Mortgage lending dives 70% to second lowest figure on record as new bank collapses

Mortgage lending falls to second lowest figure on record

London Scottish Bank goes into administration

Manufacturing shrinks at record pace

Mortgage lending plunged 70 per cent in just four weeks, figures revealed yesterday. 

As homeowners face their biggest battle to get a loan, net lending collapsed in October to just £459million, compared with £1.5billion in September. 

Net lending is the difference between money lent to new homeowners and repayments from existing homeowners. 

A recent Government report has said that in the current mortgage drought net lending could turn negative next year for the first time. 

Yesterday's figures, from the Bank of England, spell out the misery facing anybody trying to sell a home. 

With so few loans being handed out, families up and down the country who desperately need to sell cannot find a buyer, even if they slash the price. 

If the banks do not start handing out money, Britain faces plunging into a much more painful recession, the Bank's Governor Mervyn King warned last week. 

Banks insist they are not closed for business but are being noticeably more cautious about handing out loans. 

The cheapest mortgage deals now require a 40 per cent deposit. All 100 per cent loans have been scrapped. 

However, the lending collapse has been brought about not just by banks' caution but also because many customers do not actually want a loan now and are choosing to sit things out while prices fall further. 

Yesterday - only days after the Government spent billions of taxpayers' money bailing it out - Royal Bank of Scotland tried to appease taxpayer fury by promising not to repossess a home until the lender was at least six months in arrears with mortgage repayments. 

Nevertheless, repossessions are predicted to rocket to 45,000 this year - up 70 per cent on last year.. 

Economists were also forecasting gloom yesterday. Ed Stansfield, of the consultancy Capital Economics, said: 'Activity levels will remain close to rock bottom levels for several months yet and house prices will fall markedly further.' 

The figures came as specialist financial services group London Scottish Bank said today that it had gone into administration.

The Treasury confirmed that it would protect all retail deposit savings with the bank - including those with deposits above the £50,000 maximum limit.

The Manchester-based bank said it was forced to call in administrators after suffering a shortfall in regulatory capital and was unable to find a firm buyer for the business in time.

The bank has around 10,000 savers with some £250 million in deposits.

There are also more than 700 staff at the bank, which offers fixed-rate savings accounts and lends money to people with poor credit histories.

The Chancellor confirmed all eligible depositors under the Financial Services Compensation Scheme (FSCS) would be not lose their savings.

Administrators said all 10,000 depositors are eligible under the scheme.

London Scottish had been hoping to secure a sale after it struggled with a multimillion-pound hole in the amount of capital it is required to hold by regulators.

Shares in the group were suspended today at 2.62p having lost almost all of their value amid its financial problems over the past year.

Adding to the bleak economic news, manufacturing activity shrunk at a record pace last month as fresh figures fuelled fears today about the depth of the UK recession.

The latest purchasing managers' index for the industry showed a reading of 34.4 in November - the lowest level in the survey's near 17-year history.

Output, new orders and employment all hit new lows as the sector continued to struggle in the economic downturn.

The data marks the seventh consecutive month of falls for the sector and was below City forecasts of 39.7.

On a rare brighter note though, the number of mortgages approved for house purchase has remained stable for the past four months.

Around 32,000 new loans were approved for people buying a property, only slightly down on September's figure of 33,000, suggesting the market may have bottomed out at a very low level.

Howard Archer, chief UK and European economist at IHS Global Insight, said: 'An extremely weak set of Bank of England mortgage approvals and lending data suggest that house prices still have a long way to fall.  continues here

Home repossessions by aggressive lenders surge

The number of people losing their homes through repossessions leapt by almost half during the first six months of this year to its highest level for 12 years, it emerged yesterday. 

A total of 18,900 homeowners suffered the seizure of their properties during the first half after failing to keep up mortgage payments, marking a rise of 48 per cent from 12,800 in the same period last year, the Council of Mortgage Lenders revealed. 

The surge in repossessions sparked new warnings that many thousands more are set to lose their homes as the economic downturn deepens, more fall behind with repayments and lenders become more aggressive in acting against those who sink into arrears. 

The clearest evidence yet emerged yesterday of banks and other lenders resorting more rapidly to repossessing properties of borrowers who find themselves in dire financial straits and unable to maintain repayments.

Twenty-eight per cent of borrowers who are six months or more in arrears faced repossession in the first half yet four years ago only about a tenth of those that far behind would already have lost their homes, the CML's figures showed. 

Confirmation that some lenders have become much tougher came just days after the Financial Services Authority fired a warning shot at institutions that it said were too quick to take court action to repossess homes. 

The FSA criticised in particular some specialist lenders that have loaned money to buy-to-let speculators and to less well-off sub-prime homebuyers with stretched finances. It is likely to be these people who are being hit hardest. 

Fears that the repossession net will now spread rapidly were fuelled as the CML also reported steep increases in numbers of people falling behind with their mortgages. 

Home loans in arrears by at least three months jumped by a fifth to 155,600 in the first half, compared with the previous six months. 

The numbers of homebuyers in more serious trouble and three to six months behind on payments also rose by a fifth to 75,000, while those six to 12 months in arrears rose on a similar scale, to reach 42,000. 

The CML has predicted that 45,000 homes are likely to be seized from cash-strapped borrowers over this year as a whole, up from 26,200 last year. continues here 

Home ownership ‘out of reach’ for average earners

Fixed-rate mortgage costs soar to eight-year high

House prices may be tumbling but the dream of home ownership is all but over for couples on modest incomes, as mortgage lenders demand heftier deposits, according to new figures.

Couples who have a combined take-home pay of £27,500 or less would have to save more than a year’s salaries to pay for a deposit, stamp duty and solicitors’ fees on the average first-time home – a total bill of £27,738 – figures from the Royal Institute of Chartered Surveyors (RICS) show. Couples both earning the average wage would have to set aside two thirds of their take-home pay of £44,000 to cover the bill.

Ten years ago couples on average earnings would have had to put aside only a fifth of their joint income to pay these costs.

David Stubbs, senior economist at the RICS, said that there could be worse to come for those hoping to buy a home. “The picture does not look like improving in the latter part of 2008 and first-time buyers will find their path to home ownership increasingly blocked.”

Homeowners watching the value of their homes slide also face more misery as mortgage rates continue to rise. The cost of an average two-year fixed-rate deal hit an eight-year high last month, rising by 0.37 points to 6.63 per cent in June, according to new figures from the Bank of England. A homeowner with a £250,000 mortgage switching to the new deal would have to pay nearly £700 extra each year.

About 1.5 million borrowers will come to the end of their mortgage deal this year and will have to choose a new, more expensive loan.

Mortgage lenders are refusing to offer loans to those without significant deposits as they strive to protect their margins after the credit crunch. Last year first-time buyers had their pick of deals offering to lend 100 per cent of a property’s value. Now borrowers who do not have a deposit of more than 5 per cent will struggle to secure a mortgage.

To add to borrowers’ woes, many banks and building societies are also increasing the fees for setting up a mortgage to rake in more cash. Five years ago the average arrangement fee was between £299 and £399. Now fees of more than £2,000 are not unusual. A home loan with a six-figure arrangement fee was introduced yesterday by the mortgage broker John Charcol. The two-year home loan deal has an arrangement fee of 2.75 per cent of any mortgage between £500,000 and £5 million – giving a maximum fee of £137,500.

The increasing scarcity of new buyers also threatens to drag house prices down more as sellers are forced to cut their asking prices to secure a sale. House prices have fallen by 5.3 per cent so far this year, according to recent figures from Nationwide Building Society. The price of houses being sold at auction has slumped even further.

Figures compiled for the Liberal Democrats show that the value of homes being sold under the hammer has fallen 17 per cent in the past year. Lord Oakeshott of Seagrove, Liberal Democrat Treasury spokesman, said these figures were a truer reflection of the decline in house prices. “Auctions are the sharp end of the housing market where real deals show the prices paid by real buyers. The published house price indices are well behind the game,” he said. Some economists are now forecasting that house prices will fall by more than 20 per cent by 2010.

The National Association of Estate Agents said that the Bank of England, which will announce its rate decision today, should inject more money into the credit markets in an attempt to curb the the rise in mortgage rates. continues here

HOME REPOSSESSIONS SOAR BY 21%

The number of homes repossessed soared by 21% last year to reach an eight-year high, and experts have warned the situation is likely to get worse.

A total of 27,100 homes were taken back by lenders in 2007 after their owners failed to keep up with mortgage repayments, more than triple the number three years ago, according to the Council of Mortgage Lenders.

The figure was well down on the high of 75,540 repossessions reached during the house price crash in 1991 and 10% below the CML's own forecast for the year.

But the group warned that the situation was likely to get worse during 2008 as mortgage lenders tightened their lending criteria in the face of the global credit crunch and the economic outlook worsened......Article conts (-)

'Greedy' banks push up mortgage rates
Edmund Conway and Harry Wallop

Banks and building societies have been accused of profiteering after official figures showed that they had raised millions of their customers' mortgage bills before an expected cut in interest rates by the Bank of England.

While a cut today should bring some respite for struggling home owners, analysis by The Daily Telegraph shows how banks have not only failed to pass on the previous cut, they have actually raised the average mortgage rate.

Moreover, financial experts warned that even if rates continued to fall this year, the majority of the 11.8 million mortgage holders in Britain were unlikely to see much benefit.

In the past few weeks 10 mortgage lenders, including the Royal Bank of Scotland, Alliance & Leicester and the country's biggest building society, the Nationwide, have increased some of their rates, despite the Bank cutting rates from 5.75 per cent to 5.5 in December.

Bank of England data shows that the average mortgage rate has been inflated. When interest rates were previously 5.5 per cent - in May last year - the average mortgage rate was 5.66 per cent but when rates moved back down to that level in December the average was 5.93.

For someone on a typical interest-only home loan of £150,000, this meant an increase of £33.75 on their monthly bill to £741.25.

Eddie Weatherill, the chairman of the campaign group Independent Banking Advisory Service, said: "Over the last decade the banks have used interest rate changes to massage their own rates......Article conts (-)