Despite lowering house prices and apparent rock bottom interest rates, it's not getting any easier to borrow money or find a mortgage in the UK. Certainly not with the local banks.
This is leaving the door open for foreign banks to muscle in and capture a share of the UK housing market.
Rates are continuing to climb and research found that the number of mortgage deals available to buyers has slumped 60% over the past 12 months.
Some simplification of offerings has taken place as part of cost cutting exercises and because it is a less competitive market place now, with fewer lenders dominating the scene.
The Bank of China has announced it will start lending to British borrowers and it isn't the only overseas bank to have entered the lucrative UK mortgage market. This, like the Curate's egg, is partly good and partly bad.
The big question; Is the Bank of China a knight on a White Charger, riding in to save the UK home owners from the fiery dragon of the UK banks, that has held such a strangehold over them for so long.
More likely and more cynically, they are in reality an economic Trojan Horse, willing to buy into the UK market and infiltrate deeper over the coming years, to the point where they can change and influence Treasury decisions.
What is the Bank of China offering?
The Bank of China has announced it will start offering mortgages in the UK to both residential and buy-to-let borrowers. It's a well defined market and the risks are known and clearly visible, if you follow the standard format.
It's residential deal is available for loans up the 75% of the property's value. It has a lifetime tracker at 2.5% above the Bank of England base rate, giving a current pay rate of 3% with a £995 arrangement fee. While not quite market-leading this is highly competitive.
Bank of China is also launching a buy-to-let loan at 3.5% above base rate, so it is currently 4%.HSBC (Hong Kong & Shanghi Banking Corporation!)
Perhaps the Chinese are not such strangers to the UK banking system after all. Consequently the HSBC are offerinf better deals. Those deals are the HSBC lifetime tracker at 2.74% with a £999 fee which is available for loans up to 60%of the property's value. Alternatively, HSBC has a version available up to 75% which has a rate of 2.95% and a £799 fee.
First Direct (CitiBank in USA)
First Direct also has a competitive lifetime tracker at 2.98%. This is an offset so you can reduce the amount of interest you pay by setting your savings against your borrowings. The fee on this deal is £999 and it is available on loans up to 75%.
UK Lenders
This is likely to prove quite attractive because unlike most UK lenders which require the monthly rental income to be 125% of the mortgage payments (meaning you'd need to be getting at least £625 a month in rent if your mortgage payments were £500), the Bank of China only requires the rent to equal the mortgage payments.
Many say that the entry of Bank of China into the UK market, however tentative, has got to be positive news for a market that has been starved of choice and where lenders are increasingly able to call the shots as competition diminishes.
A Matter of Conscience
So, if you can conveniently forget their history of brutality and oppression, the invasion and cultural destruction of Tibet and their continuing breaches of human rights at home, you may be seduced by their offerings.
Is it simply a matter of conscience, or should you not be naturaly cautious. Have we learned nothing from the recent crisis or are we willing to close our minds and simply jump headlong into another fire. Be very wary of Chinese bearing gifts, loans and bonds. Look behind the bamboo curtain for stability and sustainable growth, in the long term.
Which other overseas banks are now operating in the UK?
As we mentioned earlier, the Bank of China isn't the only foreign institution to spot the shortage of mortgage supply in the British market.
Leumi
The Isreali bank, Leumi is offering a competitive five-year tracker. Most trackers from UK lenders are linked to the Bank of England base rate, but Leumi's deal tracks the three-month Libor rate (this is the funding rate banks and building societies borrow from the wholesale markets at). The rate is 1.625% above Libor, giving a current rate of 2.56%.
Of course, this is great while the Libor rate is low but this rate tends to be more volatile than the base rate, meaning monthly payments could fluctuate.
Handelsbanken
Handelsbanken, a Swedish bank, is also offering deals to UK mortgage borrowers, although it is operating at the top end of the market so its loans won't be available to the majority of borrowers.
Nonetheless, for those needing a large mortgage having another player in this market is welcome news. Handlesbanken is willing to consider loans up to £2.7 million which is much more than most UK lenders will advance.
In summary
With such a shortage of mortgage deals available the arrival of new lenders is good news. This doesn't mean the problems affecting the market will disappear overnight: if you don't have a sizeable deposit and a good credit history you will still struggle to get a UK mortgage.
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