Sometimes it’s best to sell up and walk away or lenders may chase you for 12 years

Today I got a call from a frantic seller who is facing repossession – I’ll call him Mr. B. He owns a house in North London, but in a not so great area where prices have been steadily depressed for some time.

He told me that he has a ‘repossession order’ for next week. The first thing I try to do when someone calls in a panic to tell me about a court possession order on their home is to try an find out exactly which stage the reposession / possession is at. Many people confuse a Court Order for Possession with a Bailiffs Warrant for Possession. The two things are very different.

If you just got the first one, you have some time to sort out your finances and a very good chance to avoid repossession.

However, if you just received the Bailiffs Warrant, then look out. That’s the nasty one, and much harder to deal with simply because time is no longer on your side.

Mr B. told me that his was a bailiffs warrant for early next week. That in itself is not impossible to deal with by any means, but sometimes seller’s own expectations are simply too high.

Mr B. has a house worth £300,000 – his valuation of course, and as a homeowner like all of us, this will be the top valuation. He owes £200,000 to his mortgage lender, sub-prime specialist GMac.

He told me that he would like to sell to avoid the bailiffs coming next week. That’s a pretty tall order, to find someone who is willing to put down cash in today’s climate to buy a house in a couple of days. That would mean exchanging contracts at least and then submitting a form n244 to the court to get the bailiffs warrant suspended.

Unfortunately Mr B. also has arrears of a substantial sum of £22,000. This means that he would have to sell for a minimum of £222,000. Except that he also has a second charge loan with Black Horse Lloyds for £13,000. Once fees and penalties and costs are added to this Mr B. is looking at a minimum of £240,000 just to clear his debts.

Mr B told me that he understood that he time was against him and so he is willing to sell at a discount – but absolutely no less than £280,000.

This represents a discount against the value of the house (his valuation, mind) of approx 6.5%.

Now house prices are falling at a pretty fast rate. Lenders are telling surveyors to downvalue properties, but Mr B. not only wants someone to pay 93.5% of his price, but also wants to buyer to pay cash (no choice if they are going to exchange before the bailiffs arrive) which would almost certainly have to include the arrears of £22,000 as deposit if GMac are going to accept a conditional exchange.

I suggested to Mr B that any cash buyer will be looking at a serious discount in return for doing this in such a short time frame and any buyer is going have difficulty in remortgaging above £250k because of the stamp duty threshold.

There had already been a buyer and Mr B had used this to get the court to suspend the possesion order. Courts usually give a second chance, and the Judge did, but then the buyer pulled out.

Real Cash buyers are few and far between right now and they have the pick of hundreds of properties at fire sale prices. Even an estate agent trying to sell a home to an normal owner occupier will admit that 10-20% is the minimum discount from asking price if you really need to sell right now (and that sale would take at least 8 weeks via the normal process). If Mr B. thinks that he will find one of these normal homebuyers, with cash in hand and who doesn’t know there are bargains to be had, then he really is kidding himself.

When prices were rising, a rise in the valuation of a property of 10-20% over a 2 to 3 year period was considered by many to be a god given right. Now that values are slipping in the reverse direction many owners are clinging to the notion of ‘equity’ in their homes as their ‘money’ but that equity simply no longer exists.

I tried to get Mr B to be realistic and outlined the alternatives to him as I see them.

Reality No 1 : Find the money to pay off the arrears in a reasonable time frame and use an N244 form to apply to the Court for more time to pay GMac. Not definite but in the current climate a strong chance the Court would insist that GMac accept terms and the Court would suspend the bailiff’s warrant.

Reality No 2 : Sell the house to a cash buyer for what he owes and simply walk away from the problem with NO DEBT. Sure, he loses his home, but he keeps control of his future and his future income. With no equity in his house and huge arrears of £22,000 and mounting, what exactly is there to lose?

Reality No 3 : He waits until the last possible moment to decide on one of the options above and instead the bailiffs arrive, take control of his house and sell it at auction. GMac will sell it right now for whatever they can get (local comparisons on Auction sales sites show similar properties worth £285,000 selling at auction in the last 6 weeks for £152,000!). Mr B. may well think that is the end of the affair, but GMac won’t forget. Nor will Black Horse Loans.

Black Horse actually are quite good at turning secured charges into unsecured loans if they think they will get nothing at auction, but GMac were jsut involved in demanding repayment from Woolworth’s so they are unlikely to care about Mr B’s feelings when they use their legal right to pursue him for up to 12 years for the difference between what he owes them today and what they get for the house at auction.

Which option do you think Mr B will go for?

It’s a shame but my experience tells me it will be No 3. Instead of being honest to himself about his situation I feel he will remain in denial. After all, the whole repossession process actually takes months to get the position that he is now in. Really Mr B. is lucky. Tens of thousand’s of people are now in negative equity and don’t even have the luxury to be able to sell to anyone for enough to cover their debts and walk away debt free.

The moral of the story?

Act Now to stop your repossession!

Like any difficult situation it also helps to deal with it earlier than later. Stay in control of your own future, by either finding the funds to pay the arrears and settle with your lender in Court, or sell your home and pay off your debts. The alternative is too scary to think about.

The Guardian reported an interesting article on sell and rent back and repossession this week:

Owen and Moira Martin are among the many British victims of companies offering controversial sale-and-rent-back deals. Their three-bedroom maisonette in Plymouth was repossessed last month because the company with which they had entered into an agreement never paid the mortgage, even though it had pocketed about £45,000 in fees from them.

Such horror stories have prompted the government to consult on how best to regulate the estimated 2,000 or so companies in the UK offering such schemes.

‘It’s been devastating,’ says Owen Martin, a supermarket worker, who has had to move into a privately rented two-bedroom flat with his wife. ‘We made sure the rent was paid, but we lost our home anyway because the company we sold to never paid the mortgage company.’

The Office of Fair Trading estimated in its recent report into the sector that some 50,000 sale-and-rent-back transactions had taken place. Operators offer to buy the property of someone facing repossession at a discount price, allowing the former mortgagee to remain in the property as a tenant. They usually also charge significant fees.

Read the full story at the Guardian website

http://www.guardian.co.uk/money/2008/nov/09/rent-back-evictions

It’s difficult to watch the television, read newspapers or generally go outside of your home right now without being bombarded with negative news on the economy. The US economy is all but in recession, New Zealand is already in recession, Japan is in recession and as of today so is the United Kingdom.

The Governor of the Bank of England has predicted no growth in the UK in 2009 and believes that the recession will be as bad as the early 1990’s. The British Pound has hit a six year low against the Euro and inflation in the UK is currently at 5% (the target set by the Bank of England is 2%).

Deflation is now a real threat in the UK which can be just as concerning as inflation. Deflation refers to a general decline in prices, often caused by a reduced supply of money or credit. It can also be caused by a decrease in spending by Governments, consumers or investors. Deflation is simply put as a decrease in price due to decreased demand – therefore the decreased demand results in decreased production and increased levels of unemployment.

With this deflationary threat looming it is likely that we will see interest rates continue to fall with some economists predicting UK interest rates will drop to around 1%. The recent massive 1.5% rate cut in the UK and two consecutive monthly cuts in Australia (1% and 0.75% respectively) are sure signs that central banks have finally seen just how serious the current situation is. I believe it’s a perfect time to purchase property safe in the knowledge that interest rates are going down – this is a wonderful situation.

Michael Marquette

FYI: Read related articles on Recession; the UK; or Buying Real Estate

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The economic storm is penetrating every corner. The Bank of England’s Monetary-Policy Committee (MPC) has pulled of shock when most thought there are almost no surprises left: it has cut UK interest rates by 1.5% leaving them now at 3% – the lowest level since 1955.

The boldness should be commended, although it clearly demonstrates that they were shocked themselves by the rapidity of the UK’s contraction, as well as the global downturn. Though consumer-price inflation, at 5.2%, is high, the bank reckons that the collapse in commodity prices and the prospect of weaker growth means there is now a “substantial risk” that inflation will fall below its 2% target.

Furthermore, British GDP fell at an annualised rate of 2% in the third quarter, factory output fell for a seventh successive month in September, new-car registrations fell by 23% in the year to October, and house prices fell by 2.2% in October leaving them 15% lower than a year earlier. Things are indeed looking grim.

Also this last week the International Monetary Fund (IMF) revised its economic outlook stating that it envisages Britain’s economy shrinking by 1.3% in 2009, and that of the euro area by 0.5% – the European Central Bank has also just cut rates by 0.5% perhaps indicating that the ECB is not recognizing the global tsunami soon enough.  Simon Turner

FYI: Read more articles on the Credit Crunch, Interest Rates, and the Economy

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After years of talking up the property boom and the ‘you can’t lose with property’ articles in the media, the newspapers are now full of doom and gloom about the future of UK house prices.

The reality may be that a housing market depression may be caused by nothing more than the fact that we all start to believe that house prices will fall, we don’t put our houses on the market and we don’t try to move home.

This means that house prices will fall and those affected most will not be those who can ride out the storm and stay put in their homes, but those who are facing repossession.

This Is Money the website arm of the London Evening Standard have even published a price crash calculator so that if you aren’t scared enough already, you can truly frighten yourself into worrying about what your house will be worth if prices fall the same way they did in 1992!

The threat of negative equity however is now a very real one and millions of people will find it impossible to refinance their mortgages and will be forced onto their lenders’ top standard variable rates.

As 2008 marches on and the global and economic situation looks ever more bleak, so are the tales we are hearing from UK homeowners facing repossession.

Back in 2007 a rough estimate would be that 70% of those people who contacted us by phone or email had some difficulties with their mortgage repayments, were in arrears but were also in a position to:

a) Repay the arrears over a given period either by direct agreement with their mortgage lenders or by a court judgement.

b) Remortgage with a new lender in order to get a fresh start with a new payment record appearing on their credit score

Fast forward and now it is rare that we are hearing from people who have enough extra monthly income to repay their arrears over time and many lenders (especially the sub prime) are refusing to accept repayment plans to pay off morgage arrears.

The majority of people contacting us are now also at the start of the negative equity trap.

The true and actual cost of their borrowings, (which consists not just of the amount borrowed but also the huge penalties, legal and court fees and Early Redemption Penalties), have risen dramatically, whilst the value of their homes is in many cases starting to stagnate, if not fall.

A homeowner who previously remortgaged their £200,000 home with a 90% mortgage (£180,000) and who has either added a secured loan (say £10,000 – new total £190,000) or had a County Court Judgement for unpaid credit card bills of a similar amount, and who has an early redemption penalty of say £7,000, may be mortgaged to £197,000.

One missed mortgage payment and not only can the interest rate rise dramatically so that monthly costs are hugely increased, but legal fees and punishing penalty fees will be also be added.

Suddenly we could be looking at redemption costs of over £200,000.

Sell the house?

Not always possible.

Estate agents will charge a minimum of 1%, more if you go with multiple agents. That’s at lease £2000. Legal fees and the Government’s ridiculous HIPs pack will add another £1500.

It’s now going to cost £3,500 to sell the home and get nothing in return.

But it doesn’t stop there.

If you remortgaged before the Northern Rock crisis hit in September 2007, then the chances are that your lender was giving signals to surveyors to over value properties.

The market is always rising so why not let them over value your home and then lend you more money in return for more profit?

By the time you may be in trouble house prices should have risen by enough to bring down your mortgage level to less than 100% – just in case they need to repossess.

But the reality is that homes are now only selling if the price is right.

Now it’s a buyer’s market again.

Houses which comfortably sold for £200,000 back in 2007 are now sticking in agent’s windows at £189,000.

Suddenly it could cost you as much as £10-20,000 to buy your way out of repossession.

But who is going to lend you the money to pay the costs?

It is not going to happen.

If you do have equity in your home then you do have options to avoid repossession find out here

Maybe the Government, along with the usual middle class do gooders at the Citizens Advice Bureau (CAB) and Shelter actually want you to be repossessed and lose your home?

Surely, that can’t be right?

Yet the Scottish newspaper the Sunday Herald Reports today the following:

“Prompted by concerns raised by Citizens Advice, Shelter and the Council of Mortgage Lenders, chancellor Alistair Darling announced last week that he has asked the Office of Fair Trading to investigate potential consumer detriment in the sale-and-leaseback market.

A spokeswoman for the Council of Mortgage Lenders said: “While we welcome the review, it is disappointing that no immediate action will be taken to regulate sale-and-leaseback schemes.

“Homeowners in difficulty may currently be considering selling their property through these schemes at a discounted value, without an independent valuation of their home, and with no real security of tenure.”

Whilst it is true that there are some rogue rent back traders out there (especially those offering to pay 100% of market value who in reality keep at least 40% back for many years), this Government is expert in knee jerk politics.

So many of the laws that have been passed since Labour came into power seem to be a reaction to scare stories in the tabloids.

The reality of the sell and rent back scenario is that it gives homeowners a last resort to keep their homes when all else has failed.

If the Government legislate against that last resort because a powerful lobby of middle class people feel that that they need to legislate against other people having the right to sell their homes for less than market value in order to stay in them, the outcome (like that of many of their policies) will be exactly the opposite.

CAB and Shelter may talk the talk but they won’t offer you a home when you are repossessed and evicted.

As for the CML (Council of Mortgage Lenders) – well who do you think supplies the financing and re-mortgaging for sell and rent back companies?

Is Alistair Darling (or any other of the wealthy Islington-ite Labour Government) going to provide you with a nice Council House or put you to the top of the housing list when you are repossessed?

I think we all know the answer to that one.

If you are thinking of selling and renting back make sure that you do the research and ask for references from other sellers when dealing with a rent back buyer.

There are many websites out there that promise to help you avoid repossession by – borrowing more money!

If you truly are facing repossesion then borrowing your way out of trouble is the recipe for disaster.

This is because if you have mortgage arrears or a possession order against your home from your mortgage lender or a second charge loan company, no one is going to lend you money at a lower interest rate than you are currently paying. If they do, it will be for a limited time before massive interest rates kick in.

This means that you will almost certainly lose your home. If not today, then in the coming months as you struggle to make even higher payments.

Most of the loans available to people in your position are on  a variable interest rate. The Bank of England rate may go down, but these companies are not linked to the Bank of England interest rate, so you will probably find their rates going only one way – UP!

Any solution to stop repossession of your home MUST also help to get you out of debt, not further into debt.

For repossession solutions and help in reducing your liabilities with credit cards and other unsecured debts contact us via our website Stop Repossession Org UK

Homeowners facing finance problems may be a step closer to repossession as mortgage lenders pull their 100% loans.

This means that for those who need to remortgage soon, not only are rising interest rates from sub prime lenders and falling or static house prices an issue, but they may now find that they are unable to remortgage to the full value to pay off their current mortgage with an existing lender.

If a property worth £100,000 was 100% mortgaged 2 years ago and has fallen in value even by a few percent, then this means that a new mortgage may only cover around £88,000 towards paying off the existing mortgage.

The result?

Many will be unable to remortgage, will fall into the dreaded negative equity not seen since the early 90s, and will be forced onto so-called standard interest rates with their current lender.

With some sub prime lenders this is 10% or more.

This news in from The Guardian online:

“Cheltenham & Gloucester will tell homebuyers today that they must put down a minimum deposit of 10% if they want one of its mortgages, as the clampdown on lending gathers pace. Meanwhile, Royal Bank of Scotland and NatWest are withdrawing from offering mortgages for more than 95% of a property’s value.

C&G – owned by Lloyds TSB – is one of the biggest mortgage providers to rein in its lending in response to the credit crunch. The change means that a typical first-time buyer in London will have to stump up almost £25,000 to obtain one of the company’s home loans.

RBS/NatWest has already pulled out of offering mortgages above 95% through brokers; after March 7 this will also apply to branch-based home loan applications.”

Read the full article here

According to ITV’s documentary Repossession Repossession Repossession (to be shown tonight at 10.35pm on ITV1) the northern city is where the highest percentage of those with serious debts and facing repossession, can be found.

The programme will claim that 29% of households in Manchester are facing serious financial problems and possibly home repossession.

Fuelled by easy credit access in the last 10 years, many of those in trouble are under 30. They have grown into adulthood being able to constantly re-finance their credit card debts until at some point the only option may have appeared to be consolidating their loans and securing them against their homes.

Now the credit crunch has forced lenders to be ultra cautious as to who they lend to (or the less reputable to be able to charge ever more disproportionate interest rates) most of those with high Loan to Value mortgages (85% and above) also have secured debts that in some case can mean they are more than 110% mortgaged.

In this case even the sale of the property would not realise enough equity to repay all the loans.

Lenders are increasingly using the repossession process to recover their money, some of them on the basis that in the current financial climate the money is better off with them than being risked as a total loss if another of the homeowner’s creditor decided to repossess.

The programme can be seen 5th Feb 2008 at 10.35pm on ITV1

When Sell and Rent Back is not an option

One of the questions we get asked most is ‘Is Sell and Rent Back and Option For Me’?

The answer really depends on a number of circumstances and every situation is different, but generally speaking sell and rent back options are not feasible for those whose properties are worth £300,000 or more.

We have seen a massive rise in those seeking help to stop repossession whose properties are valued at over £300k.

For sell and rent back options to work, the buyer must be able to charge a rent that covers the cost of financing their mortgage.

With interest rates currently at around 6% for Buy to Let mortgages, this means that for every £100,000 that the buyer needs to mortgage, he or she must pay £600 pcm in mortgage interest. For a property over £200,000 this already equates to a rental figure of over £1200pcm.

Even if you might be prepared to pay £1200pcm now (and it may seem attractive if you are currently paying a lot more in servicing your debts), but the problem is that market rents in most areas of the UK are nothing like that amount. The average UK 3 bed semi may be worth £200k on the open market, but rental averages are probably more like £650 pcm.

This means that market rents are out of sync with property values. No investor can afford to buy a property and rent it back to the previous owner unless the rent covers the cost of their buy to let mortgage. No lender will lend against a property for a buy to let mortgage unless it believes the rent will cover the cost of the buyer’s interest payments comfortably.

For most lenders this means 125% coverage. For example is the interest was £1000pcm, the market rent must be at least £1250pcm otherwise they will not lend against the property.

For those who are facing financial difficulties with properties over £300k the obvious option is to sell on the open market and realise the best price.

Sometimes it might be possible to enter into a sell and rent back option providing the seller has enough equity in the property to allow a sale at a much lower figure, with an option to buy it back at a discount at a later stage.

According to a report in the Motley Fool, average house prices went up 1.3% in December, having gone down in September, October and November.

The fool are quick to point out that most analysts see this as a temporary blip, rather than a turn-around.

With the Bank of England’s Monetary Policy Committee due to have its monthly rates meeting tomorrow, this survey probably means that it’s less likely we’ll see a rates cut.

That having been said, the economy is still in poor shape – retail figures in December were the worst for three years expect for food, with DSG (Currys and PC World) having issued a profits warning, and Next also talking about a poor December. On the flip side, Waitrose’s sales were up 28.5%!

Back in June 2006, I wrote an article about how the BoE actually sets interest rates, and what this means for property investors.

At the time, my conclusion was:

However, if your IFA tells you that they KNOW that interest rates are GOING TO GO UP (or, for that matter, down), then I would suggest that you run away, fast.

Were I writing the article today, I’d probably make one change… The word “UP” would become “DOWN”.

From BBC News today

Banks ‘prey on customers in debt’

Some people are agreeing to make payments they cannot afford
Banks are being accused of pressurising customers who have financial problems to take out expensive loans to try to ease their debts, the BBC has learned.

Some banks are repeatedly telephoning customers to try to get them to take out costly loans, against the advice of debt charities.

Citizens Advice said it has received many complaints about the increasingly aggressive tactics being used.

Banks say interest rate charges are up to them.

Continually telephoned

People find that even after they have been dealing with us they have found that they have been continued to be written to. They get aggressive letters and phone calls from their lenders
Peter Tutton, Citizens Advice

The BBC’s Breakfast programme has discovered some customers who have an agreed debt repayment plan with a debt advice charity are being put under pressure to take out loans, sometimes at a higher interest rate than they are already paying.

One HSBC customer, Simon Chandler, said that even though he had declined the bank’s offer of a “managed loan”, they had continually telephoned him to try and make him change his mind

The interest rate on the managed loan is 13% – double what he is paying at the moment.

He said: “I have had multiple letters from HSBC saying they want to help people in financial difficulty – when clearly they don’t.

For the rest of this story click here

Reuters reported a couple of days ago that the Citizens Advice Bureau are claiming that UK home repossessions are dramatically rising due to the lender’s aggressive arrears recovery policies and brokers’ misselling.

Whilst both of these statements are undoubtedly true, and we have accused lenders of such practices on this very blog, the Citizens Advice Bureau also plays its part in homeowners being repossessed.

How so?

Well in a number of cases that have come to our attention, including ones we have been involved in, the CAB has advised homeowners facing repossession that they must surrender to their fate and let the bank take their home, rather than pursue alternatives such as a cash property sale or that bete noir of NGOs and the press, the sell and rent back.

Our fictional Mr & Mrs Smith have 4 months’ mortgage arrears, a court possession order, and bailiffs due to evict them in 10 days. Where to turn?

The Citizens Advice Bureau promotes itself as the place to go for impartial debt related advice. Mr Smith mentions that they are thinking about selling and renting back.

The CAB advisor warns them against this. They will be losing money. Their home is worth at least 20% more than the Smiths have been offered.

The Smiths are relieved to benefit from the wisdom of the CAB.

However, the logic of this advice is somewhat strange.

If a homeowner allows a lender to repossess they immediately lose all control over the sale price of the home, whereas with a cash property buyer, the owner is free to decide whether or not to sell at a discount in order to pay off his/her debts, once the property is in the hands of the lender the property will be sold (usually at auction) to cover only the mortgage debt of the first charge.

Most repossessions involve second and third charges for secured loans. These high interest rate sub prime lenders are not going to shrug and walk away.

The will chase their debts aggressively for up to 12 years.

Of course selling your home for a discount is not something to be happy about. But what are the real options? Homelessness and another 12 years of being pursued by your lender with interest and charges racking up?

With so many properties now being repossessed prices for repossessions at auction are once more becoming bargains. However, if the lender sells the property below the mortgage debt redemption figure, then the lender can pursue the previous owner for the balance of the debt.

If you compare this with the owner selling for a price to cover their debts and recover at least some of the equity in their home then the CAB’s blanket condemnation of cash property buyers makes little common sense.

We have come across a number of people who have taken the CAB advice to allow themselves to be repossessed rather than accept a cash offer. Once repossessed, the person taking the advice is then not only homeless (and depending on their situation) with little chance of the local council rehousing them, but without any funds with which to rent in the open market.

Selling to cash buyers and sell to rent schemes may not be the answer to everyone facing repossession, but the attitude of the CAB seems to be a very middle class and patronising hair shirt ‘you’ve made your financial bed now lie in it a while’ coupled with sheer horror that a third party might make money out of somebody’s repossession situation.

Well, the banks, especially the sub prime lenders are making a lot of money out of repossessions with massive fees and penalties, the victims are ending up homeless when the options of selling at a discount and moving on or renting back their homes and getting their lives back together are simply not open for discussion by CAB advisors.

But at least the staff at the CAB can sleep well knowing that no property investors have made a penny from our Mr & Mrs Smith (who tonight may be sleeping in a council run B&B on the wrong side of town…)

The Council of Mortgage Lenders has said that according to the information collected from their members that this December shows a fall in house prices in real terms, unprecedented since the early 1990s.

This is further bad news for those facing repossession.

Not only are the rises in inter bank lending interest rates causing problems for those on sub prime mortgages and those trying to remortgage, but the drop in house prices and fall in sales also means that for many homeowners the equity left in their homes is shrinking for the first time in many years, and heading towards the dreaded negative equity last seen in the lat 1980s.

Negative equity can occur when the amount of money mortgaged against the property is greater than the value of the property.

For those on an 85% mortgage it means that house prices need to fall 15% to allow that to happen.

But for the tens of thousands on 95% mortgages, it means that if your house was worth £200,000 and your mortgage was £190,000, it only takes a relatively tiny fall of £10,000 in the market value to put you in the negative equity bracket.

If you then face problems paying your monthly mortgage you will literally have run out of equity to remortgage.

For those on 100% mortgages acquired in the last 12 months ANY fall in prices can mean instant negative equity.

From BBC 11/12/2007

“Many experts are predicting that the housing market will slow
Home loans became even more expensive to re-pay in October because of higher interest rates and rising house prices, the Council of Mortgage Lenders said.

The CML said that interest repayments swallowed up 20.6% of first-time buyers’ monthly incomes.

That was up from 20.4% in September and the highest level since 1991.

Meanwhile, Conservative leader David Cameron will ask banks to do more to help householders avoid repossession when their fixed rate mortgages end.

Mr Cameron wants the industry to take a more sympathetic attitudes to borrowers who get into arrears, and to plan now to deal with an expected flood of home owners who might be facing repossession.  “

Let’s hope that the banks take some notice of Mr Cameron.

Let’s hope that the BoE reduction of one quarter of a percent interest rate will actually filter down to those who need it most?

Prime lenders like Halifax have already passed it on to their customers, but for those customers of sub prime lenders like Capstone, GE Money, Kensington, and the like, the results are unlikely to be so fast, and in some cases, not be a result at all.

This is because many sub prime lenders are now actually bad risks themselves on the inter bank money markets where the interest rate is not set by the Bank of England and therefore reductions count little.

The irony is that the biggest repossessers are now themselves considered to have bad credit ratings. Poetic justice it may be, but they still have the power to charge some incredibly high rates and penalties which should see them in business for a long time to come.

After reporting recently that a large bunch of so called Sell and Rent Back operators have been panicked by courageous stories in the press and on TV about the scandals involved in this section of the money shark industry into forming the National Federation of Property Traders http://www.nfpt.org.uk we have a new bunch of chancers called National Association of Sell and Rent Back.
Sell and rent back what? Merchants? Charities?

Cowboys obviously.

At least the NFPT give some clue to the wary about what they are actually about – property trading – so that you can immediately see that if one of these characters offers you a rent back for the long term (or rent back for life), their very name ‘traders’ shows you that they are not even in the game of long term investment. If they considered themselves to be property investors, they would call themselves ‘investors’.

By using the very term Property Traders they give away the fact that you are very likely to sell your home today, and possibly be out of the street tomorrow.

Having lost a big chunk of your hard earned home equity.

Don’t sell and rent back.

Note: I use the term ‘courageous’ about the press stories because we have all seen programmes on TV where reporters try to oust rogue traders and other dangerous characters preying on the vulnerable, only to find these sharp suited hooligans  giving them a beating. Being a section of the unregulated finance and property ‘industry’ the true nature of these sell and rent back operators is yet to be seen in the cold light of a TV camera crew arc light.

HPC

A welcome outing on the serious current affairs programme produced by ITN and fronted by Trevor McDonald for the sell and rent back scandal merchants.

Those who have been following the debate on this website will know only too well the bleating of the the BMV rent back cowboys who no doubt will claim they don’t operate in the same way as the company featured on the Tonight programme, one A & J Property Services.

The award winning Jonathan Maitland shows yet again why he is chosen time and again to front this hard hitting news show.

Watch it and weep!

HPC

Snipped from ‘Wales On Sunday’

RUTHLESS loan sharks are forcing struggling female homeowners to turn to prostitution to clear crippling debts, a special Wales on Sunday investigation has revealed.

Our shocking report into Wales’ housing repossession crisis also uncovered how someone is forced out of their home every 15 minutes after failing to meet mortgage or rent payments, according to estimates by housing charity Shelter.

Trading standards officers said women are being forced on the game because families and single parents are turning to illegal money lenders charging extortionate interest rates of up to 1300 per cent.

“Threats can be sexual. Not as overt as rape, but these people are more inclined to demand sexual favours,” said David Picken of Swansea Trading Standards.

And Joe McShane, from the Cardiff branch of the Citizen’s Advice Bureau, told us of one young woman who had to go into hiding after being forced into prostitution by a ruthless loan shark.

The imminent collapse of one of the pillars of the British banking system could pave the way for a massive wave of homeowners falling prey to the ever growing army of sell and rent back rip off merchants.
As the full effects of the run on the bank this weekend are felt, sell and rent back cowboys are poised to jump on homeowners facing mortgage interest fears.
We contacted a number of companies, all of whom said they were gearing up to make the most of the cheap property windfall as the long predicted house price crash finally becomes a reality.
One company in the North East of England said, “We’ve been waiting years for this. You’ve no idea how many properties we are going to get our hands on in this area alone. And we are just one of hundreds of sell and rent back companies in the UK”
With attitudes like this it’s no suprise that sellers are being ripped off and then kicked out of their homes, when rents are raised through the roof.

Mortgage rates hit nine-year peak

Mortgage rates have soared to a nine-year high as the financial market crisis strikes millions of homeowners around Britain, it emerged yesterday.
# How the mortgage rates compare
# Banks ‘make up to �3.5bn from charges’
# Interest rates rise as credit crisis hits British borrowers

Suburban housing development: Mortgage rates hit nine-year peak
The average SVR rose by almost a quarter percentage point to 7.69pc last month

Even though the Bank of England has not raised its official interest rate, figures showed the borrowing costs faced by householders jumped dramatically last month.

In a major sign of how the so-called credit crunch is affecting consumers, Abbey will today become the first high street bank to raise the rates on a range of its standard tracker mortgages as a direct result of the market turmoil. And Standard Life was expected to do likewise tomorrow, with other major lenders poised to follow suit.

Nici Audhlam-Gardiner, the head of mortgages at Abbey, said: “These changes reflect moves in the market that have been experienced. We expect that these current trends will be sustained over a significant period and that other companies will follow imminently, given they will be under the same market pressure.”

The news comes as a major surprise and is the first sign that the credit crunch – which was sparked when the City’s banks stopped lending to each other in the financial markets, leading to a rise in their own borrowing costs – is hitting British homes.
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The economy could suffer a “Christmas crunch”, with consumer spending plummeting as a result of ballooning mortgage bills. That in turn have a knock-on effect on the wider economy, experts said. The longer the upheaval continues, they added, the higher the risk for jobs, wages and profits.

They added that with hard-pressed families more likely to default on their loans, mortgage lenders are now more liable to repossess people’s homes.

Although the Bank of England’s official rates are still at 5.75 per cent, the average standard variable rate (SVR) paid by millions of households rose by almost a quarter percentage point to 7.69 per cent last month. This is the highest level since the end of 1998, when the official interest rate was a full percentage point higher than now at 6.75 per cent.

The unexpected jump in mortgage costs will cause further misery for the million households expected to renew their home loan in the coming months. These families on two- and five-year fixed deals have been shielded from rate increases, but face a rise in their costs of more than 30 per cent when they renegotiate this autumn at much higher rates.

“A substantial number of homeowners will see their mortgage bills rise markedly during the latter months of the year as the cheap fixed-rates that they took out two years ago expire,” said Howard Archer, of Global Insight, the financial analysts. “Meanwhile, the higher money market interest rates resulting from the current financial market turmoil means that some mortgage rates are set to rise.”

He also predicted that the recent problems could push house price growth down “sharply”.

Some experts have said the financial market crisis of 2007 ranks with those experienced in 1998, when Russia defaulted on its debt and caused worldwide chaos, and in 1987, when stock markets crashed dramatically on Black Monday.

The problems started in the City’s complex money markets, where banks lend to each other – one of the most important parts of the financial system. Fearing that one of their number could be in financial trouble, the banks have effectively stopped lending money to each other. This has pushed up the borrowing costs they face and they are now passing these on to customers.

George Buckley, the chief UK economist at Deutsche Bank, said the increases could “potentially constrain consumption in the run-up to the all-important Christmas period”.

In the past five years, 2.3 million households have taken out mortgages at the SVR. In 2004, SVRs represented almost a third of all new mortgages, although the proportion has fallen since.

With the average SVR having increased from 6.4 per cent in the past year alone, a family with a �100,000 mortgage will now be paying an average of �108 more in interest each month, or �1,290 a year.

Ray Boulger, of mortgage advisers Charcol, confirmed Abbey planned to increase its tracker mortgage rates for new customers today. He added: “Once you get one mortgage lender doing this the others who have been holding off so far are likely to follow suit.”

As well as raising their costs, lenders are showing less patience towards borrowers who fail to keep up with their regular payments, experts have found.

The Council of Mortgage Lenders (CML) said recently that there had been a 30 per cent rise in repossessions in the past year.

David Owen, the chief European economist at Dresdner Kleinwort, said: “Lenders are giving far less of a grace period to borrowers than ever before. If you are considered a more risky proposition, you are more likely than previously to lose the house.”

From the BBC:
UK interest rates kept at 5.75%

Inflation is below the Bank of England’s target rate
The Bank of England’s interest rate-setting committee has kept the cost of borrowing unchanged at 5.75%.

But unusually, the Monetary Policy Committee (MPC) released a statement with its decision – a move which more usually accompanies a change in rates.

The statement made clear that the MPC had considered the effects that the recent credit crunch could have on the rate of inflation.

Inflation currently stands at 1.9%, which is below the target of 2.0%.

Rates have not risen since July, but that was the fifth rise in 12 months.

Graph of interest rate changes

Earlier in the year, many economists had predicted that rates would rise to 6% by the end of 2007, but the current problems in financial markets are making that less likely.

“It is too soon to tell how far the disruption in financial markets will impair the availability of credit to companies and households,” the MPC statement said.

Credit crunch

Any movement in interest rates would also have been surprising after the Bank of England took steps on Wednesday to help out banks that have found themselves short of cash.

The credit crunch was sparked by the crisis in the US sub-prime mortgage sector, caused by record levels of defaults in the face of higher American interest rates.

Sub-prime mortgages are offered to people with inferior credit records or those on low incomes.

The sub-prime problems spread to the wider global loans market as banks, which were exposed to sub-prime debt, become far more cautious about whom they lent money to.

‘Not enough’

With banks less willing to lend money, market interest rates have been rising, which makes a Bank of England rate rise less necessary.

The British Chambers of Commerce said that the MPC needs to go further than just keeping rates on hold.

“Simply keeping rates on hold today is not enough, if the decision is interpreted as a mere short-lived postponement,” said its economic adviser David Kern.

“The MPC must acknowledge that further interest rate increases should now be off the agenda, at least for the time being.”

Research by price comparison site Moneysupermarket, found 14 per cent of homeowners believed they would have to remortgage their home if a further rise in interest rates meant saw their mortgage repayments rise to £50 per month.

Experts have warned many people may be forced to remortgage their homes, if predicted interest rate hikes are put in place in the coming weeks.

The survey also found that if monthly repayments increased to £100, a staggering 40 per cent of homeowners said they would have to refinance their loan.

Louise Cuming, Moneysupermarket’s head of Mortgages said the “looming rate rise” was of “grave concern”.

“We feel it could even be a 0.5 per cent rise, which, according to the survey results will drive an alarming number of people into financial difficulty.

“Assuming the May rate rise is 0.5 per cent, many borrowers will have their mortgage repayments rise by 1.25 per cent over the last 12 months – an increase of £156 a month, or £1,875 a year,” she said.

“Homeowners on a £150,000 interest-only tracker mortgage face additional costs of £750 per year, or £62.50 per month, for every 0.5 per cent that interest rates rise.

Some people in the industry fear that interest rates could rise to as much as 17% by 2009, making the property crash of the late 1980s seem like a minor tremor in comparison.

interest rates rise fears