Mortgage borrowing costs are likely to rise next year, the Bank of England has warned, whilst revealing that between 5% and 8% more households than known about are in trouble with their mortgages – but lenders are showing them forebearance and so their woes are not showing up on official figures.
It means that official arrears figures are being ‘significantly’ masked, according to a new report from the Bank of England.
Its Financial Stability Report has released the findings of a review by the Financial Services Authority, which – at the Bank’s request – looked at the potential scale of the problem.
The Bank was increasingly concerned that the true arrears picture was being masked by lender action.
The Bank’s FSR says: “FSA estimates indicate that around 5% of these households would have been in arrears of six or more months if they had not received forbearance.
“That suggests that, in the absence of forbearance, the mortgage arrears rate might have been 0.5 percentage points higher at 1.7%, even at near-zero official interest rates.”
The report warns that “lenders who have exercised greater forbearance could be more exposed to losses in the event of a sharp deterioration in macroeconomic conditions”.
Yesterday's gloomy report also warned that mortgage borrowing costs are set to rise next year, as banks which are heavily exposed to risk in Eurozone countries raise the costs of lending to each other.
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Comments
Happy: In answer to your questions (made them hard to find, didn't you?)
A Fixed Fee is achieved IRRESPECTIVE of the result for the homeowner (read bill-payer...), or of their financial position at the end of the transaction. Take say a £300000 property. Assuming that the Agent wishes to achieve a Fee of £4500 for a successful sale, then they will either charge either a Fixed Fee of that figure regardless of the end value achieved; or they will charge a Fee of 1.5%. ONLY IF they achieve the £300k, then THEIR Fee target is met. Should however they fail to meet the customers expectations and only achieve £280000, then their own expectations are not met either - to the tune of £300 off their fee.
Before you say "chickenfeed" - firstly, £300 pays for a fair bit of negotiator's time, Happy; secondly £300 ONCE in a year IS chickenfeed. Do it THIRTY OR FORTY times in that year - then you are into the area of your utility bills and business rates being paid for. Profit. Or reduced loss.
Either way - win:win. Seller gets best price; Agent gets best fee.
In respect of the 8.25% fee - of course it was relative to the then property value and my target fee level. We are talking early 1990s; when you could pick up a studio flat for fifteen odd grand, and my fee was around twelve hundred. It cost me the same money - more infact - to sell one of these properties as it did a three bed semi, so there was a need to achieve a comparative fee.
A quick comparison of my fee structure and its benefits to the seller against those of the competition was enough to seal the deal. The result - very happy vendor: moderately pleased Agent.
(I say 'modderately pleased' as, on reflection, I should have gone for 8.5 - made an extra thirty-odd quid which would have paid for the photo developing.)
YES - PHOTO DEVELOPING! Ho-hum - those were the days... ;o)
Fun Boy- great post, how about some more!
Peebee - Its taken me a while to catch up but I knew it would not be long before I needed lets say clarification on one of your posts!
ANYWAY - the 'fixed fee' malarkey you refer to. From very early in my Agency career I NEVER charged a private seller a fixed fee. I personally don't believe in 'em - Why?
An Agent should be paid for results, - Agreed but that does not answer above ?
I'll share this with you, though... you should see owners' faces though when you tell them that you are charging EIGHT POINT TWO FIVE PERCENT (the best I managed...) for your services! - Impressive but I doubt you would last long in todays market with that fee structure unless it was a fixed fee on low value house :0)
Everyone stop posting, rant has spoken and told you your opinion.
Horrraaay for super rant
I think that's the best case scenario Chris (and a balanced assessment). As much as the government would be wishing for a similar outcome too, there's so much out there that is beyond their control.
It is interesting how the media over here are now portraying the UK's economic situation as deteriorating because of the Euro crisis.
Countries like Ireland, Portugal and Greece spent much of the last decade on a credit binge, borrowing money to grow the public sector and turning a blind eye as banks recklessly lent money cheaply into the housing market.
The only real difference between those countries and the UK is that the UK is not a member of the Eurozone. We are blighted by exactly the same underlying conditions - the 'markets' haven't gotten round to examining the UK's books yet...
NO PROVED!!
Whose word would a jury take - a four legged meal-to-be with a wooly jumper, or an ex-Estate Agent?
Oh - on reflection, maybe you don't need to answer that one.
Erm... gulp.
What if I plead guilty...?
Can I serve my time on the prison farm? ;o)
There have always been repos, even in 2006 & 2007 and no doubt there will be repos next year too, but banks have worked it out. Kick people out, flood the market with cheaper & cheaper property and the original home owner plus the banks lose out. Allow the home owner to stay, paying what they can and allowing the mortgage interest to build up, means that eventually when the homeowner can afford to start paying again, the banks will have lost nothing!
Eventually, when property prices begin rising again, the banks can afford to reposses the worse debtors as a few repos here and there will not impact on the overall market prices.
Banks are also giving struggling home owners permission to rent their homes out if they have family to move in with/ somewhere else to go, as the tenants can support the mortgage. I know loads of people that are effectively enjoying the benefits of owning a Buy To Let property on a lower cost residential mortgage as apposed to a more expensive BTL mortgage! Banks are turning a blind eye to this policy if it keeps the money rolling in!!
As someone here has already said, our 0.5% base rate will not be going up for the foreseeable future.
It also starts to look like fiscal unity is shaping up in Europe, which is calming the markets, so the dangers of interest rate hikes due to inter bank lending is slowly reducing anyway.
Sure, this saga has a while to play out yet, but a lot of scare mongering is happening to keep the politicians focused so that these bad things don't happen.
My opinion is that we will see house prices dip again over the seasonal norm (Xmas period etc.) to pick up again in the Spring and the economy will bump along like this for another 12-months to 2-years. As unemployment starts to fall, confidence will return and house prices will begin to rise slowly again. I doubt we will ever see silly 125% mortgages ever again and house prices will rise gently in line with inflation & the cost of building them.
If the Euro does go down the pan, which I feel looks unlikely, it's not really house prices we need to worry about, it is a full scale ressession or even a depression!
I didn't know PeeBee was a sheep s***er...
A ventriloquist visiting Wales, walks into a small village and sees a local sitting on his porch (was it Pee Bee?) patting his dog. He figures he'll have a little fun.
Ventriloquist: "Hello Mate! Good looking dog, mind if I speak to him?"
Villager: "The dog doesn't talk, you're stupid."
Ventriloquist: "Hello dog, how's it going mate?"
Dog: "Doin' all right"
Villager: (look of extreme shock)
Ventriloquist: "Is this villager your owner?" (pointing at the villager)
Dog: "Yep"
Ventriloquist: "How does he treat you?"
Dog: "Real good. He walks me twice a day, feeds me great food and takes me to the lake once a week to play."
Villager: (look of utter disbelief)
Ventriloquist: "Mind if I talk to your horse?"
Villager: "Uh, the horse doesn't talk either....I think."
Ventriloquist: "Hey horse, how's it going?"
Horse: "Cool"
Villager: (absolutely dumbfounded)
Ventriloquist: "Is this your owner?" (pointing at the villager)
Horse: "Yep"
Ventriloquist: "How does he treat you?"
Horse: "Pretty good, thanks for asking. He rides me regularly, brushes me down often and keeps me in the barn to protect me from the elements."
Villager: (total look of amazement)
Ventriloquist: "Mind if I talk to your sheep?"
Villager: "The sheep's a liar"
Who is a liar?
A conductor and a brakeman on a Montana railroad differ as to the proper pronunciation of the name Eurelia.
Passengers are often startled upon arrival at his station to hear the conductor yell:
"You're a liar! You're a liar!"
And then from the brakeman at the other end of the car:
"You really are! You really are!"
Rick... matey - you're gonna do yourself a mischief! All that mouse-clicking looking for old stories to try and trip me up... ;o) I wish you luck. To be a good liar, you need a great memory. Me - I have the memory span of a goldfish with Alzheimers - so I find it far easier to play it straight. WYSIWYG and all that...
I am pleased to say that the £1 sale was NOT mine. I will restate that I DID sell a flat for £800 at around the same time period as the quid changed hands - so therefore I was 799 times better an Estate Agent as the other guy!! (HAH! - I never thought of it that way before... )
And HIS had a ROOF!!
ANYWAY - the 'fixed fee' malarkey you refer to. From very early in my Agency career I NEVER charged a private seller a fixed fee. I personally don't believe in 'em - and I would CERTAINLY NEVER enter into one as a customer, so why ask for it as the service provider?
An Agent should be paid for results, not resting on laurels. I have said all this before so I ain't gonna bore people with it again.
I'll share this with you, though... you should see owners' faces though when you tell them that you are charging EIGHT POINT TWO FIVE PERCENT (the best I managed...) for your services!
More to the point, though - you should see them when they HAPPILY PAY YOU IT following a satisfactory sale... ;o)
Now then - about these rose/red tinted specs you reckon I've got. I certainly have a different perspective on property and the market to you and many others - but I don't wear face bling so it must be my actual corneas that carry the colouration.
But - as far as a view goes, I am blessed that my head is not lodged up my own tailpipe therefore I am able to see more clearly (...AND more rosily...) than those who simply want to see, hear, and spread gloom and doom! ;o)
Enjoy YOUR weekend also, Sir! And to all!
@PeeBee
Sure ;) - only last week you were telling us all about selling houses for a pound up there and that the only way to stimulate the market back then was a molotov cocktail - but hey if it worked for you i'm not knocking it :)
Fixed fees were great eh a minnium fee off £1500 on a £24,000 flat fee (not cap and whippet) certainly upped the average %
Have a great weekend everyone :)
Rick: Believe what you will. I was there.
It ain't "flat caps and woodbines" here Oop North as you may wish to imagine...
@FunBoyAgent - quality thanks for making my friday :)
@PeeBee we know your telling porky pies cos £40k would of bought you the whole of Newcastle in 1994 - those rose coloured glasses must be bright red today :)
FBA - great minds think alike but congratulations on beating me to it!
So I will instead share another anecdote, which ties in nicely.
I visited a ground floor flat (they were still called flats in the early 90s...) owned by a retired Chartered Surveyor. It was in a highly unusual block of only two flats - as rarely seen in our parts as droppings behind a rocking horse.
So - I'm going about my business measuring up and generally chatting his life away, when the XRICS tells me "You MUST describe this property as a DETACHED flat to buyers."
"Erm... sorry?", says me, slightly thrown by the statement.
"You heard - a DETACHED flat. Dee Eee Tee Ayy See Haitch..."
at which point I butted in - with "don't worry - I can spell DETACHED flat. Bee Yuue Enn Gee Aye Ell Owe Doubleyew." If looks could kill...
Funniest part is - I actually got the instruction.
Sold the bugger damn sharpish as well! Thousand pound fee for a £40k flat (yup - 2.5%, in Newcastle, in 1994 if memory serves me correctly...) - and the ink on the Agreement was barely dry.... ;o)
The Estate Agent asks his wife:
Would you like to have a really nice weekend this weekend?
Of course my dear! (she says), I would love that.
Great (he says), see you on Monday then.
Funboy - that is one of the funniest things i have seen from you! Careful one of your competetors will be marketing connected bungalows soon....from now on thats how i will describe such abodes!
Hey Ray,
There is absolutely no shortage of brand spanking new bungalows. Loads on the market right now.
Those clever builders though! have been stacking them one on top of another to save money on roofing costs.
Banks know that for our own survival they cant flood the market with repossessions, with low demand its only the low supply that is keeping house prices stable and their mortgage book balanced, as soon as they repossess in great numbers their mortgage book will show £billions in losses and spark their own and our country's downfall. No banks. No economy.
Just a thought.......
In all this recent (unending) talk about average HOUSE prices etc., what about BUNGALOWS? There have been very few built in recent years. Is there still a demand and has anyone got the stats on their average price?
I have been saying this for a couple of years.
TOLD YOU SO!
When interest rates rise, people will default on their mortgages and repossessions will increase.
That said, I think it unlikely that the base rate will rise for another couple of years given that we are supposedly heading back into recession...
But the banks are deliberately hiding it.
@Geoff Peters why would you want to lend on overpriced stock that is about to crash and burn? there is a reaon why the LTV is where it is.
‘significantly’ masked - these surely have to be THE buzz words of this century so far?
PS for those that remember doing a repo a day in the 90's and not even being able to give them away at well below market value even Halifax's 1.99 fixed for 2 years rate I guess this comes as no great shock?
This comes as no surprise. When a housing market(was) predicated on the assumption of lending higher and higher multiples of salary grinds to a halt this is the logical outcome.
The Emperor's new clothes and all that.
Of course! The best solution to a debt crisis is more debt. Why didn't anyone else think of that first?
Looks like many more households are going to fall behind with payments. The Governor of the Bank of England says mortgage rates are set to soar:
http://www.dailymail.co.uk/news/article-2068875/King-Our-systems-crisis--Governor-warns-mortgage-rates-likely-soar-tells-banks-slash-bonuses.html
CONME ON GET LENDING, Pass it on you bankers