Surge in 100% mortgages means thousands risk negative equity

Thousands of first-time buyers could find themselves in negative equity following a big increase in the number of 100% mortgages available, according to new research issued yesterday.

An estimated 33,000 first-time buyers borrowed the full value of their property, or in some cases more than it was worth, between January 2006 and August 2007, said the mortgage website mform.co.uk. Such deals are allowing people to get on to the housing ladder without having to raise a deposit.

But earlier this week, the body representing mortgage lenders warned that the housing market was about to stall, and some commentators believe this has already begun. A report from the website Hometrack, published on Monday, claimed house prices fell by 0.1% during October - the first fall for two years. There has also been a warning that home repossessions could rise by 50% next year.

Homebuyers who have recently taken out 100%-plus loans are particularly vulnerable to price falls, as they have no equity to cushion them if there is a drop in the value of their home. In some cases, even a small fall in house prices would leave them owing more on their mortgage than their home is worth.

Rising property prices have meant that people need to borrow even more money to get the property they want, and lenders have responded by dramatically increasing the number of 100% mortgages available, according to mform.co.uk

"In April this year, our research showed there were 92 different 100% mortgages to choose from, but by October 1, this had increased to 160," said Francis Ghiloni, the site's marketing and business development director. "If house prices fall, as some commentators predict, those homeowners with these mortgages are likely to encounter negative equity."

The high-street bank Abbey recently began trialling the "100% Plus Mortgage", which, in addition to allowing people to borrow the full value of their property, enables them to borrow up to a further £25,000, secured on their home. Abbey suggested the money might be used for "renovating your home, buying a new car or consolidating all your debts".

Property viewed 'safer than cash'

A majority of British people believe buying property is now a safer place to put their money than saving with a bank or building society.

Research for the BBC Two series, The Truth About Property, found 53% of respondents believed owning property was safer than cash.

The poll took place in the aftermath of the Northern Rock crisis, the first run on a British bank in nearly 150 years.

The findings come despite mounting evidence of a slowing housing market.

Booming house prices in Inverurie

Inverurie has the fastest-rising property prices in Scotland, according to new figures.

The Aberdeenshire town has joined Aberdeen and Edinburgh as the only places in Scotland where the average cost of a home is over £200,000.

The Bank of Scotland survey showed householders in Inverurie have seen their property value rise by 35%.

But the town's councillor warned that the housing boom also brings hidden costs to the community.

According to the bank's figures, average house prices across Scotland as a whole rose by 14% in the last year to just over £141,000, 3.5% above the UK average.

Bank of Scotland economists said the market in Inverurie is being driven by the high prices in Aberdeen which is creating a ripple effect to the rest of Aberdeenshire.

'Younger families'

But Councillor Richard Cowling, who represents Inverurie on the local authority, warned many people were being priced out of the market.

He said: "I think initially people will be delighted that they own expensive houses but I think it is going to cause a lot of grief and a lot of problems at the lower end of the scale and for those attempting to get on the property market.

"Currently we are seeing a large influx of younger families. It is having an impact on our education and our schools."

Concerns have also been raised that migrant workers who have increasingly found work in Inverurie will be priced out of the housing market.

Other services in the town are also being put under pressure, including its only GP practice, which is now the biggest in Scotland. From - BBC NEWS

Britain's deflating buy-to-let bubble

It sounds too good to be true.

Take out a mortgage to buy a property and then, while the rent covers the mortgage repayments, the capital value of the property increases year on year.

For many years, that was the way it was, but now there are signs that the years of easy money may be coming to an end.

In 1996, when buy-to-let mortgages were first launched, only 20,000 were taken out. By June 2007 this figure had grown to 940,000 and the total amount borrowed to £108bn.

It has been phenomenally successful and one of the best performing investments around.

Many buy-to-let investors have made fortunes as house prices increased and mortgage rates remained low.

One such investor is Raj Shastri who has seen his initial £950 investment grow over the last five years into a portfolio worth £8m.

Slow-down in NI's property market

Figures on mortgage lending obtained by the BBC show a significant decline in the number of home loans for house purchase.

According to the Council of Mortgage Lenders (CML), 16,500 mortgages were granted in Northern Ireland between January and August last year.

Three thousand fewer loans were made in the same period this year - a 19% drop.

In August, banks and building societies loaned £193m in mortgages to local homebuyers, down from £270m in the same month last year - a decline of 39%.

These figures do not include re-mortgaging, they cover first-time buyers and people moving from one house to another.

Sources in the banking industry say some of the small, independent mortgage brokers who entered the market during the house price boom may not survive the slow-down.

Two recent house price surveys - from the Halifax and Nationwide - showed that the market locally has cooled.

If the data is taken togther, it suggests that house prices in the last quarter stayed level.

It is understood that some developers have stopped building new homes in recent weeks, as house sales have tailed off.

Surveyors see house price falls

House prices are continuing to turn down, says the Royal Institution of Chartered Surveyors (Rics).

Its latest survey says UK house prices in September generally fell again, with more of its members reporting a fall in prices locally than an increase.

It said enquiries from new buyers had fallen for the tenth month in a row.

Rics blamed the downward trend on a combination of factors, such as higher interest rates and lenders tightening their lending criteria.

"A major correction in the market seems unlikely while economic growth is above trend and employment conditions remain buoyant," said RICS spokesman Jeremy Leaf.

"The combination of rising interest rates, the introduction of home information packs (Hips) and volatility in the financial markets resulting in tightening of lending criteria, has certainly affected the confidence of buyers and sellers," he added.

Rics said that the downturn seems to be severest in East Anglia, and the West and East Midlands, though prices are still going up in Scotland and London.

Lawsuit: Layoffs at Foxtons broke law

Two former Foxtons Inc. employees said the real estate company violated federal law when it didn't give them and their co-workers at least 60 days' notice before laying them off, according to a lawsuit filed Thursday in U.S. District Court.

Marco Cimmino of Neptune and Abram Covella of Pine Beach, who worked as home consultants, filed the lawsuit on behalf of a class of workers. They're seeking to recover lost wages and benefits, said attorneys David A. Krenkel and Lisa C. Krenkel.

West Long Branch-based Foxtons, a real estate broker that billed itself as a low-cost alternative, last week said it couldn't continue to operate in the faltering real estate market. It laid off 350 of its 380 employees and said it plans to file for bankruptcy.

The question: Did Foxtons violate the Worker Adjustment and Retraining Notification Act, which requires companies with 100 or more employees to give workers at least 60 days' notice before a mass layoff?

Foxtons could not be reached for comment. But the law has caveats. Employers don't need to give advance notice if they are the victim of a natural disaster or unforeseen business circumstances, or if they believed giving notice would have ruined their chances to obtain financing. More>>