Maybe a bit too late for some people but this short video clip explains the global credit crisis brilliantly.
BEXHILL-BASED mortgage broker Eastbourne Financial Services Ltd is at the centre of a suspected Â£40m fraud investigation. Officers from the City of London Police arrested eight people in connection with the probe into fraud affecting mortgages taken out on more than 500 properties in the South of England between 2005-2007.
The seven men and one woman arrested are between 29 and 59-years-old and were arrested on suspicion of conspiracy to defraud and money laundering.
The Company is currently in liquidation and no longer authorised by the FSA. The City of London Police action followed a referral from the FSA, which has been closely involved in the investigation. The compnay specialised in subprime, buy to let and non conforming mortgages.
The Bank of England yesterday agreed to make everyone on a tracker mortgage richer by reducing the base rates again. This time the base rate was reduced by 0.5% bringing it to an all time low of 0.5%.
This rate cut will benefit everyone on a tracker or discount mortgage which tracks the bank of england base rate. Research show that only about one quarter of all mortgage holders will benefit from the rate cut. I guess I fall into that category. I secured a deal which is 0.95% below the base rate, which should mean that the bank will be paying me interest on my loan. Well I wont hold my breath on that!
Most investors who bought in the last two years will have bought using tracker mortgages or fixed rate mortgages that will be coming of the fixed rate now, or very soon. This is good news too as the mortgages will switch to the lenders SVR (standard variable rate) which is usually base rate plus 2% which will now be a stupidly low 2.5%. So as capital values tumble at least investors will have much improved cashflow.
The Royal Bank of Scotland lost a record Â£24 Billion last year, I’m sure most people should have heard that by now. This is the biggest loss in UK corporate history.
The man behind it all Fred Goodwin is still to recieve his Â£650k per year pension as a well done pat on the back. This is simply disgraceful, if any employee of a company caused losses of hundreds or even thousands they would be severly repremanded. Possibly even losing their job. But if you are a senior director of a bank you get a pat on the back!
Senior directors of big British companies are almost never sacked, no matter how badly they perform. Some may think that such custom-and-practice is obscenely favourable to incompetent chief executives, but that’s just how it is.
here’s a joke I heard on the radio:
Whats the difference between a bank and a computer?
**when the bank crashes you can’t fix it with ctrl-alt-delete**
Some say mr. goodwin should lose his pension or at least have it severly reduced due to the performance of the bank. Where is the incentive to do well if with Â£24billion lossess you still get such a huge pension?
The Bank of England’s Monetary Policy Committee voted today to reduce the official Bank Rate to 1 percent. Thats the fifth rate cut in a row as the UK recession takes its toll. The rate cut is good news for borrowers and struggling businesses with existing loans. Savers are hit again though as the interest recieved on money in the bank goes down yet again.
I welcome the rate cuts as the interest I pay mortgages of mine seem to be getting lower and lower in the last few months. One of my mortgages with BMS is at 0.95% below base. Thats at an amazing 0.05% of interest. I think my monthly payments will probably be in the region of Â£50 a month, thats almost too good to be true! I’m also curious as to what will happen if the base rate drops again to lets say 0% then the interest on my mortgage would in theory be – 0.95% Would BMS then actually pay me every month instead?? That would be very nice!
The struggling bank may see as much as 10 billion pounds of cash from the government to ramp up mortgage lending. The Treasury has yet to make a final decision, which may also see the bank hiring new staff. Spokesmen for the Treasury and Northern Rock, which is due to unveil a new business plan in the next few weeks, could not immediately be reached for comment.
Northern Rock the first British casualty of the credit crunch, revealed that it had been forced to seek emergency support from the Bank of England in September 2007. The bank has been nationalized since early 2008 after attempts to find a private sector buyer fell through. Northern Rock has been shrinking its mortgage book and focusing on repaying a government loan since its nationalisation.
5 billion pounds of new equity would allow Northern Rock to write about 50 billion pounds of new lending, providing the capital is not eroded by bad debts. Could this be what the UK housing market is waiting for?
If Northern Rock offer sensible loans at resonable interest rates it could just be what the UK public needs.
The Government now has a Â£200m package of measures designed to prevent some of the most vulnerable families losing their homes due to repossession. The government scheme subject to a range of eligibility criteria is aimed at households who are eligible for homelessness assistance. In the scheme housing association will be able to buy part or all of the struggling homeowners home. The owners will then be able to stay on as a tenant at a reduced rent.
Does this sound familiar to you? I think the government has decided to offer its own Sell and Rent Back scheme to struggling homeowners. Using tax payers money of course!
To what extent will the government be able to help? well lets look at the amount involved Â£200m. With the 200m they reckon they will be able to help 6,000 homes avoid repossessions across England. his may seem like a large number, but compared to the ammount of yearly repossessions, this figure is but a drop in the ocean. In 2007, 27,000 homes were repossessed by their lenders as the homeoweners could not afford to pay their mortgages. This figure rose to 45,000 in 2008. This year the number of repossession will be set to rise 75,000 (CML estimate) as the recession takes its toll. 6,000 homes saved will only therefore be 8% of homeowners that will be able to benefit from the new scheme. What about all the other 92% of homeowners who face repossession?
Will this be opportunity for the investor with private sale and rent back schemes? I think so, but any investor getting involved in rental properties will have to be cash rich as most buy to let mortgages now require at least 25% deposit.
Is this another sign of the credit crunch?
During May Birmingham Midshires added a note to their mortgage book with the CML (Council of Mortgage Lenders)
5.1.1- Contact point if the seller has owned the property for less than 6 months.
Completions Team at office issuing mortgage instructions. See Offer for contact details.
NB We will not normally proceed on cases where the property is already owned by the borrower but for less than 6 months.
Applications which involve assignable contracts are not acceptable.
Assignable contracts, used heavily by some investors are no longer allowed by BMS. An assignable contract allows an investor to exchange contracts on a property, but sell his contract on to another investor, without buying the property. The new investor would just raise the funds and mortgage in the normal way and complete the sale.
This is a sign that BMS are becoming more and more tight with their mortgage lending. I wonder how long it will be before other lenders follow suit.
Whilst I was away I was informed that Mortgage Express, one of my favourite mortgage lenders had overnight pulled the plug on their instant remortgage product. Mortgage Express were the only major mortgage company to allow an investor to remortgage their property before owning it for 6 months. An instant remortgage product allows investors to remortgage a property to 85% of its surveyed market value. This is regardless of purchase price.
For example if you purchased a house for 60k and the surveyor agreed that the property is actually worth 100k the bank (mortgage express in this case) would lend you 85k as a remortgage on the day of completion. All you had to do would be to buy with 60k cash then the next day you would be given it back plus an extra 25k.
Of course not everybody has 60k in cash sat in the bank, this created a need for bridging loans companies to lend the cash to purchase the property for 1 day creating easy NMD (no money down) purchases. This market was very competitive with companies charging Â£500 to lend you up to 200k for one day. These bridging loans companies are not required as there is no decent provider for instant remortgages.
There are of course other companies who will do instant remortgages such as Natwest and The Bank of Ireland, but reports from other investors indicate that they are slow to offer and their rates are completely rubbish. Are there other ways to buy property NMD?
In the last 2 weeks or so ALL UK banks and lending institutions that I and my fellow investors use seem to have tightened their belts and repriced their mortgage products. Fixed rates have gone up as well as variable tracker rates. Arrangement fees are also still stupidly high.
Even though UK Interest rates have recently come down or stayed the same for the last few months. These latest lending rate hikes are definitely a result of the US credit crunch and is a result of less money being available to the banks to lend out.
BMS fixed rate products have gone from 3 year 5.09% rates to 2 year 5.54% rates with heafty arrangement fees of 2.5% of the loan amount (even this poor rate has today been pulled in favour of possibly an even worse product).
Mortgage Express who do instant remortgages for investors have repriced their 2 year fixed rates at 6.09% making most deals not possible for investors who need the instant remortgage product.
As it is now harder for borrowers to get decent mortgages to buy homes, this will directly reduce the ammount of sales as people cannot buy the homes they want to at todays price. The rate hikes mean that affordability will be reduced. This may in turn bring a downturn in the market. I’m a little worried are you?