News & Views
Page 9
	ACKNOWLEDGEMENT   This section  last  Updated Sunday 4 March 2012 The Observer  Housebuilders back in profit as optimism returns Chastened by the disaster of 2007, housebuilders are quietly hopeful about prospects for this year, as the government tries to help first-time buyers By Julia Kollewe   A builder works on a Persimmon home. The firm plans to return £1.9bn to shareholders in the next few years. Photograph: Bloomberg/Bloomberg via Getty Images Having clung on through the worst housing slump in decades, Britain's housebuilders are back in the black and their shares are again sought-after in the City. Taylor Wimpey, which nearly collapsed under its debts three years ago, swung to an annual profit last week and cheered investors by announcing its first dividend since 2007 – albeit just 0.38p a share. Persimmon, which owns the Westbury and Charles Church brands, went further and pledged to return £1.9bn, or £6.20 a share, to shareholders in the coming nine and a half years, sending its stock soaring. The housing boom saw housebuilders ramp up construction just as the financial crisis struck in 2008. Much chastened, they now seem happy building far fewer homes, with a shift away from apartments towards larger family houses. David Ritchie, chief executive of Bovis Homes, echoed the general feeling in the sector when he talked of static sales levels, flat prices and stagnant mortgage approvals being the "new norm" last week. "The housing market is remarkably stable but at low levels of activity," he said. The extent of the general downturn in construction is illustrated by official figures showing new orders slumped to their lowest level since 1980 last year. The only sector in which orders rose was private housing, up 6%. The heady boom days of 2007 are clearly over, but all the listed housebuilders are profitable again. Analysts at Investec give the thumbs-up to the sector, which they say is "huffing and puffing" on the road to recovery. The firm's Mike Bessell says: "What has really changed from 2008/2009 and even early 2010 is that housebuilders are in control of their destiny." Housebuilders have good reasons to be fairly optimistic. The UK housing shortage is apparently getting worse rather than better. By 2015 demand for housing will outstrip supply by more than 500,000 homes, according to the Federation of Master Builders (FMB), partly due to delays in the planning system. First-time buyers are still struggling to get on the housing ladder and the impact of this has been fewer homes being built, despite the pent-up demand, it argues. Just 115,000 permissions to build homes were granted in 2011, half the 2006 level and half the number required, according to building data firm Glenigan. Changes to the planning system will be crucial to how quickly homes can be built in future. The industry is anxiously awaiting the government's new national planning policy framework, due in weeks. The Home Builders Federation is calling on the government to resist the "vocal anti-development lobby's scaremongering". Sir Bob Kerslake, head of the civil service and permanent secretary to the communities department, last week confirmed that the framework would include a presumption in favour of sustainable development. Meanwhile, the FMB is urging the chancellor to use his budget to extend the stamp-duty holiday for first-time buyers on properties under £250,000, due to expire later this month. Even so, this year could be good for first-timers, if the government-underwritten NewBuy scheme is successful. From this month, it will allow people to get a mortgage with only a £10,000 deposit for a newly built property priced up to £500,000. The prime minister has suggested this could help 100,000 would-be buyers who are struggling to raise the average deposit demanded by lenders of £40,000, though critics argue that it is better news for builders than borrowers. Housebuilders are certainly rubbing their hands. Pete Redfern, chief executive of Taylor Wimpey, believes it could have a "material impact". "Most of the major lenders will be involved," he says. "The biggest constraint in the short term is mortgage availability." Mortgage approvals hit a 25-month high in January, but the worry is that first-time buyers are just trying to beat the end of the stamp duty holiday. Shared-equity schemes such as FirstBuy – where the government and the developer invest equal amounts and the buyer only has to contribute a cash deposit of 5% – have also underpinned demand. Housebuilders have also improved returns by snapping up land without planning permission cheaply and paying for it only after getting the green light for development. In some cases, they even buy farmland at agricultural prices and let it back out. So is everything tickety-boo again? Brokerage Collins Stewart thinks not. Housing analyst Alastair Stewart, one of the City's most bearish voices, has warned that UK housing could be stuck in a "lost decade", with mortgage lending, transactions and prices all likely to fall this year. "Housing could remain caught between weak consumer appetite for borrowing and banks' aversion to mortgage lending largely due to eurozone risks." He claims Britain's housing shortage is not as bad as it is purported to be, arguing that the housing stock has gone up by almost twice the rate of population growth since 1991. Steve Morgan, the outspoken chairman and founder of Redrow who also owns Premier League football club Wolverhampton Wanderers, dismisses this as a "load of bollocks" and others in the City cast doubt on Stewart's calculations, saying they do not appear to account for immigration, the trend towards one- and two-bedroom households, and removal of old houses. And Investec's Bessell does not expect any material shocks to house prices over the next couple of years. He says the housing market has already reached "something of a nadir, with a very low level of activity which represents little, if anything, more than the transactions of the 'must movers' in the market". This section  last  Updated 12:28, 6 March 2012 GMT Mail Double misery for homeowners: After the mortgage hike, house prices take a 0.5% dip... and have now fallen £3,500 in just seven months Figures from Halifax come after Nationwide said house prices rose last month By Lee Boyce   House prices decreased in February with the average property losing 0.5 per cent of its value, according to Halifax, The fall brings the average value of a property in February to £160,118, a similar level to April last year, its index found. But the decline since last summer's high watermark is far sharper - with the average home having lost more than £3,500 since July. The news comes as buyers are facing higher mortgage payments following the decision by lenders to hike rates.   Monthly fall: The Halifax index found that prices dipped by 0.5% last month The price fall last month offsets January’s 0.6 per cent improvement and means prices in the three months to February were 1.1 per cent lower than the previous quarter. It is also down by £3,647 on the recent peak last July, when the average property price was £163,765. Over the weekend Halifax, the largest mortgage lender in Britain, announced it was to increase mortgage costs for 850,000 customers from May. The move followed a similar hike by RBS-Natwest and came despite the Bank of England maintaining its base rate at just 0.5 per cent.  Mixed message: Halifax's figures are at odds with those released by Nationwide last week Halifax said demand was being propped up by low interest rates and the limited supply of properties for sale. Its figures come after Nationwide said house prices recorded their strongest jump in nearly two years after rising 0.6 per cent rise - the highest since a 1.3 per cent month-on-month increase in April 2010. According to Nationwide, the average home now costs £162,712, it said, up £1,529 on a year ago, but down £6,019 on the recent peak seen just last July. Martin Ellis, its housing economist, said that recent signs Britain will avoid slipping back into recession were positive for the housing market outlook. He added: 'Overall, prices nationally are at broadly the same level as last spring. 'This stability in prices is explained by the fact that market conditions have changed very little over this period, with demand supported by low interest rates and supply remaining tight. 'Falling inflation should relieve some of the pressure on household finances over the coming months. Many of the economic statistics released in recent weeks have also been encouraging, suggesting that the UK may avoid slipping back into recession. 'These developments are positive for the housing market outlook.' Last week, Nationwide in its house price index, found that the average home was up 0.9 per cent in February and now costs £162,712, up £1,529 on a year ago, but down £6,019 on the recent peak seen just last July. The report added that the lift in February house prices followed a series of economic data indication that ‘conditions may not be quite as weak as feared after the UK economy contracted in the final quarter of 2011. The estate agent’s view: Prices are still under pressure Maria Kemp of estate agents, Kemp & Co, said: 'The three month decline in prices is a fair reflection of where the property market is at. Prices are by no means collapsing but are still under pressure. 'Many people are still very nervous about the health of the economy, and rightly so. This is tangibly feeding through into prices. 'There is definite momentum at the higher and lower ends of the market, but in the middle it's still very slow-moving. 'Typical family homes are almost at a standstill. Many families are struggling to secure the finance to fund a forward move, or simply aren't comfortable about committing to a considerable financial transaction at a time of real economic uncertainty. 'One real concern is that the recent raft of SVR rises will start putting real pressure on household finances, in some cases forcing homeowners to sell. 'This could start applying extra downward pressure on prices moving forward — and that's before the base rate starts to move up.' First-time buyers increased in February The Halifax index also found that the proportion of home buyers making their first purchase was on the up, increasing for the second successive month. The index showed a 7 per cent increase in the industry-wide number of mortgage approvals for house purchase in January. The figures suggest that the end of the temporary increase in the starting threshold of stamp duty for first-time buyers from £125,000 to £250,000 later this month is encouraging some to buy before the threshold reverts to the lower level. This section  last  Updated Thursday 8 March 2012 11.07 GMT. guardian How to avoid a rising SVR Homeowners worried about rising standard variable rates have a number of options By Hilary Osborne   Feeling blue: changing mortgage lending criteria mean interest-only borrowers could face problems. Photograph: Carl Court/AFP/Getty Images Homeowners worried about rising standard variable rates (SVRs) could be locked out of the best deals on the market because falling house prices and changes in lenders' rules mean they no longer qualify for a new mortgage. Britain's largest lender, the Halifax, recently revealed it was increasing its SVR by 0.49% to 3.99% on 1 May, which will mean higher monthly repayments for approximately 850,000 borrowers. The Bank of Ireland's UK arm is also increasing its SVR, which is currently 2.99%, to 3.99% in June and then to 4.49% in September, affecting about 100,000 customers. However, there are options available to many of these people, and others who may find themselves in a similar position, including remortgaging to another lender or transferring to a different deal offered by the same bank or building society. It is unclear how many UK borrowers are on their lenders' SVRs, but at the end of 2010 the Council of Mortgage Lenders said about 1.8 million borrowers had come to the end of a fixed-rate mortgage and moved on to their lenders' SVRs. Although more up-to-date figures are not available, the CML said "logic would suggest" there were more people on SVRs, as "there has been little incentive for people to remortgage on to a fixed rate". The Halifax said customers who want to avoid the rate rise and fix their monthly costs can switch to a two-year fixed-rate mortgage. The is available to borrowers with loans of up to 120% of the value of their property; however, those borrowing more than 75% on an interest-only basis will not qualify for the switch and could struggle to find another lender willing to take them on. Stuart Gregory, a broker at Lentune Mortgage Consultancy, says: "I've got big concerns for borrowers. Lending criteria have changed dramatically, and different income requirements and rules on interest-only mortgages are going to cause some people problems." Mark Harris, chief executive of broker SPF Private Clients, says the problem many borrowers face is lack of equity, particularly if the value of their home has fallen in the past few years. "This may make remortgaging difficult and mean you don't qualify for the cheapest rates," he adds. Land Registry figures show house prices across England and Wales fell by 11% between their peak in February 2008 and the start of 2012, and in some areas the drops have been considerably bigger. This means someone who took a 90% mortgage on their property four years ago could now be in negative equity, while even those who put down substantial deposits could now need to borrow at a high loan-to-value (LTV). Harris says anyone in this situation who wants to remortgage to protect themselves against SVR moves should look at the rest of their finances to see if they are able to increase the equity in their home. "If you have savings earning next to no interest, you could consider paying off a chunk of the mortgage, which should make remortgaging easier," he says. However, he advises: "Make sure you keep some money back for emergencies, as money overpaid on the mortgage is difficult to get back again." Harris says Halifax's move brought its SVR into line with other lenders' pricing, so he did not expect to see a large number of other lenders raising rates. However, he warned: "Anyone on their lender's SVR is at risk of a hike in payments, so it's worth constantly monitoring the situation and moving if you can when the time is right. Overpaying in the meantime is a useful strategy to improve your equity stake." Ray Boulger at mortgage broker John Charcol says changes to interest-only requirements could also cause problems for some borrowers, with Santander, Lloyds and Woolwich among lenders that have recently tightened their rules for borrowers on these kinds of deals. Santander, for example, has reduced its maximum lending on an interest-only basis to 50% LTV, while Woolwich and Lloyds now specify certain repayment vehicles. "If you have an interest-only mortgage, you need to ask which lender can I switch to and who has the best rate, not who has the best rate, as you could five years ago," he says. Existing customers will usually be considered for a product transfer, though, as long as they do not want to increase their borrowing at the same time. Boulger says these product transfers – moves to another deal offered by your lender – will often remain an option, even for borrowers whose circumstances have changed, and in some cases they may be worth considering. At Halifax, for example, the fee-free switch available to a two-year fixed-rate of 3.49% for borrowers with 40% deposits may be worthwhile if you cannot move elsewhere. If you can move and want to fix, Boulger points to a five-year fixed-rate deal at Chelsea building society currently priced at 3.29%. Boulger believes interest rates are unlikely to change in the near future, so some borrowers may want to stay put. But he says: "The higher your SVR, the more worthwhile it is to switch. If your rate is between 4.5% and 6%, as many building societies are, even with just 15% equity you are going to be able to switch to a deal that is better. At a rate of 6%, even if you only have 10% equity it could still be worthwhile." This section  last  Updated  Friday 9th March 2012 Mail Doubts raised over NewBuy housing scheme By Vicky Shaw A scheme to inject life back into the housing market was mired in uncertainty today as lenders expressed reservations just days before it launches. The NewBuy Guarantee scheme to help people buy a new-build home with a fraction of the usual deposit is set for launch next week but concerns have been raised that it is being rushed through in time for the Budget. The Government initiative is part of a package of measures unveiled last year aimed at kick-starting the flagging housing market as well as boosting the construction industry. It was initially intended to help the first-time buyer proportion of the market, which shrunk back to a three-year low last autumn, but the Government has widened the scheme to include home movers. The plans would enable as many as 100,000 buyers to purchase a new-build home with a deposit of just 5% or 10% rather than the 20% typically demanded by lenders, and the initiative has been backed in principle by several banks. But sources have suggested some lenders are not ready to start offering products and it was unclear how widely available they will be when the scheme launches next week. Lenders' support is vital to the success of the scheme and fears have also been raised that high mortgage rates could put would-be buyers off the initiative. The scheme is expected to launch on Monday, although the Department for Communities and Local Government (CLG) has not given details. Those behind the initiative believe lenders will see it as less risky as it is backed by an insurance scheme contributed to by the building industry and Government. Developers would contribute 3.5% of the purchase price while the Government guarantees 5.5%. The scheme is available on flats and houses up to a maximum value of £500,000 in England only. But one banking source said some lenders needed time to get to grips with the idea. "It's not a scheme that's going to change the housing market," the source said. "It's there to support house builders, not necessarily to support home buyers as a priority." The source doubted that the scheme would help those with a poor credit history get on the property ladder as buyers would be subject to the same standard of checks as they are with mortgages generally. Another banking source said those in the industry were not "terribly enthusiastic" about becoming involved in the scheme and said lenders were already looking at other ways to help people get on the property ladder. The Financial Times reported earlier this week that a dispute has emerged over the price banks are prepared to charge for a 95% loan-to-value (LTV) mortgage. It suggested that they are looking to charge 5% or more, but house builders believe this may put people off the scheme. The scheme is also viewed by some as complicated, operating through a Guernsey-based insurer owned by the Home Builders Federation (HBF). However, a spokesman for the Council of Mortgage Lenders (CML) expressed a more positive view, saying: "We are anticipating a number of lenders are working on plans to support the scheme. There is lender support and interest in the scheme. "This is part of a wider approach to stimulating demand in the economy and it is part of a growth package and a series of measures." The CML did not have examples of any immediate plans by lenders to make announcements relating to the scheme. A Lloyds Banking Group spokeswoman said the banking giant is planning some products and more details would be announced soon. She said: "We are still finalising the details of the products that will support the NewBuy initiative. We remain supportive of the scheme and look forward to sharing more detail next week." A spokesman for HSBC, another lender which has backed the scheme, said: "We are supportive in principle but have no specific details on how we may be involved in NewBuy." Barratt said 20,000 people have already registered with the home builder for more information about the scheme. A spokesman for Barratt said the scheme had the potential to be "very significant" but added he did not know what rates lenders were planning to offer. Housing Minister Grant Shapps recently said he has already identified enough Government land to build 80,000 homes and ministers are on course to release enough land for 100,000 homes by 2015. He said he is in talks with the BBC, Network Rail and the Royal Mail in a drive to free up unused sites for housebuilding. Mr Shapps recently said: "I'm pulling out all the stops for those who want to get on the property ladder, so from March the NewBuy Guarantee scheme will be on hand to help people buying newly-built properties with just a fraction of the deposit they would normally need." The CLG said in a brief statement: "We are working closely with lenders and house builders to deliver the NewBuy Guarantee, which will enable people to buy newly-built homes with a much smaller deposit than currently required. The scheme will be launched next week." An HBF spokesman insisted that lenders were behind the scheme, saying: "Lenders are on board and so are we." This section  last  Updated Thursday 10 March 2012 at 22.08 GMT. This is MONEY Locked out: How a buy-to-let boom has transformed the mortgage market for a younger generation of buyers By Richard Dyson As Financial Mail reveals that banks now lend more to landlords than to people living in their own homes, young families describe how they are battling with high and rising rents – yet, somehow, they still dream of buying. Though property prices have fallen across most of Britain since their 2007 peak, many young adults are still struggling to buy a home of their own. The 2008 banking crisis virtually turned off the tap of mortgage cash for borrowers with only a small deposit. Today, though some lenders do offer special ‘first-time-buyer’ deals, these loans are costly and difficult to obtain. The result is that even more younger families have been forced into renting, driving up rents and fuelling a resurgence in buy-to-let.   'Injustice': Tom Sears, with wife Louise and Luna, says if he had been less prudent and borrowed as much as possible they would be better placed today Financial Mail’s analysis of lending data has found that banks and building societies are lending more new money to landlords than to homeowners. A younger generation is increasingly frustrated. Matt Griffiths is a volunteer for online lobby group Pricedout, representing the interests of younger, professional couples and families hoping to buy. ‘Young buyers have never faced stiffer headwinds to home ownership,’ he says. ‘It is beginning to dawn on people that this isn’t a temporary blip. For many young professionals, particularly those in the South East, it looks like permanent exclusion.’ He says one reason is the failure to build enough homes. Another is the rush by wealthy landlords to add to their portfolios and capitalise on rising rents. ‘Unfortunately, the housing market now has a powerful momentum acting against younger home ownership,’ Griffith says. ‘Prices remain sky-high relative to wages and the banks’ withdrawal of credit means the equity-rich are able to muscle out others. ‘Ownership among the under-35s is in free fall. This is in stark contrast to our parents’ generation where an initial struggle to get on the ladder, combined with hard work, was rewarded with a family home and garden. ‘Today those who have bought often find themselves trapped in a small flat with little chance of moving, while those who haven’t bought seem to be left permanently renting. People are entering their second decade of well-paid professional work with precious little to show for it.’ Software engineer Edward Spencer and his girlfriend, Kate Haighway, live in a one-bedroom flat in Reading, Berkshire, that they rent for £750 a month. Kate is a geography teacher at a secondary school so both have good wages and can save. But high house prices make the move into homeownership extremely difficult.                                                                              Trapped: High house prices prevent Kate                                                                     Haighway and Edward Spencer buying. Prices in Reading have risen six per cent since 2008, according to property website Zoopla, with a current average asking price of £325,000. Edward says he and Kate, both 26, would need to spend more than £200,000 to buy something comparable with, or better than, their small rented flat. ‘We said let’s try to save £20,000, and after three years we’re approaching that,’ he says. ‘But now I realise we probably need more.’ With a £20,000 deposit, some lenders would offer them a £180,000 mortgage (90 per cent of £200,000), but even at the best possible rate – 3.84 per cent from HSBC – monthly payments would be £934. And this rate is variable, so it could rise at any moment. Given the current low rates and the emerging trend among banks to increase their standard variable rates, Edward and Kate might wish to fix their rate. But to fix for two years, also with HSBC, would mean monthly payments of £1,040 while the best five-year fix available is from Leeds Building Society at £1,159 a month. If they had £50,000 to put down – or 25 per cent – they could get a best-buy three-year fixed rate of 2.99 per cent from Yorkshire Building Society, where their monthly payments would be £710, less than they pay in rent. Edward says: ‘We’re both from families where everyone owns their homes and it’s what we want for ourselves eventually, but at the moment we continue to rent. ‘The older generation don’t understand our difficulties. My father kept saying to me, ‘‘Go and talk to the bank.’’ It was only when I got on to the internet and showed him today’s price of a property on the street where I grew up, and which we sold in the late Nineties, that he fully understood how expensive housing has become. The modest house we sold for about £250,000 in 1997 now costs £800,000. He was gobsmacked.’ Martin Quinn, 37, a salesman for a financial data firm in London, rents a two-bedroom bungalow in Wallington, Surrey, for £935 a month. He and his wife, Jennifer, have just had their second child, which means the £500 they were previously able to save each month is spoken for. Their landlord has asked them to leave because the property is to be sold. Martin estimates that local rents have risen by ten per cent over the past year, so that a similar house would now cost more than £1,000 to rent. ‘A bigger property will cost us £1,200 a month,’ he says. ‘Buying is simply not an option. Before the children came along, in 2006 or 2007 when banks were lending, we could have stretched ourselves and found a mortgage. ‘People who bought at the peak of the market, often with little or no deposit, are now paying very little each month on their mortgages – a fraction of what we’re paying in rent. Those who borrowed excessively are being rewarded for their recklessness.’ This view is shared by many. It is lent weight by recent research, previously published in Financial Mail, showing that it now costs more to rent than to pay the average mortgage on the same property in 47 out of the 50 biggest towns and cities. The problem is especially acute in London and the South. Housing charity Shelter reported last month that two-thirds of the capital’s renting population believe they will never be able to afford to buy in their neighbourhood. Tom Sears, 29, works for the family drinks firm in Poole, Dorset. His mother lives abroad and Tom rents her home with his wife, Louise, also 29. He could not afford to buy in Poole, where properties cost an average £261,000 – and that is after having fallen 13 per cent since 2007. ‘I don’t blame banks for not wanting to lend to people with smaller deposits,’ he says. ‘House prices might fall more, and it’s obvious a 25 per cent deposit is safer than ten per cent.’ But Tom highlights an unfairness. ‘You cannot help but feel a sense of injustice,’ he says. ‘We were always told to be prudent and save. But if I had not been prudent and had borrowed as much as I could, I would be a lot better off today.’ Apart from the problems of being squeezed between high rents and high house prices as well as a lack of mortgage finance, there are further problems for Britain’s growing army of young renters. Allegations are growing that landlords are increasingly exploiting tenants. Shelter is petitioning the Housing Minister, Grant Shapps, to increase the safeguards for tenants and impose heavier penalties on rogue landlords. Landlord organisations claim most of them are fair, long-term and responsible. But evictions are increasing. Legal data provider Sweet & Maxwell says landlords brought 14,895 possession orders before county courts in 2011, a jump of almost 20 per cent on 2008. ... but buying is still possible if you steer clear of big cities The relationship between earnings and house prices differs widely throughout the country, making some areas far more affordable for first-time buyers than others.                                                                                Farewell to renting: Faye and Chris Flaherty London and the South East and cities such as Edinburgh, Bristol, Leeds and Liverpool remain beyond the reach of many buyers. But elsewhere thousands of young homeowners are saving and buying without the help of parents. Faye Flaherty and her husband Chris, both 28, completed on a three-bedroom end-of-terrace home in Walsall, West Midlands, two weeks ago. The property cost £85,000 and the couple, who were previously renting in the area and paying £525 a month, had saved a ten per cent deposit on their own. They borrowed £76,500 from Santander on a two-year fix at 5.49 per cent, giving monthly repayments of £462. ‘We’ve been renting for just over ten years,’ says Faye, who works in customer service for an insurer. ‘It’s a milestone for us – my mother came over with champagne last weekend.’ Does Faye worry that prices might fall? ‘It’s a bit of an anxiety,’ she concedes, ‘but we will be better off each month, and we can save.’ David Hollingworth, of broker London & Country in Bath, Somerset, says: ‘The number of deals available for borrowers with small deposits has grown consistently since the middle of last year and this increased competition is improving rates. Some lenders are clearly committed to first-time buyers.’ Top deals available for those with only a ten per cent deposit include loans from HSBC (4.89 per cent fixed for two years, fee-free) or a five-year fixed rate from Leeds (5.99 per cent, with a fee of £199.) Skipton Building Society will lend to those with only five per cent to put down, but the rate is 6.29 per cent fixed over five years with a £195 fee. A number of loans allow young adults to use their parents’ homes as security, meaning a smaller deposit. Lloyds runs its Lend a Hand scheme, while similar loans are offered by Bath and National Counties building societies as well as new lender Aldermore. This section  last  Updated  Tuesday 13 March 2012 13.14 GMT guardian Mortgage repayment problems could get worse this year, FSA warns Ongoing impact of slow economy could put customers in trouble despite historically low interest rates, City regulator says By Jill Treanor                Housing in north London. Unemployment, falling real incomes and spending cuts will all hit household finances, the FSA said. Photograph: David Levene for the Guardian The Financial Services Authority warned on Tuesday that customers may be starting to face greater problems repaying their mortgages as they battle with the ongoing impact of a slow economy, despite historically low interest rates. Setting out 15 high priority areas of 2012 in its Retail Conduct Risk Outlook, the City regulator noted that despite the historically low interest rates – at 0.5% for three years – a rise in repossessions in 2011 and the increase of mortgages with very high levels of arrears may signal that greater mortgage repayment difficulties may materialise in 2012. "Challenging economic conditions, the recent unemployment increase, the reduction in real income and the public spending cuts are all likely to have an impact on household finances," the FSA said. The regulator said that higher use of forbearance since the banking crisis – where borrowers are given easier terms on their loans – have kept repossession and arrears rates lower than they might otherwise have been. But it also made clear that while the low interest rate environment may have helped mortgages more affordable for customers, increases in other expenses have eroded some of these benefits for many households. The FSA also told the industry that it must "ensure it gives a fair deal for consumers" in the wake of the mis-selling of payment protection insurance. Martin Wheatley, the FSA managing director who is to run the new Financial Conduct Authority when it is spun out of the FSA next year, warned firms to "avoid the bear traps of designing products for maximum profit but little benefit to consumers". "Consumers rely on financial firms and their products to provide them with vital services – literally the means to run their lives," he said. "They need to be able to trust that the products they buy work for them and that they are getting a fair deal. But our report shows that consumers worry they aren't being sold the right products or products they don't need. "It is clear that the financial services industry – firms and regulator – have a lot of work to do."   This section  last  Updated  13 March at 16:19 GMT.   BBC Business News   FSA warns on new buy-to-let fraud New potential problems among mortgage borrowers are highlighted by the FSA's report.  The Financial Services Authority (FSA) is worried about the fraudulent use of buy-to-let mortgages by some people who cannot obtain an ordinary residential mortgage. The regulator says people may be doing this to avoid recent restrictions on risky mortgage lending. The warning comes in the FSA's second annual review of the risks to customers of the financial services industry. Many have already been identified, such as the mis-selling of PPI insurance. Growing problem? The FSA said that the fraudulent use of buy-to-let mortgages could increase. "We are seeing anecdotal evidence of unregulated buy-to-let mortgages being used fraudulently as a replacement for regulated residential mortgage contracts, as borrowers and intermediaries seek to circumvent more stringent income and affordability checks," the FSA said. The regulator pointed out that this problem might grow because some potential borrowers had been shut out by the much greater restrictions now in place on risky mortgage lending. Self-certified mortgages have all but been abolished and the availability of interest-only mortgages is severely restricted. Repaying mortgages In a survey conducted for the FSA's report, 23% of all mortgage holders said they had made overpayments in the past year - a much higher percentage than previously thought. However, the report pointed out that more than a million mortgages are due to be repaid in the next eight years which are interest-only. The regulator said borrowers and lenders should plan in case the borrowers of these loans do not have the money to repay their mortgages at maturity. "In the medium to long term, the outstanding balances, as well as the loans-to-value of these maturing mortgages, are expected to increase significantly," the FSA warned. "Borrowers may have entered into interest-only mortgages relying on repayment strategies that have not materialised due to changes in personal circumstances or wider social and economic trends." Investment warning The FSA also said it intended to ban outright the sale of investments in "life settlements" or traded life policy investments (TLPIs). These are portfolios of second-hand life insurance polices bought in the US, which the FSA said emphatically were not low risk. It said it wanted to stop any more of these investments being sold to the public in the UK. "We estimate that approximately £1bn of UK retail monies are currently held in the TLPIs, of which the majority is in products that are in financial difficulty or have failed already," the FSA said. "As such, consumers have already suffered detriment."