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Concern grows for borrowers in a packed mortgage week

A flat-out week in mortgages started off with a jolt when Bank of England governor Mervyn King announced on Monday that further increases in interest rates were likely in order to control inflation.

King indicated rates may reach 6 per cent by the end of the year unless capacity pressures on the economy ease and warned borrowers to factor in the risk of a rate hike.

He said in a speech to business leaders in Wales: “It is unwise to borrow so much that the repayments are affordable only if interest rates remain at initial levels.”

And more worrying news for borrowers came from the Council of Mortgage Lenders when it revealed mortgage interest payments for first time buyers and home movers have reached their highest levels for 15 years.

April saw first time buyers paying 18.7 per cent of their income on mortgage interest, up from 16.3 per cent at the same time last year.

Home movers didn’t escape the crunch with interest repayments hitting 16.3 per cent in April, up from 14.4 per cent last year.

CML director general Michael Coogan says: “Month on month we see affordability constraints for first time buyers worsening. And with the impact of May’s interest rate rise still to be felt, many borrowers face higher costs in the coming months.”

Brokers will be paying careful attention to the volatile climate to ensure clients are not getting out of their depths.

Mid week and it was HBOS’ turn in the spotlight, with Britain’s biggest mortgage lender admitting it had lost almost half its net lending share to cheaper rivals.

The bank’s value plunged almost £1.5 billion and shares fell 39p to 1031p as the group’s net lending share dropped from 17 per cent in 2006 to just 8 per cent in the first few months of this year.

The company has blamed its poor performance on the failings of part of its retention strategy introduced in late 2006 aimed at keeping hold of existing customers at the end of fixed rate contracts.

The lender says it has taken corrective action to make the rates more competitive and expects its lending share to return to levels of between 15 and 20 per cent.

It will however continue with retention fee payments to brokers, a policy it says has been successful.

Portman’s Matthew Wyles added to the week’s mortgage mayhem with his claims that should there be a shock to the sub prime market, many lenders who rely on the securitisation business model could fail to stay afloat.

He says: “If your sole funding tool is securitisation then that means you are very vulnerable to that particular route being closed to you.”

But some sub prime players weren’t impressed with Wyles’ remarks, and Edeus’ Michael Bolton was quick to hit back.

He says: “It is highly irresponsible of Matthew to be quoted in this context and I wonder what our trade body would have to say about somebody who is allegedly high up in an organisation coming out with such damning, unsubstantiated remarks in terms of the credibility of our market.”

And finally the latest soap-style episode in the Hips fiasco sees the RICS claiming a loophole makes the scheme open to exploitation and therefore completely worthless.

The scheme requires vendors to compile information about their property, but regulation only calls for the commissioning of a Hip – one is not actually required before the sale of a property, says RICS.

RICS says the scheme is “unworkable, unenforceable and unfair” and are calling for Hips to be scrapped completely, a prospect many in the industry are crossing their fingers for.

As you might have guessed Ahips see things slightly differently. Director general Mike Ockenden brands RICS’s comments as “nothing more than the typical anti-Hip propaganda we have learned to expect. Following our own investigations into the regulations, this allegation is totally unfounded.”

And so the saga rolls on and on. And on.


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