I start my round up of this week’s papers with some startling statistics in MS . Over half of Britain’s young people are in debt by the time they reach the age of 17 and think overdrafts and credit cards are an easy way to spend more than they can afford, setting a pattern for the rest of their life. However research from Alliance and Leicester published in MI suggests overall borrowing trends are moving away from unsecured debt, while secured lending continues its rapid pace.
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CML figures
This leads me on to the coverage about first-time buyers (FTBs) and interest only mortgages – subjects in their own right but connected in many ways.
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MM highlights that the Council of Mortgage Lenders (CML) got its figures wrong for the growth in the number of interest only mortgages that do not have an evident repayment vehicle attached to them. Although it got the growth about right from 2005 to 2006 – around the 33 per cent mark – it was the true numbers that were underestimated. We are now looking at a rise from 184,000 to 243,000 over the past two years, which confirms why this has been the subject of FSA attention.
The CML’s figures show that almost a quarter of home movers and one in five FTBs choose to go down this route. Alison Beech of Rooftop highlights a lot of people electing to have interest-only mortgages as experiencing a double whammy – upgrading their home for extra space as a result of a new baby or a job change, disposable income is down and their mortgage payments up. But as Julian Wells of Mortgages plc says of his own interest only mortgage, it’s a lifestyle choice. Its up to the client and broker to work out the best time to switch to a repayment deal, with many borrowers being well informed about the implications.
In the dark
According to MI, FTBs are still in the dark about initiatives that can help them onto the housing ladder, such as shared ownership schemes. Indeed the research also highlighted that many parents did not understand the schemes and were not in a position to advise their children. In addition, FA reports the problems surrounding ‘mates mortgages’, where friends get together to buy a house. Research suggests the average annual cost of a mortgage has increased from £4,586 in 2001/02 to over £6,600 last year, a rise of 44 per cent. With 70 per cent of lenders only accepting the top two salaries, raising a mortgage to buy that first house is still a challenge.
Again in MI the government has committed itself to targeting 200,000 new properties a year by 2016, an increase in the number of social homes, and would-be home owners soon being able to put down just a 10 per cent stake to get onto the ladder. Experts think this increase is too small and have called for more flexibility.
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The buy-to-let front
On the buy-to-let front, Financial Advisor highlights a survey by New Star, which measured predictions on investments in 2006. Many investors turned towards residential buy to let as providing the best returns for their money, in fact according to the research it was actually 3rd behind commercial property and UK equities.
But with the upwards trend in residential buy to let business set to continue and builders turning their attention more towards smaller more cost effective properties, the love affair is not set to end. Indeed with increasingly attractive pricing and flexible lending policies in the market, it is difficult to see when this growth will end, especially as first time buyers find it harder to get onto the property ladder. Research in mortgage solutions (19/2) identifies that 40% of landlords investing in buy to let to provide for their pension, hence a greater demand.
Packagers
February’s edition of MD magazine has extensive coverage of the Packager Summit in Nice, an area of the market that’s close to my heart. It’s interesting how the view of packagers has changed, with The Mortgage Business (TMB) identifying how the market has grown by over 30 per cent in the two years since regulation came in to force. It suggests distribution through packagers could be as high as £30 billion, despite the claim from many industry experts that there would be no place for packagers following ‘Mortgage Day’. The Association of Mortgage Intermediaries (AMI) is moving to set up a standing committee in an attempt to better represent packagers and their business partners. Writing in MI, Kevin Duffy highlights how companies such as GMAC-RFC have embraced the packaging distributors and, by working collaboratively with them, have generated staggering growth.
Duffy’s article looks at the relationship between lenders and their broker distribution asking whether the gap between the supplier and the advisers who ship almost 70 per cent of their business has widened.
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Business volumes
Finally, AMI has highlighted in FA that mortgage volumes are set to slow down in the first quarter of this year and could continue to do so if rates rise again. Forecasts for growth in the year vary from Capital Economics prediction of just 3.5 per cent to double that from the CML at 7 per cent, the average settling at just over 5 per cent. AMI highlights higher unemployment and higher interest rates putting downward pressure on consumer borrowing, which will both have an impact on high street spending.
Its report suggests a positive increase for BTL as property prices increase and equity release remaining stable. We only have another 10 months of the year to see whether it is right.
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David Copland is sales and marketing director at Pink Home Loans
