UK home prices up less than expected in June
Published July 5, 2007
UK home prices up less than expected in June
(LONDON) British house prices rose slightly less than expected in June, suggesting higher interest rates are beginning to take their toll on the property market, a survey showed yesterday.
Mortgage lender Halifax said house prices rose 0.4 per cent in June, taking the annual three-month rate to 10.7 per cent. That was below forecasts for a monthly gain of 0.5 per cent and annual rise of 10.9 per cent, but above a 0.2 per cent rise in May. Annual house price inflation for that month was 10.6 per cent.
'Overall, the evidence suggests to us that the housing market has peaked and is gradually coming off the boil,' said Howard Archer, economist at Global Insight.
The figures came after Finance Minister Alistair Darling expressed concern about the financial burden faced by thousands of Britons whose fixed-rate mortgages are due to expire just as interest rates are expected to go up for a fifth time in a year.
The Bank of England is widely expected to raise borrowing costs to 5.75 per cent today, following four quarter percentage-point increases since last August.
Halifax chief economist Martin Ellis reckons this could cool the market. 'The increase in mortgage interest rates - both for fixed and variable products - is curbing demand and will continue to act as a constraint over the coming months,' he said.
But other housing market data have suggested the market remains in good shape, despite the rising cost of borrowing.
Mortgage lender Nationwide said last week that house prices rose 1.1 per cent in June, taking annual house price inflation to its highest in more than 2 years.
BoE data showed mortgage approvals rose more than expected in May, suggesting the outlook for prices is firm. Halifax said the cost of an average home stood at £197,461. -- Reuters
FSA warns of risky subprime loan practices
Published July 5, 2007
FSA warns of risky subprime loan practices
It says not enough being done to assess customers' ability to afford mortgages
(LONDON) Britain's financial watchdog yesterday accused lenders and brokers in the subprime mortgage market of not doing enough to check that customers can repay loans and warned poor practices could have wider repercussions.
Publishing the results of a review of Britain's fast-growing subprime market, which lends to consumers with poor credit records, the Financial Services Authority (FSA) said it had started disciplinary action against five unidentified intermediary firms as a result of the poor practices it uncovered.
'We are very concerned about these findings,' said Clive Briault, the FSA's managing director of retail markets.
'The high level of subprime arrears in a benign market raises some important questions about the consideration given to affordability by lenders and intermediaries when undertaking this business.' According to the FSA, subprime arrears are running at around 20 times arrears on traditional mortgages.
Turmoil in the US subprime market in past months has hit specialist lenders, retail banks and investment banks as US homeowners fall behind in mortgage payments, forcing dozens of firms out of business or into bankruptcy protection.
The storm has not spread to the UK market, where lenders have been less aggressive in their lending practices.
But against a background of rising interest rates and creeping consumer debt, the FSA has said it will increase its focus on sectors of the mortgage market with greater risks.
The UK and US markets have so far shown different dynamics, but the FSA has also pointed to parallels, as concerns grow that even a slowdown in British house price rises could expose over-stretched borrowers.
In the results of the review, which looked at 11 lender firms representing over 50 per cent of the subprime market and at 34 intermediaries, the FSA said it found no significant evidence that subprime mortgages had been wrongly sold to customers who could have got cheaper, regular 'prime' mortgages.
But it said intermediaries' practices showed no improvement since it last looked at the sector in 2005, adding that brokers needed to do more to demonstrate they were recommending the right products and keeping adequate records.
The FSA said a third of intermediary files showed inadequate assessments of the customer's ability to afford the mortgage. In almost half the cases, insufficient information was gathered on the customer ahead of the mortgage advice being provided.
For lenders, the regulator said the main weaknesses were in lending policies, which sometimes included unclear requirements on affordability or on self-certification, a process in which borrowers are not required to provide proof of income.
'Consumers should make sure they understand the risks, costs and charges when taking out a subprime mortgage, particularly at a time when interest rates are rising,' Mr Briault said.
One major issue in the UK subprime sector is data, which remains patchy even though the industry has been growing since the recession of the 1990s and now includes over 30 lenders. The Bank of England, which publishes official mortgage data, does not split out subprime arrears, for example.
The Council of Mortgage Lenders said yesterday it planned to bring in definitions of types of 'adverse credit' to allow lenders to benchmark performance.
Far smaller than its counterpart in the United States, annual lending in the UK subprime sector totals around £pounds;30 billion (S$91.9 billion), according to estimates from mortgage broker John Charcol, or around 8 per cent of the market. -- Reuters
