Banks still holding back mortgages

Published on Saturday 5 September 2009 13:46

THE first salvoes in a new home-loan price war were fired last week when HSBC launched a groundbreaking 1.99 per cent mortgage deal. Competitors are expected to follow with an autumn mortgage bonanza, or risk being blamed for preventing a housing market recovery.

Banks' lending strategies for 2009 will come under scrutiny at the end of this year, after suffering 12 months of pressure from politicians to increase advances to families. If evidence emerges that lenders deliberately withheld finance, they will face tough questioning, particularly those institutions owned in part or wholly by taxpayers.

Yet banks granted just 194,000 loans for the first six months of the year, compared with 516,000 for all of 2008. This figure was half the long-running average of the previous decade. Bank of England data confirmed lending to consumers has tumbled for the first time since records began in 1993. Shoppers borrowed 600 million less in July, with mortgage lending down 400m.

Catastrophically low lending figures are triggering accusations that the mortgage industry is being controlled like a cartel by just five institutions, which account for three-quarters of all home loans. The two state-rescued institutions, Lloyds Banking Group and Royal Bank of Scotland, dominate the scene, dwarfing the market share of the three other giants, Santander, Nationwide and Barclays.

Concerns are rife that these banks have an overwhelming and distorting influence on lending, hence the property market and the thousands of jobs in related industries.

To counter attacks, lenders will have to boost their lending significantly over the remaining months of the year, even to begin to match last year's dismal performance, which means they must grant 53,600 loans on average each month for the rest of the year, or 60,000 in the next few months, as lending virtually stops in December.

The only way to achieve this level of business is to make their loans more attractive and more easily available. HSBC has seen a decline in mortgage applications in the first six months of the year, which motivated it to improve its mortgage range. A spokesman said: "We have seen applications for remortgages, in particular, decline. We have a certain amount of money we want to lend, so we cut the price to encourage applications."

However, only borrowers with a significant deposit will benefit from its lowest price. To qualify for a rate of 1.99 per cent, which comes with a 1,199 arrangement fee, you must be able to put down a 40 per cent deposit. Furthermore, it is a variable rate discounted loan, which means the rate will go up in line not with the base rate, but with HSBC's own mortgage standard. The rate rises to 2.49 per cent with a 25 per cent deposit and 3.89 per cent with a 10 per cent deposit.

Elsewhere, Woolwich trimmed 0.2 per cent off its two-year fixes, which now start at 4.09 per cent with a 999 fee, or 4.19 per cent with a 499 fee, while Halifax and Cheltenham & Gloucester have also wiped 0.2 per cent off a range of two and three-year fixed deals.

But financial advisers warn they have yet to see any improvement in availability of mortgage finance, claiming lenders are placing more hurdles for borrowers to jump before approving applications.

Edinburgh broker John Postlethwaite at PSFM said: "The fall in lending is partly due to restrictions imposed by the banks, but there is also a sea change in customers' mindset. They are more cautious about taking on personal debt."

Darren Cook, of Moneyfacts, believes banks are acting in concert, but not necessarily out of a desire to fix the price. He argues: "No-one, apart from HSBC, wants to stick their head above the parapet, because they are frightened of being swamped with business they cannot handle."

Richard Morea of brokers L&C advises borrowers not to get too hung up over the rate. He said: "When you look at what a loan is costing each month, there are cracking deals if you can put down 25 per cent. Unfortunately, with smaller deposits, the price does grow, and you face a 50 per cent premium for the higher risk."

However, fixed rate loans are currently higher than variable deals, because lenders have yet to respond to falling swap rates. The cheapest fixes currently begin at around 3.49 per cent for two years.

'Buying our home was cheaper than renting'

AS FIRST-time buyers, Edinburgh couple Ben Ingle and Helen Bain were surprised at how easy they found buying their tenement flat in Leith Links, writes Teresa Hunter.

Architect Ben said: "We knew the mortgage market was difficult, so we weren't sure how it would go. But we found a flat and got a mortgage straight away. There were no hiccoughs at all along the way."

But Ben and Helen consider themselves lucky. Ben said: "We feel very grateful to have got through it all so smoothly. We fully appreciate that if you can get a mortgage it is a very good time to buy."

Part of the secret of their success is they had managed to save for a deposit, so had a reasonable sum to put down on their first property.

They completed in August and are currently getting the flat just how they want it, putting in a new bathroom, kitchen and generally redecorating.

And better still, their new home will save them money. Ben says: "We were renting in Leith and liked the area, so we wanted somewhere close. When we found the flat we realised that buying was going to be cheaper than renting, which was another attraction. We had a new home, which was not only to be an investment but would also be cheaper than our rent."

The process was painless, taking only a couple of months. Ben said: "We used brokers at L&C to find my loan, and they sorted us with an Abbey fixed for three years at just over 4 per cent, which we thought wasn't too bad."