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News: Weekly News Round Up - Homeowners Yet To See Benefit Of Bank Bail Out

Fri, 17 Oct 08

Exactly how the Government’s bail out of the banking sector will benefit homeowners was shrouded in confusion this week.

As a condition of its £37bn recapitalisation of Royal Bank of Scotland, Lloyds TSB and HBOS the Government said they must increase lending to homeowners and small businesses.

Specifically it ordered them to maintain the, “availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels.”

Sounds simple enough. That was until the Council of Mortgage Lenders and practically every financial expert in the UK said such a goal was unrealistic due to worsened credit conditions and house price falls over the last year – see Home News 13 Oct 2008.

The CML even branded the measures “not prudent or desirable,” in a statement issued on Monday.

That same day the Treasury sought to clarify matters, issuing a statement that it was a broad aspiration rather than a target for the banks to meet.

This appeared to allay the Council of Mortgage Lenders’ concerns. In a further statement it said: “The CML welcomes the Treasury's confirmation and clarification that the nature of the commitment to restoring flows of lending to the market is in line with the CML's expectations - namely an aspiration to achieving a broad, deep mortgage market in general with a good spread of products enabling access to the mortgage market for all credit-worthy borrowers.

“The CML wholeheartedly supports this objective and looks forward to working towards the restoration of more positive market conditions.”

But how the Treasury intends to force the banks to “restore flows of lending” is still in doubt. Also how big a flow it wants to see is not specified.

No wonder the CML is pleased, the Treasury’s clarification effectively allows lenders to carry on as usual. They have access to more money then they did last week, but can still do what they like regarding high interest rates, reduced availability of products and forcing homeowners to pay punitive administration charges.

The need to reinvigorate the housing market was highlighted by the worrying rise in dodgy sale and rent back deals, according to an Office of Fair Trading report.

These deals are being increasingly taken up by homeowners facing the threat of repossession. They sell their home at a discount and in return get to live in it as tenants.

But according to the OFT in many cases the new landlords and promptly evicted the former homeowners.

It is estimated in the report that around 50,000 struggling homeowners have been forced to accept a sale and rent back deal in recent years- see Home News 15 Oct 2008.

Being called for is tighter regulation, with the sector coming under Financial Services Authority rules.

This places a duty on those offering sale and rent bank schemes to be transparent about valuations and the sale price, tenancy terms and rent to be paid.

Firms involved will also have a statutory duty to tell consumers about fee independent advice available to them before selling.

Citizens Advice is particularly pleased that the report received publicity this week and urges the Government to act on its findings.

Its chief executive David Harker said: “We have seen cases of very severe problems arising from bad practices connected to sale and rent back agreements. These are long term agreements about people's homes so when sale and rent back goes wrong people can suffer huge financial and emotional loss.”

One way some mortgage borrowers are looking to slash their repayments is to opt for the now cheaper option of tracker rates, over fixed rate deals.

According to latest CML figures the proportion of borrowers choosing tracker rates increased from 28% in July to 31% in August  - see Home News 16 Oct 2008.

Last week the Bank of England reduced its base rate from 5% to 4.5% - see Home News Oct 8. Many analysts are predicting further cuts in a bid to combat recession.

A latest survey of estate agents by the Royal Institution of Chartered Surveyors’ of estate gave further evidence of the need for an injection of confidence in the market.

Its regular survey of estate agents was the most depressing since it launched back in 1978.

Estate agents are struggling to sell even one home a week on average and sales are down by 52% over the year – see Home News 14 Oct 2008.

London’s housing market is among the worst affected. Estate agents in the capital sold on average just eight properties between July and September.

Prices are also still in decline. Nine out of ten estate agents say prices have fallen over the same period.  

On the plus side enquiries from would be buyers, either desperate to get on the property ladder or move home, have risen, according to estate agents.

The demand is clearly there. But perhaps a tougher stance may be needed by Government if lenders are to pass on their new injection of credit to homeowners.

 

By Joe Lepper

 

See also  - Mortgages, House Prices and Trends

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