Entries Tagged 'mortgages' ↓

Interesting data from the Council of mortgage lenders shows how volatile the importance of mortgage payments as a % of income are. see: Mortgage Payments as % of Income

Currently first time buyers are spending just less than 20% of their income on mortgage payments. However, this isn’t significantly more than figures in the 1970s and 1980s.

For example:

• 1974 -  16.3 % of income
• 1985 - 19.2 %
• 1990 - 27%

This shows that by historical standards mortgage payments are not as unaffordable as often is suggested. It reinforces the idea that if only people could get mortgages, buying a house is still relatively attractive compared to renting.

People often focus on house price to incomes ratios. But, living standards depend primarily on what % of income goes on mortgage payments. And here the key factor is often base interest rates. For example, 1990 was a bad year for homeowners because interest rates were so high.

However, it is worth bearing in mind.

• Many First Time buyers with low incomes are excluded, because in the current climate they simply can’t get a deposit and sufficient mortgage. If low income first time buyers could get a mortgage, the % would rise. Continue reading →

It really is the best time to buy! - honest!

This sign caught my eye as I was cycling home. It was in the window of Connell’s estate agency Between Towns Road, Oxford.

Is this an example of irresponsible estate agents encouraging people to buy a house, when actually it makes a very bad decision? Or are there good reasons to buy now?

Why it is Not A Good Time To Buy

House Prices falling. Even the most optimistic forecasters expect moderate house price falls in the next 12 months. If there is a median prediction of house prices to fall by 12% in the next 12 months, why not wait until house prices have bottomed out? There seems no rush to get on the property ladder when you could wait and save potentially thousands. Continue reading →

1. Wait Before Buying

In the UK and US, the next 12 months are likely to see falling house prices. Therefore, this is a good time to wait and allow prices to drop before buying getting a mortgage. If you are wanting to buy now, use these predictions to offer significant discounts off the asking price. Homeowners who hold out for higher prices, will struggle to sell in the current climate

2. Save Deposit to get better rate.

Renting temporarily also gives you chance to save for a bigger deposit. A higher deposit will enable a better mortgage deal, especially in the current climate. If you can only put down 5%, you are likely to have less choice and face higher rates than if you can put down 10% or 15% deposit.

3. Make Extra Monthly Repayments.

Once you have a mortgage, one of the best things that you can do, is to try and make extra monthly payments. Therefore, if this is going to be possible take out a flexible mortgage which will not penalise over payments. Even making an extra £50 or $50 a month can make a huge saving to your final mortgage cost. Making extra payments will save interest payments and could shorten the length of your mortgage by several years. Paying extra into a mortgage is likely to beat most investment decisions you can make. Plus there is no risk and gaining a bigger % share in the house will make remortgaging easier. (Making extra mortgage Payments)

Continue reading →

The rates on Fixed rate mortgages in the UK are continuing to increase. The average fixed rate deal is now 6.75% on 2 year mortgages. Fixed rate mortgages have now reached a 10 year high. Furthermore, continuing problems in the credit markets means that fixed rate mortgage rates are likely to rise even further. Mortgages, and especially fixed rate mortgages are determined by the interbank lending rates.

• These are sometimes known as ‘Swap Rates‘. The libor 3 month rate is also a leading indicator of interbank lending.

Because credit is in short supply with banks unwilling or unable to lend to each other, it is pushing up the cost of mortgages. Therefore, commercial banks are increasing their margin between the Bank of England base rate and their commercial rate.

For example, Nationwide, one of the biggest mortgage lenders has recently announced a 0.5% increase in interest rates, despite base rates remaining the same.

One of the lowest fixed rate mortgage rates is currently offered by Skipton Building society; its rate is still below 6% at 5.75%. However, with a set up fee of just under £1,000, the rate is effectively 6%. (link to Skipton Fixed rates)

Many other lenders are also increasing their charges to maintain profitability.

Continue reading →

A good credit rating is vital to being able to access loans and mortgages. The importance of a good credit rating is even more important now that the credit crunch has made lenders suspicious of people with bad credit histories. These are some tips on improving your Credit Rating

1. Check Your Credit Rating.

It is important to know your current credit rating and check to see it is accurate. You can have access to your credit rating through an agency like Equifax and Experian Under the consumer credit act of 1974, you have a right to see it at a cost of £2. This £2 figure is determined by the government, so if agencies start charging a lot more be very suspicious. If you see any discrepancies chase them up with the financial insitution involved.

2. Understand why you were turned down.

Although it is not compulsory, most firms will explain why they turned you down. This can be useful for understanding what you need to do. It can also help you avoid applying for the same products and getting rejected in the future.

3. Avoid Getting Repeatedly Rejected.

If you have a trail of turned down applications, other companies will start to be suspicious. If you get turned down, try to understand why, wait a while and then try again. Avoid applying on mass; make sure you do one at a time.

4. Good Budgeting.

The best way to avoid a bad credit rating. Is to spend time on organising your finances. Make sure you know how much you can borrow on your bank overdraft. Be prepared for occassions when you get close to the limit and take preemptive action. Most problems and bad credit ratings occur because of poor planning and lack of awareness of the financial situation. It is worth spending a little time to organise your finances and avoid unnecessary missed payments.

Continue reading →

In a decision by the high court yesterday, the decision to cap bank charges was upheld by the High Court. Seven Banks and one building society had taken the Office of Fair Trading to Court; they argued the OFT did not have the right to impose caps on bank charges. However, the High court found in favour of the OFT and this presents a big boon to consumers, who are will see lower bank charges. It also opens the gate for consumers to demand refunds for previous bank charges.

However, the big banks such as HSBOS may challenge the court ruling, they have until May 22nd to launch an appeal. Given the state of the financial markets, banks are likely to take any lifeline to defer the decision. However, the most likely occurence is that bank charges will become lower, Which magazine have called on banks to admit defeat and start paying back the estimated £1 billion. To benefit from this ruling, it is essential to contact your bank and ask for a refund for any bank charges.

How To Get A Refund for A Bank Charge.

If you have been charged excessively for things such as going overdrawn. Make a list of all the bank charges by looking at your statement.

In the first instance you should write to the bank, stating what you were charged. Then ask for a refund of the excessive amount. Continue reading →

Problems related to the credit crisis have led many banks and building societies to withdraw many mortgage products. Furthermore, the Council of Mortgage Lenders CML, say problems in the mortgage industry may get worse before they get better.  However, despite the difficulties of getting a mortgage, it still is possible for those who are dedicated to buying, especially if you have a big deposit.

Mortgage Products Withdrawn

• 125% Mortgages
• 100% Mortgages
• 95% Mortgages are becoming less common. For example, Britannia, and Alliance and Leicester have capped their mortgage loans at 90%. Other lenders such as Nationwide have said that loans of 95% of LTV will be significantly more expensive

Mortgages More Difficult to Get

• Interest only Mortgages
• Self Certification mortgages

Why is it More Difficult To Get A  Mortgage Now?

• Prospect of falling house prices. House prices are falling at their fastest monthly rate since 1978. This means many homeowners could be left with negative equity. This is one reason why lenders are preferring to see a big mortgage deposit.
• Shortage of Funds in the Money Markets. Since many American subprime mortgage lenders went bankrupt there has been a shortage of lending funds in many of the money markets; therefore building societies are increasingly unable to lend.
• Higher Interest rates. The shortage of funds is pushing up in the interbank lending rates. Thus, lower Bank of England base rates are not being fed through into lower mortgage rates for consumers.
• Bank of England reluctant to cut base rates because of persistant cost push inflation.

How Can I maximise Chances of Getting a Mortgage?

• Save for a deposit. See: Saving for first mortgage deposit
• Be Patient. With house prices falling and prospects of lower interest rates, there may be no harm in waiting a few months before buying.
• Maintain good credit record.
• Save money in other areas

It is interesting to compare the responses of the US Federal Reserve and the UK Monetary Policy Committee.

Since the credit crunch became a serious concern, the US have cut interest rates from 4.25% in January to 2.25% in March. From any perspective, this is a pretty decisive change of policy

The UK by contrast has only seen a modest fall in interest rates from 5.75% to 5.25% and the MPC have given alot of emphasis to rising inflation (yesterday saw CPI inflation rise to 2.5%

Why is This and What are the Prospects of Rate Cuts in the UK

• The downturn in the US economy  is more serious. US House prices have fallen 10% since their peak. In the UK annual house price inflation is still positive. (though this might change)
• The MPC only have an inflation target. Therefore, with cost push inflation factors pushing up inflation (this includes: food prices, energy prices and rising import prices from Pound depreciation) the Bank is reluctant to cut rates and encourage inflationary expectations. The Fed has a broader remit to also target full employment.
• The Credit Crunch is more severe in the US. Most of the mortgage defaults which started the credit crunch originate in the US. However, it is debatable whether the UK is in a much better position. Many UK banks are exposed to subprime losses. Money markets have been freezing up in the UK as much as in the US. Continue reading →

The Halifax reported a small monthly fall in house prices during February. The monthly decline of 0.3% took the annual inflation rate down to 4.2%. Although house prices have now fallen for 3 months, the fears over a huge housing slump in the UK are not materialising just at the moment. Certain factors are underpinning house prices (according to the Halifax average UK house prices are just over £197,000)

• Low Interest rates. Interest rates of 5.25% make mortgage payments relatively affordable. If anything interest rates are likely to go down (even if mortgage lenders are not always passing the base rate cuts onto consumers)
• Supply and demand
• Resilient Buy to Let Market - strong because of rising demand in the renting sector

However, the Nationwide suggested an acceleration of house price falls in February and pointed to the dramatic falls in mortgage lending as evidence the housing market could face a difficult year ahead.

You have to work pretty hard to earn your salary, so make sure you don’t waste your effort by losing money unnecessarily. These are some tips that will make the best use of money and maximise your financial welfare

Spend Wisely

It is easy to get into a mode of overspending, buying things that we don’t really need. If you have a wordrobe with 100s of shoes you never wear, think carefully before buying anything on impulse. Try avoiding credit cards and carrying cash around; when you have to part with notes, it often gives us a sharp reminder about the true cost. Avoid marketing tricks of companies; buy goods that you really need and value, not just goods which are cleverly marketed. see: 7 Ways to avoid overspending

Borrow With Caution

It would be easy to say never borrow. But, the reality of modern life is that going to college or buying a house inevitably involves borrowing. The important thing is to borrow with a clear purpose of what you are getting. If you are borrowing to invest in improving your education or buying a house, you are making a sound long term decision. If you borrow, just because you spend money on takeaways this offers no long term benefit and will just lead to a deteriorating financial situation. The other important consideration with borrowing is to always avoid borrowing at expensive interest rates.  Try consolidate high interest debt into the lowest possible rate.

• Whatever borrowing you have, make sure you have a clear plan of how and when you will pay it off.

Keep upto Date With Finances

A significant % of personal finance problems stem from a lack of understanding and poor knowledge about your own financial situations. For example, are you aware of all your debts and how much interest you are paying on them? Even a small amount of credit card debt can soon escalate into a serious problem because your minimum payments only cover interest payments and not capital repayments. Debt can either snowball out of control or, with careful planning, be brought quickly under control. Avoid the temptation to ignore your problems hoping they will go away. Gaining a clear idea of what your situation is is the first step to improving your monetary situation

Protect Your Credit Rating

A poor credit rating can make life difficult, especially in the current climate of capital shortages. To maintain a good credit rating it is important to keep all bills regularly paid and avoid any unauthorised overdraft. Direct debits can be an excellent way to avoid missing payments.

Continue reading →