Tracker Rates, if Affordability Allows

Whether you have a mortgage or you are a saver, this week will have left you in a state of shock!  Mortgage rates started to reduce but are now rising again, and savers are feeling justifiably edgy as the banks consolidate to reduce costs and bring about some sort of financial stability. 

 

In normal markets last week’s takeover of HBOS by Lloyds TSB would not have been approved by the monopolies and mergers commission.  The consolidated group now holds around one third of all UK mortgages and savings.  But, the takeover was definitely necessary.  It provides financial stability to HBOS’ book and undoubtedly there will be many more bank takeover and mergers.  Alliance & Leicester and HBOS are just the tip of the iceberg.  Banco Santander are rumoured to be in talks with Bank of Ireland (Bristol & West) and I would not be surprised if the likes of HSBC, Lloyds TSB, Barclays and Banco Santander stepped into takeover some of the other lenders who have high exposure to specialist mortgages, such as Bradford and Bingley and Royal Bank of Scotland.

 

Looking into the future there may be some good news for mortgage rates.  Oil and energy prices have been the great driver of inflation which has led to the Bank of England being unable to reduce interest rates.  They are restricted by their 2% inflationary target.  The official level of inflation is currently at 4.7% and will be higher when the next results are published in October.  According to some financial commentators inflation will peak at the end of 2008 or in early 2009.  I expect food prices to come under control in 2009 as farmers respond to levels of demand, and the price of oil has fallen from its peak of $140 per barrel to $88 per barrel.  A fall of around 37%.  This will play a significant part in bringing inflation not just under control but is likely to contribute to reduce overall inflation to around 1% or even lower by the second half of 2009.

 

Inflation of less than 2% will definitely bring about reductions in interest rates, and even if the banks are still wary of lending to each other mortgage rates will be significantly lower.

 

With this in mind I feel that if you are able to afford to take the risk with a tracker (variable) rate mortgage you should consider that type of mortgage.  However, if you could not afford your mortgage if rates were say 4% higher than they are now you should take up a fixed rate product which is affordable.

 

Competitive tracker rates start at 5.79% for 2 or 3 years and even offer free remortgage packages.  Fixed rates start a little lower at 5.54% but the fees are higher.  Payments for a £100,000 mortgage over 25 years would be £631 and £616 respectively.  With just one rate cut the monthly payments for these two deals would be exactly the same.  If we assume that rates fall by say 3%, you would be £153 per month better off with the tracker rather than the fixed rate.  The reverse is also true, a payment of £824 per month for the tracker rate deal if rates rose by 3%.

 

If you are within a mortgage deal and would like to be contacted before the end of your tied-in period to ensure you are able to benefit from the most competitive deal thereafter, register for our remortgage reminder service.  Send your mortgage details, including your tied-in date using the methods below and we will contact you two months before the end of your deal to discuss a remortgage.

 

Otherwise contact either Adam or Kieron on the number listed below.

 

Kieron Bassett Financial Services have two IFAs.  Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.

 

Adam Elkin CertPFS

22 September 2008

Darling to beef up FSA powers

Alistair Darling, the Chancellor of the Exchequer, has revealed that in two weeks he will introduce a new banking reform bill to the House of Commons which will give new powers to the FSA, and make it easier to intervene if a bank gets into trouble.

“It is not a question of light-touch regulation against heavy-handed regulation. It is about effective regulation,” he said.

Speaking to the Labour Party Conference, Darling admitted the financial system as we know it will never be the same again.

Noting that every country in the world had been hit by the credit crunch, Darling argued the strength of the economy meant the UK should remain confident.

Echoing Prime Minister Gordon Brown’s comments at the weekend regarding global regulation of the financial markets, Darling said: “In the past it was sufficient to ensure effective domestic regulation. That is not enough today, and we need to strengthen global supervision.

“And working with other countries, we want to improve ways in which credit rating agencies work, ending conflict of interests and opening up the way they work. We are putting in place, both here in the UK and internationally, the tougher financial regulation no one can doubt we need.”

if you would like to discuss this blog please email adam@kieronbassett.com or ring Kieron Bassett Financial Services 01524 832057.

Light at the end of the tunnel – part 2

If I could only find a seller I believe could be in possession of one of the fastest growing shares of all time.  A year ago this share price was languishing and was not even on the radar of the most seasoned market guru.  As is often the case, collectively we were all caught off balance as the price of this share took off and soared.  In keeping with most wonder shares it has built up tremendous momentum and nothing seems to be able to stop it.  It could be argued a bubble is appearing as the price has risen so quickly.  But I do not think so as this share has legs and it has the total support of the media and a great following amongst the general public.

Sadly I will never be able to acquire this share because as yet we are not able to buy shares in bad news.  However if we were able to do so I believe it would have followed the trajectory detailed above over the past year, as bad news has become a big business.  I accept market conditions have deteriorated over the last year, but personally I am concerned that the National Press are aware that bad news sells newspapers and are exploiting the situation.  I believe that they are skewing the news to such an extent that they are in danger of affecting the performance of the economy, rather than reporting on performance of the economy.

Positive news appears to be ignored or tucked away on the inside pages.  The prime example for me is the price of oil that was headlined not long ago to move from $140 a barrel to $200 a barrel by Christmas.  The price has now fallen to below $100 a barrel, and yet this event and the positive implications this will have on food inflation and the price of other utilities in my opinion has been largely ignored by the newspapers.

The financial markets I believe will show signs of recovering soon, with a series of mergers and takeovers that will shake out the markets that in the long term I believe will bring greater stability.  Also house price falls and recent cuts in interest rates have made it easier for people to borrow money again as lenders have slightly relaxed their criteria.  Although conditions remain difficult I believe that overall we need to be more balanced in our approach to news in general, in order to protect the economy at a difficult time.  I apologise in advance to this newspaper for trying to inject some guarded optimism into the market and hope it does not affect circulation figures to much, but I do think the market is getting closer to a turning point if purchasers are prepared to drive a hard bargain, reasonable value can be achieved in this market.

I feel that although the housing market remains turbulent, I can see light at the end of the tunnel with this shakeout taking place.

Kieron Bassett Financial Services have two IFAs.  Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.

Kieron Bassett CertPFS

15^th September 2008

Housing recovery

Although the government’s proposal to postpone stamp duty for properties below £175,000 and to bring forward other money in an attempt to help embattled homeowners was not welcomed whole heartedly this week, at least the estate agents have used it to try and work an advantage.  I was in Taunton this weekend where all the agents had filled one of their windows with adverts such as, “Stamp Duty Free Properties below £175,000!”  I suspect Morecambe and Lancaster’s agents will be following close behind.

 

I do not feel that the temporary removal of stamp duty is going to kick start the mortgage market into action.  1% of a property’s value is only around 2 months’ mortgage payments for a typical first time buyer.  Just the tip of the iceberg if you ask me.

 

Much bigger news is that on Sunday night The US government decided to essentially take over US mortgage lending giants Fannie Mae and Freddie Mac.  There were fears that the two largest mortgage lenders in The US, responsible for 50% of all US mortgages and with £3trillion of mortgages outstanding, could go bust.  If these firms were to go under the impact would be felt globally.  I believe that this is good news.  We have known for a long time that many lenders would potentially hit the wall under the strain of massive repossessions, so the US government stepping in to guarantee the companies has to be a sign of strength for the market.  On the flip side if you are a US taxpayer you may not feel quite as positive!

 

In the UK, interest rates are coming down.  You may not have realised this when the Bank of England kept the Base Rate on hold last Thursday, but the banks have decided to start lending to each other again, which means that mortgages are becoming available at rates closer to the Bank of England Base Rate.

 

Halifax, Nationwide Building Society, Abbey and the Skipton Building Society are all fighting for market share again.  They are offering long and short term deals starting at around 5.6%.  This is not to say that we will see the housing slump suddenly turn around but it is great news for remortgagors. 

 

The purchase market on the other hand is still in a steep decline.  Although good deals are available, you need to place a 25% deposit or more to access them.  A second or third time buyer may have access to this amount of deposit following a previous sale, but first time buyers are unable to place such a large deposit.  And, with each chain usually involving a first timer, the market continues to be in decline.

 

If you are within a mortgage deal and would like to be contacted before the end of your tied-in period to ensure you are able to benefit from the most competitive deal thereafter, register for our remortgage reminder service.  Send your mortgage details, including your tied-in date using the methods below and we will contact you two months before the end of your deal to discuss a remortgage.

 

Kieron Bassett Financial Services have two IFAs.  Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.

 

Adam Elkin CertPFS

8^th September 2008

It is time to enter the buy to let market again

Buy to let has become a large part of the UK residential market in the last ten years.  From almost a standing start there are now 1.1 million mortgages outstanding with the total value of the mortgages worth £132.5billion.  In addition many people may have raised money elsewhere when buying a buy to let or simply paid cash.  So the number of properties let or available to let could be much higher.

 

In theory buy to let landlords should be relatively unscathed by the housing slump if they have treated their entry into the commercial arena as a business exercise with long term horizons, and the current buzzword, earnings visibility at the top of their checklist.  If they have done their homework they will have assessed the rental demand for the type of property they wish to buy.  This would have been done by looking at similar properties in the area and how easily they rented out.  In addition they would be looking at any potential increase of supply of properties in the area and how this increase would affect the rental value.

 

Then the potential landlord would need to examine the costs of running the property.  In theory a new flat should have lower repair costs in the earlier years than say an old terraced property.  Although service charges on newly built flats could offset some savings made in repairs.  In addition it would be worthwhile asking yourself what sort of tenant you should expect to get by looking at the area you are intending to invest into.  This would determine the amount of money you should allow for upkeep.  For example if you are letting to students it would be wise to allow for higher running costs than if you were letting to retired people.  Also short term tenants such as contract workers will mean more time spent setting up new leases and possibly void periods.  This could lead to further expenses on say decorating, as even if the property has been kept in good condition, the property will need freshening up to appeal to potential new tenants.

 

Finally the business minded landlord will have assessed the cost of borrowing and if a long fixed rate was not taken out so borrowing costs are certain, they will have stress tested rates to ensure they can afford to still pay the mortgage if rates rise significantly.  Having done all this preparation, the buy to let landlord would be able to determine whether or not the investment with its risks is an attractive proposition on a day to day basis with capital gains not considered.  Unfortunately it appears that not all landlords have stress tested the robustness of their investment as buy to let arrears have doubled in the last year and overall it looks like the situation is getting worse.

 

Recently we have had a number of enquiries from potential buy to let investors on whether it is worthwhile entering the market as prices have fallen.  My advice would be to do the figures as mentioned above.  We know that the figures in most cases do not stack up at the moment.  For example if you were borrowing the full £85,000, on say a two bedroom property in our area you would pay £560 per month on a 6.25% repayment mortgage over 25 years.  The rental value on this type of property is approximately £475 per month so there will be a short fall of £85 per month.  In addition other costs (such as repairs/void periods) need to be factored in which can take the short fall up to app £200 per month.  If your personal finances are tight, I would advise against buy to let in the current climate.  However if you have surplus income each month and you want to regard the house as a pension the market is beginning to look reasonable value again.

 

Kieron Bassett Financial Services have two IFAs.  Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com.

Kieron Bassett CertPFS

2 September 2008

Light at the end of the tunnel

I feel as though I can see light at the end of the tunnel for the mortgage market.  Lenders are not only cutting interest rates, but they have also started to relax their lending criteria. 

 

The Skipton Building Society will now lend upto 90% of a property’s value.  This society epitomises a common sense approach to lending.  They allow 100% of a person’s income, whether it comes from a paid occupation, tax credits or maintenance.  They also do not have traditional fixed income multiples, instead opting for a flexible affordability calculator.  This would allow a single parent, earning say £10,000 from paid employment, which is then topped up with an additional £5,000 of tax credits and £3,500 from maintenance, to borrow around £87,000, enabling a single person to buy a traditional 2/3 bed terraced property.

 

Although the Skipton Building Society is the first lender to start to relax it’s criteria, I cannot believe that the main banks, being HBOS, RBS/Natwest and Abbey won’t follow suit.  These lenders have all reduced the rates they are offering by upto 0.5% over the last couple of weeks in an attempt to increase market share and also pass on the benefit of reduced borrowing costs to the consumer.

 

Although the lenders are regaining their appetite for risk, and trying to attract new business, I feel that we have lost our appetite for debt.  There seems now to be a “wait and see” approach to property which could cause long-standing damage to the market.  This trend of waiting to see whether prices will be lower in 6 or 12 months is self-perpetuating and could cause prices to fall for many years.

 

If you are thinking of buying, my advice is to buy for the long-term.  If property prices do fall you may not be able to sell within the next few years without being in negative equity.  However, over the long-term in my opinion prices will rise.  If the property is a home, the value of it is irrelevant until you come to sell it. 

 

For more advice, be it for mortgages, investment, pension or insurance visit our office or ring and make an appointment.  As independent financial advisers we will provide you with the impartial advice that best meets your needs.

 

Kieron Bassett Financial Services have two IFAs.  Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com.

 

Adam Elkin CertPFS

25^th August 2008.