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By Sarah Modlock
Confucius said "He who will not economise will have to agonise." Presumably they didn't have sub-prime mortgage meltdowns in 479 BC but you never know. Now, just as UK mortgage providers are demonstrating that they are tighter than two coats of paint, along comes the Bank of China to shake up the market. The Chinese state-owned bank, which, unsurprisingly is also the largest bank in the world, has been providing mortgages for the Chinese community in the UK for years but has recently opened its doors to the whole population through its five branches across the UK’s major cities. The bank is also It is marketing deals via four brokers, including Savills and Legal & General Mortgage Club. The deals on offer The two tracker deals it is opening with have competitive rates of 2.5% over the Bank of England base rate for residential borrowers and 3.5% over base for buy-to-let customers. Both deals are for the lifetime of the loan. These are among the best on the market right now and undercut many UK lenders. Although some similar trackers can be found at Woolwich and HSBC, others, with shorter terms from lenders such as Abbey and Lloyds, charge higher rates. You can expect to pay a minimum of £995 in arrangement fees and the maximum loan is £1million. Landlords may find the offer particularly attractive because the Bank of China requires only 100% of rental income to cover repayments while most UK lenders currently want 125%. The criteria for borrowers Expect a conservative approach, which is perhaps no bad thing. BoC's offers are not likely to make first time buyers jump for joy as the minimum deposits required are 25%. There are also tough credit checks. Something else which is very different is the requirement for face-to-face meetings before the bank makes a decision on each loan. It strange to think that this was the way all mortgage business was conducted in Britain not so long ago. 'Face' time is a crucial element of Asian business culture - perhaps if our banks looked customers in the eye and made them explain their finances before dishing out cash a few years ago we'd all be a lot better off now. Why China? The Bank of China's entry into the British market will come as a surprise to some and a relief to many. China's economy is positively glowing compared with the credit crunch cripples in the US and Europe. Its conservatism could be a breath of fresh air. The bank will fund the mortgage loans from its own capital reserves - another practice long-abandoned by UK lenders. So forget the jokes about taking out a Chinese mortgage and then wanting another one three hours later. What the experts say Mark Harris, managing director, at Savills Private Finance, says: “We’ve had clients wait eight weeks to be turned down by HSBC. Buyers can’t wait, they’ll miss the house. We have therefore been sending a lot of our customers to Bank of China because we know they will issue the offer letter in time, and their rates are extremely competitive.What is most significant about this is the size of the Bank of China and anyone new coming in, is a sign of confidence.While I do not believe it will re-shape the whole mortgage market in the UK, if its works here, it is a bank with sufficient scale and could potentially deliver big volumes." Keshav Thukaram, managing director of buy-to-let specialist website Smartlandlord.co.uk, said: "This is an exciting new development. Although the Bank of China is currently lending on a limited scale, every little helps. The Bank's cautious approach to buy to let lending should lead the way for other lenders in what it still - wrongly - considered a risky sector." Other overseas lenders The Bank of China is not the only foreign lender to see potential in the UK. Kleinwort Benson, Investec and Standard Chartered already do some mortgage lending here. Handelsbanken of Sweden and Israel’s Leumi are also pushing into the UK market. Foreign banks are also relaxing their eligibility criteria, so you are more likely to get a deal if you earn bonus income or are self-employed. At time of writing, Leumi has the market-leading 5 year tracker at just 1.625% above three-month Libor (the wholesale rate at which banks borrow from each other). With Libor at 0.93% last week, the rate would be 2.56%. On a £200,000 loan, your repayments would work out at about £904 a month with a fee of £1,000. There is a minimum deposit of 35%. Handelsbanken has lifted its maximum loan size above £2.7m; much higher than the maximum offered by UK banks. It has also made a push for savings, taking big deposits in the Midlands. But...and this is a big but... it is not a full member of the Financial Services Compensation Scheme so you would have to apply to Sweden for the first €20,000 (£17,000) of savings. The state of the UK mortgage market Just in case you think the market is being talked down.... Although home loans rose by 17% in June, with gross mortgage lending at a six-month high of £12.3 billion (from May’s £10.5 billion), the Council of Mortgage Lenders says it is 48% down on June 2008. And despite the Bank of England keeping interest rates historically low at 0.5%, borrowers are struggling more than ever to find decent deals. The cost of the average two-year fixed mortgage deal has risen from 4.66% to 5.08% in the past month, according to moneyfacts.co.uk.
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