It was refreshing to see a few days ago that there is to be another enquiry into the mortgage industry and why lenders are not lending more – refreshing in a dry glass of hot sawdust type of way!
They are going to investigate in-particular, “the sharp rise in repossessions and the chronic shortage of affordable home loans for first-time buyers”.
Brilliant. Is that really the best that the Government can come up with? A cross-party committee of MP’s wagging fingers at bankers and telling everyone what they are doing wrong whilst they try to keep their latest expenses form under wraps!
More worryingly, the question that really should be asked is do they really still not understand what is going on and what the real issues are?
As far as repossessions are concerned, yesterday we saw the Fitch report which suggested that 15% of prime home loans were in negative equity. As someone who took out a 90% remortgage at the height of the market you can add me into that stat! To be honest it was actually a calculated move as I believed if I did not release the equity then I would not be able to for a while!
Anyway, where was I? Oh yes, while on first glance the Fitch report makes grim reading for many homeowners across the country, the key is not to panic. Yet.
Firstly, the current negative equity predicament is not the unmitigated disaster it could have been if interest rates were still at 2008 levels. Also, negative equity is only a problem if you have to move or remortgage, and for many homeowners they are not in this position and can hopefully ride out the storm and wait for prices to rise again.
The blow of falling prices has been lessened by many people also seeing their mortgage payments fall dramatically in the last nine months. Homeowners can still take advantage of low rates and try and pay off a large chunk of their mortgage while payments are so affordable.
For example, if you have an interest only mortgage, you should look, if you can, into converting to a repayment mortgage in the short-term, making sure that your lender will let you switch back to an interest only mortgage if rates start to rise quickly. This means any negative equity positions won’t be as pronounced if capital is being paid off.
The real issue will come in a few months time, when rates rise again, before house prices have had a chance to pick up dramatically. That is when I expect to see the repossession figures rise again, and all those people who did not fix in when they had the chance begin to kick themselves.