Jump in buy-to-let demand

Demand for buy-to-let lending increased significantly in the three months to Christmas, according to the Bank of England.

Lenders expect more jostling for buy-to-let mortgages in the first quarter of 2016.

Housing experts predict that prospective landlords will move as quickly as possible to complete purchases before stamp duty on second homes goes up in April.

George Osborne is imposing a 3% surcharge on the duty to target buy-to-let investors.

The Bank of England said 22 per cent more lenders reported increases rather than decreases in the demand for loans.

Looking ahead, 30 per cent more lenders expect demand to grow even further over the next few months.

Yesterday the Council of Mortgage Lenders said the number of buy-to-let loans leapt by 35% in the month of November, compared to the same month a year before.

TSB cherry picks Northern Rock mortgages

Who are the 34,000 mortgage borrowers who are being moved from Northern Rock to TSB via Cerberus, a US investment firm?

Well we know some of them had the Together mortgage, the Northern Rock product offered just before the financial crisis, which allowed people to borrow 125% of the value of the home they were buying.

Many Together borrowers got into serious trouble, couldn't afford the payments and ended up paying what they thought were very high rates to the rescued rump of Northern Rock.

But we also know that TSB calls the group which they have taken on "real people in their homes who have been managing their mortgages well, with good performing, seasoned loans".

It seems as though TSB managers were able to choose which loans they wanted. I've been told that they:

"Were able to define the parameters for our risk appetite and characteristics of the loans we would be acquiring as part of structuring the transaction.

"The customers were then randomly selected within this....we are comfortable with the risk profile of the portfolio."

To some this will sound like cherry picking.

And, of course, if the government - and in turn Cerberus - want to sell things out of the Northern Rock portfolio, they have to offer items which investors want to buy.

The average interest rate being paid by the 34,000 is 4.49%, well above the typical rate for mortgage borrowers and  potentially a nice earner for TSB.

Housing market cooling

Leading banks say that the cooling of the property market has continued in recent weeks.

The number of mortgages approved for house buyers was down 16% in October compared with last year, at just over 37,000, according to the British Bankers Association.

High house prices and tougher rules on mortgage applications appear to be holding buyers back.

Matthew Pointon of Capital Economics commented that the figures reflect a "sharp slowdown in housing demand", though a flurry of cheaper mortgage deals could revive interest.

The Halifax predicted that overall growth in house prices would slip to between 3 and 5 per cent next year, after peaking at 10 per cent in July.

However, the number of house sales is still on the up according to data from HM Revenue & Customs, which takes into account purchases for cash as well as mortgages.

HMRC reported on Friday that there were 114,000 transactions in October, a rise from 102,000 in the same month last year.

Scottish homes tottering?

There is quite a lot of talk among Scottish estate agents and surveyors, and among mortgage brokers, about the potentially serious impact of a Yes vote.

There would be uncertainty, of course, but there is also speculation that mortgage lenders would be reluctant to lend and that house prices could fall sharply.

The reasoning is that the the possibility of Scotland adopting its own currency would raise the spectre of customers earning their wages in that new currency -- which might fall in value -- but having to pay back their loans in sterling.

Their monthly payments could go up. Hence banks might shy away from offering new mortgages.

One broker suggested the consequence could be a 25% fall in house prices in Scotland.

However, a top manager in one of the lenders tells me that this scenario is most unlikely, at the moment.

His bank has no plans to restrict mortgage lending in the event of a Yes vote, partly because they don't see the currency problem as a serious issue yet.

The view is that an independent Scotland would choose to stick with the pound, even if the UK government refused to allow a full monetary union.

"We'll still lend," is the reassurance I heard, "and we'll see what happens."

Your money and a Yes

How would Scottish independence affect savings, mortgages etc held by people in Scotland?

The worries people seem to have hinge on the big question over which notes and coins might be used.

If an independent Scotland managed to keep the pound, then it might be easier to keep things much as they are at the moment - unless a new government in Edinburgh decided it wanted to change the rules.

But if not? If Scotland had a different currency, what then?

*Mortgages
Would homeowners be in the worrying position of paying interest and paying back their sterling loan in a different currency to their wages?
Would new borrowers, using a new Scottish currency, find they pay higher interest because Scottish interest rates are higher than in England?
In fact, could Scottish savers find that they are earning higher interest for their nest eggs?

*Bank accounts
The Scottish Government has reassured savers and current account holders that they would have the same deposit protection that they enjoy now in the event of a bank failure, up to £85,000 per bank - a guarantee which is underpinned by EU rules.
So customers would hope that the guarantee would hold even if Scotland had neither the pound nor the euro.

*Pensions
Future pensioners are being promised a better state pension in an independent Scotland.
As for those with additional private pension savings, built up in sterling, might they be able to hope for a more substantial pension income if the pound proved stronger than a new Scottish currency?

*Insurance
Would the impact of a new or different currency on insurance be less significant?
Car insurance is already cheaper in Scotland for other reasons.
Car and home policies come up for renewal every 12 months anyway, so might this be less of a worry?

*Tax free savings
The Scottish Government has said it would continue to support tax-free savings, through products like savings and investment ISAs, after a Yes vote.
If Scotland had a difference currency, would old ISAs remain in sterling? Would transfers between old and new products be possible?

Lots of questions - and, as things stand, they are hard ones to answer.

Oops! We've borrowed £1.43 trillion

Borrowing by UK households has reached a new record, as consumer credit bounces back in the recovery and mortgage lending continues to grow.

Total borrowing by individuals stands at £1.43 trillion, according to the Bank of England, very slightly higher than the previous peak reached in September 2008, just before the effects of the financial crisis and the recession began to bite.

The precise figure for UK household debt is £1,429,624,000,000.

Most of the debt is in mortgages, which have been rising steadily.

Other lending, including personal loans and credit cards, dropped sharply in the recession and has started to recover.

The rise reflects the willingness of British consumers to borrow again as a more solid recovery comes into sight.

However, the figures may also show the extent to which credit is fuelling the upturn - and how, in some cases, families are having to borrow to deal with the higher cost of living and make ends meet.

The Bank of England points out that incomes have been rising as well, so the ratio of debt to income has actually been on a downward trend.

Beware mortgages with built-in increases

Beware of mortgages which look cheap now but get expensive later.

That's the danger in the current splurge of so-called cheap mortgages which could bite back once interest rates and house prices jump higher.

For example, the Post Office is pushing "Another great mortgage rate" today which is 1.98% fixed for two years then a more daunting 4.49%. The later rate is variable, so it's likely to go higher.

And this is only for those who can muster a 25% deposit.

I've got nothing against the Post Office. It is good to see them in the mortgage market and there are worse rates out there - this is, in fact, one of the lowest of its type.

However the next two to three years are a slam dunk as far as interest rates are concerned. Mark Carney at the Bank of England says he wants to keep his base rate down at 0.5% until 2016.

Even if he fails, rates are going to be low for a while.

So the first point is that you need to think about the period after that. A mortgage, after all, is usually a 25 year commitment and most people aren't canny enough to switch providers at the drop of a hat.

There are five year fixed rates, for instance, which are well below 4.49%.

And -- second point -- you should think very carefully about how much you are borrowing at what could turn out to be significantly higher interest rates in the years to come.

Mortgage borrowers vulnerable to higher rates

Bank of England Financial Stability Report's "significant" worries about UK borrowers:

"A significant cohort of UK borrowers could experience financial difficulties if interest rates were to rise during a period of subdued income growth.

"...households accounting for 9% of mortgage debt would need to take some kind of action — such as cut essential spending, earn more income (for example, by working longer hours), or change mortgage — in order to afford their debt payments if interest rates were to rise by just 1 percentage point...

"This would rise to 20% of mortgage debt if interest rates were to rise by 2 percentage points. Provided borrowers are able to take actions in order to afford their debt payments, then this may not lead to significantly higher losses for banks.

"The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), with other Bank staff, should provide an assessment to the FPC (Financial Policy Committee) of the vulnerability of borrowers and financial institutions to sharp upward movements in long-term interest rates and credit spreads in the current low interest rate environment. They should each report back to the FPC in September 2013."

Did Barclays scandal hit homeowners?

There have been a few suggestions that homeowners with mortgages may have lost out because of the attempted manipulation by Barclays dealers of the LIBOR rate between 2005 and 2010.

I think you have to be careful with this because:

*Only a small proportion of mortgages are directly linked to LIBOR, perhaps 250,000 loans to buy-to-let borrowers and some to sub-prime customers.

*As for other variable rate mortgages, LIBOR could influence a lender's cost of funds but the impact is less direct.

*It appears that before the credit crunch banks may have been over-quoting and under-quoting LIBOR in order to make dealing profits. In theory this could have pushed some people's mortgage costs slightly higher or slightly lower.

*However the more significant attempts at manipulation may have come after the credit-crunch, from 2007, when under-quoting appears to have been the main problem. If that had any impact at all it would have been to reduce the cost of variable-rate mortgages.

*From that point, in any case, lenders were having to depend much more heavily on savers' deposits to fund mortgages, because they couldn't raise money in the financial markets where LIBOR is a key reference rate - so LIBOR became less important for mortgage rates.

Mortgage experts suggest the net effect of the shenanigans could well have been to lower people's mortgage costs - though that might not be true for all customers throughout the period.

If that's true, the real victims would be the institutions who deposit money with banks for short periods at rates which are linked to LIBOR - pension funds, local authorities, hedge funds and private equity firms.

If LIBOR was manipulated down, they would have have lost out directly.

For details on what LIBOR is and how it's calculated, look here.

Here's £100bn - now do something

What are the chances for George Osborne's and the Bank of England's £100bn attempt to head off another credit crunch?

There's already worry about whether banks are capable of lending out the money successfully. There are two nuts to crack...

1. Business lending.

What Sir Mervyn King, the Bank's governor, calls the "black cloud of uncertainty" is discouraging banks from lending to firms they think might suffer in the economic crunch. And it is putting entrepreneurs off borrowing. Though some are desperate for loans, many want to pay money back and get bankers off their backs.

The Bank has indicated that High Streets banks would be indemnified against the extra loans going bad - i.e. firms failing to pay them back.

But it isn't clear how far the indemnity would go, so banks could still hold back from lending to the businesses that really need cash to grow.

There's also the worry that some of the loans they do give out will simply replace lending they would have made anyway. The Bank says it will police this risk very carefully. That'll be hard.

2. Mortgages.

The prospects here seem much rosier.

Already a new credit crunch is underway, after first Lloyds and then Santander began to rein back on lending. They're lending less in mortgages than they are getting in from mortgages being paid off.

There's definitely unsatisfied demand for mortgages, especially from first time buyers. Often they are being rebuffed as too risky, but overall what's holding banks and building societies back is that they can't raise the funds at a decent rate to hand out.

So cheap funds from the Bank of England could fill the gap and even boost total lending for housebuyng this year by a small percentage - so that the mortgage total would rise compared with last year rather than fall.

It wouldn't be a huge boost. Mortgage lending is running at just a third of pre-financial crisis levels. While we don't want to go back to the bubble years, a little blow into this limp balloon would help.

When?

All of this could take time to happen: several weeks until the money starts being disbursed, then a three month turnaround (for mortgages) from application to completion.

So we are looking at the boost starting in the last quarter of the year.