Among a whole raft of proposals in its consultation paper on responsible lending released earlier this week, the Financial Services Authority (FSA) outlined plans to finally outlaw self certification mortgages.

Image: Now a successful self-employed puppet, his past track record meant that no one would consider him for a mortgage

The proposed changes aim to ensure all lenders get back to the basics of responsible lending and that problems are prevented before they can develop or get out of control. The new proposals form part of a major review by the FSA into the UK mortgage market and are based on detailed analysis of past lending decisions, looking at the causes of arrears and repossessions since 2005.

During this review, the FSA found that almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income.

The truth is that the demise of the self-certification mortgage began shortly after the start of the current mortgage crisis, as lenders introduced much stricter lending criteria and began to shy away from higher risk lending.

There is still a place for self-certification mortgages in the market, but only if the product is prudently assessed for realistic declarations and sold to groups whom it is designed to assist in the first place: one of those being the self employed.

The majority of self-employed individuals’ published accounts cannot give an accurate, current picture of disposable income as they understandably tend to take full advantage of tax avoidance accounting in order to minimise tax liabilities.

There needs to be an alternative solution for the self-employed as an ever growing number of people either choose or are forced (through redundancy, a desire to work and a lack of permanent work available) into this route.

The mess we are in has been caused because people were allowed to self-certify with virtually no deposit and a poor credit history. As long as somebody can prove affordability and has a 25% plus deposit where is the problem?

There is little doubt that self-cert was wrong for the majority but necessary for many to get onto the housing ladder. A spokeswoman for the FSA has said that, although those people running small businesses might struggle to get a mortgage early on in their career, they would be able to do so in due course. Prospective entrepreneurs, who are urgently needed to drive the stalling economy, will no doubt be cheered by that news.

The real problem still remains. Until access to finance improves, the mortgage market will inevitably slow and probably decline. Renting looks set to become a necessity rather than a choice for most. Perhaps the recently maligned buy-to-let sector holds some value and appeal after all – if you can obtain a mortgage of course.

Lesley Titcomb, the FSA Director responsible for the mortgage market, said: “We need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers.”

It is my opinion that these proposals may help to stop any mortgage market recovery dead in its tracks, especially for those who are working for themselves

The FSA is actively seeking views from consumer groups and invites responses by 16 November 2010.

Lee Tillcock, Editor, Moneyfacts Group

A second mortgage lender, Lloyds TSB, has announced that it is withdrawing its standard variable rate (SVR) which guaranteed not to rise more than 2% above base rate. It follows Nationwide, which withdrew a similar mortgage last year.

Image: Seems like all the best deals are under lock and key

These mortgage deals originally reflected an incredibly busy, aggressive market place. It is hard to believe now, but in July 2007 there were 11,951 different mortgage products available. Imagine all the banks and building societies trying to make their propositions stand out from that massive crowd.

One way was to offer free legal expenses, but everyone did that. Then came the ‘no fee’ mortgages, but everyone did that too. Another idea to draw in potential customers was the launch of SVRs guaranteeing never to rise more than a set percent above base rate.

However, no one expected interest rates to drop to 0.5% or that they would stay so low for so long. The consequences are that there is no longer enough profit in this style of mortgage. Nationwide have admitted to losing £450m in profits just from having a guaranteed SVR, hence their withdrawal.

Sadly, what this means for new customers is that they are simply not going to be able to get this sort of deal any more; at least not until the mortgage market regains some of its size of past years and that is a shame for new borrowers.

However, it is the existing borrowers that need to watch out. The race is now on to convince anyone with a guaranteed SVR to swap to a lower rate mortgage. Trust me these ‘deals’ will pop up. They’re aimed at drawing you in, but by doing so you will give up any right to a guaranteed SVR.

One tip is to check the ‘true cost’ of the mortgage. You can use our free mortgage calculator to do this. It will work out the money you will spend over the life of the mortgage, including the deal payments and the normal payments you make once you revert to the normal SVR. Common sense says go with the cheapest ‘true cost’.

The moral of my little soap box is that they can stop new people from getting the deals, but once you have it – it is up to you if you decide to let go of it.

Sylvia Waycot, Publishing Director- Moneyfacts Group

It is hardly a Lazarus-style comeback, but the rise in the number of buy-to-let (BTL) products currently available is welcome nonetheless.

Image: The recovery in the BTL sector is likely to be a marathon, not a sprint.

Figures from Moneyfacts.co.uk have revealed that, as things stand, there are 239 BTL deals. Clearly, this is not a figure that will have people, BTL investors in particular, jumping for joy, but it is a step, albeit a minor one, in the right direction.

In August 2007, the sector reached its peak, with a weighty choice of BTL mortgages on offer, 3,662 to be exact. That period has become synonymous with the start of the global economic downturn and the housing market crash that came with it.

The sector has been in freefall ever since; the period between August 2007 and November 2007 saw a sharp contraction, with the number of BTL mortgages falling from 3,662 to 1,942. Twelve months ago, that number had fallen to a mere 308, before arriving at a low of 179 in September.

Such slender pickings have meant a difficult time for BTL investors, with numerous providers pulling out of the arena, and those remaining reigning in their lending and pulling their most competitive offers.

Landlords were hit with further bad news in August when the Government announced it was to give councils the power to limit the number of houses in multiple occupation in any one area. These are usually found in locations with a large student population, where BTL investors have traditionally thrived.

After such a challenging period it is easy to understand why even a minor increase in the market has been welcomed as it has. Commenting on the data from the Council of Mortgage Lenders that showed gross lending in the BTL mortgage market recorded an increase for the first time in two years during the last quarter, the body’s director general chose bold rhetoric.

“At this stage, the recovery is modest - but the figures show that buy-to-let is here to stay. Buy-to-let lenders are among those facing some of the biggest challenges in raising mortgage funding, so the improved figures are all the more welcome,” said Michael Coogan.

“Future demand for housing in all tenures supported by lenders will remain strong, despite mortgage funding constraints and low construction rates. With funding for social housing under pressure, the private rented sector has a strong future.”

There is still a long way to go before the BTL market can be considered to have recovered. Competitive deals are still at a premium; the majority of landlords will need to cough up at least a 25 per cent deposit (just four 80 per cent loan-to-value deals are available), while lending criteria remains very tight.

However, the market – one that provides an opportunity for investors and a much needed service for tenants – is moving in the right direction after two straight years of near collapse. In a week when we were told to expect the rise in house prices to come to a shuddering halt, we should be thankful for small mercies.

James Henderson, Online Reporter, Moneyfacts Group

Moneyfacts celebrates its 21st birthday this month, offering a good chance to track the evolution of the mortgage market.


Image: The realisation of several years of saving for a mortgage suddenly dawned on Kat.

When Moneyfacts was established, the mortgage sector was a relatively simple one. Fixed rates were not yet common, while discounted and variable trackers were unheard of, although they would begin to appear in 1989.

True, the average rate of mortgages in 1988 was significantly higher than it is now, but in my opinion it would be almost impossible to argue that they were harder and more costly to attain. The average price of property was £57,245 in the third quarter of 1988.

Obviously, it is not fair to compare that figure to today’s data, but that figure equates to £111,542 in the present day, meaning the run of the mill home was clearly cheaper to buy 21 years ago than it is now.

When you consider that 95 per cent LTV deals were considered the norm at the time, consumers looking to buy a home could reasonably expect to save a deposit of about £2,860 – equivalent to around £5,580 today – to secure what was deemed to be an averagely priced home.

Current figures show that the average value of a home in the UK currently retails at some £160,159. The odds of finding a provider willing to lend at 95 per cent now, especially when faced with first time buyers, is small.

A 95 per cent LTV product for an averagely priced property in late 2009 would leave buyers expected to stump up around £8,000. While not small fry, this is significantly more achievable than £40,000 that would be required on a 75 per cent LTV mortgage, while a 60 per cent LTV mortgage – a corner of the market that has soared in the last 12 months – would require a deposit of around £64,000.

Associations representing estate agents have long been calling for credit lines to be opened, as of course they would, but there does seem to be real enthusiasm coming back into the market.

However, while buyers are still expected to stump up a minimum of £15,000 up front for a modest £100,000 property, real momentum will remain unattainable. This means many individuals who may realistically believe they have the means to own their own homes are unlikely to be able to do so.

However, after the housing crash, is it time for the sector to embrace a period of stability, avoiding a scenario where a raft of discount and high variable mortgages bring about large scale defaults? Or should providers be encouraged to start lending again in a bid to drive a real recovery in the wider UK economy?

Let us know what you think.

James Henderson, Online Reporter, Moneyfacts Group

We may all be forgiven for thinking that it is mortgage holders and individuals with savings who have been worst hit by the economic downturn.

Image: It was time to join the queue as a new student house had become available

Recently, however, one of the forgotten sectors most badly affected, the buy-to-let (BTL) mortgage market, has once again fallen under the spotlight.

Even though BTL borrowers continue to be starved of new deals, the old adage of ‘location, location, location’ stills rings true, with university towns remaining profitable for investors. A recent announcement may cast a shadow over even this one bright spot, in particular to houses in multiple occupation (HMOs).

HMOs are properties of three or more storeys housing five or more tenants in two or more households. Following complaints from residents in some locations colonised by students, the Government plans to give councils the power to limit the number of houses in multiple occupation (HMOs) in one area.

Some areas do become ghost towns during university holidays, noise pollution can be a problem and houses and gardens can be left messy by tenants and landlords. Whilst the need to eradicate bad landlords is unquestionable, local businesses that have grown up and thrived on student custom will also face huge difficulties if students are forced out.

With local business and BTL landlords set to suffer, where does the real reason for the announcement lie? This could be the Government’s plan to boost the housing market by increasing demand, or its plan to win points with the older population at the expense of students. The Government has already brought in rules requiring houses of multiple occupation rules to be licensed by local councils. Three years after multiple occupancy licenses became compulsory; landlords across England are still operating illegally. Perhaps the reason for the change of rules is to improve the unwelcome total of an estimated 35,000 unlicensed HMOs. Whatever the reason it is now looking at the responses to the consultation and will decide whether to make any changes to the plans in the near future; just before the General Election?

The government proposals may put more houses back into the market but where will all the displaced students live? It is at best misguided to displace all these people in the middle of a housing crisis.

Updated guidance from the National Housing and Planning Advice Unit reports that up to 5% more new homes will now need to be built annually to meet supply. Until that unlikely event occurs, the private rental sector will need to pick up the slack and meet added demand. To make this happen, the BTL market needs assistance from the banks and Government, which at the moment is not forthcoming.

Lee Tillcock, Editor of Moneyfacts

No-one likes to pay over the odds for anything, but to pay four times the price for essentially the same investment product is just plain daft.

Image: Shep’s incredibly big nose enabled him to track down the best value fund

Yet this is the situation facing a large number of investors who currently hold an index tracking fund.

Since exploding onto the investment scene in the 1990s, trackers have built up a strong following amongst investors looking for a cheap and simple way of accessing the stock market, whilst avoiding the higher costs typically associated with actively managed funds.

The majority of these funds shadow the movement of well known UK stock indices such as the FTSE 100 or the FTSE All share, although it is possible to track more exotic overseas markets.

Initially, trackers tended to charge a 1% annual management fee, which at the time was a very attractive price for gaining stock market exposure. However, with a number of providers slashing their annual management charges in recent years, it may be time to re-assess whether your existing tracker is still delivering value for money.

According to research from Fidelity International, investors are wasting a staggering £45 million in charges each year by paying too much for their funds. Three-quarters of UK tracker providers are still imposing total costs of 0.5 per cent or more on their funds, with a handful even levying front-end charges, in some instances as high as 5.5 per cent.

However, if you are considering whether to switch tracker funds you should proceed with caution. To gain a full understanding of the total cost of an index tracking fund you should look beyond the annual management charge and focus more closely on the total expense ratio (TER) instead.

The TER represents the drag on fund performance caused by all annual operating costs (including administration, custody and audit fees), not just the basic annual management charge. The cheapest UK trackers currently on the market have TERs of around 0.27%.

Price is not the only issue that you need to take into account when selecting the most appropriate tracker fund. The ability to track an index efficiently is also a key element so it is worth considering the fund’s tracking error rate.

After all there’s no point in paying for a tracker if the fund cannot replicate the index closely. Now that really would be a case of burning your money.

Richard Eagling is Editor of Investment Life & Pensions Moneyfacts

Last week, the Citizens Advice Bureau (CAB) announced that more than 62,000 people declared themselves bankrupt last year, an increase of almost 10,000 compared to 2005.

Image: Jack had to take it upon himself to brush up on his personal finance skills

While those figures are representative of all age groups, the body says that the increase is likely to be at least in part to people aged 30 and under relying on credit cards, loans and store cards to fund extravagant lifestyles.

The scale of the problem certainly seems to be worsening; the CAB says it is getting increasingly worried about the number of young people that are going to them for help with the debts they have built up. Over 50,000 under 25s visited a CAB centre in England and Wales in 2008 and 2009, while further research found that a staggering quarter of 16 to 24 year olds have suffered mental health issues because of the state of their finances.

The reasons cited for this worrying trend are depressingly familiar. Young women are racking up debt like it’s going out of fashion because, ironically, they just have to be bang on trend – if Coleen or Cheryl has it, so must they. Young men seem to be no better; never mind that the car, bike or gadget is inordinately unaffordable, the attitude for some has become buy now, pay later. The reality, however, is that they will never be able to pay, instead falling into bankruptcy.

There are programmes out there that help young people who find themselves in this situation, and they should be applauded. But isn’t it about time that more emphasis was put on educating people from a young age on the pitfalls of frivolous spending? Should they not be taught that heavy debt puts a significant burden on both their financial and social wellbeing? Surely by teaching children in first and secondary schools about sound financial choices and the pitfalls of debt, the number of young people being declared bankrupt in years to come has more chance of falling.

At present, the national curriculum encompasses a personal, social, health and economic education module, with one of the aims being to provide students with financial capability. Now, forgetting the fact that the financial aspect takes up just a quarter of the programme, it is actually considered a non-statutory module of study at all four key stages. A child could quite conceivably go through their entire school life without being taught so much as how to use a debit card.

Are subjects such as design and technology and citizenship really considered to be more important than personal finance? And if so, why? Pupils leaving school and entering the world of work or further education should have at least some idea of personal banking, income tax, how to budget effectively, how to service small levels of debt effectively and so on. By the same token, the long-term effects of building up unmanageable debt levels and ultimately, bankruptcy, should be made crystal clear. Making personal finance a statutory part of the national curriculum is the only way this could conceivably be done effectively.

At a time when poor credit history means that your chances of securing anything from a mortgage right down to a phone contract will be hindered for years to come, we are doing the younger generation a disservice by letting them walk blindly into a world of debt.

James Henderson, Reporter, Moneyfacts Group

Unless you’ve been on Mars, you’ll know property values have slumped over the last 18 months or so and as a result the housing market virtually ground to a halt in that time too.

Image: Dennis was desperate to move to a bigger kennel, but nobody wanted his old one

So in a buyers market such as now, sellers itching to move are desperate to make their property the one that stands out from the crowd.

However, a quick hoover around and making sure the pots and pans are washed up is unlikely to cut the mustard when buyers are in the box seat.

Fortunately, a new report from Nationwide has revealed the things about your home that could make a difference when a prospective purchaser turns up on your doorstep.

Certain characteristics are likely to make a home relatively more attractive and increase its value to boot; equally, there are a few things that can lop a few pounds off its price too.

Top of the list, unsurprisingly, remains location, although unless you live in a caravan, it’s unlikely you’ll be able to do much to alter it.

More feasible to most is extending your home, with a 10% increase in floor space thought to add almost 5% to the value of a typical house.

What is more, the larger the property, the more people are willing to pay for extra room, with a similar size increase in the floor space of a detached house adding almost 7% to its price.

Add a decent sized bedroom to your property and not only is it likely to increase your home’s desirability, but on average it can add around 11% to its price too.

In a similar vein, getting DIY SOS to pop round and convert your loft to create an extra bedroom and bathroom can add up to 20% in value.

Likely to be cheaper, and certainly less intrusive than having a TV crew in your living room, would be to install central heating. Considered now to be the norm, homes without it are often sold at a price around 9% lower compared with an otherwise identical property. Meanwhile, rising energy costs and a nation’s increasingly green conscience has seen double glazing alongside cavity wall and loft insulation become an ever more sellable feature of a property. So if you’re one of the many waiting for the housing market to wake from its slumber, there’s probably never been a better time to dust down the toolkit and find out if DIY really is as simple as Handy Andy will have us all believe

Tim Leonard, Senior Reporter, Moneyfacts Group

When not discussing the health of Susan Boyle, last night’s winner of the Apprentice, or the dubious virtues of the new Big Brother contestants, the current state of the housing market remains the primary topic of debate throughout households across the country.

Above: Percy knew that it would take more than the smell of fresh coffee and baking bread to sell his home

With reports stating that public confidence in the housing market is slowly building and poor buyer sentiment is receding, house prices remain close to long term affordability, and interest rates are likely to remain low for the foreseeable future, how can we provide impetus to help the market?

My recent forays into the property market have provided me with a personal insight into its various machinations. Whilst my qualification wasn’t gained in economics, I do profess to having gained a degree of common sense that qualifies me to suggest a few ideas to keep the buying and selling process moving.

As a very basic summary of the property market over the past six months, there have been quite a lot of sellers, a large number of interested buyers, but very few sales taking place. The tightening of lending criteria has obviously played a huge part in this, and a change in the general attitude of buyers and sellers is required to boost sales.

Trying to attain the perfect deal causes stresses and frustrations. As a general rule of thumb, irrespective of whether you are the vendor or the purchaser, always remember that you won't get the best price on your property deal. It is almost inevitable that you will not buy at the bottom of the market, or sell at the top of the market. We cannot all get the best price.

Sellers who simply cannot wait for prices to rise again must reduce their prices to a level at which they think their property will actually sell. Buyers will still try to haggle, but because the house is priced correctly, vendors should stand their ground as prospective buyers will continue to call. There is of course the danger that agents are under-pricing your home for a quick sale. Again, trust your own judgement.

Confidence and the power of perception play a large part in dictating the direction house prices move. Buyers waiting for the bottom of the market are playing a risky game as once a consensus is reached, buyers will rush in once more. Far better to consider making a best guess on the eventual market bottom and start making offers based around that figure.

A realistic and competitively priced house will help everybody involved in any individual sale and purchase, as well the market in general. The likelihood of having a mortgage approved increases if the asking price is slightly lower and more reasonable; lenders are well aware how inflated some house prices are.

Whilst the points raised are achievable they do require a change in human nature, as those involved in the housing market must be satisfied simply to do better than average, and get something of a bargain. Satisfaction will keep the market moving but provide disappointment for those expecting to get much more from the get-rich-quick property game. If the natural urge always to bag the best possible deal can be controlled, then the one good thing to come out of the recession will be an end to house price mania, and the start of a healthier relationship towards property

Lee Tillcock, Editor of Moneyfacts

While house prices have declined markedly over the past 18 months, they have still yet to reach an affordable level, for low earners or single households in particular.

Above: Olive the orangutan was perplexed at the price of her credit check

With the median wage (the amount which 50 per cent of people are adjudged to earn more and 50 per cent less) recently estimated to be £20,000, where does that leave those of us without partners or low earning couples who don’t fancy their first step on the property ladder resembling a squat?

The answer is probably the rental market and all the joys it brings, namely the inflated charges that tenants are obliged to pay out to letting agents. The Citizen’s Advice Bureau (CAB) shed some well overdue light on this practice recently, highlighting the need for change and regulation.

Entitled ‘Let down’ the report detailed how 94 per cent of letting agents in the UK impose additional charges to customers. This discounts tenancy deposits and rents, with some adding up to seven additional fees for various duties. These include: a deposit administration fee, a reference check charge, an administration fee, a check-in inventory charge, a check out inventory charge, a tenancy renewal fee and a non-refundable holding deposit.

A reference check charge? If that’s any more than the cost of a stamp or a phone call to confirm the supplied details then something is clearly not right there either. It continues; a check-in and check-out inventory charge? I must have missed the point when letting agents began to mistake themselves for airport terminal staff.

Joking aside (the woman with two children in the report who paid out over £800 in fees, only to get nothing in return, certainly won’t be laughing), the CAB is dead right to ask Government to expand its recently announced plans to include a ban on these additional charges that have been labelled as simply the routine business of letting an managing property.

Fees charged for credit checks are also an issue that have to be addressed. If consumers are being charged anything from £10 to £275 for this service (non-refundable whatever the outcome, of course) then decisive action is needed. How about a system whereby a consumer can buy an up to date, personal credit report from a trusted source which is forwarded on to the relevant letting agent? Not ideal perhaps, but some real dialogue is needed to help would-be renters out.

Nobody is looking for a free ride; people realise that the process of securing a rental property is costly. Damage deposits, rent in advance and the like are fair game and expected. What isn’t on or right are hyper inflated charges for services that should be part of the service. For that reason, we should support the calls from the CAB for tighter regulation – let’s hope the Government is listening.

James Henderson, Reporter, Moneyfacts Group