In providing that support, moreover, the Treasury met two of the government’s principal objectives: protecting depositors’ money in banks and maintaining the stability of the financial system.  The final cost to the taxpayer will not, however, be known for a number of years.

Today’s overview of the government’s response to the crisis shows that the purchases of shares by the public sector together with offers of guarantees, insurance and loans made to banks reached £850 billion, an unprecedented level of support.

However, there have been no disorderly failures of UK banks and no retail depositor in a bank operating in the UK has lost money.  And, by the end of November 2009, the banking sector as a whole had benefited from improved confidence.  But, in 2009-2010, lending to businesses is not likely to meet targets.

The scale of the loss to the taxpayer will not be known for years to come.  The Treasury estimated in April 2009 that there may be a loss to the taxpayer of between £20 billion and £50 billion, the wide range reflecting the inevitable uncertainty involved in such an estimate.  Total losses will depend on losses from the Asset Protection Scheme and the price at which the government sells its holdings in RBS and Lloyd’s.

The Treasury expects by April 2010 to have spent £107 million on advisers, some of whom had to be employed at short notice.  In total, just under £100 million is expected to be refunded by the banks.  Two sets of financial advisers-from Credit Suisse and Deutsche Bank respectively – who were each appointed on retainers of £200,000 a month for a year.  The contracts included provisions for success fees of up to £5.8 million, payable at the Treasury’s discretion.

As a condition of the recapitalisation scheme, RBS and Lloyd’s agreed to targets for retail mortgage lending and business lending: RBS would lend an additional £25 billion in 2009-10, and Lloyd’s an additional £14 billion.

To date, both banks are on track to meet their retail mortgage lending commitments but lending to businesses is likely to fall short of the targets.  The Treasury is monitoring progress and meets each of the banks regularly.  The only formal sanction available if targets are not met is a potential refusal to extend guarantees for wholesale borrowing under the Credit Guarantee Scheme.

However, the reduction in rates, taking nearly four months has not been so rapid.  For borrowers looking to fix their repayments for a longer period there is not such good news.  The average three year fixed rate mortgage has increased over the last few months standing at 5.58% today.

While the margin on the average five year fixed rate mortgage has increased to the widest on record.

Spokesperson for Moneyfacts.co.uk

“Borrowers are finally starting to see more positive news coming out of the mortgage market.  Falling rates on popular two year fixed rate mortgages, occurring against a backdrop of lenders raising the maximum LTV on their most competitive deals suggests that competition is increasing.”

“Lenders have become accustomed to the post banking collapse world and appear to finally be relaxing their credit criteria while remaining within a regulated frame work.  Swap rates have been falling over the last few weeks, but mortgage rates on medium term deals are yet to follow suit.”

“Borrowers will be hoping the easing of credit criteria continues and that lenders will start to reduce the large margin for risk they have been taking over the last year.  While it may still be too early to say the worst is over, the signs are all there.”

For more information or help with your mortgage please contact us.

1808 Coalition partners are:

• Association of Mortgage Intermediaries [AMI]
• Association of Residential Lettings Agents [ARLA]
• Building Societies Association [BSA]
• Council of Mortgage Lenders [CML]
• Home Builders Federation [HBF]
• National Association of Estate Agents [NAEA]
• National Landlords Association [NLA]

The current Stamp Duty ‘holiday’ for properties lower than £175,000 is due to expire at the start of 2010 but in a recent survey by the NAEA, 91 per cent of estate agents surveyed felt that it should be extended, 86 per cent of those surveyed felt that the tax is unfair.

Chief Executive of the NAEA, said:

The Coalition believes that Stamp Duty is an anachronistic tax which, in its current form, is preventing a recovery in the housing sector – it limits market flexibility, creates regional inequality and its slab structure unfairly distorts the housing market.  With the Pre Budget Report due soon, now is the time for the Government to take action.

Director of the AMI, said:

It is rare that the breadth of our industry comes together with such consensus on an issue.  But the current Stamp Duty regime is distorting the market to such an extent that we feel compelled to speak out.  The Association of Mortgage Intermediaries is fully committed to supporting this industry campaign to reform the regime.  We implore the Government to not only listen but, to act in support of our request for change to this damaging tax.

Director of Economic Affairs, said:

It is imperative that the first signs of market stabilisation that have emerged in recent months, and which have allowed home builders to begin tentatively opening new sites and expanding output and employment, are nurtured.  The Government’s stimulus measures for housing, including the raised stamp duty threshold, have played a significant part of this stabilisation and it is vital that they are not removed at this stage, either in total or in part.

Chairman, NLA, said:

Stamp Duty Land Tax is a pernicious tax which has failed to keep pace with house price appreciation.  It creates an unbalanced housing market and discourages investment in housing.  Reform is needed now.

95,000 fresh stock, down 36% on 2007, including 22,000 stamp duty exempt sellers looking to cash-in before buyer incentive ends in January, with now being the ‘Window of opportunity for sellers’ given the 2010 election and economic uncertainties facing the next Government and home movers.

Sellers’ markets are associated with high volumes of buyers ready, willing and able to proceed. The number of buyers who can fulfil theses criteria remains well below historical norms, yet this month’s statistics from Rightmove show a 2.8% rise in new sellers’ average asking prices. This is the largest rise seen during October in six years, a highly unusual time of year to see such a strong sellers’ market emerge, especially given the current economic backdrop.

The good news for buyers is that many Lenders are lowering their Fixed and Tracker rates bringing gradual confidence back into the mortgage market.

Make no mistake, first time buyers hold the key to building the momentum behind a sustainable recovery.  However, that will never happen if lenders do not step up to the plate and start lending at higher LTVs.  Now is the time to resume normal risk-based lending and to move back to the core competency of assessing risk and demonstrating underwriting skills.

Government-owned banks have recently made some effort to lend at higher loan to values, but what is really needed is a widespread commitment by all lenders to increase to a minimum of 90 per cent LTV.

In the not too distant past, 90 per cent LTV was the entry point for customers to provide a sensible commitment to the property, and for the lender to respect that commitment and price accordingly.  We are in danger of snuffing out the flickering candle of a housing receover before it has begun to generate some longer lasting light of optimism.

We firmly believe that a return to normal risk-based lending at reasonable and sustainable levels would breathe new life into the mortgage market, by giving first time buyers a more realistic and smoother entry into the market.  Despite widespread concerns about the potential recovery of the mortgage market, the long-term demographics and indicators remain strong.  We live on an island with some of the toughest planning rules in Europe and, with a population of over 60 million people, the long term demand for housingcan only increase.  We do not expect any recession, however deep, to make British people fall out of love with the dream of home ownership over the longer term.

Our message to all lenders is that we know how tough the pressures are on balance sheets, capital and profits, but housing and the supply of credit to potential homeowners, is fundamental to our society.  We have a culture of long term home ownership, a framework of regulation of advisers and quality processes.  We need you to step up the flow of mortgage funding to first time buyers, and higher loan to value products.  Not a return to the heady days of 2007, but sensible lending to sensible borrowers – at sensible prices.

Assessing and pricing risk is a core competency for lenders.  We believe it is time for lenders to step forward and demonstrate their underwriting expertise.

Written by Sue Aktins

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