price paid, to repay the mortgage loan.  In UKfinancemarket’s opinion, it is clear that lenders’ demands for significant deposits is excluding a significant number of potential buyers from the market who are unable to raise such significant funds, which could force sellers to lower prices even further. 

There has been conflicting information from sources within the housing industry about where house prices are headed.  The Nationwide Building Society recently reported that property prices rose by 0.9% in March 2009 compared with the previous month.   However, the UK’s biggest mortgage lender, the Halifax, noted that prices fell by 1.9% during the same period.   The Royal Institution of Chartered Surveyors (Rics) says that its recent surveys indicate rising interest from prospective buyers. 

According to the UK’s biggest mortgage lender, the Halifax, average UK house prices fell by 1.9% from February to March 2009.  The Halifax indicated that the housing market would remain difficult for UK homeowners for the remainder of 2009.

According to the lender’s figures, the average UK home now costs just under £158,000 – a significant drop from the average price of just under £200,000 less than one year ago. 

Although house prices have significantly reduced, thereby allowing more people, in theory, to be able to afford the reduced prices, there remains several factors which are likely to push prices down further in the coming months, rather than see the average price remain static or increase. Businesses are struggling in the current economic environment which is leading to rising unemployment and lower consumer confidence. It is a vicious circle – lower consumer confidence means more people are spending less which leads to more businesses struggling and, as those businesses fold, more unemployment. Positive sentiment is unlikely to return for some time yet.

In view of this, it is the view of many commentators in the finance industry that we have not yet reached the bottom of the housing market.