Mortgage applications being rejected at record rates

According to a renowned mortgage specialist, mortgage loan applications are being discarded on slightest pretexts such as late credit card payments. Moreover, one mortgage lender even accepted of rejecting 90% of the applications it gets for 90% LTV (loan-to-value) home loans. It has been reported that the total value of mortgage lending has been below average in the first quarter of 2010.

The first-time home buyers need to larger deposit than any point of time. The borrowers are required to make at least 25% down payment on the purchase price of the homes. Now, the average cost of a first house is around £142,457. This price is around 4.6 times higher than that of the average UK wage. Hence, it becomes quite difficult for the borrowers to make that much of down payment. But most lenders are refusing to approve loan applications with less than 25% down payment. So, if an individual is planning to take out a mortgage loan in UK, then it is advisable to check whether or not he can put down 25% of the purchase price of the house. This will help him know for a ‘mortgage how much can I borrow’ immediately.

The above facts are indicating that the UK mortgage market might be on the verge of a fresh crash. The Halifax home price index has already dropped for 3 consecutive months. According to the latest report of Royal Institution of Chartered Surveyors, the home buyers demand had dropped to its lowest point in 2010. According to a renowned economist, the home prices are likely to drop further by 3% to 5% in the second quarter of 2010.

References:

• First Time Buyer Suffer Mortgage Squeeze – Express.co.uk
• Mortgage Approvals Hit Four Month Low – Scotsman.com

Today the share fell dramatically as more traders decided to sell out now, fearing that the worse is far from over for BP. Share price is now down to 1997 figures, a slump of 12% in total. Prices did recover a little after the major plunge this morning.

BP’s share price in the USA is down more, falling 16% on Wednesday in the New York Stock Exchange.

BP has now spent about $1.43 (a clean 1 billion pounds) trying to stem the flow of oil.

BP bonds are suffering too as people are no longer feeling that BP can provide a safe long term corporate bond.

The new talk is that BP could become a target for a hostile takeover bid, maybe by the Chinese oil company PetroChina which is looking to expand into international markets.

What does this mean for Tesco shareholders? Well, Philip Clarke who is the international and IT director of Tesco is replacing him. Tesco’s growth has certainly been driven by its innovative approach to using new technology, so it looks like it is certainly in safe and experienced hands to see it continue to grow and develop further internationally and technologically.

As expected Tesco shares still slipped a little when he announced he was retiring as the traders panic sold before realising that he was not going to steal all the Tesco wine on the way out (OK. not really sure why people panic sell when a director quits, just hedging their bets I guess).

Sir Terry Resignation Statement

“When I became chief executive I had a plan to build Tesco around its customers, to make it number one in the UK and to find new long-term growth in non-food, in services and in international expansion. It has taken 14 years but that strategy has become a firm reality now and so I feel my work is almost complete.”

A great job well done Sir Terry. Enjoy your retirement!

AIG made this statement:

“After careful consideration, the company will adhere to the original terms of its previously announced agreement with Prudential plc for Prudential to acquire AIG’s wholly owned pan-Asian life insurance subsidiary, AIA Group Limited. The company will not consider revisions to those terms.”

The big question now is if the takeover talks collapse completely will Prudential become the target of a larger takeover? Jobs are on the line and the future of Prudential itself now hangs in the balance.

This disaster just goes to show that there really is no such thing as a safe stock at all. Any company can experience unexpected problems at any time, and once the main city traders start selling the shares go into free fall. It is usually the small private shareholders that are left in the worse position as by the time they make the decision to sell they have already lost so much.

Pension plans are going to suffer as dividends are reduced due to falling profits. The operation in the Gulf of Mexico continues to cost BP millions of pounds and some analysts believe it will be August before the leak is plugged.

Apple is in a strong position. Whereas Microsoft’s main product, its Windows operating system, is becoming slightly less popular, Apple’s products are slowly becoming more mainstream. Apple used to be the brand for the tecno-snobs, but the iPhone and now iPad is bringing the Apple product range to a wider consumer audience.

Microsft on the other hand is starting to suffer at the hands of the ever growing Open Source community which provides the Linux based operating systems for free to all computer owners, plus the increasingly advanced products offered by Open Office and Google Docs which are making the hefty fees for Microsoft Office look like a joke to most users. Although for more advanced processing Excel is still the winner, a vast majority of people can accomplish their spreadsheet and word processing needs using open source software that is free to download.

Google Doc’s is becoming more powerful, and is an excellent way to share spreadsheets and documents with total ease, something that Microsoft still have not been able to implement. As far as tech stocks are concerned, Apple and Google seem to be the future now. But all this can change in the blink of a technological revolution.

BP’s dividend payments currently account for approximately 14% of every pension scheme in the UK. So many pensions have the “safe” equity as part of their portfolio, and they are all suffering.

The BP oil disaster in the Gulf of Mexico is damaging BP’s reputation and share price. It has also already spent £770 million trying to plug the hole in the Gulf of Mexico. BP’s reputation in the USA has plummeted and it may not win any new contracts in the Gulf of Mexico which is still a rich oil ground. The environmental damage may take years to clear up and for this the proud Americans may simply shun foreign players on their doorstep.

What Happened in the Gulf of Mexico?

On the 20th April 2010 one of BP’s exploration platforms exploded and sank. 11 people were killed in the event. The platform had discovered an oil source and therefore the oil reservoir was opened when the rig was destroyed after sinking. The oil spill is threatening the US coastline around the Gulf of Mexico.

The rig was managed by Transocean Ltd. who are working for BP. BP have the biggest stake in this particular oil field. The oil leak is releasing in the region of 5000 barrels of crude oil every day. On 27th May BP are hoping to plug to hole using a “top kill” method.

The disaster has highlighted the need for increased safety and environmental protection in the oil industry. Oil rigs in Brazil and Norway must now be fitted with remote control off switches that mean in the even of a disaster the drill can be closed off before any further damage is done. These devices are not required by US regulators so are seldom installed in rigs drilling in US areas.

Purdue University has analyzed videotape of the leak using particle image velocimetry and estimated oil flow rates at between 56,000 to 84,000 barrels per day (8,900 to 13,400 m3/d), or equivalent to one Exxon Valdez spill every 3.5 to 2.4 days,  A second, smaller leak has been estimated to be releasing 25,000 barrels per day (4,000 m3/d) by itself [58], suggesting that the total size of the leak may well be in excess of 100,000 barrels per day and could possibly be one of the largest oil spills in history  and the worst man-made disaster recorded.

BP’s share price did recover slightly yesterday on news of the new attempts to plug the oil leak. BP’s daily profits are still in the region of £30 million per day.

Whereas small businesses are struggling with liquidity due to lending restrictions, Prudential is borrowing money from its shareholders.

So, why are Prudential wanting to buy an Asian bank during these tough economic times? Is it a safe investment for its shareholders?

Terms of the Pru Rights Issue

Shareholders are entitled to subscribe to 11 shares for every 2 shares held at a call price of 104p per share.

Under the terms of the Rights Issue, Prudential will issue 13,964,557,750 Rights Issue Shares at the Issue Price of 104 pence per Rights Issue Share on the basis of 11 Rights Issue Shares for every 2 Existing Shares held by Qualifying Shareholders on the Record Date of 4 June 2010. The Issue Price for HK Shareholders and Singapore Shareholders is HK$11.78.

The Issue Price of 104 pence per Rights Issue Share represents a 39.3% discount to the theoretical ex-rights price (TERP) based on the Closing Price of a Prudential Share of 542.5 pence on 14 May 2010 and a 80.8% discount to that Closing Price.

The Rights Issue is expected to raise proceeds of approximately £13.8 billion (net of fees and Transaction-related expenses) and is fully underwritten by Credit Suisse, HSBC and J.P. Morgan Cazenove together with a syndicate of other underwriters.

• Nil paid sedol: B64R3G5 – PRUDENTIAL ORD GBP0.05 (N/P 23/06/10)

Key Dates

• Ex-date: 8 June 2010 – this is the date that the nil paid rights will be added to your account. The market price of the ordinary shares will fall to compensate these additional shares. They start trading on this date.
• Pay Date: 23 June 2010 – the closing date has been announced as the 23 June 2010, this is likely to be the paydate, when the call is paid and the nil paid rights converted to ordinary shares.

See the latest Pru prices.

Equation to Sell Rights to Take Up

In response to one of our readers (Joyce) we have added an equation to allow ISA holders (or any shareholder) to quickly calculate how many nil paid rights you need to sell to take up the remaining using the sale proceeds.

No of nil paid rights to sell = Your holding X (Call Price – Total price of nil paid rights incl. fees).

If rights trade at about 20p, and with any brokerage fees the value to sell is £0.20. For a holding of 22,000 nil paids (based on a holding of 2,000 ordinary shares) your calculation is:

22,000 x (1.04 – 0.20) = 18480 nil paid rights. These will give you £3696.00.

Then to take up the remaining 3520 nil paids (i.e. 22,000-18480) your call is £3660.80 which leaves you with £35 left over. If you fiddle with the figures you may find that you can sell 1 or 2 nil paid less and end up with less money left over.

Harrods is considered a great trophy amongst the mega-millionaires in the Middle East and it is thought that it has been sold to another wealthy family.

The Harrods store is on Brompton Road in Knightsbridge, London. It is the UK’s second largest store with more than 330 departments. It covers a staggering 4.5 acres (18000 square metres). The Harrods motto is Omnia Omnibus Ubique, which  means “All Things for All People, Everywhere”.

However, Harrods is more than just a big department store. The Harrods group is also involved in banking, property and aviation. This makes it an extremely attractive asset to the mega wealthy international businessman. Whoever now owns Harrods owns the UK’s 2nd largest shop, an exclusive bank, an airline and a property empire.

The big question now is, Who owns Harrods?

The Harrods buyer is the Qatari Royal Family which operated under the name of Qatari Holdings. They have paid in the region of £1.5 billion. More soon.