100% Mortgages – No Longer

As house prices fall and mortgage arrears continue to rise, lenders go on with restricting their lending terms.  They have placed greater requirement on you to verify your income, prove your credit worthiness and will only let you have the very best rates if you pay a hefty fee and can place a 40% deposit.

 

If the size of your mortgage is not large enough to justify a high fee then you will be penalised with the interest rate.  For example, a five year fixed rate with no fees gives rise to a rate of 4.99% whereas a rates of 3.19% can be achieved on a 2 year fixed rate and 4.39% for a 5 years if you choose to pay the fees.

 

If you are unable to place a deposit of 40%, again mortgages are still available, but the lenders will charge you for the privilege.  Rates start at 3.24% for a 75% loan to value mortgage, at 4.59% for 85% mortgages, and the lowest 90% mortgage rate is 6.29%.

 

Unknown to Gordon Brown, who called for the ban of 100% mortgages on Monday, there have been no new 100% mortgages agreed for 12 months.  The lenders see them as too high risk in the current climate.  But that doesn’t mean to say they will never want to resume lending on those terms, and why shouldn’t the banks, and especially the building societies, have the right to say to whom they lend and on what terms?

 

There has been reckless lending in the past but that is not to say that all 100% mortgages were lent recklessly.  Scottish Widows Bank used to lend 100% of a property’s value, but only to professionals, being accountants and doctors etc.  These occupations often produce a relatively low initial income which steadily rises.  It is likely that this type of applicant would be better able to repay their mortgage than most. 

 

For the above reason I feel that banks (well some of them) and building societies will make their own decisions regarding their lending terms.  They will focus their attention on an individual’s credit worthiness and the lender’s exposure should the loan fail.  At the moment, with house prices falling, they see the risk of an 80% mortgage akin to that of a 95% mortgage 2 years ago.  As such they are charging a relatively high price for that level of credit.  When house price growth returns the lenders’ attitude will change and first time buyers will be able to enter the housing market with a low or even nil deposit. 

 

It is vital that you seek independent advice when deciding on the most appropriate mortgage deal.  There are often differences of thousands of pounds between two mortgage deals.  An Independent Financial Adviser (IFA) wil advise and recommend the most appropriate mortgage for your circumstances.

 

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

24 February 2009

Equity Release

With the latest interest rate cuts the good news only extends to borrowers, as the Bank of England have admitted that they are prepared to sacrifice savers to enable them to kick-start the economy.  This does not appear to be very fair as there are about six times as many savers as there are borrowers, so their actions are not even an overall vote winner.  But, desperate times require desperate measures and certainly the Government have grasped the nettle. 

 

For a lot of people who are not living off their savings the cut in savings rates will not impact on their lifestyles, but what about people who have retired?  Many people in retirement rely upon income from savings to make ends meet, and it was reasonable in the past to expect about 5% per year.  Now interest rates are on average less than 2% and likely to fall again. So where does this leave these savers who have effectively had their standard of living reduced?  Generally, many people’s nest egg is also their rainy-day money and people are reluctant to eat into their capital to maintain their standard of living, as they then will have no money left to pay for emergencies such as the central heating boiler breaking down.

 

In this situation I believe realising capital from your house could make sense.  This market continues to evolve with the ability to raise against your house as little £1,000 or if you just want extra income, the minimum is £50 per month.  These schemes are known as Lifetime Mortgages and the amount you borrow is secured against your house with interest charged against it during your lifetime so long as you remain in the house.  Also it is possible to move the loan onto another property if you for example want to move to a more suitable property in the future.

 

It is important to note that unlike conventional mortgages, no payment is required and the house remains yours, so you have the opportunity to pay off the loan, with for example an inheritance at a later date.  Alternatively you can remain in the property, let the interest accrue and pay off the loan when you die or when the property is sold.  If the amount owing is more than the value of the house, then there is a no negative equity guarantee which means the lender would not pursue your next of kin for any shortfall on the sale of the house.

 

Although raising money on your house may not be what you do I believe it is better to do this than put up with an unacceptable standard of living.  This market is complex , so it is worth consulting an Independent Financial Adviser who specialises in lifetime mortgages.  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

 

17 February 2009

Barclays’ Bonuses For All

Interest rates fell this last week.  The Bank of England have now reduced rates for 5 consecutive months.  The Bank of England Base rate is at it’s lowest ever level (rates started to be set in 1694).

 

Barclays Bank on 9^th February lived upto their announcement a couple of weeks earlier and managed to post a profit for the 2008 financial year.  They did include 2 anomalies; one, writing down over £8billion in bad debts and two, increasing their profit by £2.4billion to represent the true value of assets bought from Lehmann for a knock down price.  The true extent of the future write downs is still uncertain, but for a bank to post a profit in these markets and with all the financial irregularities which have been occurring, is good news indeed.  Their share price increased by more than 10% on the day their financial announcement was made.  Barclays shares have now increased by more than 100% since their low point in January.

 

Halifax released their latest house price index data.  This showed a 1.9% rise in house prices during January.  Their housing economist, Martin Ellis, informs us that, “There are some very early signs that market activity may be stabilising.”  He goes on to say that we should not place too much significance on one month’s figures as the trend is still downwards.  In a downturn every month is not necessarily negative.

 

For mortgages at least, the above signs are very positive.  Money should be cheaper to borrow, banks can be profitable in these markets and subsequently should be able to lend.  And, banks should start to regain the confidence to lend if the positive trend in house prices continue.

 

The reality is that on my first day in work in February I opened my e-mail inbox to find that two of the few remaining self-certification of income lenders, Bank of Scotland and BM Solutions, had closed their doors to new self-certification business.  Later that day, our contact from Abbey walked in with further bad news.  They have amended their terms of lending once again.  When they amend at the moment, it is never for the better!

 

Mortgage interest rates are no lower now than they were in 2003 when the Bank of England rate was 3.5%.  At that time I did a mortgage, fixed for five years, at 3.99%.  If memory serves me correctly the set up fees were less than £500.  A comparable deal today has a rate of 4.44% with £1,500 set up costs.  Don’t get me wrong, you can take out a rate of just above 3%, but you may have to renegotiate in 2 years.  The best deal will depend on your particular circumstances.  Remember, if you take a deal for only two years and wish to renegotiate at that time you will have to have sufficient equity to be able to do so.  You have a better chance of house prices being higher in five years than in two.

 

To discuss your personal circumstances you should contact an Independent Financial Adviser (IFA).  An IFA will recommend the most appropriate deal for your particular circumstances.

 

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

9^th February 2009

Life Cover

We have just entered the Chinese year of the ox, and I think that this animal may signify the year that lies ahead for us.  The ox, amongst other characteristics is patient, durable and hardworking, and I think that we are going to have to display all these qualities during the coming year.

 

But what if due to extreme hard work the ox could not cope and expired.  How would this affect the farmer and his family who depended on it for their livelihood.  This question could also be addressed to us and how our families would cope in the event of the loss of the main breadwinner?

 

In good times we tend perhaps to take an overly optimistic approach to the consequences of our mortality.  “House prices are rising and I have a good company pension,” we think, “and so if anything happened to me, my family will have plenty of money from these sources”.

 

Unfortunately, as we come to terms with the world in 2009 the security we previously felt has all but evaporated.  House prices are falling, and as in the 1990s it is predicted that millions will suffer negative equity.  Company pensions and state benefits are also likely to be cut, and companies and the government are looking to cut costs in any way they can.

 

So perhaps we need to reconsider our position on if the worst were to happen.  No longer can we rely upon our assets and therefore we need to look to protect.

 

Some people have an objection to protection, as they pay their premiums but get no return at the end of the term.  It is interesting that this argument is not used when having to insure our house or car, but insuring your life is considered optional.  In most cases insuring your life is also cheaper than insuring your house or car.  Premiums insuring a 30 year old non smoker over 25 years can cost as little as £5.70 per month for a £100,000 policy.

 

So I think now is the time we get our priorities right and go back to the basics of financial planning.  We must ensure that if we have no life cover but have financial commitments we get some protection.  Also, if we have cover now is the time to review what we have.  It is worthwhile ensuring in both sets of circumstances that cover is in place not just to pay the mortgage off, but to give your dependents a decent standard of living after you are gone.

 

If you wish to review your protection 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/cms.

 

Kieron Bassett CertPFS

3 February 2009

Redundancy Cover

Since January 1^st, Corus, Barclays, Marks & Spencer, Adams’ Childrenswear and others have announced job cuts nationally.  In our area we saw the closure of the Reebok Warehousing unit on White Lund on 31^st December.  Other firms throughout the area are laying off staff or not replacing those who leave.

 

The trend towards higher unemployment is nationwide and typical in an economic downturn.  There are some businesses who may prosper in a recession.  Tesco, Sainsbury, Waitrose and Iceland have all announced new jobs as part of expansion plans.

 

If you have redundancy cover, the advice is generally to keep it.  Maybe you are more likely to need it than you have been for many years.  However, the redundancy insurers have been quick to realign their criteria and pricing with this increased perceived risk.

 

The cost of redundancy protection has increased by approximately 20%, and with many customers on monthly renewable contracts, this will place an immediate strain on an already tight budget.

 

For new customers, not only will you have to pay more for the cover, but you will have to jump through more hoops to be eligible.  One insurer recently restricted cover to those who have recently taken a new mortgage or remortgaged, and took accident and sickness cover at the same time.  In addition they added the question,

“Are you aware of any circumstances where a) you have received formal or informal notification that your own job might be at risk, or, b) your employer has formally announced it’s intention to make cuts to it’s workforce?”

 

There are still opportunities to buy redundancy cover, but they are best explored by an independent financial adviser. 

 

You should undertake a review of all of your insurances regularly.  It is wise, for example, to consider critical illness benefit to repay a mortgage in the event of a serious illness.  Income protection helps to replace lost income during a period of long-term sickness.  Family income benefit may be used to replace lost income in the event of a wage earner’s death.  These are in addition to the basic life cover most of you will already pay for.

 

If you have not reviewed your insurances with an independent financial adviser recently, contact Kieron Bassett Financial Services.

 

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

27^th January 2009

Crystal Ball Gazing

At this time of the year we look forward to the year ahead and try and predict what will happen to the mortgage market during 2009.  We know that the party ended in 2008 and I believe this year is going to be the year of the hangover.  As always the severity of the hangover for individuals will depend upon how much they have indulged.  The Government is trying hard to assist in particular the hardest hit but unfortunately, with rising levels of unemployment I believe that in the short term repossession rates will rise.  Buy to let properties I think, will form a disproportionate amount of repossessions as in some areas, due to an oversupply of properties, landlords cannot let.  If they depend upon the rent to pay the mortgage and have borrowed a high percentage of the property value they may now be in negative equity, and as they are unlikely to receive state assistance the only option available may be to hand back the keys.

 

House prices continue to fall due to a combination of a lack of confidence in the market and a chronic shortage of funds from the lenders.  I believe that if the Governments second bailout of the Banks works, by the end of the year house prices will stabilise and this will lay the foundations for a recovery in 2010.  However if the cash injection does not have the desired effect I believe the market will experience light volume for years and house prices will tend to drift downwards.  I can foresee a market not unlike that of the 1990s, with potential buyers delaying their purchase until they see market recovery.  This approach becomes self prophesising and it could take a long time for the market to turn, even with funds readily available. 

 

Interest rates remain stubbornly high even with the base rate standing at 1.5%.  Most lenders are charging in excess of 5% for five and ten year fixed rates and in many cases this is almost unchanged from last summer when the base rate was 4% higher.  Also to obtain even these rates lenders are often restricting the loan to value to 60%.  If you want a 90% loan choice is very restricted arrangement fees tend to be high and expect to pay interest rates north of 6%

 

Overall with repossessions rising, house prices falling and interest rates remaining relatively high against the backdrop of an economy in recession, 2009 looks like a year to write off for the housing market.  However, although I accept it is going to be tough, if something like normal lending can be resumed at rates to reflect the low base rate I can see progress being made in the market.  With first time buyers finding properties to buy that may have fallen over 20% from their peak, and borrowing at rates maybe as low as 3% buying could start to be cheaper than renting.  This change could bring into play a classic house buying signal.  Also if rates do drop to these levels buy to let starts to become profitable again for those landlords who are able to identify properties that will let well.

So although this year is going to be difficult at least I can see some potential green shoots of recovery in the future.  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

20 January 2009