A growing number of mortgage lenders are restricting home loans to customers outside certain geographic areas or are capping the maximum amounts homeowners can borrow at £350,000 as the credit squeeze intensifies.

Nationwide, one of the UK’s biggest lenders, has said that it will stop lending to first-time buyers who want to take out selfcertified mortgages where proof of income is not required. It is also stopping lending to all first-time buy-to-let landlords.

In addition Nationwide, which lends to these specialist segments through its two divisions Mortgage Works and UCB, is capping the maximum it will lend to any borrower taking out selfcertified mortgages to £350,000.

FT.com / Companies / Financial services – Borrowers face caps on loans

Why is the outlook suddenly more gloomy?

The sudden demise of Bear Stearns has revealed that the credit crunch crisis is deeper and more damaging than was previously thought. The emergency takeover of this US bank has caused UK banks to grow even more nervous than before. For the past six months they have been withdrawing mortgage deals. But now they are becoming even less willing to lend. Estate agents report that creditworthy potential homebuyers are being excluded from those loans still on offer. The latest worries have ruled out an early end to this troubling scenario.

Are all borrowers affected?

Securing a home loan is now much harder and more costly for all buyers – even those who have had no problems in the past. The supply of credit has dried up most quickly for first-time buyers, with lenders now channelling their funds into remortgages. So if you have substantial equity in your home, you might have better luck securing a good deal.

After years of good deals on home loans, David Miles, an economist at Morgan Stanley, says that lenders are charging according to what it costs them to borrow – not the base rate. Do not rely on any savings being passed on to you if the Bank of England cuts rates.

What about buy-to-let investors?

Loans for amateur investors are in short supply but more experienced landlords who have built up strong portfolios can more easily get loans to snap up a property. Their enthusiasm is bolstered by rising rents – up 9 per cent last year, according to Hometrack – as more potential buyers wait. Michael Coogan, the director-general of the CML, predicts that buy-to-let could outperform the owner-occupier market. Fionnuala Earley, of Nationwide, counsels against expecting a sell-out in the sector – more bad news for buyers hoping for bargains.

What will be the effect of all this?

Experts say that the biggest casualty will be the number of sales as uncertain homeowners stay put. Richard Donnell, of Hometrack, expects only 1 million transactions this year – a rate that would have people moving once every 25 years, rather than the typical seven years.

But there are disturbing signs that some owners may be soon forced to move: Citizens Advice says this week that the number of inquiries from householders struggling with their loans is up 35 per cent this year.

Will property prices slump?

Signs that prices are taking a hit are increasing: Nationwide says that prices have dropped four months in a row, Hometrack says five. The agents Hamptons International and John D.Wood report prices down 10 per cent in London. And there may be more pain ahead. David Miles, of Morgan Stanley, says that futures traders expect a 14 per cent fall in house prices over the next two years – or 20 per cent in real terms, once inflation has been accounted for.

But is the prime sector powering on?

Not any more. Just months ago expensive homes were confounding the rest of the market, but the latest figures from Savills show that prices dropped 1.5 per cent in the first quarter of this year. The worst hit are homes that most appeal to those in the City, those priced from about £1million to £2 million, which fell 2.7 per cent.

So bargains must be emerging?

Some homes are selling at knock-down prices in auction rooms, particularly unpopular new-build flats. And some owners who need to sell are prepared to take offers. But Rightmove is again reporting a rise in asking prices. All this means is that homes are lingering unsold on the market.

Can we hope for a quick recovery?

Agents had been hoping that this year’s early Easter would revive the property market – and there were some signs in recent Hometrack data of more interest from buyers. Hamptons International said that, after a difficult few months, applicant levels had improved. But observers who had been predicting a relatively quick resolution of the problems seem to be disappointed. David Salvi, of Hurford Salvi Carr, believes that it will be spring 2009 before the market recovers; Liam Bailey, the head of residential research at Knight Frank, believes we may be waiting until 2010 for the turnaround.

Are there any safe havens?

Agents are reporting a return to more traditional markets: houses without obvious flaws will hold their value best. Savills is selling The Priory, a five-bedroom, 18th-century country home, in Denham Village, Buckinghamshire, for £3.5 million (01494 731950). With access to good schools and in a conservation zone just half a mile from the M40 and two miles from the station and Tube, this kind of home has a good chance of holding its value.

Richard Donnell, of Hometrack, says that if he had a deposit of £200,000, he would buy a three-bed home in southeast London for about £350,000. By renovating it to create five bedsits, he could bring in £54,000 in rent – £30,000 more than the unconverted house.

Any other good news?

Developers are finding it tricky to get finance.This means that the number of new homes being built is falling – Hometrack says that the number is down 10per cent in 18 months. This will frustrate the Government’s plans for 3 million new homes by 2020, but a shortage of supply should provide some support for prices.

And Cantor Spreadfair, which reported in December that spreadbetters were predicting UK house prices would slide to an average £169,000 by 2010, now says that their clients are making much more bullish bets, proof that not all signs in the property market are gloomy.

WHAT THE AGENTS SAY

It’s like the shoot-out at the OK Corral as sellers struggle to understand that the days of bullish prices are behind them, and buyers remain determined to get a bargain

ROBERT GODFREY, BIDWELLS, NORTHAMPTON

It is no longer a case of one or two quarters of price falls with values bouncing back shortly after

LUCIAN COOK, DIRECTOR OF RESEARCH, SAVILLS

The jobs market in the City is the new driving force in the property market. We are six months into a downturn and into a spiral that will not be easy to get out of

DAVID SALVI, FOUNDER OF HURFORD SALVI CARR

The rental market will be affected by the events at Bear Stearns. Most American bankers come here for short-term contracts and rent. But there are buyers coming from the East. Every time you lose a couple of Americans there will be an Indian or a Russian to take their place

ED MEAD, DOUGLAS & GORDON, WEST LONDON

There are as many gainers as losers when house prices fall. The quick way that first-time buyers can be helped onto the market is if house prices fall.

DAVID MILES, ECONOMIST, MORGAN STANLEY

London will now underperform the UK this year. We are expecting a fall of 2 per cent across the UK and one of 3 per cent to 3.5 per cent in London

RICHARD SNOOK, ECONOMIST, CENTRE FOR ECONOMIC AND BUSINESS RESEARCH

Interviews by Judith Heywood, Lucy Alexander, Lorna Blackwood and Kasia Maciejowska What Bear Stearns and the credit crunch means for your property – Times Online

March 11 (Bloomberg) — U.K. banks raised the cost of borrowing for homebuyers with the smallest deposits to a seven- year high, declining to pass on two interest-rate cuts by the Bank of England.

The average rate offered by lenders on loans for 95 percent of the price of a property, fixed for 24 months, rose to 6.55 percent, the highest since September 2000, the central bank said today on its Web site. The cost fell for mortgages worth 75 percent of the value of a home.

Banks have been reassessing the credit risk of their loan books after reporting losses and writedowns totaling almost $190 billion stemming from the collapse of the U.S. subprime mortgage market. Today’s data suggest that lenders are making it harder for consumers buying their first property, who typically have smaller savings to invest, to afford a home.

“Banks are clearly now engaged in more active risk- pricing,” George Buckley, chief U.K. economist at Deutsche Bank AG in London, said in a note. “Riskier borrowers are failing to benefit from the fall in policy rate expectations.”

While the Bank of England cut the benchmark interest rate twice since December to 5.25 percent, banks have been reluctant to pass on the reductions in full. They have also curbed the number of loans on offer, with mortgage approvals in January staying close to the lowest in nine years.

The average rate on a mortgage for 75 percent of the price of a property, fixed for two years, fell to 5.76 percent in February from 5.97 percent the previous month, still less than the quarter-point cut in the benchmark on Feb. 7, the central bank’s data showed.

Separate data today show average first-time homebuyers had larger deposits and borrowed smaller loans in proportion to their incomes in January than in December, in another sign that banks are tightening lending standards.

First-time buyers took out mortgages at 88 percent of the property’s value and 3.32 times their salary, compared with 90 percent of the price at an income multiple of 3.38 percent the previous month, the Council for Mortgage Lenders said today.

Bloomberg.com: U.K. & Ireland

However, some experts predict that tightening of lending criteria by mortgage lenders could exacerbate the slide in prices. Banks and building societies, which are finding it increasingly difficult to secure funding for new mortgages in the wake of the credit crunch, have become much more careful about home-loan deals.

Last week Cheltenham & Gloucester stopped offering mortgage deals to home buyers lacking a 10 per cent deposit. Alliance & Leicester and Britannia Building Society have a similar policy.

Lenders, in order to boost margins, have also been raising the interest rates they charge. Abbey is set to raise rates on its fixed-rate deals by up to 0.2 percentage points from Monday despite the Bank’s decision to keep rates on hold yesterday.

Howard Archer, of Global Insight, an economics consultancy, said: “The housing market clearly remains under substantial pressure from elevated affordability constraints and tighter lending practices.”

Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyors, said: “We see little reason for this pattern to be reversed in the near term. Indeed, survey evidence suggesting that companies may be starting to cut back on recruitment could exacerbate the weakness in property prices over the coming months.”

Figures this week from the Recruitment and Employment Confederation and KPMG, the accountant, showed that the number of permanent staff recruited by companies fell last month for the first time in nearly five years.

Nationwide Building Society has already said that house prices fell last month for a fourth month in succession, dropping by 0.5 per cent.

1. WHAT IS A MORTGAGE?
A mortgage is a loan, usually from a bank, building society or finance company, to help you buy your home. You have to pay back everything you borrow from your lender within an agreed time – the mortgage term. You also have to pay interest on what you have borrowed. It is “secured” against the property, which means the lender could repossess your home if you fall behind on payments.

2. FIXED-RATE MORTGAGES
The main benefit of a fixed-rate mortgage is payment security. You know exactly what you will be repaying each month for the agreed term – usually two, three or five years, but some lenders offer 25-year fixes. Whatever happens to interest rates and the economy, your monthly mortgage payments won’t change. A fixed-rate can be a good option for first-time buyers who don’t want any payment shocks.

The disadvantage is that you won’t benefit if the Bank of England reduces the base rate.

3. VARIABLE MORTGAGES
These are based on the lender’s “standard variable rate”. They usually follow the Bank base rate but this is at the discretion of the lender. Following recent base rate cuts, not all lenders have followed suit. But a tracker rate will follow the movement of the base rate.

4. REPAYMENT MORTGAGES
You pay back some of the capital as well as interest on the amount still outstanding each month. As long as you keep up your payments, your mortgage is guaranteed to be paid off at the end of the loan term, which means it is the least risky option.

5. INTEREST-ONLY MORTGAGES
Borrowers pay the interest on the loan, but don’t repay any of the capital until the end of the term. Many people hope enough equity will build up in their home to pay off the capital, but given the fact that house-price growth is slowing, it is recommended that a savings vehicle is in place. For example, you could pay into an individual savings account (Isa); an endowment (these have fallen from popularity because of poor returns) or a pension scheme.

6. SELF-CERTIFICATION
Self-certification mortgages are primarily for self-employed people, contract workers and freelancers who cannot provide typical proof of income, such as pay slips, from their employer. They allow people to state their own income. Such mortgages have recently become less readily available, as lenders have become stricter. There were fears “self-cert” loans were being used by people trying to get a bigger mortgage than they would rightly be entitled to, by falsely inflating their salary.

7. SUBPRIME MORTGAGES
These are loans for people who have poor credit ratings – perhaps they have been in arrears on a loan or defaulted on a mortgage before. They tend to come with higher rates and fees than mainstream mortgages. These are now in limited supply because of the subprime crisis in the US, where lending policies had become too liberal.

8. SOLICITOR

In Scotland, a solicitor plays a vital role in advising house buyers in an “offers over” situation. They will help people decide how much over the asking price they should offer. It is always essential to find out how much your solicitor will charge and what services they will offer you.

9. SURVEY
You will be required to have a survey done before the lender will make a mortgage offer. A survey is also important to protect your interests by identifying any possible problems with the property.

10. STAMP DUTY
This tax is paid when you buy a property over a certain value. Currently you pay the land tax on any property purchased for £125,000 or more.

Home and dry on the jargon – Scotsman.com Business

Tell me more about schemes that help people who can’t afford to buy. Do I need to be a key worker, for example?

Tens of thousands of first-time buyers from all sorts of backgrounds are taking advantage of affordable housing schemes. Although most schemes are aimed at key workers – nurses, teachers, firefighters and police officers – some are open to anyone with a steady job.

How do affordable housing schemes work?

The most widespread is the New Build HomeBuy scheme (also known as shared ownership). It is government-funded, and allows buyers to buy part of a newly built property, normally a share of between 25 and 75 per cent, by taking out a fixed-rate mortgage with an ordinary lender and paying a subsidised rent on the rest. The rent is pegged to inflation and is reviewed (and usually increased) annually. Most schemes will cap the rent at some point.

Can I buy a smaller chunk of the home?

With some providers and developments. Under its Your Place scheme, Genesis Housing Group offers a 3 per cent stake to renters at the Factory Quarter in East Acton, West London, after a three-year occupancy. Tenants can then buy stakes of up to 9 per cent of the value of their home.

Can I buy any property through a New Build HomeBuy scheme?

No. The programme applies only to newly built homes on certain developments. Planning laws require developers to devote a percentage of larger new schemes to affordable housing. This tranche, up to 50 per cent of a development in London, is owned and managed by a housing association that sells some of the homes to first-time buyers and may keep others for council tenants.

What if I don’t want to live in a new home?

The government-backed Open Market Homebuy scheme (also known as shared equity) allows you to buy a home of your choice with an “equity loan” that runs alongside a conventional mortgage. The schemes are operated by housing associations. The rules can be complex, differ with each deal and are prone to change. Housing Options, for example, is bringing out new products next month. At the moment its schemes allow you to take out an equity loan of 17.5 to 32.5 per cent of the value of the property. Larger equity loans are interest-free for five years, and the rate is then about 3per cent. The remaining mortgage can come from any high street lender if your equity loan is small. Those with larger loans may have to borrow the remainder under special deals from the Halifax, Nationwide, Advantage (a Morgan Stanley company) or Yorkshire Building Society. The rate on the Nationwide’s Homebuy deal is 1 per cent over the Bank of England base rate, so you would currently pay 6.25 per cent.

Will I be able to own my home eventually if I buy through these schemes?

Under the New Build HomeBuy schemes, you can buy additional shares until you own all the property. This is known as “staircasing”.

What about selling the property on?

You can sell on the open market if you own 100 per cent of the property. Otherwise, your buyer is nominated by the housing association. If prices rise you will get more for your percentage stake but you will take a hit if they fall.

But will I qualify?

The rules vary, as some schemes are offered by local authorities and some by housing associations. Many schemes still help only key workers, but an increasing number give a helping hand to buyers from all walks of life. In London, you could be earning up to £52,500 a year and still be eligible. Most housing associations require buyers to have a permanent job and a few thousand in savings to cover solicitors’ fees, mortgage fees and stamp duty. Priority is often given to those who live locally and are on the council’s housing list. Some local authorities run a separate home ownership list. To improve your chances, try to get on both. Do not expect to qualify if you are struggling with debt, your rent is in arrears or if you have breached your current tenancy agreement.

How do I find out more?

Contact your local council or go direct to a housing association. In London, visit the Housing Options website, www.housingoptions.co.uk, which has schemes from two large housing associations – Tower Homes and Metropolitan Home Ownership.

Also try Notting Hill Housing (www.nottinghillhousing.org.uk), Genesis Housing Group (www.genesishomes.org.uk) and London & Quadrant (L&Q) Housing Association (www.lqgroup.org.uk).

Buyers in Kent, Sussex, Essex, Surrey, Buckinghamshire and Oxfordshire can try the HomeBuy website (www.homebuy.co.uk) which features homes from Moat, Thames Valley Housing Association and Catalyst Housing Group. Buyers in Merseyside should look at www.homeshub.co.uk.

THE RULES

HomeBuy is the Government’s name for its affordable housing system. New Build HomeBuy and Open Market HomeBuy are open to key workers and to first-time buyers who satisfy the regional rules shown on our map, above. Social HomeBuy is open to council tenants. Here is how the various schemes work:

New Build HomeBuy

First-time buyers can buy a share of 25 per cent or more of a newly built home. A housing association or housebuilder will own the remaining percentage. The first-time buyer then pays rent on the percentage that he or she does not own, which can be up to 3 per cent per year of the property’s remaining value. Buyers can increase their share over time (“staircasing”).

Open Market HomeBuy

1. Private lenders scheme

First-time buyers are normally expected to pay (with a mortgage) for about 75 per cent of a home that is for sale on the open market. One of the following lending companies – Halifax, Advantage, Nationwide or Yorkshire Building Society – will offer an interest-free loan for 12.5 per cent of the property’s value, alongside the regular mortgage that you will take out. An interest-free government loan of up to 12.5 per cent of the property’s value will complete the deal. No interest is charged on either of the loans for the first five years. After five years, interest of up to 3 per cent per year of the lender’s loan will be charged. After ten years, interest of up to – but not exceeding – the lender’s standard variable rate will be charged. Both loans must be paid back if the buyer sells the home.

2. Government-only scheme

The Government will lend first-time buyers up to 17.5 per cent of a property’s value. This can be used alongside a regular mortgage or another deposit that the first-time buyer may have. There is no charge or interest on the loan, but the purchaser will share any increase in the property’s value with the Government when they pay it back. The loan must be paid back if the first-time buyer sells the home.

Both Open Market schemes are administered through a HomeBuy agent, or a housing association that acts for the Government. If buyers decide to sell, they must have a valuation by a HomeBuy agent. Also, if they want to re-mortgage with a different lender, they need a HomeBuy agent’s permission. Often, if they want to sell, the HomeBuy agent will nominate the buyer.

Social HomeBuy

This scheme allows council tenants to buy a share in their rented home. It is aimed at council tenants whose landlords do not participate in the right to buy or right to acquire schemes or council tenants who cannot afford to participate in these schemes. It works in the same way as New Build HomeBuy, with the tenant buying 25 per cent or more of the property and the landlord retaining ownership of the remainder.

Taking a home improvement loan is not a waste of money or luxury because it improves the equity of the house – the value of the property in the market.

The first thing the applicant should notice is the rate of interest. It must suit the income. Next come other points like repayment terms, options and other factors. The need of one borrower differs from that of another. Thus before deciding on a lender all these angles require attention.

In today’s world the loan market is buzzing with activity. There are many lenders in this line of business and they are keen to woo borrowers. Thus the best thing is to go online and click on various sites to find out the best options. In the age of the Internet one can do it in the comfort of the house. The search should start with renowned banks and other financial houses. No commitment should be made hastily without analyzing how much one requires, repayment capacity and what terms are available in the market. The loan officer is the best person to give advice about credit ratings. The loans should be carefully taken so that credit ratings do not suffer but improve.

Home improvement loan is the best for those offering a security or collateral. It may be the house in question. The interest rate is lowered, as the lender does not have to take a risk. The terms are also flexible. Home improvement loan is also available for those who do not wish to offer security. The interest will be relatively higher.

To give the warmth of a home to your house the fires have to be constantly stoked for which logs have to be added. It will add to the ambience and warmth of your nest. Today logs interpret into finance. Instead of gathering twigs and down from the forest one has to brave the lanes and by lanes of financial markets and get a loan. The best loan for giving a brand new look to your home is a home improvement equity loan.

Equity is the current rating of the house after deducting any debts that have taken against it or by keeping it as security. As the gap widens between the market value and the house value the equity builds up. So the equity grows either when the mortgage is repaid or when the market value increases Home improvement equity loans allows the applicant up to 125% of the equity value of the property.

There are two kinds of home improvement equity loans – the standard and the line of credit

In the standard home improvement equity loan the applicant will be sanctioned a lump sum amount. This is for those who want to spend at one time. The repayment terms are simple and there is an assurance that rate of payment will not increase.

The line of credit type of home improvement equity loan is a sort of credit card or can be used as one. There is a limit to the amount that one can borrow. Interest will have to be paid on that which is borrowed. This allows the borrower to tackle on going expenses and sundry needs.

Both the types offer many advantages over other categories of loans. Comparatively the interest is much lower than credit cards and personal loans. Secondly like the first mortgage these loans have tax benefits. The tax advisor will be the best person to contact about the details.

Usually lenders are generous and do not fix limits to the amount that can be borrowed under the scheme of home improvement equity loan. But it must be within the parameters of building improvement requirements. The work can be done by the owner or with the help of a contractor.

Before applying for the loan the borrower is advised to do some digging and find out more about lenders who are in this market.

If you are worried about whether or not you can pay off your credit card bills this month, you might want to think about taking out a loan to help ease the burden a little bit. You can apply for either a secured or an unsecured loan, either of which could help you out a great deal in the start of the year.

A secured loan is a loan in which you put your home up as collateral against the loan. Banks love these kinds of loans because they know that even if you default on your loan payments, they will be able to recoup their investment by seizing your house. They also love secured loans because more people pay back secured loans than unsecured loans, and as long as you have built up a little bit of equity on your home, a secured loan is often easier to get than an unsecured loan.

An unsecured loan is based solely on your credit history and if your credit history is not that great, you might have a harder time finding a lender willing to approve you for an unsecured loan. Of course you might be able to get a bad credit loan, which is an unsecured loan that charges a higher interest rate. More people default on unsecured loans (after all, they do not stand to lose as much as they do with a secured loan) so banks are vary wary about lending them out.

One type of unsecured loan you might think about getting is a new credit card that will let you transfer the balances of your other cards to it. This could end up saving you heaps of money in the long run as you will only be paying interest on one amount instead of several.

There are always options available if you need help paying off those winter holiday bills. If you are interested in applying for a loan, fill out the loan form offered by Spotloans and before very long, lenders who want your business will be contacting you!

If you are pressed for time and cannot wait around to see what the interest rates and housing prices are going to do in 2008, at least take a little bit of time to do some research.

Make sure that when you are talking to lenders about potential home mortgages and the various types of loans that you get a written quote. This quote will be a legal agreement between you and the lender and it means that, should you decide to do further business with that lender that they cannot change their prices around on you. Many lenders will tell you something and let you think that what they said to you works the same way as a written contract. Make them write down the numbers they are quoting you.

Also make sure to ask your potential lenders what they can do for you in the event that the interest rates and housing prices do end up dropping in 2008. This is a time when a variable rate loan looks the best. A variable rate on your loan means that if the national interest rate drops then your loan’s interest rate will drop as well. Ask every potential lender if they will grant you a variable rate or if, in the event that they insist on a fixed rate or a raised rate that their rate will decrease if the national rate decreases (you will want to get this in writing as well).

Most of the articles being published about bank rates and home values are saying that a drop in interest rates is on the horizon. The interest rates were already dropped by half of a point in December and, because the market has yet to begin to recover, they will be dropping again. If you can, try not to make any major financial decisions for another few months. This will give you time to do your research and collect your quotes and maybe even contact a few of your lender’s references.

You don’t want to end up paying too much on your loan do you? If you can be patient, it is likely that you will not have to!