All About Loans Weblog

Many homeowners are being encouraged by their brokers to lie about their income in order to secure large mortgages. To lie about your income in order to secure a loan is a punishable offence and could land you with a hefty fine or even a jail sentence.

A recent story has emerged about a care worker employed by the citizens advice bureau who claims she was advised by her broker to lie about her salary when trying to secure her mortgage.

Sandra Ashcroft, 59, told her bank she received a £35,000 salary as a mid-wife in order to secure a home loan of £102,000 in 2003. She then applied to increase that mortgage to £122,000 after telling the bank she earned £80,000 working in the public services. Ms Ashcroft actually only earned between £3000 and £5,500. 

What Mrs Ashcroft did was highly illegal and she was charged for obtaining money transfers by deception. She was given a six-month suspended sentence but the judge said that there was evidence to suggest that she had been steered towards giving misleading information. 

The danger often lies with the temptation offered by self-cert loans and mortgages. These were created for self-employed workers or business owners who don’t always have records of their income. Whilst these loans are vital for those who have an income that doesn’t come from a salaried job, there is a possibility for people to try to obtain credit they cannot repay by lying on their application.

So if you are thinking of lying on an application for a mortgage or even if your broker is encouraging you to lie do not be tempted. This is a very dangerous route to take and if you are caught out you could face losing your house, ruining your credit rating and even a jail sentence. So always consult the mortgage company or even a lawyer if you are unsure about specific details on your loan application form.

News in from the British Retail Consortium (BRC) suggests that customers are shunning plastic and turning back to good old cash.

A survey conducted last year showed that 60% of purchases were made by cash, compared with 54% in 2006. The figures released did not offer a break down by month or quarter, so we can only speculate that most of the upturn in cash spending occurred in the latter part of the year, once the credit crunch had started to hit.

However, even before the prospect of recession was spoken of, most financial experts agreed that consumers were slowing turning away from credit cards and personal loans to fund their spending.  When the sub-prime lending crisis hit America, consumers were already getting twitchy about the ‘culture of lending’ headlines popular in the news and starting to review their desire for easy credit.

Many customers are still very happy to take out a loan for a holiday, new car or even just a spending spree, but lenders agree that most of the clients approaching them at the moment are looking to consolidate debt or lessen their debt burden.

With the cost of living rising, most sensible borrowers are now looking at ways of cutting their monthly expenditure - hoping to swap their high interest credit cards for a cheap loan.

It is no wonder that the BRC find that people currently prefer to spend the money in their pockets, rather than use plastic. With a credit crunch reality, fast rising living costs and wages static, people no longer want to borrow today and worry tomorrow, because they are already worrying.

New research released by the Council for Mortgage Lenders shows that affordability still remains one of the key concerns of the property market with first time buyer expecting to borrow roughly 3.38 times their salary on the value of a mortgage.

However affordability is not only an issue for first time buyers with home movers also finding the current housing market very expensive. Typically the average home mover will have to borrow 3.03 times their salary in order to buy a new property. The average home owner is now paying 17.2% of their income on servicing their home loan. This is the highest level it has been in 15 years.

The director general of the CML, Michael Coogen has stated that while affordability still remains a problem for many borrowers their may be a some relief yet to come. It is widely expected that interest rates will be cut by the Bank of England in the coming months. This cut will help many borrowers who are finding their monthly mortgage repayments increasingly expensive.

The market has become very segmented in the wake of the financial crisis to hit the credit markets. Mainstream borrowers can expect fixed rate deals to become cheaper as interest rates are cut, however the bad credit sector of the market will see their loan options restricted as lenders’ tighten lending criteria as well as reduce the amount they are willing to lend.

In the coming months lenders will increasingly price mortgages according to risk, this means that borrowers with poor credit histories will find it increasingly difficult to secure a cheap loan or even one at a higher rate.

Speculation that the housing markets might be running out of steam was given another boost by new figures showing that the number of new home loans approved at the start of the year fell to their lowest level for sixteen years.

The figures which were published by the Council of Mortgage Lenders show that new loan approvals came to a total of only 49,000 in February. That figure is down by 3.5% from January and down 33% from February 2007. This is the lowest reading since early 1992, during the last recession.

CML’s director general, Michael Coogan, warns that the situation is likely to get much worse over the coming year.

Most experts are expecting plenty more downsides in the coming months which will eventually bring about a sharp fall in house price inflation. The housing market has a history of snowballing in times of recession, so a house price crash in the coming months cannot be ruled out.

The Bank of England data has show that while the credit crunch has impacted on the housing sector it has failed to deter consumers from taking on more debt with borrowers rushing to try and consolidate debts before they turn bad.

As the global credit crunch continues to bite, banks and building societies are tightening up further on their lending criteria making it increasingly difficult for borrowers to be approved for mortgages, loans and credit cards. The last remaining 100% home loan on the market is Abbey’s deal, which ends tomorrow and the Halifax are dropping their highest LTV rate to 95%.

With more and more financial institutions reporting profit results that show just how damaging the collapse in the US sub-prime sector and the resultant credit crunch really was, we are only now fully coming to terms with how damaging the credit crunch has really been and the squeeze is expected to continue.

The effects of the crisis are now fully apparent on high street lending with mortgage lenders withdrawing 40% of their sub-prime mortgages from the market as well as 16% of standard loans. Many of the standard loans which have been withdrawn were intended for first time buyers.

Over the past few weeks lenders have all but dismantled the 100% mortgage market, rates have gone up and good deals have disappeared.

Homebuyers are now at more risk than ever at losing the properties they are buying as mortgage lenders introduce barriers to lending at the last-minute. Convex Conveyancing, a legal firm, has found that problems between the time of exchange and completion have gone up by 10% in the past month. That type of problem was very rare in the past.

People who are having the most difficulty are mainly bad credit loan borrowers. Lenders have started to claim that not all the necessary paperwork has been provided after already approving the loan.

A new show entitled Affordable Britain has been launched in the capital and is aimed at giving key workers a chance to buy a house at a price they can afford. The ironic thing about the show is that all but one property has a price tag above £250,000.

The show has homes which are specifically reserved for key sector worker however the problem that some of the homes reserved for these workers cost as much as 15 times the average income of a nurse or fire-fighter.

This is all part of the government’s New Build Home Buy scheme. Most are only one-bed apartments and most buyers will only be purchasing a quarter share since the required minimum income levels make most public sector workers ineligible to purchase the whole property.

The government hopes that this scheme will allow those who are priced out of the property market to still be able to buy a share of a property, somewhere in the region of between 25% and 75%. Key workers are given priority, with first time buyers coming in second. While the scheme has been rolled out across the UK it is predominately focused on London since there has been a massive exodus of key workers from the capital in search of cheaper housing.

The show is mostly filled with apartments and very little houses. A typical offer at the show is to by a 30% share in a property estimated cost between £275,000 and £375,000. However you need a minimum income of £26,000 even to be considered as a contender, so key workers who have already been turned down for a home loan for a standard property may not find that they have enough income to take out a loan on one of these specialist homes.

Yet more evidence has been published supporting the theory that the housing market is slowing down. It has been reported that home loan lending across the UK fell in the month of February as the credit crunch cooled demand in the housing market.

The Council of Mortgage Lenders is now predicting that mortgage lending will continue to slow down in the months to come. This news came as several other industry bodies reported that lending had begun to slow.

Last year, Chancellor Alistair Darling lambasted lenders for fuelling an unsustainable boom in house prices by lending irresponsibly. The chancellor went on to urge banks to be more cautious with lending in the future.

The chancellor is also a predicting a slowdown in the housing market this year, something Mr Darling considers to be desirable after years of rapid growth.

Mr Darling believes the boom in property has come at the expense of lenders encouraging borrowers to overstretch themselves. He said lenders need to be more clear about borrows ability to pay back loans before they allowed a mortgage to be processed.

The results from a recent survey show that lending in February fell by almost 12% compared with the month of January. Lending in February amounted to £30bn.

The Council for Mortgage Lenders advises that lending usually drops off at certain points every year according to seasonal house-buying patterns. However, this winter has seen a drop in house buying and loan acceptances at a time when buying usually picks up.

There has been a massive reduction in the number of mortgages available to homebuyers and re-mortgagors since last summer.

Figures recently published by financial information provider Moneyfacts has shown a fall by 40% in the number of loans now on the market. This is a result of problems in the US mortgage market which have now moved over here to the UK leading banks to cut the choice of mortgages the offer across the board.

There was a 22% increase in the number of mortgages available to consumers in the first six months of last year as a result of new lenders entering the market as well as older lenders widening their mortgage portfolio. However that increase has been more than cancelled in the past six months.

While both high and low risk borrowers have seen their options cut it has been borrowers with poor credit histories who have suffered the most. These borrowers are referred to in the banking industry as sub-prime borrowers.

So far over 4000 bad credit loans have been dropped by lenders for borrowers looking for owner-occupier deals while the number of sub-prime buy-to-let deals has gone down by 1000.

Less risky borrowers have also seen an reduction in the amount of options available to them as banks reduced the number of buy-to-let loans by 438 while the number of residential mortgages went down by 611 or 16% of the total available.

New research out has shown that the introduction of HIPS has affected the supply of houses coming onto the market. Figures from Rightmove show that many people with four bedroom homes held out on selling their houses immediately after the HIP introduction at the beginning of August last year. However many of these properties have now come onto the market and pushed up the average larger house price to £241,642.

Miles Shipside, the commercial director for Rightmove, has stated that the introduction of HIPs in a stable market would have been a more prudent step by the government since it presents fewer dangers. However the fact that today’s financial environment is far more sensitive means that any effects that their introduction do have can become exaggerated.

Mr Shipside states that it was “very unfortunate” that HIPS were introduced when house prices were at record levels as well as the fact that interest rates were also at their highest for six years.

The introduction of HIPS has added to the distortion in the market making it difficult for policy makers to read the market correctly and gauge what measure would be best to take.

The Department of Communities and Local Government has argued that it comes as little surprise that HIPs had had some sort of short term transitional effects on the housing market. This was because estate agents have been encouraging sellers to put their houses on the market before HIPs introduction. The data also shows that larger houses have returned to the prices they were at before HIPs introduction.

In the meantime, the market remains sluggish with prices barely moving upwards and thousands of homeowners reluctant to sell. With home loan rates at their highest for many years, households still paying lower rates from old fixed rate loans are not keen to face a bigger mortgage with higher interest rates.

Very few of us can claim to have made no financial blunders in our lives. Sometimes the temptation to spend some of your savings on a needless treat can be too great, or we might fail to invest our money smartly, instead leaving it gathering dust in our current accounts with little prospects of gaining much interest. Below are highlighted some of the biggest and most common mistakes you can make with your money.

Many people set some money aside in case of a rainy day but even here you have to be smart in order to avoid losing out on possible financial gains. A good place to keep your savings is in a tax-free shelter such as Isa. In an Isa you can shelter £3,000 from the 20% savings tax that the government slaps on it.

Another mistake people make is in taking the first loan offered to them either on the forecourt or by their bank. Rarely are the big banks the place to find a cheap loan and forecourt finance frequently involves APR figures usually reserved for high cost store cards. The answer here is to shop around. Plenty of websites offer advice on current market rates on loans. Choosing wisely could save you hundreds of pounds.

Thousands of people still fail to plan effectively and efficiently enough to minimise the effects of inheritance tax. The best way to make sure your money goes where you want it to after you die is to make a will. If you fail to make a will, than the first £125,000 will go directly to your spouse along with all your possessions. The rest of what you own will be shared equally between your children.