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The year in mortgages

Interest rates started the year at 5.5 per cent and few are likely to have predicted they would end the year at 2 per cent.

In January, Network Data suspended the launch of its new whole of market lending proposition Homeowners Mortgages blaming the credit market conditions.

Meanwhile, specialist lender Money Partners announced it had been bought by Goldman Sachs after undertaking a strategic review of the business.

Buy-to-let specialist lender Paragon also appeared to be in trouble saying it would be raising £287m in additional capital from its shareholders through a rights issue as a result of the credit crunch.

Bank of America bought the US’s largest mortgage lender Countrywide Financial in a £2bn deal while John Charcol put itself up for sale.

In January, it was also revealed that if Northern Rock was nationalised, the architect of the failed stakeholder regime, Ron Sandler had been chosen by the Government to run the lender. The Treasury confirmed a new financing structure for the stricken lender which would see the £25bn Bank of England loan converted into Government bonds and sold.

The Treasury Select Committee’s report on the Northern Rock fiasco gave the FSA a hard time for failing in its duty as regulator.

More gloomy news from the Council of Mortgage Lenders
which showed that gross mortgage lending in December 2007 was £22.6bn – its lowest monthly figure for over two years.

The month ended with several appointments as Derbyshire CEO Peter Richardson decided to take early retirement from the society while Bradford & Bingley CEO Steven Crawshaw was appointed chairman of the CML.

And former minister for employment and welfare reform Caroline Flint was appointed housing minister.

February began with the news that Kensington chief executive Alison Hutchinson would be leaving the firm following its integration with parent company Investec.

The Black and White Group confirmed it would be withdrawing from the regulated mortgage and insurance market due to liquidity difficulties.

The saga of Northern Rock rumbled on with Olivant pulling out of the running for the lender while the Virgin-led consortium and the management buyout remained in the running. But in the end the Government decided that nationalisation was in the best interests of taxpayers.

The Bank of England cut rates to 5.25 per cent in February in a widely expected move.

Chancellor Alistair Darling pledged to help the recovery of wholesale mortgage markets announcing that the Government would consult on a new gold standard for covered bonds and mortgage-backed securities.

House prices continued to fall for the sixth consecutive month in January according to RICS figures.

Bradford & Bingley showed the first signs of trouble when it reported a sharp fall in profits after cutting the value of risky assets. As a result its share price fell by over 10 per cent following the announcement and Standard & Poor’s placed it on a negative creditwatch.

The FSA showed its teeth by announcing that around 60
mortgage brokers referred from lenders had gone forward for enforcement action.

Advantage became the next mortgage firm to close its business following a statement from parent company Morgan Stanley.

Alliance & Leicester reported a 30 per cent drop in profits and warned of a challenging year ahead for the lender which sparked a 12 per cent fall in its share price. Later in the month, it announced a voluntary redundancy scheme which would see between 200 and 300 employees leave the lender.

Lehman Brothers confirmed it would be cutting a further 200 jobs across its UK mortgage capital business affecting lenders SPML and Preferred.

Meanwhile, the death of the 125 per cent mortgage was marked in late February as BM Solutions withdrew the last such product available from the market. Lenders began pulling their 100 per cent loan to value products off the market too.

Checkmate Mortgages founder Stephen Knight announced that he would not be going ahead with the new venture on the timescale he originally planned due to the market conditions.

In March, Skipton Building Society subsidiary Amber Home Loans announced it would be closing to new business while Scarborough Building Society closed its specialist lending arm to new business.

And the casualties kept coming as Derbyshire Building Society intermediary arm Salt withdrew from the sub-prime market while Paragon announced it would be cutting 93 jobs out of its 650 staff.

In the Budget, the Chancellor said he would create a working group to tackle the liquidity problems in the mortgage-backed securities market. Other than this, there was little in the Budget to prop up the housing or mortgage markets.

Mortgages plc withdrew from the prime buy-to-let market in mid-March and withdrew all of its fixed rate products in late March. Commercial First stopped all new lending with immediate effect.

The Bank of England confirmed it would be adding an extra £5bn to its normal weekly funds available to banks until further notice.

John Charcol directors stumped up £1.5m to plug a hole in the company’s accounts after its auditor KPMG warned of “material uncertainty” of the firm continuing as a going concern.

In April, Lehman Brothers also closed its two UK subsidiaries to new business.

UBS reported a new asset writedown of $19bn as a result of the sub-prime crisis.

The Bank of England released figures showing that mortgage approvals have dropped 40 per cent from a year ago, with lending now at its lowest level for 13 years.

Seven of the biggest UK mortgage distributors joined forces in an unprecedented move to call on mortgage brokers to make allowances for the strain the credit crunch was placing on lenders. Premier Mortgage Service,
Sesame, Openwork and Personal Touch were among those behind an open letter to the mortgage intermediary market calling on them to understand the position lenders were facing due to funding shortages.

HSBC caused excitement among consumers when it extended its mortgage rate matcher offer to all UK homeowners from April 14. Borrowers could match their old rate by switching to HSBC. However, as ever there was a catch and
the bank was criticised for charging hefty fees on some loans.

The Treasury appointed former HBOS chief executive Sir James Crosby to chair a credit crunch working group to look at ways to boost confidence and encourage people to invest in the mortgage-backed securities market again.

Brokers faced the continuing task of trying to find mortgages for their clients in an environment which saw some lenders repricing up to three times a week.

The Bank of England cut rates by 0.25 per cent in April while GMAC-RFC confirmed it would be cutting up to 280 jobs equating to 40 per cent of its workforce.

Chancellor Alistair Darling and the Bank of England agreed to a £50bn collateral swap programme where Government bonds could be exchanged for banks’ mortgage-backed securities.

Bear Stearns collapse earlier in the year led its specialist lender Rooftop to close. Edeus also looked to be in trouble as it reengineered itself into an “asset
management” service business for the UK mortgage market.

Later in the month, Edeus withdrew from originating new mortgage loans and cut 50 jobs as a result.

Royal Bank of Scotland Group confirmed it would be launching a £12bn rights issue in a bid to strengthen its capital base. And a few days later HBOS jumped on the bandwagon and announced it was planning a rights issues to raise £4bn of extra funding.

London Scottish Bank closed its mortgage lending arm at the end of April and there was little to be cheerful about as the Land Registry revealed that house prices had decreased by a further 1.7 per cent in March.

Sad news at the end of April as Alliance & Leicester chairman Sir Derek Higgs died unexpectedly.

Everyone breathed a sigh of relief when the FSA ruled out introducing the Retail Distribution Review to the mortgage market in light of the current market conditions.

Property investment firm Inside Track became yet another casualty of the credit crunch and was put into administration.

Meanwhile, Citi Bank subsidiary Future Mortgages joined the ranks of lenders closing their doors to new lending. As did Merrill Lynch UK subsidiaries Wave
and Mortgages plc.

The CML got hot under the collar when the Bank of England’s Monetary Policy Committee passed up the opportunity to cut rates in its May meeting, holding them at 5 per cent.

Skipton Building Society chief executive John Goodfellow was elected chairman of the Building Societies Association for 2008/09.

UBS launched a £7.8bn rights issue in a bid to repair its balance sheet towards the end of May.

House prices fell for the eighth month in a row according to figures from the Land Registry.

In June, US investor Texas Pacific Group took a 23 per cent stake in B&B as B&B chief executive Steve Crawshaw quit his role citing health reasons. Bank of Ireland personal lending managing director Richard Brown replaced Crawshaw as chairman of the CML.

RBS received a 95 per cent take up of its £12bn rights issue.

Chelsea Building Society and the Catholic Building Society confirmed plans to merge in early June.

Formerly managing director at Accord Mortgages, Linda Will joined Stroud & Swindon as sales and marketing director, while former Wave director of sales and distribution Mehrdad Yousefi took up his new position as head of marketing at Bank of Ireland Mortgages.

Bank of England governor Mervyn King wrote to the Chancellor after inflation hit 3.3 per cent in May, far above the 2 per cent target.

Barclays became the latest bank to unveil a £4.5bn share issue to strengthen its balance sheet.

The troubled B&B rejected an initial offer of funding from Resolution that would have seen the company take effective control of the bank. But the Association of British Insurers warned there were “breaches of sound governance” in the proposals for B&B’s rights issue and sale of a
major stake to Texas Pacific Group.

In early July, TPG withdrew its £170m cash injection for B&B after learning that Moody’s was to downgrade the bank’s credit rating once again. B&B instead received a capital injection of £400m from four of its largest
shareholders.

The National Landlords Association and the National Federation of Residential Landlords announced they would be merging.

Santander swooped in and bought Alliance & Leicester for £1.2bn in mid-July, just seven months after A&L rejected an offer from the banking giant which could have valued it at more than double its current price.

Across the pond, things were not going well as the US Government had to support Fannie Mae and Freddie Mac after concerns over their solvency.

Northern Rock appointed Barclays group vice-chairman and executive director Gary Hoffman as its new CEO.

At the end of the July, shareholders of Prestbury called for the removal of Lee Birkett and Lynne Birkett as directors of the network due to conflicts of interest.

This came after Prestbury had to suspend trading on Aim because it was not able to file its annual results on time. When the results were published, they showed a £1m loss.

Tesco decided to announce its entry into the mortgage market despite the credit crunch as part of its plans to grow its financial services arm.

Meanwhile, Crosby’s interim report suggested that that Bank of England’s special liquidity scheme could be extended to new home loans in a bid to revive mortgage lending.

Lloyds TSB announced 70 per cent profit losses in the first half of 2008, while the news from other banks wasn’t much better as A&L profits plummeted by 99 per cent in the first half of the year.

However, Abbey went from strength to strength and announced it had grabbed a 25.6 per cent share of the net lending mortgage market.

In August, it was revealed that the Government had to pump another £3bn into Northern Rock to shore up the lender after it announced losses of £585m for the first half of 2008.

The gloom continued as RBS revealed losses of £691m in the first half of 2008.

B&B appointed former A&L CEO Richard Pym as chief executive and announced that shareholders had only bought 27 per cent of shares in its £400m rights issue.

Good news for the Birketts as they won the EGM vote with 59 per cent in favour of allowing them to stay in their jobs at Prestbury.

The FSA called on mortgage brokers to provide greater collaboration and help in tackling mortgage fraud at the end of August.

B&B revealed a massive loss of more than £200m in the last year.

In September, the Treasury unveiled a stamp duty holiday that saw the threshold property value lifted by £50,000 to £175,000 until September 2009.

Cheshire and Derbyshire building societies merged with Nationwide following difficult market conditions.

In the US, the Government initiated the biggest financial bailout in history by seizing control of the two US mortgage backers Freddie and Fannie. It agreed to inject up to £56.4bn into them to ensure they met their debts.

The Prestbury problems continued with Personal Touch Financial Services reaching an agreement to bring Prestbury’s entire adviser base of 80 firms into the network.

BoE governor Mervyn King revealed proposals for a long-term Special Liquidity Scheme extension until 2009.

Overnight Libor rates reached a seven-year high in mid-September which did nothing to ease the pressure on the wholesale funding market.

Lloyds TSB announced it would be buying HBOS for £12.2bn while B&B announced it would axe all branch-based mortgage advisers as a streamlining measure.

The US House of Representatives rejected a $700bn rescue plan for the financial system which sent shockwaves around the world. A few days later the House of Representatives approved a revised $700bn rescue package.

B&B became the latest bank to be nationalised as the Government brokered a deal so the Group’s £14bn savings business and branches would be transferred to Santander. The remainder of the business was taken into public ownership.

Edeus went into administration in October with chief executive Michael Bolton taking redundancy while a buyer was sought.

Heritable Bank became a casualty of the Icelandic bank fiasco as its parent Landsbanki was taken into state control and Heritable went into administration.

The Government unveiled details of a £37bn capital injection into RBS, Lloyds TSB and HBOS in return for shares.

The Bank of England cut rates by 0.5 per cent in October which had little impact on Libor rates.

Nationwide axed its specialist lending arm UCB Homeloans.

In November, the Bank of England took drastic action to ease UK lending by dropping base rate by 1.5 per cent to 3 per cent as the UK headed into a recession.

Meanwhile, there were ever-growing concerns over the Lloyds TSB and HBOS merger as two former bank chiefs – Sir Peter Burt and Sir George Matthewson – put forward their own takeover proposition in a bid to keep HBOS independent.

HBOS was unimpressed and rejected the takeover bid with Chancellor Darling entering the fray and shooting down the dissenting Scottish bankers who tried to scupper the Lloyds TSB merger.

Good news for Edeus in November as Elliott Associates, a hedge fund based in New York, bought the assets of the firm to create Exact, a mortgage asset servicing company.

Santander revealed the surprise news that it was in a £5.89bn rights issue while B&B chairman Richard Pym told MPs that the buy-to-let market is now closed as most of the lenders who were active have withdrawn their products.

Shareholders approved the Lloyds takeover of HBOS on November 19.

In the pre-Budget report, the Government revealed it would take on board the long-awaited Crosby report proposals to guarantee mortgage-backed securities. The industry welcomed the news but remained cynical as to how and when
this will be put into practice.

The Chancellor also promised the Government will ensue that those facing repossessions will be given a three-month reprieve after falling into arrears.

Libor three-month rates finally drop below 4 per cent in late November, closing the gap between base rate and Libor.

More Government bailouts are announced as the US Federal Government launched a $800bn initiative to help the US economy. Meanwhile, Darling outlines a £20bn fiscal stimulus to aid the UK economy.

Mortgageforce chief operating officer Kevin Duffy replaced Rob Clifford as managing director. Clifford left to head up the new UK mortgage proposition
from Virgin Money.

The Bank cut base rates by a further 1 per cent and the year ended with interest rates at 2 per cent.

In December, Northern Rock and RBS decided to offer those with mortgage arrears a six-month reprieve before initiating repossession action.

Prime Minister Gordon Brown went further by revealing plans to allow those out of work up to two years reprieve on mortgage interest payments. The UK’s eight largest banks agree to take part in the scheme.

Savills issued a profit warning ahead of its full year results in mid-December and Prestbury was hit with a winding up order after the firm was unable to pay creditors.

The CML ended the year on a grim note by predicting mortgage lending would fall to minus £25bn in 2009.

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