Charity Slams Sub-prime Mortgage Market
December 23, 2008 by admin
Filed under Mortgage Articles
A leading charity has criticized lenders who supply secured loans to people with low credit ratings.
A Citizens Advice Bureaux report said irresponsible lending decisions and aggressive arrears management by sub-prime lenders were driving the current increase in mortgage arrears, court action and repossessions.
David Harker, chief executive of Citizens Advice, said: “Our research suggests that many aspiring home owners have been miss-sold unsuitable and costly home loans that are doomed to fail from the start.”
The Council of Mortgage Lenders responded by pointing out that borrowers who are receiving help from the charity are more likely to be the ones that have the more serious credit problems.
A spokesperson for the group said: “The vast majority of mortgage customers receive a high level of help and care from lenders of all kinds if they fall into difficulties, in accordance with the rules set out by the Financial Services Authority.”
However the Intermediary Mortgage Lenders Association (IMLA), a group representing the interests of lenders, is sympathetic to the Citizens Advice.
Peter Williams, executive director of IMLA, said: “We do agree with Citizens Advice that the different regulatory regimes for first and second charge loans has created complications.”
When a secured loan is taken out it can be a first, second and third charge. If it is the first charge it means the loan company is first in line to claim the equity (usually the borrowers home) if there are any defaults.
If the lender is the second charge they are second inline to the home and this can be reflected in a higher interest rates and more punitive measures following default.
“Many sub-prime lenders are flouting the rules on responsible lending by granting loans when it’s clear the borrower will not be able to afford to repay it from the very outset, then getting tough immediately things go wrong,” said Mr Harker.
Research by the BBC showed that sub-prime lenders make over 50% of repossession orders in the UK but only supply 6% of the mortgages.
A spokesperson for Southern Pacific Mortgage Limited, said: “The figures are based on possession claims hearings and are therefore not representative of actual repossessions which are a lot lower.”
Secured loans are usually chosen by those with poor credit history because the lender has the guarantee that they will claim the owners home if they default. They are not only used for mortgages and can be taken out for many purposes but all secured loans need assets attached to them. This ensures that the lender has equity and helps keep the interest rate lower.
Unsecured loans do not have any equity secured against them but this results in a higher interest rate because the lender is not guaranteed they will have items to claim should the borrower fall into arrears. If a borrower fails to make payments on an unsecured loan there will tend to be court action.
Those with bad credit ratings often find they are not offered unsecured loans and therefore take the secured loan option.
A Citizens Advice Bureaux report said irresponsible lending decisions and aggressive arrears management by sub-prime lenders were driving the current increase in mortgage arrears, court action and repossessions.
David Harker, chief executive of Citizens Advice, said: “Our research suggests that many aspiring home owners have been miss-sold unsuitable and costly home loans that are doomed to fail from the start.”
The Council of Mortgage Lenders responded by pointing out that borrowers who are receiving help from the charity are more likely to be the ones that have the more serious credit problems.
A spokesperson for the group said: “The vast majority of mortgage customers receive a high level of help and care from lenders of all kinds if they fall into difficulties, in accordance with the rules set out by the Financial Services Authority.”
However the Intermediary Mortgage Lenders Association (IMLA), a group representing the interests of lenders, is sympathetic to the Citizens Advice.
Peter Williams, executive director of IMLA, said: “We do agree with Citizens Advice that the different regulatory regimes for first and second charge loans has created complications.”
When a secured loan is taken out it can be a first, second and third charge. If it is the first charge it means the loan company is first in line to claim the equity (usually the borrowers home) if there are any defaults.
If the lender is the second charge they are second inline to the home and this can be reflected in a higher interest rates and more punitive measures following default.
“Many sub-prime lenders are flouting the rules on responsible lending by granting loans when it’s clear the borrower will not be able to afford to repay it from the very outset, then getting tough immediately things go wrong,” said Mr Harker.
Research by the BBC showed that sub-prime lenders make over 50% of repossession orders in the UK but only supply 6% of the mortgages.
A spokesperson for Southern Pacific Mortgage Limited, said: “The figures are based on possession claims hearings and are therefore not representative of actual repossessions which are a lot lower.”
Secured loans are usually chosen by those with poor credit history because the lender has the guarantee that they will claim the owners home if they default. They are not only used for mortgages and can be taken out for many purposes but all secured loans need assets attached to them. This ensures that the lender has equity and helps keep the interest rate lower.
Unsecured loans do not have any equity secured against them but this results in a higher interest rate because the lender is not guaranteed they will have items to claim should the borrower fall into arrears. If a borrower fails to make payments on an unsecured loan there will tend to be court action.
Those with bad credit ratings often find they are not offered unsecured loans and therefore take the secured loan option.
Buy-to-let Mortgages Increased by 48% in 2006
November 29, 2008 by admin
Filed under Mortgage Articles
As growth in the UK property market continues to confound expectations, the range of mortgages available to people has also expanded. First time buyers, for instance, look for different benefits from a mortgage than they did ten years ago. Similarly, there are more people requiring different types of mortgages, like bad credit mortgages and divorce mortgages.
One type of mortgage that is on the up is the buy-to-let mortgage, which allows property owners to purchase a second property with the intention of renting it out to tenants. In fact, buy-to-let mortgages can be an excellent way to make money, if you find the right deal to meet your specific needs. A recent article in the Guardian newspaper claimed that buy-to-let mortgages had increased by 48% in 2006, with banks, building societies and other lenders dealing out 330,000 buy-to-let mortgages worth a total of £38.4 billion.
According to the Council of Mortgage Lenders (CML), the number represents not only a 48% rise in volume but a 57% increase in value since 2005. The total number of buy-to-let mortgages in the UK is now said to stand at a total of £94.8 billion, with buy-to-let mortgage lending representing 9% of the value of all mortgage balances in the country.
According to the CML, the number of landlords falling into arrears also continued to decrease in 2006, with the proportion of buy-to-let mortgages that were three or more months in arrears dropping from 0.64% in June 2006 to 0.59% by the end of the year. What’s more, this figure is lower than the 0.89% of loans in arrears in the UK mortgage market as a whole.
Even more encouraging is the low repossession rate of buy-to-let properties. In 2006, lenders repossessed 1142 buy-to-let properties; this represents 0.14% of all landlord mortgages, a figure lower than the 0.15% repossession rate in the entire mortgage market.
Michael Coogan, director of the CML, told the Guardian: “The buy-to-let market has performed even more strongly than the wider market over the course of 2006. With evidence from other sources of strong tenant demand, rising rents and falling void periods, buy-to-let looks set to continue to remain popular and successful.”
If you’re looking for a buy-to-let mortgage, investigate carefully and you’ll find a range of banks, building societies and other financial institutions offering great deals on buy-to-let mortgages to meet your needs. And with the current buoyancy of the buy-to-let mortgage market, an investment of this kind is sure to reap untold benefits!
Andrew Regan is an online, freelance journalist.
One type of mortgage that is on the up is the buy-to-let mortgage, which allows property owners to purchase a second property with the intention of renting it out to tenants. In fact, buy-to-let mortgages can be an excellent way to make money, if you find the right deal to meet your specific needs. A recent article in the Guardian newspaper claimed that buy-to-let mortgages had increased by 48% in 2006, with banks, building societies and other lenders dealing out 330,000 buy-to-let mortgages worth a total of £38.4 billion.
According to the Council of Mortgage Lenders (CML), the number represents not only a 48% rise in volume but a 57% increase in value since 2005. The total number of buy-to-let mortgages in the UK is now said to stand at a total of £94.8 billion, with buy-to-let mortgage lending representing 9% of the value of all mortgage balances in the country.
According to the CML, the number of landlords falling into arrears also continued to decrease in 2006, with the proportion of buy-to-let mortgages that were three or more months in arrears dropping from 0.64% in June 2006 to 0.59% by the end of the year. What’s more, this figure is lower than the 0.89% of loans in arrears in the UK mortgage market as a whole.
Even more encouraging is the low repossession rate of buy-to-let properties. In 2006, lenders repossessed 1142 buy-to-let properties; this represents 0.14% of all landlord mortgages, a figure lower than the 0.15% repossession rate in the entire mortgage market.
Michael Coogan, director of the CML, told the Guardian: “The buy-to-let market has performed even more strongly than the wider market over the course of 2006. With evidence from other sources of strong tenant demand, rising rents and falling void periods, buy-to-let looks set to continue to remain popular and successful.”
If you’re looking for a buy-to-let mortgage, investigate carefully and you’ll find a range of banks, building societies and other financial institutions offering great deals on buy-to-let mortgages to meet your needs. And with the current buoyancy of the buy-to-let mortgage market, an investment of this kind is sure to reap untold benefits!
Andrew Regan is an online, freelance journalist.