Mortgage Market Review CP11 - Dont panic Mr Mainwaring!

Mortgage Market Review

You will have read over recent days about something called the MMR ( Mortgage Market Review) which is the FSA’s attempt , before they disappear into the sunset, at preventing a return of the risky mortgage lending seen in boom times, by ensuring that common sense standards continue to apply in future.

Below is a summary of the proposals and then , what does that actually mean in practice.

At the core of the proposals are three principles of good mortgage underwriting:

·         Mortgages and loans should only be advanced where there is a reasonable expectation the customer can repay without relying on uncertain future house price rises.

·         Lenders should assess affordability and this affordability assessment should allow for the possibility that interest rates might rise in future: borrowers should not enter contracts which are only affordable on the assumption that low initial interest rates will last forever;

·         Interest-only mortgages should be assessed on a repayment basis unless there is a believable strategy for repaying out of capital resources that does not rely on the assumption that house prices will rise.

Key features of the proposed future regime include:

·         Income will have to be verified in every mortgage application;

·         Lenders do not have to consider in detail what borrowers spend but cannot ignore unavoidable bills, such as heating and council tax

·         Interest-only mortgages can still be offered as long as borrowers have a credible plan to repay the capital. But relying on hopes of rising property values is not enough

·         Lenders will have to consider the impact of increases in interest rates in line with current market expectations

·         Some applicants, such as those trying to consolidate debts with a mortgage, will have to get advice to ensure they understand the full implications and costs;

To be fair, that which they suggest is not what one would say is ‘re-inventing the wheel’ – simply before they lend they want make sure the customer can afford it , can demonstrate their income accordingly , and that the current situation of very low rates, is not taken as the norm.

You may have been surprised that the above did not take place already – and dare one say , if we were lending our own money, we would probably do the same.

As always thanks for your attention.

Have a good Christmas everyone.

Buying now cheaper than renting in 94% of UK towns

Buying property is now more cost-effective than it has ever been compared to renting, proving cheaper in 47 out of 50 British towns, compared to 40 out of 50 this time last year, according to research.

A study showed that renting is 15% more expensive on average than owning across the country, up from a 10% premium last year.

It examined the prices and rents of 78,000 two-bed flats currently on the market, comparing rental costs to the payments on an interest-only mortgage at 5% a year.

It found that Swansea, Plymouth and Bournemouth were the only towns where renting was a better option than buying, with rents proving cheaper by 9.3%, 6.6% and 5.7% respectively.

By comparison, renters in Milton Keynes are worst off, with rents 36% more expensive than the cost of owning, leaving them an average of £2,436 a year worse off.

Warrington and Walsall came second and third with rental premiums of 33% and 32% respectively.

In addition, renting in London is 31% more expensive than owning, despite the average cost of a two-bedroom flat standing at £442,036. Tenants in London will pay an average of £6,888 more a year than home owners.

EU threatens to end buy to let mortgages

A proposed EU Directive threatens to severely damage the private rented housing sector according to one of the largest landlord bodies, report the RLA.

The draft directive is aimed at tackling irresponsible lending on mortgages following property booms and busts in countries such as Spain and Ireland Under its provisions, when assessing the ability of the applicant to afford mortgage repayments, lenders will not be able to take account of rental income.

Given that almost 90% of English landlords are private individuals and that most purchases are made on the basis that the rental income will pay off the loan and its interest, this would cause serious damage to the private rented market.

The proposed Directive affects "consumers" but currently they are defined in such a way as to catch small landlords who have just a few properties.

There is no clear definition, but certainly it will embrace a part-time landlord who has bought two or three properties as his/her pension fund which constitutes the vast majority of the private rented market.

Speaking for the Residential Landlords Association, its Chairman, Alan Ward said:

"This Directive is nothing short of a disaster for housing in the UK. It would effectively kill off buy- to- let mortgages and would lead to a collapse in the market with far fewer properties being available for rent.

"It is imperative that the Directive is amended to take buy-to-let mortgages out of its scope."

To Firstbuy or not to Firstbuy

The government recently announced its backing of a mortgage indemnity scheme that will allow higher loan to value lending for buyers of new build properties.

The full details of the scheme won’t be finalised until the spring, but we have compared the new scheme with Firstbuy, the government backed shared equity scheme announced in this year’s Budget.

We believe borrowers looking at the new build indemnity scheme will share similar characteristics with those for whom Firstbuy was aimed at, in that they do not have a big enough deposit to borrow on the open market.

Here are the facts -

• With the indemnity scheme, the builder puts in 3.5% of the value of the property
• With Firstbuy, they put in 10%.
• This means the indemnity scheme will enable a builder to support around three times as many properties with the same sum of capital than with Firstbuy.
• For borrowers, it will not reduce monthly costs as a shared equity loan does, but it does not require the borrower to find a large cash sum at a future date.
• Borrowers with Firstbuy have to repay the equity loan in the future.
• The indemnity scheme will only be available to borrowers taking out a repayment mortgage. So, if in seven years house prices are roughly the same, those who borrowed with a 5% deposit today will be sitting on equity of over 20%, worked out using a notional interest rate of 5%. So anyone using the indemnity scheme to buy a property should be easily able to remortgage onto any product once their equity has increased sufficiently.

The main point to make though is that from a customer’s point of view, this scheme should re-open access to higher Loan to value lending, and many may find that preferable to share equity.

But, borrowers need to recognise that taking out one of these loans is no different to taking out any other 95% Loan to value mortgage, and they have to weigh up the level of risk with their desire to be home owners.

Bank of England - interest rates to rise in 2012

The Bank of England has said that mortgage interest rates could increase next year, as lenders pass on the increased costs of wholesale funding.

Its Financial Stability Report, published today, said that, since 2009, the profitability of new mortgage lending has reduced, because lenders have failed to keep rates in line with higher wholesale funding and other costs.

With costs continuing to rise, the Bank warned that lenders may start to pass this cost on to borrowers by increasing mortgage rates in order to maintain their profit margins.

The report said: "At the beginning of the financial crisis, when funding costs rose sharply, banks were relatively slow in updating the price of new mortgages and the residual remained negative for around a year.

"This suggests it may be during 2012 that any significant increase in banks' lending rates occurs."

The report added: "While credit availability was reported to have increased slightly in 2011 Q3, particularly for high LTV mortgages, subsequent market intelligence suggests that, as with corporate lending, some banks may be starting to pass on higher funding costs to mortgage customers through higher prices."

If you have concerns about how a rise in mortgage rates could affect you and would like to give consideration as to how best to protect yourself against such a rise, please feel free to get in touch.

As always , thanks for your attention.

Mark (mark@themortgagemonkey.co.uk) 

Taxman going online to look for holiday home owners

Overseas property owners have been urged to inform HMRC if no disclosure on tax has been made already.

Tax specialists are warning advisers to notify their foreign property owning clients of a new investigation team established by HMRC to track down people who own land and property abroad by ‘data mining' publicly available records.

One tax consultant and former Inland Revenue inspector, says this latest development is one of a number of trends conspiring to catch out those who have undisclosed assets.

“At one time it would be easy to buy a home overseas and no-one would be any the wiser,” he explains. “Nowadays there is increasing transparency as land registry records and other public information is readily available on the internet. 

“At the same time we are seeing greater international collaboration between tax authorities. The treaties in place between the UK and most other European countries mean that HMRC can follow up lines of enquiry through its counterparts overseas.” 

He further warns that under the terms of a European treaty, tax due in the UK can now be collected in other countries. Taking Spain as an example the authorities have the right to empty a person’s Spanish bank account without a court order and may even seize property. 

It is projected that long-term trends suggests it will be increasingly difficult to hide overseas assets. People who have property they haven’t disclosed should consider putting their affairs in order now.

If people do come forward, HMRC is likely to accept their disclosure without further investigation. It’s better to resolve the position now and retain some degree of control than wait to be found out further down the line and face a much tougher penalty.

A golden gate for the already empty stable ?

The latest FSA rules will cost the City up to £1.4bn a year from now on, according to the regulator's figures.

Regulations consulted on and introduced over the past 12 months by the FSA will create compliance costs of £1.1bn to £1.4bn annually, according to figures compiled by Hargreaves Lansdown.

The figures are taken from FSA consultation papers from October 2010 to October 2011, which show the costs the UK's financial sector will have meet every year from now on.

Cost benefit analyses included in the papers also show the industry will have to pay total one off costs ranging from £253.2m to £323m.

Hargreaves Lansdown said the FSA has launched 18 separate consultations on changes to the law since last October.

The new measures cover areas such as capital requirements, data collection, the handling of consumer complaints and financial crime.

Not all the consultations will cost the industry money, but the wide range of costs have prompted fears smaller City businesses will be hit.

Hargreaves said it recognises the regulator must balance consumer protection with giving the financial services industry room to flourish, but was "surprised" at the range of one off and ongoing costs facing the industry as a whole.

So , money well spent ?

Well , the FSA were regulating the financial industry when the financial crisis started a couple of years ago so one has a sense of buying a golden stable door when the horse is already charging off down the road.

……………..as a dear old friend once said to me….” If you ban one make of aircraft from flying you won’t stop plane crashes”.

Government reveals New Build Mortgage Indemnity Scheme lenders

The government has revealed the names of the lenders that have signed up to its indemnity scheme announced today as part of its housing strategy.

It says Barclays, HSBC, Lloyds Banking Group, Nationwide, Royal Bank of Scotland, Santander and Yorkshire and Clydesdale Banks have agreed in principle to participate in the scheme, which will see them lend up to 95% LTV on new-build property.

The government will underwrite part of the risk on the loans alongside house builders.

It has also confirmed that over 25 developers have agreed in principle to joining the scheme, including Barratt, Persimmon and Taylor Wimpey, the three largest builders in the UK.

It says it hopes that other lenders and builders will want to participate in the scheme.

The government has now released further details of how the scheme will work, revealing that the builder will contribute 3.5% of the value of each property sold under the scheme into an indemnity fund, with the government supporting the fund to a total of 9% of the property’s value.

The indemnity fund pays out to the lender if a property financed under the scheme is repossessed and there is a shortfall. Builders will take the first loss, with the government only being called upon to pay once the builder’s fund has been exhausted.

Lenders and builders will retain the right to decide which builders and lenders they wish to engage with. The government will establish a delivery group of lenders and builders to meet with on a regular basis to monitor the practical implementation of the scheme.

There will be a cap on the value of properties eligible for inclusion in the scheme.

The scheme will be delivered by the Department for Communities and Local Government and will be available in England only.

The government says it will conduct an evaluation of the scheme after two years, to ensure that there has been an appropriate and positive effect on the demand and supply of new build properties.

The Banking Crisis Explained

The Banking Crisis simply explained

John bought a donkey from a farmer for £100 and the farmer agreed to deliver the donkey the next day.  But the next day he drove up and said, “Sorry son, but I have some bad news.  The donkey’s died.”

John replied, “Well then just give me my money back.” 

The farmer said, “I can’t do that, I’ve already spent it.” 

John said, “OK then, just bring me the donkey.”

The farmer asked, “What are you going to do with him?” 

John said, “I’m going to raffle him off.” 

The farmer said, “You can’t raffle a dead donkey.” 

John said “Sure I can. Watch me. I just won’t tell anybody he’s dead.”

A month later, the farmer met up with John and asked “What happened with that dead donkey?”

John said, “I raffled him off.  I sold 500 tickets at £2 apiece and made a profit of £898.”  The farmer said, “Didn’t anyone complain?”  

John said, “Just the guy who won.  So I gave him his £2 back.”

Lloyds raise their Standard Variable Rate on Eurozone fears

Lloyds Banking Group has become the first big bank to raise Standard Variable Rates, prompting suggestions that the era of borrowing at rock-bottom rates is drawing to a close as the Eurozone crisis deepens.

The move will affect more than 175,000 borrowers who took out mortgages from Bank of Scotland and The Mortgage Business, who will see their rates rise from 4.84% to 4.95% on November 1.

Many will not be able to remortgage. Bank of Scotland, which closed its books to new business in 2009, specialised in self-cert mortgages and also those of more than £1m.

Mortgage Business closed to new business in 2008.

Another lender within the Lloyds Banking Group whose Standard Variable Rate now seems more than likely to be under review, is Cheltenham and Gloucester.

Other lenders are also likely to raise Standard Variable Rates in the near future because of a rise in the costs of funding mortgages caused by the Eurozone crisis.

According to Which?, about 40% of borrowers are on Standard Variable Rate, equating to about four million.

Three-month Libor, which reflects rates at which banks lend to each other, has been on the rise, climbing from 0.86% to 0.97% in the last two months.

Last week, Barclays, Santander and Northern Rock all raised the cost of their trackers for new customers, as well as fixed rate mortgages, which are linked to swap rates. Five-year swaps were 1.81% last week, a fall from 1.90% the previous week, but a rise from 1.63% two months ago.

For example, Barclays is raising the cost of its five-year fix at 70% LTV from 3.64% to 3.99%. Santander raised its fixed rate deals by 0.3% and Northern Rock raised the cost of its trackers by 0.2%.

Several building societies have already raised their Standard Variable Rates. For example, last year Skipton pushed up its rate from 3.5% to 4.95% – the same as Lloyds.

It appears that rates may have bottomed out and the tide is turning.

If you are on your lender’s variable rate and have concerns, please feel free to get in touch.

One and half million UK households may not have enough life cover to clear their mortgage

New research reveals that 1.5 million households may not have enough life cover to pay off their mortgage if either partner were to die.

The survey of 3,000 highlighted the possibility that millions of people may well be leaving something sizeable for their loved ones if they were to die suddenly - a mortgage debt. 

Only a quarter of UK adults say they have sufficient financial protection and savings to clear the mortgage and other debts and to provide an income for their family and dependent relatives, in the event of their death.

Seventeen per cent of people surveyed admitted they were worried about the financial impact of their death on their family but incredibly, if they had an extra £10 a month to spend, the majority (65 per cent) would rather play the National Lottery than buy life insurance

The survey also revealed that cost (34 per cent) and apathy (25 per cent) are the main reasons people give for having insufficient cover, while nine per cent were unsure how to buy more cover.  In addition, 1 in 10 thought that they had left it too late to arrange adequate cover.

In terms of a comment on these statistics, I would say that no one likes to think about their own mortality, which is why life insurance is a difficult product for many of us to consider. 

But it is important to plan ahead and make sure loved ones are financially protected when we are no longer around to look after them. 

It can be difficult working out how much cover you need, but as a basic rule of thumb, you should certainly be thinking about buying enough cover to clear any outstanding debts, including your mortgage, and providing a capital sum for your dependents.

In the current competitive market, you can buy life insurance for as little as £10 a month - which for the vast majority of us will be a better investment than £10 gambled on the lottery. 

And, even for older customers, a new policy doesn't necessarily mean sky-high premiums, prices have come down in recent years and its worth shopping around to see if you can find a competitive quote. 

You should also periodically review your cover to take into account changes in your personal circumstances - if you change jobs, buy a new home, get married or have children for example - these things should trigger a review of your requirements to make sure that you leave your dependents an adequate financial safety net.  

I hope that you found this article to be useful.

Thanks as always for your attention.

Mortgage borrowers are missing out

Mortgage borrowers are missing out on what have become the lowest fixed-rate mortgages in decades, with half not having reviewed their mortgage since March 2009.

According to the website unbiased, many borrowers (37%) would still prefer a Standard Variable Rate deal, and if they did fix, would be prepared to do so at an unrealistic 3.4%.

March 2009 was when the base rate first hit 0.5%, and 16% of unbiased’s sample believe the base rate is so low they do not need to worry about reviewing.

But it points out that with fixed rates falling below 5% for the first time in decades and the threat of future interest rate rises becoming more real, home owners are potentially missing out on the best fixed-rate deals in over a genertion. 
 
The website points out that in the last 24 years, five year fixed rates have never been lower than 4.99% and that the current average three-year fixed rate is 4.35%.  

It says that despite the current market conditions and fixed rates reaching an all time low, home owners remain out of touch with what is available to them.
 
However, fixed-rate mortgages do remain popular with 18 to 34-year-olds, where 44% currently have one, a rise of 6% from 38% in January 2011. This suggests the security of a fixed rate is attractive to the first-time buyer market.

If you wanted to discuss this post further , do feel free to get in touch.

Thanks as always for your attention

STAMP duty could be axed in a radical shake-up of the tax system.

The report by the Institute for Fiscal Studies, which it describes as the most far-reaching analysis of the UK tax system in more than 30 years, also recommends integrating income tax and National Insurance payments.

Targets for change include Inheritance Tax where the individual would be taxed and not the estate on a person’s death.

The IFS believes there is also a case for taxing gifts of cash over the recipient’s lifetime. But it says that exempting estates from capital gains tax should definitely stop.

The report describes housing taxation as “a mess” and recommends that instead of stamp duty, residents of larger houses would pay more council tax so that bills reflected real property values.

Review chairman Sir James Mirrlees, the Nobel Prize economist who gave his name to the five-year report, said: “The system imposes unnecessary costs on the economy.

“It reduces employment and earnings more than it needs to. It discourages saving and investment and distorts the form they take.

“It favours corporate debt over equity finance. It fails to deal effectively with either greenhouse gas emissions or road congestion.” The IFS believes the Government could raise just as much money and distribute wealth around the population in about the same proportions as now but in much cheaper ways, by moving to the simpler system it recommends.

Taxes raise £500billion a year, taking about £4 in every £10 earned in the UK.

Housing taxation is one area the IFS says is crying out for reform.

Stamp duty is levied on the whole value of a property.

It varies from one per cent on houses sold between £125,000 and £250,000 (except for first time buyers who pay nothing), three per cent on homes worth over £250,000, four per cent over £500,000 and five per cent over £1million.

The IFS said it was among the most “inefficient and damaging” of all taxes.

Scrapping the tax would remove a disincentive to moving home, which keeps some people in bigger properties than they need and would help free up the housing market.

Council tax, currently based on 1991 values and capped, would be reformed into a “housing services tax” levied as a proportion of actual value with no cap and no discount for unoccupied or single-person homes.

The rate rise is starting

The Sunday Times has reported that there are now clear signs that the ongoing turmoil in the Eurozone is starting to push up mortgage rates.

Private banks, which often lead the high street banks by several weeks, have started to increase rates for the first time in more than two years.

Mortgage borrowers, particularly those who are on their lender's base lending rate ( Standard Variable Rate) and have been so for some time, are therefore encouraged to take pro-active rather than re-active action so that they do not get caught out further down the line.

Money market rates, which are used by lenders to fund deals, have also been creeping up despite last week's co-ordinated effort by central banks to ease pressure in the lending markets.

The three-month inter-bank rate, or Libor, which is used to fund variable-rate deals, rose to its highest level since July 2009, while five-year swap rates, used to fund fixed-rate deals, rose from 1.61% to 1.71% last week after being on a downward trend since February.

If you are an existing mortgage holder and have any concerns about the effect the above might have on your future budget/ finances , do feel free to get in touch.

As always , thanks for your attention.

Mark (mark@themortgagemonkey.co.uk) 

September 15th 2008 - a date which shall live in infamy?

Three years ago today, the collapse of Lehman Brothers sent shockwaves around the world, resulting in sheer panic in the financial markets and driving the final nail in the coffin of the wholesale funding markets.

Suddenly, big banks really could be allowed to fail.

The spectacular bust of America's fourth largest investment banks on 15 September 2008 lead to the bailout of multiple major banks in the UK and US and stiff action from governments to prevent a severe depression.

Clearly, the ramifications of Lehmans' bankruptcy, a year after the credit crunch and five months after it pulled out of the UK mortgage market, are still being  felt today.

Funding remains extremely restricted, banks are still attempting to repay their debts as several remain within the public purse, and general economic gloom dogs consumers as the austerity measures hit home (quite literally).Indeed, one senior investment adviser says the knock on wider monetary impact of Lehmans' failure is quite likely to be far bigger than it would have ever cost to bail it out.

So, where is the mortgage market now, three years on?

Following two years of serious strictures, the UK and the housing market both appear to be in a slow, fragile recovery. Mortgage funding has eased over the last 12 months, with house prices stabilising and gross lending holding at around £135bn.

Most notably, lenders have gone to war over fixed rates recently, slashing deals on an almost daily basis as funding gets cheaper, and long-term fixes dropping to the lowest levels ever seen. There has also been an increase in high LTV mortgages, but in reality it is those with large deposits who are really feeling the love from banks that remain deeply risk averse. And this is unlikely to change as concerns grow that the industry, and economy as a whole, could face further set backs.

It is interesting that the third anniversary of Lehmans falls in a week when the eurozone slides ever-closer towards a Greek default and the ensuing fallout, and the much-discussed Vickers report is published.The shadow of the eurozone looms large on the financial markets, with warnings that the "contagion" of a Greek default could create a bigger banking crisis than we saw in 2008.

Of course, hindsight is a wonderful thing and the lessons of old seem to be getting relearned the hard way.

Consider that, at the height of the "no more boom and bust" bluster in 1999, US President Bill Clinton decided to repeal the 1933 Glass-Steagall Act- a set of bills designed to prevent deflation and reform the banks following the financial crisis of 1929.The repeal essentially removed the protection dividing investment and retail banks, so allowing the casino banking deplored in recent years.

On this side of the water, lax regulation and lending rules allowed a similar scenario to build up, with government, homeowners and the industry caught in the thrall of believing that growth (and house prices) would continue to climb forever. Now, of course, in the UK we have the Vicker's report proposing the ringfencing of bank's retail and investment divisions by 2019.

Does anyone else smell a (strong) waft of irony? Good old fashioned prudence really is the order of the day for everyone from banks to consumers.

So, what of the future?

The effects from Lehmans will likely be felt for the rest of the decade, with lenders managing to pay down their debts in the next few years. Meanwhile, the easing availability of funding for mortgages could rely on how the eurozone fares. The financial markets are extremely nervous and the eurozone crisis could simply reverse the recovery we have seen in wholesale funding, mortgages and the economy.

How much more pain we have still to come is anyone's guess and I will leave conclusions and forecasts to the experts.

However, banking crises are a once-in-a-century event (we hope) and happily, most of us are unlikely to be around if/when the next bankers and politicians decide less regulation is a "good thing".

Government protection, a homeowners fading dream

With benefit cuts and the failure of the government's Mortgage Rescue Scheme, homeowners must understand that they cannot rely on state help alone if they lose their income.

The Mortgage Rescue Scheme was intended to help 6,000 households struggling to pay their mortgage: in its first two years it has helped just 2,600.

Not only that, but the scheme is over budget, with the average cost of each rescue reaching £93,000 compared to an expected cost of £34,000 - a burden the government can ill afford as it looks to cut costs across the board.

Given this situation, it is hugely concerning that consumers still believe they would not need to worry if they lost their income due to unemployment or sickness.

In a recent survey, it was found that a third of consumers thought they would rely on the government if their income suddenly stopped. In light of the ongoing austerity measures, this may not be the best option as the government seeks to reduce the UK's deficit.

With less support from the government, consumers need to ensure they have a financial contingency plan in place in case the worst happened.

In the same survey, only 11% of people claimed to have mortgage payment protection insurance and a mere 4% had income insurance; worrying figures given the current economic market.

Yet, almost half said that they would not be able to last longer than three months on their savings alone.

This is pretty startling given the fact that the current jobseekers' allowance would only provide £270 a month, highlighting a real requirement for adequate protection.

With our strained circumstances set to continue, mortgage payers need to be realistic about their options, ensuring they have a contingency plan in place to support them if their income suddenly stopped due to illness or redundancy.

In the current economic backdrop, consumers need quality advice more than ever.

76% of people happy to forgo property inheritance to allow parents to enjoy themselves

More than three-quarters of people are happy for their parents or grandparents to use equity release to help fund their retirement, despite property being seen as a key part of inheritance, according to recent research.

It revealed that the topic of inheritance remains taboo, with 63% of Britons having not or refusing to talk about it openly with their parents.

However, 40% of people still expect an inheritance and may even build it into their own retirement plan.

It also highlighted that as the cost of living has risen alongside house prices, equity release has become increasingly popular as a method of funding retirement.

The most valuable asset many over-55s have is their home, with an average house price for this age group of £231,306 compared to the national average of £160,519.

Despite the British taboo of discussing inheritance, it seems that three-quarters of Britons are happy for their parents to use the cash in their property to enjoy a better lifestyle in retirement. Retirees should be encouraged to talk openly with their families about their plans and dreams for the future.

Not everyone has the funds in place to support the retirement they once thought possible and we encourage those approaching retirement to look at their full range of assets, including pensions, investments and property.

Equity release could be a solution for some, as it allows people to turn the potentially dormant capital in their homes into cash without having to move, thereby helping them make the most of their retirement years.

If this was something that you wanted to discuss, I have the relevant qualification to advise in such an area, so feel free to get in touch ( mark@themortgagemonkey.co.uk )

Thanks as always for your attention.

The lender giveth and the lender taketh away

Lenders continue to cut fixed mortgage rates in an attempt to get borrowers to switch away from their variable rate deals.

The latest research has revealed the average five-year fixed mortgage rate has fallen below 5% for the first time since records began in 1988.

While the average five-year fixed mortgage rate has stood as high as 6.24% (in September 2009) in the 29 months since bank base rate has been at 0.50%, rates have decreased to 4.99%.

At the same time, the average two-year fixed mortgage rate has fallen from 5.18% in September 2009 to 4.24%, while the average three-year fixed rate has fallen from 5.61% to 4.74%.

With the cost of funding fixed rate mortgages through the swap rate market having fallen to an all time low this is being passed on to borrowers through some of the lowest mortgage rates ever seen.

Lenders are trying to tempt borrowers off variable rate deals and onto fixed rate deals as they are concerned about some borrowers' ability to repay their mortgages when rates finally start to rise.

A proportion of borrowers on variable rate deals will have absorbed the savings they have made from lower repayments into other monthly expenditure, meaning affordability will become a problem when rates go up.

At the same time though, lenders appear to be offsetting the low mortgage rates on offer by increasing the arrangement fees

The average arrangement fee has increased by 17% as lenders battle it out to offer the lowest headline rate. Percentage fees have become increasingly common, with one lender charging as much as 2%.

It means that the average fee has increased by £151 over the last 12 months from £879 to £1,030. There are many fees that far outstrip the average; however, with the highest fee on the market is £3,800.

                                        

There are some mortgages that don't charge an arrangement fee but they are very much at a premium, with only 12% offering this luxury.

Unfortunately too many borrowers still focus their initial attention on getting the best rate, without taking full consideration of the true cost of the deal.

In many cases a low rate with a high fee can work out more expensive than opting for a slightly higher rate, but with a lower fee.

Money Advice Service under investigation for 'misleading' claims

Money Advice Service under investigation for 'misleading' claims

Borrowers warned over capped rate mortgage products

Borrowers currently opting for a capped rate mortgage have been warned they might never reach the cap.

With borrowers increasingly nervous about when rates might start to rise, demand for the mortgages, which have a ceiling that the mortgage rate will not increase above, has increased three-fold since November 2009, according to a recent report.

In response to the growing demand, the number of capped mortgage deals available on the market has increased from one two years ago to 39 at present.

To pay for the security of the cap, mortgage rates on the deals are typically around 0.50 basis points higher than the equivalent variable rate deal. However, with the lowest variable rate deal on the market at 1.90%, there are doubts as to whether a capped deal is currently the best option.

While capped rate mortgages are a good idea in principle, in the current market borrowers are unlikely to ever hit the cap and would likely be better off opting for an alternative deal.

To find out what is available, feel free to get in touch with me.

Thanks as always for your attention.

Mark (mark@themortgagemonkey.co.uk) 

November rate rise being predicted

The Sunday Telegraph reported on the 17^th that interest rates will start to rise in November.

The rise will be in anticipation of falling inflation in the new year and an increasingly strong recovery, according to predictions from the Ernst & Young ITEM Club.

Although major risks remain, Peter Spencer, ITEM's chief economic adviser, said that as long as European and US policymakers can allay sovereign debt concerns and calm the bond markets "things should turn out OK". Striking a hopeful note, he added it is "unlikely events will blow up in our face".

Mr Spencer, a former Treasury adviser, has consistently argued that the Bank of England should "hold its nerve" and leave rates unchanged until there is compelling evidence that the country is coping with austerity, so his move is significant.

The market is not pricing in a rate rise until August next year, but Mr Spencer said: "I think they will get a surprise."

People who offset their savings are £1.4 Billion better off than savers

Borrowers with an offset mortgage who link their savings to their loan have earned £1.4 billion more than those who simply put the cash into a savings account, according to new research.

Around 460,000 people in the UK have an offset mortgage, and over the past two years it’s estimated they ‘earned’ £1.9 billion in interest savings. Putting those savings into a best buy savings account would have earned £534 million in net interest.

The average offset savings balance has risen by 19 per cent (from £27,822 in 2009 to £33,243 in 2011) compared to a 2.5 per cent rise in the average gross loan balance in the same period (from £127,058 to £130,186). This means the average offset saving balance is now 26 per cent of the mortgage balance compared with 22 per cent in Q2 2009 as offsetters seek to benefit from higher savings rates.

An offset mortgage is an excellent option for those borrowers looking to benefit from a higher rate for their savings. While many UK savers are currently seeing the value of their savings eaten up by inflation as well as being taxed on the interest earned on these savings, no tax applies if they use their funds to reduce their mortgage balance. As well as helping them to pay down their outstanding loan, offsets can help shelter savers from the effects of high inflation on their hard earned savings pots.

In the current interest rate environment mortgage borrowers could have saved thousands more with an offset in the last couple of years, even if they had diligently been seeking out the best buy savings rates.

http://www.whatmortgage.co.uk/news/50-billion-of-clutter-in-uk-homes/

£50 billion of clutter in UK homes

The UK is hoarding enough clutter to fill 11 Wembley Stadiums, according to new research

50-billion-of-clutter-in-uk-homes/

FSA concerned over unfair treatment of customers by price comparison sites

The FSA has written to the websites highlighting concerns over fair treatment of customers, following a review that found the websites were offering advice without the proper licence.

The letter called into question how the comparison websites were selling insurance and asked that the websites 'think carefully' about whether they are introducing or recommending certain policies without proper authorisation to provide financial advice.

James Daley, editor of Which? Money magazine said that the FSA action was long overdue.

"It is great that the FSA is finally holding the comparison websites to account. In the last couple of years the number of people buying insurance from these sites has risen exponentially. We raised concerns about the exclusions these websites' policies have and the prominence they put on price.

"If they want to play in this market they have to have regard for these rules."

For the FSA to say that comparison websites are falling short of their regulatory requirements is of great concern.

We think it is particularly important that the FSA has highlighted a concern that we share, where in many cases questions are pre-populated with default answers.

A key point that comparison sites fail to make customers aware of is that by conducting business this way, i.e. in a non-advised way, or ‘ execution only’, the consumer instantly sacrifices any comeback via the normal channels available to dissatisfied customers , namely the Financial Ombudsman Service , as this is only available to those who have gone through an advice process.

Bank of England urged to raise rates soon to avoid repeat crisis - Telegraph

Bank of England urged to raise rates soon to avoid repeat crisis - Telegraph

Thousands will be pushed into financial difficulty when interest rates go up.

The BBC reports today that consumer group Which? is accusing banks and building societies of putting the squeeze on homeowners who have standard variable rate mortgages.

Which? warns that thousands will be pushed into financial difficulty when interest rates go up.

More than 40% of mortgage borrowers are now on standard variable rates, which kick in after cheap introductory mortgage deals expire. The highest are around 6%, double the cost of the best value mortgages.

"They're just milking people," one homeowner from Peterborough, Mark Fellowes, complained to BBC News.He says the interest rate on his Egg mortgage dropped by just 1.5% when the Bank of England cut official rates by 4.5% after the financial crisis."I was very puzzled initially and then you just get angry," he says.

The Which? research reveals that 95% of lenders failed to pass on cuts to standard variable rate customers in full when the Bank of England reduced interest rates.

Since then 20% of of lenders have actually put their rates up, while the Bank's rate has stayed at a rock bottom 0.5%.

The Council of Mortgage Lenders argues that the standard variable rate, or SVR, is dependent on the cost of attracting deposits from savers, rather than the Bank of England.

But its director general, Michael Coogan, admitted to BBC News that lenders have been widening their profit margins after losing heavily during the crisis."I think what we have is the banks and the building societies trying to restabilise the system which was in shock in 2008," he explained."They are trying to recapitalise their organisations, deal with past losses, deal with the risk of future losses, and at the same time keep their customers as happy as possible through the economic cycle."

An increasing number of families with large loans are trapped on their lender's standard variable rate because other banks and building societies don't want their business.These financially-stretched households could suffer badly if the Bank England starts to push interest rates higher.

Lenders will look to push up standard variable rates by more than any base rate increase and that's where vulnerable borrowers really stand to lose.

Mark Fellowes' lender, Egg, said: "We strive to maintain good rates for all of our customers based on how mortgages are funded."Funding is based on wholesale market rates, specifically Libor, which are frequently at a premium to Bank of England base rates."

Mr Fellowes has managed to moved to another lender, choosing a mortgage which does track the Bank of England's rate.

He is saving £120 a month.

If you want help - please get in touch 'mark@themortgagemonkey.co.uk'