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.