Tuesday, March 24, 2009

Horse, stable door, bolted....

A number of stories coming out of the UK regarding the mortgage market and potential regulation of maximum LTV’s and multiples of income.
In terms of the LTV’s clearly the notion of 100% or more is crazy. It’s shocking that Northern Rock continued to lend 120% mortgages even after they had been bailed out. These loans now make up a large proportion of the banks defaults, and it’s really not surprising. If prices fall 20% then there’s 40% of negative equity in the property. Here you are Mr Rock, have our keys back, we’ll go rent somewhere for half the price until the dust settles.
Offering loans to valuation in Spain has caused a big problem in the past, as it was often open to manipulation and left people with cash in their pockets and all fees paid. In fact, it was possible with larger properties that people walked away with hundreds of thousands of euros in their back pockets and little or no incentive to pay the banks back. Now it has gone back the other way too far, and banks are limiting the lending to the lower of price and valuation. This would be OK if they were still offering 80%. At 80% plus the mortgage expenses and purchasing fees, the customer is still having to fund 30% or more from their own pocket, even if this was an equity release from the UK. So a significant input from the purchaser which they wouldn’t want to lose under normal circumstances.
When it comes to affordability, they seem to be missing the point entirely. Allegations are flying around about the fact that some lenders have offered mortgages at 5,6,7 or more, times the household income. They seem to ignore the impact of interest rates on the affordability of people, and the monthly cost of the mortgages. If rates are relatively low and stable, then 6 times income may well be comfortable for many people, particularly if their other outgoings are not too high. The Spanish model, generally used, is better but not perfect. All finance outgoings not to exceed more than about 35% of net monthly income. Of course, this still can’t allow for future changes in interest rates. Of course, everything is dependent on past events when it comes to lending, as nobody knows what the future holds – there are several hundred thousand people in the UK that are now unemployed and have seen a significant drop in income, that they would not have expected a year or two ago, plenty of these in seemingly “safe” banking jobs. The percentage model, used in Spain, discriminates against those with higher incomes, as people with plenty of net disposable income will often find themselves unable to borrow in Spain, because they may have car loans and mortgages etc that take them close to or over the 35% already. So, what is the answer for “safe” levels of borrowing and lending? It seems to be something of a conundrum when you have lenders that are in a competitive market, and borrowers that are demanding more and a housing market that has relied on the next person being able to get a bigger mortgage as each home increases in value. Of course, many people that have been granted mortgages, have subsequently been able to load up on credit after they have bought their properties, for home improvements and furniture for the new pad. So, if the lender would look at their client’s credit report 6 months down the line, it may be that they would not choose to give the funding at this time.
Perhaps a way forward would be for borrowers to be more “tied” to one lender. I don’t think it would be possibly in terms of regulation, but consider the scenario if your mortgage lender could veto any other loan or credit applications before you were allowed to take them out? Or if you were only allowed by law to borrow from the same lender that holds your mortgage – so your current account and overdraft, mortgage, cards and personal loans are all part of one flexible funding package ? A nightmare for competition law, but it would make it harder to borrow from every credit card provider going – I mean, did MBNA ever turn anybody down ?
Common sense around the world would seem to be the way forward, but how do you regulate things when mortgages in the US were handed out to anyone that could sign their names, and the same mortgages became “investments” that bankers around the world could buy and earn themselves fat bonuses? Banks should basically be operating in a perfect market, in it’s simplest form being the concept of borrowing (at interest) from savers or from central or wholesale banks, and then lending at a higher rate to people that want to borrow. The bank earns a margin on the difference which they use to pay their overheads, which leaves a profit. Simple and understandable. Problem is, when you add greedy motivated and error prone humans into the mix! Send us a mortgage enquiry from our main site.

Waiting for BT......

Sitting here in the agricultural outpost of Essex, we have now been waiting for BT to come and install our phoneline, broadband and TV system for, oh, 3 weeks already. Having been ordered a couple of weeks before we moved in. First of all they couldn’t find the address on their database, even though there had previously been a BT line and broadband at the house in the past. Then, we thought that had been sorted out, as a few days before the supposed installation date, we first of all received the BT Vision decoder box in the post, followed closely by the wireless hub and a couple of telephone handsets. So we are sitting on all this equipment, waiting for the engineer, when a letter arrives asking for us to call BT as they hadn’t been able to get in touch with us. We call, and they say that they hadn’t been able to resolve the address problem, so had cancelled the installation. Perhaps they should have posted the engineer along with the equipment, as all of that had found us with the postman! So then they try and book another engineer for the 2nd of April, another 2 weeks to wait. Kicking up a stink got that reduced, but it was still and extra week on top of the original installation date. So I hope I’m not tempting fate by writing this, but hopefully it is going to be my first blog post when they finally turn us on this afternoon. Then I can really get my teeth back into working, as the good ships Europa Mortgages and “amortgagein..” have been running at less than full steam these past weeks. You forget how much our lives rely on being online, and simply being able to download emails a couple of times a day is just not enough. So, full steam ahead from later today, I have a load of news feeds and website updates, and will be adding content to www.amortgageindubai.com , www.amortgaginthesun.com , www.amortgageinturkey.com and www.amortgageinportugal.com Thanks for reading. Keep coming back for updates.

Wednesday, March 18, 2009

Spanish doom and gloom

It's that time again when a huge plethora of news stories and statistics seem to all come out at the same time, and most of them have downward pointing arrows. Sales in Spain are down, rental income in Spain is down, and the middle classes in the UK are having more trouble paying off debt than ever before.
It's interesting to wonder about the knock on effect of things as they spiral downwards; People struggling with debt in the UK are finding it more difficult to pay their debts, so may not go on holiday this year, which means that people with overseas property will have less rental income, so will struggle more to finance their holiday homes, which will leave less money to spend in the UK, and make it more difficult to pay debts in the UK.
So that seems to inevitably lead to more repossessions home and abroad, which gives the banks the willies and makes them more reluctant to lend on good terms in the future.

So, even though we seem to have historically low interest rates everywhere, how come so many people are struggling with debt? Is it because over the last few years it was just possible to get more debt to service your existing debt ?
Most people with existing mortgages must have lower payments at the moment, so they must have spare cash to pay towards other credit - no?

The problem is that we have become so used to our economies being driven by what is essentially invented money. It doesn't really exist other than it has supposedly been borrowed centrally by a bank (and guaranteed by their assets worth jack-shit) and then lent to a customer at a higher interest rate, which they have spent somewhere in the economy. At no point does it seem to be real money that you can touch and feel.
What happens to things when all that has gone? I think we are going to find out........

If you are interested in obtaining a Spanish mortgage or remortgage quote send us an enquiry from Europa Mortgages

Wednesday, March 11, 2009

Last Man Standing

We hear rumours from one of our lenders that they are intending to increase the margin above the Euribor for their Spanish mortgage products. They are pretty much the last lender that is offering interest-only deals for more than 60% of the value of the property – their 65% option effectively being the market leading deal at the moment. They must be getting floods of applications for this deal as clients look to switch from expensive repayment loans to more manageable interest only mortgages. Of course it looks like an opportunity for them now to increase their margins and fix a higher profit for themselves for however long the client has the Spanish mortgage for. So in the event of a recession that may last 2 or 3 years at most, they could be locking customers into 40 year mortgage deals at a high margin over the Euribor, in a mortgage market where switching lenders is ridiculously expensive to do. So in a way they can’t be blamed as they are the only lender sticking their neck out at 65%, when the rest of the crowd sit at 60% LTV or less. Come on guys – 40% equity in a property – how much security do you need ? It is of course the banks that have been the driving forces behind all the crap that is going on, with hugely irresponsible lending and investment practices in products and vehicles that they didn’t understand fully, and in some cases make no sense at all. They people that didn’t cause the recession are Mr and Mrs average that bought a Spanish holiday home where they have put in 20 or 30% plus 10% of costs themselves. The vast majority of Spanish homeowners have made significant contributions to purchasing their properties, and most of them are on repayment loans, probably at 70% or more. Surely there isn’t much risk to the lenders in taking on those loans at 70%, interest-only (which is more profitable in the long term as capital remains constant) then it reduces the customers’ outgoings, giving them more disposable income to either save or spend in the economy. If things continue like they are, then the mortgage products available in Spain will just not be any good for the vast majority of potential borrowers. Then the lenders will start asking us brokers where all the customers have gone (if there are any brokers left by then)
Will keep updating the blogs as things progress. Thanks for reading.
This posting is appearing on http://www.blog.europamortgages.com/ and http://www.blog.amortgageinspain.com/