The UK has been greeted on its return to work today with the news that mortgage approvals rose 4% in the month from January to February this year.  Good news most will say.  However, the question that remains is is the UK market beginning its recovery, or is this simply a blip in an otherwise continuing downward spiral?

A number of property indicators in 2009 have suggested some form of recovery is under way.  From my own network of contacts in the property industry, January and February were certainly upbeat months.  So who is buying?  It seems it is a combination of first time buyers and property investors keen to take advantage of what they see as value in the market. There is certainly an increased level of demand from first time buyers who, having previously not been able to get on the ladder and have saved in the meantime, and now in position to take advantage of lower prices.

Many property investors, who will abide by the “buy low, sell high” philosophy, see an opportunity to buy up stock previously out of their reach.  Due to the increased numbers of repossessions, the Below Market Value (BMV) industry has certainly exploded in the last 3 months, with investors looking to buy at anywhere between 20% and 30% below market value on second hand property, and as much as 60% below market value for unsold developer stock.  These factors, combined with a stabilising in mortgage rates and products has led to increased enquiries, sales, and therefore the improvement in nationwide data released by various bodies.

In addition to this, lower interest rates have meant homeowners, specifically on tracker mortgages, have in some cases more than halved their monthly outgoings.  The government can therefore argue that lowering rates has put more money back in some people’s pockets.  However, it has been well documented that rate cuts have not, in the main, been passed on, so the financial easing has not affected the whole homeowner market.

So where are we?  Well general economic data would suggest the bottom has not quite arrived.  Job cuts are still being made and mainstream lending does not appear to have improved much.  Coupled with the facts that repossessions are still rising and general transactions between homeowners are still low would suggest that there is a blip in the market.  However, supply and demand are still fundamental when looking at the property market.  As prices fall, demand generally increases, and there is no doubt that demand has increased in 2009.  One could take a further view that if property prices continue to fall, the demand will continue to increase from both increased levels of first time buyers and investors looking for even better deals.  Therefore, it is my opinion that the property market will find a natural recovery point in the not too distant future.

Aside from a certain former banking executive and his pension, the main discussion this week has seen many people in the industry and financial world talking about whether they would or they wouldn’t.

The answer came to light about an hour ago. They did.

The Bank of England’s Monetary Policy Committee today voted to reduce the official Bank Rate paid on commercial bank reserves by 0.5 percentage points to 0.5%, and to undertake a programme of asset purchases of £75 billion financed by the issuance of central bank reserves. Never before have we seen a rate this low which was also accompanied with the news that the BOE would be pumping more money in to the country to help increase spending.

The statement from the Bank Of England website read:

“At its March meeting, the Committee noted that the February Inflation Report had implied a substantial risk of undershooting the 2% CPI inflation target in the medium term and that a further easing in monetary policy was likely to be needed.  Data released since the finalisation of the Report had not materially altered that prospect.  Accordingly, the Committee concluded that a further easing in the stance of monetary policy was warranted.  But the Committee also noted that a very low level of Bank Rate could have counter-productive effects on the operation of some financial markets and on the lending capacity of the banking system.  On balance, the Committee decided to reduce Bank Rate by 0.5 percentage points, to 0.5%.

The Committee judged that this reduction in Bank Rate would by itself still leave a substantial risk of undershooting the 2% CPI inflation target in the medium term.  Accordingly, the Committee also resolved to undertake further monetary actions, with the aim of boosting the supply of money and credit and thus raising the rate of growth of nominal spending to a level consistent with meeting the inflation target in the medium term.”

Like a boxing match, you will have two corners today, one of which will be dancing around the ring with their hands in the air, and the other who is sat on the stool with a feeling of a sharp kick in the stomach. If you have a tracker mortgage, today’s news will leave you feeling pleased, if not ecstatic, but if you rely on or have savings accounts, things are not looking so rosy.

So, when you go down the pub tonight, the people smiling have a mortgage, the people with half a pint, a gloomy look and possibly the hint of a tear in their eye have simply been doing what we have always been told to do, saving their money in a bank or savings account.

Some good news has been reported from the British Bankers’ Association (BBA) this morning, with early indications showing that mortgage approvals rose in January, with approval levels hitting 23,376 last month, up 4% from 22,416 in December.

But, as it seems with every other story that has some good news in it, there is also some not so positive reports, with the number of approvals in January still 43% lower than the same month a year earlier.

Hardly surprising in the current climate, but the fact that mortgage lending is continuing to rise month on month could be taken as a sign that we are starting to emerge from the gloomy mist which has been partially caused by the lack of lending over the past 6 or 7 months.

BBA statistics director, David Dooks, said of the latest data:

“The high street banks’ mortgage lending is still seeing double-digit annual growth, albeit in a much slower market. Lower borrowing costs and falling property prices have underpinned demand at these lenders, who are providing over two-thirds of all new mortgage lending. There is only limited demand from households for unsecured credit, while a fall in their deposits in January reflects a tendency to draw on cash or to move into alternative financial products.

“Lending to non-financial companies rose after two monthly falls, with modest increases in several industrial categories, while finance for other financial companies reversed the year-end fall in lending.”

The BBA also reported that in January, net mortgage lending rose by £2.9 billion, consumer credit rose in line with the recent average and overall company finance increased by £14.1 billion, reversing the previous month’s fall.

However, personal deposits fell by £2.3 billion as spending drained cash and savers sought alternative deposit products.

It is good to see some positive comments from the BBA, hopefully which will hopefully encourage more people to apply for mortgages who might not have previously considered applying, as they thought they did not stand much of chance in being approved. If we see another month of increased approvals for February, indications would suggest that the housing slump has reached its lowest bottom point and that the only way from here on in is up.

But, until we see the figures from the BBA and other leading bodies next month, we will take the positives from the news today and hope there is much more to come.

New statistics were published today by the Council of Mortgage Lenders on mortgage arrears and possessions. Unsurprisingly, full year figures for 2008 show a sharp rise on 2007, but many steps are being taken to help borrowers facing difficulty. Interestingly, there were 5,000 fewer repossessions than expected and were forecast in the previous year, with the measures that were introduced towards the end of year seemingly having some kind of effect.

A few stats and figures released by the CML today:

* 5,000 fewer repossessions than forecast in 2008
* 40,000 repossessions in the year - 1 in 290 mortgages
* 10,400 repossessions in the fourth quarter - 1 in 1,100 mortgages
* 1 in 64 mortgages in arrears of 2.5% or more
* 1 in 53 mortgages in arrears of three months or more (inflated by lower interest rates)
* 75,000 repossessions forecast for 2009 remains unchanged.

Around 10,400 properties were taken into possession by first charge mortgage lenders in the fourth quarter of 2008, down from 11,100 in the previous quarter but up from 6,900 in the fourth quarter of 2007, according to the Council of Mortgage Lenders. The total number of first-charge repossessions in the year was an estimated 40,000. This was 5,000 lower than the CML’s original forecast for the year.

The fact that there were 11% fewer repossessions than expected, despite a worsening economy and rising unemployment, demonstrates that mortgage lenders are making strenuous efforts to ensure that repossession really is a last resort. It is important to recognise that repossessions include a proportion of abandoned properties and property fraud. They also include buy-to-let repossessions, as well as home-owner repossessions. In the vast majority of cases where home-owners are committed to working with their lender to keep their home, this outcome is successfully achieved.

At the end of 2008, around 182,600 mortgages - or 1.57% of the total - had accumulated arrears equivalent to 2.5% or more of the outstanding balance  - for example, £2,500 or more on a £100,000 balance (a £97,500 mortgage plus £2,500 arrears). This compares with 1.29% at the end of the third quarter of 2008, and 1.08% at the end of 2007.

On a “number of months” basis, 219,100 mortgages were in arrears of more than three months at the end of 2008, up from 166,600 at the end of the third quarter of the year, and up from 127,500 at the end of 2007. However, the big reduction in mortgage rates experienced in 2008 was a significant influence on the rise in the number of arrears cases measured on a “number of months” basis - as the same given sum of arrears represents a higher number of months payments as interest rates fall.

The vast majority of people who face temporary difficulties successfully work with their lender to stay in their homes, and get their mortgage back on track over time. Where borrowers contact their lender early, maintain good communication and are committed to paying what they can and resolving their arrears, lenders work hard to help wherever the household’s future prospects look feasible.

Source – CML Press Releases

My morning started with Take That on the radio telling me this could be the greatest day of our lives, and then a report from the British Bankers Association informing me that the mortgage lending rose in December, indicating the start of a possible recovery for our shattered economy. Coincidence?

With nine out of ten news stories indicating the end of the financial world, it is refreshing and relieving to finally hear some positive news on this cloudy Monday morning.

Figures indicated that approvals for house purchases in December were around 22,000, up from around 17,300 in November. This figure is still 46% down on this time last year, but to see an extra 5,000 mortgages approved in what is traditionally one of the weakest months for selling houses, is excellent news and a sure sign that investors and home buyers are now starting to understand it is a great time to buy, with some amazing bargains on the market.

2008 was undoubtedly a lot harder for mortgage lenders and estate agents than the previous few years, with borrowing at a much lower rate, and the BBA backed this up.

BBA statistics director, David Dooks, said of the latest data:

“This first opportunity to compare 2008 with 2007 shows that gross mortgage lending by the main high street banks totalled £170bn, some 23% below 2007’s total of £221bn. However, lending by the rest of the mortgage market was half the previous year’s total, showing how mortgage lending became much more concentrated during the year. The banks approved less than half the 2007 number of loans for house purchase, reflecting falling demand from households facing greater economic uncertainty and double-digit falls in house prices over the year which led to a wait-and-see mentality.

“Consumer credit was very weak in December as people reined in their credit card spending, despite early Sales and heavy discounting by retailers. This consumer caution was also reflected in personal deposits, which rose strongly.”

There are obvious problems at the moment but we are starting to see a rise in house sales, more mortgage companies offering more products and a general raise in enquiries reported by many estate agents. The question that will be asked is will this continue for the next few months or even the year, or will this rise only last a couple of months before things take another turn for the worse.

We will not know until it happens and I am sure there are more ups and downs ahead, but we must take notice of the fact that more people are now buying homes than in November, which in turn will not only help the economy but also give some relief to the many companies related to property.

With Discover and Invest launching our first Property Investment deals next week, this news is more welcome than a cold beer on a summers evening.

Everybody in the industry, if not the country knew that any report about lending and mortgages would indicate bad news and show a decrease in the levels of lending seen throughout the past year.

2007 saw total lending reach around £363.7 billion, but 2008 saw this drop around 30% to £256.4 billion which was the lowest annual figure since 2002.

Michael Coogan, CML director general, said:

“December is typically a quiet month in the mortgage market, on top of which the market has been constrained by a shortage of funding and reduced demand.

“This week’s package of measures to support the financial system and invigorate new lending was an essential and welcome move by government. The next challenge is to settle the detailed requirements for each measure, so that they can be used by as wide a range of market participants as possible, and as soon as possible.

“A mortgage market solely funded by a few large banks and building societies would be unlikely to have the capacity to match future consumer borrowing demand, or be as competitive in the long term as the UK market has been before the credit crunch.  Increasing the range of active lenders and funding capacity in the market overall is a vital next step.

“Further measures targeted at the housing market are likely to be needed to supplement the welcome intervention to address liquidity and capital concerns.”

So what does this mean for the country?

Early indications for the year of 2009 show that in the early part of the year we can expect the lending to drop even further, but early optimistic reports are indicating the strong possibility that we could see an increase in lending towards the later part of the year.

December has always been a very quiet month for mortgage lending and when combined with the current lending issues and restrictions, the report is hardly surprising. Lending was getting out of control, increasing the national and personal debt, so at sometime it had to lower to a more realistic rate and I think we are seeing that now.

Even though the drop is quite a steep in terms of year by year comparison, we as a country could not of gone on lending at the rates seen from 2002 – 2007, so maybe the report indicates we are now acting on the current problems and by reducing lending we are now beginning to climb the very steep hill of recovery.

And if you’re looking for an interesting fact of the day – according to the CML, There are 11.7 million mortgages in the UK, with loans worth over £1.2 trillion.

It is not every morning you get a thought of the day from a computer questionnaire about your lifestyle. But today I had just that.

Every so often I take part in official surveys and questionnaires, ranging from questions about my life to what I think about certain products and even well known people.

One question on the questionnaire today had me thinking. It was such a simple question but left me feeling a little bit annoyed, worried, anxious, perplexed and many other adjectives and the reason for this will become clear.

The question was a simple “Do You Own Your Home” – with the options as follows –

• I own my home
• I rent my house
• I live with parents / relatives
• Prefer not to say

I live in a 2 bedroom house with two parking spaces outside that has a mortgage on it. It is my mortgage, I paid my deposit, filled in the forms, pay a monthly payment to the mortgage lender and yes, I would call this my home. But, logically, this is not my home, I only own 10% of it, which might allow me to say half of the kitchen is mine but the rest is owned by the mortgage company.

Effectively, if you have a mortgage you do not own your home, the lender, in most cases the mortgage company does. It is a bit like buying a car on hire purchase, the lender will own the car until you pay the loan back and housing is no different.

If you are on a repayment mortgage, over time you start to own more and more of your home, but until that mortgage is complete you will never be in full control. Of course, should you be on an interest only, you never own your home; you are basically just renting it from the mortgage company.

Such a simple question provoked a thought I have never had before, despite living here for three years. I would go as far to say I am renting, just not from a landlord or agent, from a mortgage company.

Maybe I am looking at things from a somewhat simplistic view, but next time someone or something asks me if I own my home, I am sure my answer will always be yes, but in the back of mind I will know that I will never own my home, I am just a glorified tenant.

In early 2008, Birmingham Midshires became the last lender to ditch the controversial, yet rather popular, 125% mortgage. These mortgage and loan deals, allowing people to borrow more than the value of their home, were often criticised for letting borrowers take on large debts, most of which is really starting to backfire in the current climate as people really struggle to cope with the payments.

It is estimated that around 20,000 people a year opted for these types of mortgages since they were introduced, mainly first time buyers who have struggled to get onto the housing ladder and were left with little other option but to effectively borrow beyond their means with these types of mortgages.

They were also aimed at older single people, most likely divorcees who have left the family home and have no savings and therefore were left with no other option, if they wished to buy rather than rent.

Fast forward just under a year and the mess, devastation and problems this type of mortgage left behind is only now really starting to hit home.

With house prices dropping month by month, these types of mortgages are starting to become a noose around the neck of their borrowers, with many now struggling to cope with the repayments, or certainly beginning to fear the worst over the next couple of years.

Northern Rock and Abbey National came under massive criticism and scrutiny for offering these types of mortgages a few years ago, and many others followed suit, but the beginning of 2008 saw every one of these products removed from the shelves, possibly and lesson learned but too late for many?

The mortgage immediately locked the buyer into huge negative equity, owing more than their property is worth from the very first day they moved in. Did these mortgages and this type of borrowing contribute to situation thousands of home owners find themselves in now? I think the answer has to be yes, but for the mortgage companies to take all of the blame is somewhat naïve, after all, would you pay 25% more for products in a shop, or would you just wait until you can afford them?

Should the mortgage companies have been allowed to do this or does it lie with the individual borrower to sit back and really debate whether the idea of over borrowing was really worth it? Ironically, if these 125% mortgage buyers had waited until now, not only could have entered the housing market, they could have done it so much cheaper and could have afforded so much more.

Although this type of borrowing helped thousands of first time buyers get on the housing ladder, as history continues to be made, the 125% mortgage will probably fall into the category, which should be titled “We Really Shouldn’t Have Done That”.

It’s early January 2009, and talk of the economic “downturn” (don’t you love how no-one can say recession anymore) continues apace.  What strikes me most is that we continue to go over the same points about why we are where we are, instead of coming up with and debating a number of solutions to get us going again economically.

Therefore, I am going to stick my hat in the ring and put forward my somewhat controversial 3 point proposal, which I believe would not only have us up and running quickly, but also provides a long term solution to mismanagement of money:

1.    Cancelling of a large % of credit card debt

We all know the country to an extent is “maxed-out” on credit.  It is my belief that one of the main reasons the banks aren’t lending is because so many people simply do not qualify for further lending from them ie. The risk has risen astronomically.  This problem is not going to go away anytime soon.  Huge numbers of the population pay off only the minimum amount each month, which eventually leads to defaults over credit limits.  It is all very well to say that we need to start paying off this debt, but it is my belief that many simply cannot.  Wages have not increased at a decent rate over the last 10 years and with rent, living, transport and credit commitments, many are really struggling to make ends meet.  They simply have no leeway to start saving to pay this increasing debt off.

There are many points to debate about this route, but I cannot see a better alternative.  Either the population goes bankrupt or we find a solution to put money back in people’s pockets. Credit companies have been profiting for years at 20%+ interest rates.  Either a hit is taken by them in the short-term, or consumer credit is lost completely in the long term.

Some will argue why bailout people who can’t budget properly?  Good point.  Firstly a precedent was set with the financial and carmaker bailouts.  The bigger the danger to the economy (banks/deposits, carmakers/jobs) the better chance of a bailout.  Isn’t the population and total consumer demand too big to go under too?  As mentioned in a previous blog at length, clearing most debts will enable a large % of the population to have an increased level of income, and therefore kick start the economy again.  Therefore an immediate consumer bailout is needed if this “consumer demand” is to be saved.

However, the next question is: how do we stop this crisis occurring again once credit is again available?

2.    Regulation of the credit system in particular credit cards!

Once credit is back to acceptable levels, the levels of credit have to be managed so that the population is protected from over borrowing and the economy can grow at more realistic levels of actual growth, not false bubbling.  Credit could be solely issued under banks, who are able to match bank account track records with the acceptable levels of debt.  A points system or a number of cards for different purposes could be in place to ensure that individuals do not buy too much of one thing or over commit themselves.

This is however a very political question; how much trust should be placed in the general public to manage their own funds?  Based on the current evidence, one has to say in general, not much!  It is quite true that many know how to run their finances correctly, but it is also true that many more do not.  I believe this is down to the lack of money management classes in schools, which is the topic of point number 3.  The fact therefore remains that if you don’t regulate, you end up in situations like the one we face today, which in the end affect everyone…

So to my final point and a long term solution I hope to the consumer credit disaster:

3. Make money management classes compulsory at all schools from the age of 15-16.

Perhaps this can be a compulsory GCSE.  As mentioned earlier, many are not good with money because no-one has taught them.  Combined with a culture of buy now pay later and an at times staggering belief within the population that property prices will never be subject to falls again leads us down this treacherous path. Let’s get good money management skills in the classroom, and not just for kids.  It could act as a qualification for more favourable lending conditions in tandem with proposals in point 2.

Another solution could be intern programs at a variety of businesses from the age of 16 to understand how they work.  The owners of shops are well known for introducing their children to the business at a young age and it can surely do no harm for this to be expanded through the population.  Some learn in the classroom, some learn on the job…

So there we go: some early proposals to get us going.  Whatever you make of the government’s actions, they are trying to come up with solutions.  I believe it would also help if we were more active in trying to find solutions too.

The question everyone seems to be asking at the moment is what will happen during this recession? Although many things will tend to be changing, there are certain key things that usually happens during a recession and these are listed below –

• Houses Prices Fall – One of the most noticeable effects of a recession is that house prices begin to fall. This is mainly because people are not buying or selling, which forces the prices down. Some sources indicate that house prices have fallen by about 20% during this current recession, with many fearing a larger drop before we get out of it. But, one thing to remember is over the history of time, house prices have continually risen, so this is just a blip in the long term graph of house prices.

• Job Losses – Another key effect of a recession is that unemployment will rise. Due to poor sales, reduced production and short term forecast negativity, employers will seek to cut costs by reducing their workforce.

• Reduced Lending – During stable and profitable times, lending is high, especially mortgage lending. During a recession lending noticeably decreases, with many struggling to obtain loans, credit cards and mortgage lending.

• Reduced Spending – People tend to save more money during a recession, thus decreasing the spending on material possessions and also the necessities in life. Consumers will tend to look for lower prices on everyday products, and put off purchasing anything that is not vital.

• Interest Rates Fall – Generally, during a recession the interests rates will fall and be lowered by the Bank Of England. This is mainly to encourage spending and to try to stimulate the economy to reveres or reduce the effects of the recession on the country. Some predict we may see interest rates drop to their lowest rate in 200 or so years, an amazing 1%.

• Businesses Close – If people are not buying and the employer has done everything they can to continue but without success, they will enter administration with the usual effect being to close down. This of course leads to fewer jobs, higher unemployment and decreased spending, a somewhat vicious circle.

• Lower Prices – Shops and manufacturers will tend to drop the prices of their products to increase the spending and therefore increasing their sales. Generally, most things will become cheaper, although electricity and gas prices do not seem to follow this trend.

There are of course other things that could happen during a recession. Some people will say that crime will rise, due to the negativity sweeping the country and the hard times many people will face. Although this is not statistically proven, it is a logical effect of a continuing credit crunch as people struggle to make day to day living affordable.