ROOF Blog

The number of mortgages approved for house purchase fell for the third month in a row during February as the housing market continued to show signs of slowing down, figures revealed today. A total of 47,094 loans were approved for people buying a home during the month, 21% down on the recent peak reached in November last year, according to the Bank of England. However, the Bank’s figures also showed a rise in unsecured lending during the month, with consumers taking on more debt through credit cards, personal loans and other forms of credit than at any time for 15 months.

Thousands of households have taken out loans with interest rates averaging 825% during ‘the worst Christmas in a generation’ for illegal doorstep lending, according to a new report. ‘The Real Cost of Christmas’, commissioned by affordable housing provider Circle Anglia and written by the Financial Inclusion Centre, found that more than 100,000 of the UK’s poorest families will spend 2010 crippled with a combined debt of around £82m after borrowing money from loan sharks to pay for Christmas. The value of the loans is an estimated £29m, but average interest rates of 825% will mean that people end up paying nearly three times the initial amount they borrowed.

More than 1 million householders have used credit cards to pay their mortgage or rent in the last 12 months, a new survey by ROOF reveals today. Despite restrictions on credit and reports of many people paying off personal debt, an exclusive YouGov poll for ROOF magazine reveals a disturbing picture of over a million people taking desperate measures with credit cards to keep a roof over their head. The highest proportion of those who pay their rent or mortgage through credit card were from working class professions (8% of those in the C2DE social grouping), but the poll also showed that middle/upper class (ABC1 category) are falling victim, with 4% of respondents saying they use credit cards in this way.

The Bank of England’s monetary policy committee on Thursday voted to keep rates unchanged at 0.5 per cent and to continue with its £200bn quantitative easing programme as further signs of stabilisation emerged across the economy. The decision was widely expected, with the Bank having signalled it intends to make big decisions on monetary policy only when the forecasts in its quarterly inflation report are available. February, therefore, could see the first change in the Bank’s monetary stance since its November decision to increase the scale of quantitative easing –- which has taken the form of purchases mostly of government debt, funded by the creation of money – from £175bn to £200bn. With about £7bn left of that left, most economists expect the Bank to halt the programme, having already slowed the pace from £75bn every three months to £50bn earlier last year to £25bn in November.

The meltdown in the American housing market is not over yet, with experts warning that a rise in home foreclosures next year and in 2011 could undermine the chances of a sustained economic recovery in the United States.

The Obama administration has set aside $75 billion (£46 billion) under its homeowner bailout plan, known as the Home Affordable Modification Programme, to allow up to four million American homeowners to reduce their monthly mortgage payments and keep them from defaulting on their loans.

Yet despite efforts by the US Treasury Department to step up pressure on mortgage companies to modify more loans, take-up has been slow and the programme has been widely condemned for providing insufficient help to borrowers who have lost their jobs or who owe more than their homes are worth.

Britons repaid debt for a fourth consecutive month in October and at the fastest pace on record, the Bank of England said.

The Bank also released other data showing the money supply is still contracting in spite of £200bn of quantitative easing.

People paid off nearly £600m of unsecured debt such as overdrafts and credit cards last month – three times as much as City pundits had expected – and twice the repayment rate of September.

The figures show that the UK’s build-up of up to £228bn of unsecured debt in the decade before the credit crunch has now gone firmly into reverse, although since July consumers have only repaid £1.3bn of that total.

The figures also showed that new mortgage approvals inched up to 57,300 last month from 56,200 in September but remained well below the long-run average.

Greg and Diane Horoski bought their home before the boom and, when house prices soared, increased their mortgage to finance a small business.

Interest rates rose, health bills poured in, and then the housing market crashed so that they ended up owing thousands of dollars more than their bungalow was worth.

Yesterday they went to court in New York expecting to be thrown out – but instead they emerged with their debt of $500,000 (£300,000) written off and a mortgage-free home.

Judge Jeffrey Spinner ruled that their lender’s behaviour had been ‘harsh, repugnant, shocking and repulsive to the extent that it must be appropriately sanctioned so as to deter it from imposing further mortifying abuse’.

The decision, which is to be the subject of an appeal, offers possible relief for some of the 7.5 million Americans who are behind with their mortgages and face losing their homes.

One in seven homes in America is now in the process of being repossessed as many families find it impossible to pay off the high-interest mortgages that were handed out in abundance when the property market was at its height.

Research by the thinktank Resolution Foundation shows low-income households – with an average of £15,800 at their disposal – are walking an increasingly precarious financial tightrope.

It has found that 24per cent of low-wage households spend more than a quarter of their monthly income on debt – twice the number from three years ago.

The study shows nearly a third of low-income households have high loan-to-value mortgages and are in negative equity, making them vulnerable to homelessness if they lose their job.

Sue Regan, chief executive of Resolution Foundation, said: ‘What’s important is not so much about when we get out of recession. It’s how sustainable the economy will be going forward if we increasingly see low-income households default on loans or lose their house.

‘If we don’t address this, it has got big economic ramifications for UK plc.’

The foundation is calling for high-street banks to involve themselves more in debt counselling when low-income households miss their first mortgage payment.

A subprime lender has agreed not to repossess for at least six years the home of a man who fell into arrears in what is believed to be the first legally binding deal of its kind in the UK.

Blemain Finance, an arm of the Blemain Group, reached the agreement in a High Court case with Peter Bentley, a carpenter from Bridgend who had lost wages as he cared for his sick father.

The deal is the latest victory by aggressive personal claims companies that are taking on companies responsible for a spate of lending during the credit boom to households that are now struggling to repay.

Personal insolvencies continue to rise, with almost 100,000 in the year to September.

Carl Wright, of Cartel Client Review, the Manchester-based personal claims company, which took Mr Bentley’s case, has been using a clause in the 1974 Consumer Credit Act to argue that many lenders have an ‘unfair relationship’ with uninformed consumers, who often sign up for loans they can ill-afford and which carry heavy penalty charges.

Crisis, the charity for homeless people, is launching a campaign to resist unpopular plans by the government to ask housing benefit claimants to pay back up to £15 a week they are allowed to keep if they negotiate cheap housing deals.

The Department for Work and Pensions had planned to end this after calculations showed it could bring in £160m.

For some of the least well-off, the change could amount to £15 a week, reducing by a fifth the cash in hand of someone receiving jobseeker’s allowance of £69 and leave some of the poorest families across the country some £780 worse off over the year.

Leslie Morphy, Crisis chief executive, called on the government to reconsider, saying: ‘This proposal would have a grave impact on some of the poorest households.

‘It’s not even likely to make the savings the government hopes, because claimants will no longer have an incentive to seek cheaper properties and landlords may simply raise rents to meet the maximum local authority level.

‘For people who are already struggling to make ends meet, losing a huge chunk of their income will make it even harder to get by and we are worried that this could lead to an increase in debt, rent arrears and homelessness.’