Know Your Money

Know Your Money

October 08, 2012 04:27 ET

Know Your Money Calls on Banks to Spread the Word on Mortgage Schemes and Step Up Aid for First Time Buyers

- Overall home lending values slipping, despite relatively favourable conditions

- Schemes designed to grease the wheels of the mortgage market struggling to make impact

LONDON, UNITED KINGDOM--(Marketwire - Oct. 8, 2012) - Consumer finance champion Know Your Money is calling for Britain's high street banks to focus their efforts on helping people onto the property ladder, with home-lending levels slipping.

The call to action comes in the wake of estimations from the Council of Mortgage Lenders (CML) that the total value of home loans approved in August represented a decline. The total figure of £12.6bn lent last month was down marginally from the £12.7bn in July. Year-on-year, there was a much more significant four per cent drop, from £13.1bn worth of approvals in August 2011.

The CML counts 95% of British home lenders among its membership.

Know Your Money is particularly disheartened by the news, given that some conditions for mortgage lending are currently positive. Despite the economic downturn, affordability for first time buyers' mortgage repayments – taking into account salaries, interest rates and average purchase prices – is currently high. But the stumbling block remains the banks' demands for huge deposits, often 25 per cent as a minimum.

A range of schemes from government and developers have been introduced to help people get a home loan while the market remains tight – but to seemingly little effect. NewBuy – a scheme allowing people to buy certain new homes with as little as five per cent upfront – had only 63 takers as of last week. Furthermore, Funding for Lending – a scheme to lend money cheap to banks in the hope that they will pass more on to customers at cheaper prices – has had little influence since its August launch.

Therefore, Know Your Money, with its remit of fighting the corner for consumers, is issuing a two-part call-to-action to Britain's high street banks and building societies. Firstly, they must take a leading role in promoting the local and national government schemes that are available, but are not widely known. Secondly, they must ensure that they take advantage of the fiscal stimulation measures that are being introduced.

Know Your Money co-founder and CEO Jason Tassie said that this means not only should the banks pass the savings they have made through lower interest rates onto customers, but also that they must lend money to those that can't afford high deposits, rather than just the equity-rich and buy-to-let applicants.

He said: "The biggest thing holding back the mortgage market is the banks' refusal to do business with anyone that isn't in a position to pay a sizable chunk off the value of their home upfront. There are many good schemes out there that have been specifically designed to alleviate this pressure but unfortunately they are not being communicated well enough to the people that could actually use them. Many people that contact us are totally unaware that they exist.

"With record low Bank of England base rates, a healthy house market could really buoy the economy. But it can't happen while mortgage lenders continue to demand high deposits.

"Therefore, we call upon the banks to take advantage of the schemes that have been made available to them and allow customers to do the same. They must commit to dropping their deposit ransoms, to pass the savings onto customers, and to better communicate the schemes designed to help the consumer. Crucially, if the economy is to return to health, we must help everybody to get on the housing ladder."

On the danger of people missing out on schemes, and the potential for the wrong people benefitting from them, Rassam Fakour-Zaker, editor at Know Your Money, added: "With some conditions currently favourable for first time buyers, it is very important that people take advantage. Analysts have regularly expressed that the economic challenges we face are likely to continue for many years and even decades to come. If people wait for the boom times to return before they look into getting a mortgage they might find, that if the holy grail of economic prosperity is indeed ever found, that they are too old to be granted a full term 25 year mortgage. They will then have no choice but to spend their whole lives renting, with no return on their money.

"What we could see is further class divide in this country, with a culture of renting becoming the norm. Only the rich will afford to buy houses and they will then rent them to those who cannot raise the deposit. The rent prices will then increase to reflect demand, imposing further restrictions.

"The banks were not solely to blame for the economic crisis, but we do believe that they owe a debt and have a responsibility to help the country its continued recovery."

Some of the most prominent schemes to ease constraints on the mortgage market include:

Funding for Lending – An £80 billion tranche of money that the Bank of England is providing to high street banks at cheap rates. It is hoped the banks will then pass the money on affordably as individual and business loans.

New Buy – A scheme instigated by government in conjunction with property developers which allows people to buy new-build homes with only a five-to-ten per cent deposit. A portion of each sale is put aside to cover potential losses suffered by the bank in any resulting defaulted mortgages.

Shared ownership – A system whereby the prospective homeowner buys only half of their house, therefore paying less in their monthly repayments and requiring a smaller deposit upfront. A local housing authority or property developer buys the other half and rents it back to the co-owner.

Equity loan – A loan from government towards the purchase of a property which incurs no interest payments for the first five years.

Know Your Money urges anyone that wants to be kept up-to-date with the very latest developments in the mortgage market, including news of government schemes to help first time buyers, to sign up to its weekly general finance e-newsletter and specialist mortgages mailer – found on their mortgage comparison page here.

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