Advice for coping with new lending regulations

Under new lending and borrowing regulations laid down by the Financial Services Authority (FSA), people aiming to re-mortgage or purchase a new property are in for a surprise when they find out they will be unable to borrow more than triple their annual salaries.

The new guidelines are expected to be announced later this week by the FSA. Hundred percent mortgages are also thought to be a thing of the past, and there will be a cap on the maximum amount banks can lend customers.

As long as customers had good credit ratings and minimum ten percent equity in their home, banks have been lending up to four times a customer’s income in the past, but things are changing.

We have collected some tips for people to improve their borrowing potential with some helpful input from Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management and others in the business.

1 Share the purchase

If a spouse or business partner earns more than you it’s very possible a bank will give you a bigger mortgage than if you were buying alone. Get the help of an independent mortgage broker to determine the protocols of a bank or building society on a case by case basis, as organizations differ on how they handle this.

2 Lower your debt

Chambers says, “If you get your credit card or overdraft debt down to a certain level, lenders will naturally look at you as someone who would be able to cope well with a sizeable mortgage and therefore, lend you a larger amount. Debt is always taken into account, so adjusting that factor can work wonders.”

3 Utilize alternative credit

In some circumstances you can use other serviceable debts to plug the gap in a mortgage agreement. You need to be very careful with bridging loans as per point number 2 above though. “If a bank feels you are overstretched they are less likely to make a deal with you. Keep a close eye on interest rates when using this method,” says Chambers.

4 Consider using a guarantor

Although there are fewer banks offering guarantor type arrangements it’s still worth asking as some companies will be more willing to lend knowing that there is an extra party willing to pay back the loan if you find yourself in trouble. “It really depends on the specifics in each case,” says David Hollingworth of London & Country mortgage brokers. “It never hurts to discuss with the bank if the option is available.”

Japanese economy turns corner

Spurred by a 6.4 percent jump in exports, Japan seems to have turned a corner with regard to its most serious recession since World War Two.

The economy recorded growth for a full quarter, the first time since the global financial crisis last year. The cabinet office released the encouraging figures on Friday revealing an increase in GDP of 3.8 percent annualized rate for the quarter.

The sudden jump in exports is the first rise since Lehman Brothers collapsed last year and the largest increase for over seven years.

Japan has followed in the footsteps of the two largest economies in Europe, Germany and France, who emerged from recession in the latest quarter.

Few analysts believed that Japan, the world’s second largest economy, would turn the corner so quickly. The country relies heavily on its exports for consumer durables such as cars and electronics, and a downturn in world demand in that area was what many blamed for their economy’s decline in the first place.

Now that economists have seen Japan clawing their way back into growth, there is cautious optimism regarding other big economies.

The United States economy experienced its smallest contraction in a year, only 1 percent annualized for the last quarter. Meanwhile, in the euro zone, there was only a 0.2 percent contraction. Having invested over half a trillion dollars into stimulus, China has seen growth of nearly 8 percent from the first quarter.

Although these latest figures may not be enough to save Japanese PM Taro Aso and keep his party in power after the coming general election, they do seem to bear out Aso’s promises that Japan would be one of the first countries to emerge from the darkness.

Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management said, “We have definitely seen some excellent short term benefits from Aso’s policies. Some politicians mocked his methods only a few months ago but I think the general sentiment now is that his cash hand-outs and green energy incentives have come up trumps.”

The increase in exports is a welcome respite from the crunch brought on by last year’s crisis and over 12 months of contraction including a record breaking 13 percent annualised dip in gross domestic product in late 2008.

Other nations in the region have also reported growth in the last quarter including China, South Korea and Singapore which has surprised many observers.

Economic downturn is slowing

Although most of the Wall Street regulars who insist the economy will get back on track soon have quietened down, a few of the die-hard optimists are putting forth a clever bit of maths to back up their opinions. They say that the second derivative is turning positive, meaning that, although the economy is still suffering a massive downturn, it is happening at a slower rate.

It has taken some hearty research and some stretching of statistics but they do at least have some morsels of data to back up their assertion. One encouraging sign has been the increase in retail sales, which gained 1 percent in January compared to the previous month, which is the first jump since last June.

Another factor is car sales. Although the figures fell overall, the data for private individual buyers remained relatively stable.

Many observers expect the economy to contract at a slower pace in Q1 than in the last quarter of 2008, but only because of some complicated revisions to the annualized figures.

JPMorgan Chase analysts have cut down the risk of a “micro-recession” with an index that has revealed the margin of uncertainty in the economy and the markets has shrunk a small amount.

Most will agree that the gigantic government and Federal Reserve stimulus packages since October have seen a turnaround in corporate bond yields, which have crept down, and interbank rates improving for the public with the money supply swelling.

Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management remarked recently that the levelling out of opinion suggests that both demand and manufacturing might be coming back to their normal margins, but tempered those comments with a warning that what we are experiencing is still somewhat in the vacuum of the financial crisis.

“Obviously what is going on now is not part of a normal economic cycle,” Chambers said on his blog Friday. “It’s always a good thing, however, when sentiment levels out. A production line of uniformly negative data reports is not going to help anything or anyone. Some optimism, albeit produced by some math juggling, is a ray of light…and we need that at this point in time.”

However, negativity still reigns. A 17 percent drop in housing starts occurred at the beginning of the year which reveals the bottom is unlikely to be reached anytime soon in that sector. There are also scant encouraging signs in the area of credit, with supply not even close to returning to normal levels.