ROOF Blog

TODAY’s INTEREST rate rise has taken just about everyone by surprise. A 0.25% rise had been expected, but not until February, and analysts including the CML are now predicting another increase to 5.5% later this year. Each 0.25% rise adds about £15 a month to the cost of a £100,000 repayment mortgage, adding to the steady increase of consumer debt.

TENANTS IN GRAVESHAM have overwhelmingly rejected stock transfer. The result of a ballot announced today by the Kent authority shows 86% voted against a move to Thameside Housing Association with just 14% in favour on a 70% turnout. The council is set to decide what to do next at meetings over the next two weeks.

WORRIED BY rising interest rates? Why not spread your payments over a longer period? According to a new survey, lenders are offering mortgages running for up to 57 years boasting more affordable monthly payments. The only catch, according to mortgage brokers, is that a borrower with a £150,000 mortgage over 57 years would end up paying £120,000 more in interest than one with a 25-year loan.

The Bank’s move was no surprise and the Council of Mortgage Lenders warned borrowers to expect another increase early next year. Also today, the Halifax said annual house price inflation is now running at 8.6% after a 1.7% increase in October alone.

CONSUMER PROBLEMS with housing debt rose 20% last year, according to Citizens Advice statistics published yesterday on people needing its help.

The charity dealt with 127,000 housing debt problems – including problems with mortgages, secured loans and rent arrears – in 2005/06. Nearly 10,000 of these were people threatened with repossession and 2,000 facing actual repossession or eviction. The rate of increase in housing debt problems was almost double the 11% increase in overall cases dealt with by its advice bureaux. They also dealt with 45% more cases of householders with council tax debt problems.

Chief executive David Harker said:

"We are particularly concerned by the sharp rise in enquiries from people getting behind with mortgage payments and having trouble paying council tax, gas and electricity bills, at a time when court action that can lead to repossession is on the increase, and fuel prices are rising steeply. This is likely to lead to more people than ever experiencing the sort of serious debt problems our advisers are already seeing day in day out.”

IT’s NOT OFTEN that the Sun and the Guardian agree on anything but the Abbey’s five-times earnings mortgage offer has got them both in sceptical mood this morning.

A leader in the Guardian concludes:

‘For a decade, property ownership has seemed a risk-free way for people to get rich. But buyers should remember that the most generous lenders have a habit of turning nasty when the monthly mortgage payment is missed.’

Ian King in The Sun predicts strong demand for the new product and says other lenders are likely to follow suit, with some offering mortgages worth 25% more than the value of their home. But he also warns us to ‘beware of the more-gage’ at a time when interest rates are expected to rise.

Still, anyone in real trouble can simply turn to the adverts that helpfully run alongside his story on the web. ‘Debtbuster Mortgage’ anyone? If you have ‘Bad credit? Get an instant personal loan online’.

LATEST: The Yorkshire Building Society points out its Accord Mortgages subsidiary has been offering five-times salary mortgages since February. Go here for details.

WHERE WILL IT STOP? The housing market is on fire and there seems to be no shortage of people willing to pour petrol on it.

The FT reports this morning that Abbey, one of the UK’s largest mortgage lenders, is planning to lend homebuyers up to five times their single or joint salaries. This is the same Abbey that published research a few days ago that one in eight people cannot afford to get on the property ladder.

Abbey is not on its own – last week two other lenders increased their income multiples to 4.5 – but it is also relaxing its other lending criteria, including those for approving mortgages without proof of income. Abbey spokesman Dave Stewart told the BBC:

‘Our customers are continually asking for more money to purchase the house they want and subsequently we looked into the affordability ratings of certain people. We found that people could afford to pay out for bigger mortgages but there just wasn’t anything on the market at the moment offering them what they needed.’

THE NUMBER OF PEOPLE taking out a mortgage worth more than the value of their home has soared by 70% in a year, according to mortgage brokers quoted in today’s Daily Mail. The ‘100% or more mortgages’ allow them to get on to a property ladder that is still moving out of reach but leave them highly exposed to negative equity if the market cools.

A FORTUNATE 10,000 extra key workers will be helped on to the housing ladder under a deal announced today between the government and four mortgage lenders. The deal effectively doubles the Housing Corporation’s spending power under open market homebuy by offering public-private equity loans.

Housing minister Yvette Cooper told journalists at the launch of the scheme that a £150,000 mortgage for a key worker under the scheme would typically cost £700 month – as opposed to £950 in the open market. This is because the government and mortgage lenders will share a 25 per cent equity stake in the home, sharing in any rise (or fall) in the value. Go here for more information.#

The government remains convinvced that the long-term solution to housing affordability is to increase supply. In the meantime, those left behind by the housing boom will be wondering what will take off quicker: equity loans or house prices? See the next issue of ROOF for full analysis.