Lower Fees Demanded in the Face of Declining Mortgage Approval Numbers

27-Jun-2008

On Tuesday, the British Bankers Association reported that home mortgage loan approvals declined from 34,752 in April to 27,968 in May. This May's number is 56.1 per cent lower than the same time last year, and it's the lowest number of mortgage approvals since 1997, when the BBA started collecting data on the topic. This upcoming Tuesday, the Bank of England is releasing their report on the topic of mortgage approvals, and the numbers are expected to be even lower due to the wider range of lenders that are surveyed by the BoE. Their data currently shows that the number of approvals has been halved since the end of 2006.

Economist Michael Hume of Lehman Brothers said, "A US-style housing slump looks increasingly likely." He added that the housing market was, "rapidly grinding to a halt under the pressure of higher mortgage interest rates, tighter bank lending standards, and declining confidence."

Despite all the financial turmoil in the housing market, experts believe that policy makers will hold off taking action until there is a severe negative impact on consumer spending. A negative impact of the housing market is starting to be seen in by the credit card industry. During the 18 months prior to May 2008, the amount of credit card payments being made by consumers topped the amount being charged to the cards. However, as of May, net credit card spending had risen to £550million, a drastic increase over previous months. This increase has led experts to conclude that consumers are really starting to feel the burden of a higher cost of living.

Prompted by the latest data on mortgage approvals, and in an effort to ease the burden on mortgage borrowers, Chancellor Alister Darling has requested that banks scale back their arrangement fees, which have been seen in amounts of up to £3000. Darling said that if banks don't comply with his request, he will ask the Financial Services Authority (FSA) to step in and take action. He feels that home loan borrowers are being taken advantage of by banks, especially those borrowers that are remortgaging after the fixed term of their previous mortgage had expired.

The Council of Mortgage Lenders (CML) said that lenders require high arrangement fees on loans with low interest rates and vice versa, so technically, it's up to the borrower when it comes to the amount of fees they pay.

What does this mean to you, the borrower or the potential borrower? It means that you need to have your budget in mind before you go in to secure a mortgage or a remortgage loan. Know exactly how much you can afford to repay each month, including fees. This way, you will have a solid number in mind, and you'll be less likely to be swayed by lenders, and you'll be less likely to find yourself tied into a mortgage loan that you can't afford.

Considering the higher difficulty in securing a mortgage, your credit needs to be as good as possible before you try to find the right mortgage loan. Keep an eye on your credit report (get a free trial subscription with Experian here), and be sure that there are no mistakes on your report that could lessen your credit score. Mistakes aren't uncommon, so it's a good idea to keep tabs on your credit report.

The mortgage market doesn't look good, but it's not impossible to find the right mortgage loan for you. Do your research, keep an eye on your credit, and know your financial limits.