Bank holds rates despite sign of fall in house prices - Times Online

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.

By ROSEMARY GALLAGHER

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

A guide to affordable housing schemes - Times Online

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.
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