Latest News Information on Mortgages and Finance
Below is a selection of the latest articles in the news with
regards to finance and mortgages.
7 February 2008 - Mortgage News
Lower Mortgage rates due to Bank of England Base Rate Cut?
The Bank of England today cut interest rates by a quarter point
to 5.25 per cent despite calls for a half-point cut.
The widely expected quarter point cut by the Central Bank was
modest compared to the recent cuts made by the Federal Reserve
in the US and came amid calls for a half point cut. But the
signs are that they Bank was curbed from making a more drastic
cut by inflationary pressures.
The CBI said the rate cut should help minimise the effects of
the current economic slowdown. Ian McCafferty, CBI Chief
Economic Adviser, said: "This should help ensure that there is a
soft landing to the slowdown now underway. Looking ahead though,
the Bank must balance the effect that cutting rates while
inflation is rising might have on its credibility."
The Bank's move will also be welcomed by many mortgage
borrowers, but homeowners who do not have a mortgage deal
directly linked to the base rate may be disappointed as some
lenders have been increasing their own rates in anticipation of
a cut.
However, many banks were quick off the mark to announce they
were cutting their rates. Cheltenham and Gloucester, Lloyds TSB,
RBS, Natwest, Abbey, Nationwide, Woolwich. HSBC and First Direct
will all pass on the quarter point rate cut.
Michael Coogan, director general of the Council of Mortgage
Lenders, said: “Borrowers should not expect that a base rate
reduction will automatically result in a cut in standard
variable rates or discounted rates across the market."
3 February 2008 - Mortgage News
Will Bank of England drop the interest rate?
In December 2007 the Bank of England dropped interest rates for
the first time in over two years, following a series of five
interest rate hikes in the space of a year between August 2007
and July 2007. As a result of a slowdown in the economy many
experts were expecting the Bank of England to cut rates again in
January, but it was decided to keep the rates on hold at 5.5%.
This news came as a disappointment to many industry professional
as well as homeowners waiting for a cut in repayments. The main
reason for the Bank’s decision to keep rates on hold appears to
be concerns about rising interest rates, which have gone above
the 2% target again due to rising food and petrol prices.
Officials from the British Chambers of Commerce are now stating
that even a modest interest rate cut could help to restore the
slowing economy, and could also help to improve consumer
confidence levels. They added that the economy was at
significant risk of interest rates were not reduced.
The BCC added that it understood that the Bank of England faced
a tough decision because it had to consider both the problems
with the economy and the threat of rising interest rates. Many
now expect the Bank of England to announce a rate cut following
the February MPC meeting
16 October 2007 - Mortgage News
Inflation in house prices predicted to drop
House price inflation will fall to 0% next year, according to
Nationwide’s 2008 House Price Forecast. Reduced economic growth,
tighter credit conditions and limited affordability will play a
part in bringing house price inflation down from its current
level of 9.7%, the lender said. Fionnuala Earley, Nationwide’s
chief economist, commented: “Momentum in the market is now
fading, and a number of factors suggest that house price
inflation will drop from its current rate of 9.7% to 0% by this
time next year.” Economic growth is also predicted to fall below
2%, resulting in more unemployment and reduced wages. Earley
added: “A slower economy will produce some loosening in the
labour market, with a slight rise in unemployment and fairly
subdued wage growth. “As signalled in the November Inflation
Report, this leaves room for the Bank of England to reduce
interest rates by the end of 2008. “Such a cut would clearly be
a relief to many homeowners, but rates would still be higher
than when they started rising in 2006.”
15 October 2007 - Mortgage News
New Mortgages not necessarily slow over Christmas
Despite spring being widely regarded as the most popular time of
year to move, the hectic 12-week run-up to Christmas is still a
busy period for house buyers with 22% getting the keys to their
new home at this time of year. Rather than waiting until the
spring, Alliance & Leicester Mortgages' Movingimproving Index
found 8% were willing to move during December - traditionally a
month of party planning, present-buying and family visits.
Pre-Christmas movers are confident money managers, with 53%
saying the upheaval and expense did not affect their festive
budgeting. A tenth said they had saved to cover their seasonal
spending earlier in the year in preparation for the move and 9%
said they had deliberately planned to cutback on Christmas
during the year of their move. Stephen Leonard, director of
mortgages at Alliance & Leicester, said: "With so many people
moving into their new homes during the run-up to Christmas it
can feel like a rush to get the family settled and the new
furniture ordered before December 25th. But it is very
encouraging to see many people are planning ahead to budget for
their moving costs and saving in advance to ensure it doesn't
have a big impact on their Christmas. Clearly planning ahead,
budgeting and saving are the key to a less stressful move."
4th October 2007 - Mortgage News
Bank of England Maintains Bank Rate at 5.75%
The Bank of England’s Monetary Policy Committee today voted to
maintain the official Bank Rate paid on commercial bank reserves
at 5.75%.
3rd October 2007 - Mortgage News
Payment shock in store for those on a fixed-rate mortgage
Thousands of home-buyers on fixed-rate mortgages face a
crippling "payment shock" as a result of the global credit
crunch, it was claimed last night. Some could find their monthly
repayments surge by up to 60 per cent, bringing the threat of
debt and repossession. More than two million homeowners are
expected to come off relatively cheap fixed-rate deals in the
next 18 months. Many banks have tightened their lending rules as
a result of the credit crisis which began in America's so-called
sub-prime mortgage market and spread to hit the Northern Rock
bank earlier this month. Everyone coming off a fixed rate in the
coming months is likely to find themselves paying more, even if
they able to secure a new fixed-rate deal.
Mortgages for those with County Court Judgments
Those who have a County Court Judgment over an unpaid debt or a
black mark on their credit record, perhaps because they fell
behind with a mobile phone bill, will be in particular danger.
Some will be forced to switch to their lender's standard
variable rate, which is likely to be two-and-a-half percentage
points higher than they are currently paying. Others will be
moved to deals specifically for those with a patchy credit
history, which can charge extortionate interest rates. Someone
with a £125,000 fixed-rate mortgage taken out a couple of years
ago, pays around £600 a month on a rate of 5.7 per cent. If they
are reclassified as a credit risk they may have to pay at least
25 per cent more - taking payments to £750. Some will see
monthly payments rise to as much as £960. The alarm has been
sounded by the online home loans broker Moneygate and the
respected credit ratings agency Standard & Poor's. Director of
Moneygate, Dennis Reed, said: "The mortgage market is changing
by the day. "As lenders look to tighten their terms a person
could be labelled a bad credit risk and sub-prime just because
of a small financial error in their past. "The knock-on effect
of that re-classification is very significant. A mainstream
mortgage payer being shunted into the sub-prime market could
face crippling interest charges of up to 2.5 per cent higher
than average. "People applying for mortgages will also need to
be much more accurate about the information they give. "For
example, a County Court Judgment that in the past was not
considered crucial, could now mean the difference of being
reclassified as sub-prime when they come to re-mortgage. A lot
of people are in for a shock." Analyst Andrew South, of Standard
& Poor's, said: "Many borrowers took out fixed-rate loans
between late-2005 and late-2006. "Most of these are due to reset
to significantly higher rates over the next 12 to 18 months,
giving rise to a sudden 'payment shock' for many borrowers. "A
number of coinciding factors mean the likely scale of this
upcoming effect. . . is relatively severe by recent standards."
'Bad Credit' (Subprime) mortgage borrowers face much higher
rates
Standard & Poor's says there are 80,000 people who are already
classified as sub-prime whose fixed-rate deals will come to an
end by the end of 2008. This group will certainly face much
higher rates. Last night the head of Britain's biggest mortgage
lender also added his warning. Andy Hornby, the chief executive
of HBOS, which owns Halifax, believes "the mortgage market is
about to undergo a fundamental shift" because banks are
struggling to make a profit on home loans. Banks make an average
profit on mortgages of just 0.7 per cent in what has become one
of the most competitive areas of lending over the past few
years. He said : "Six highly benign years of credit experience
has led to a sharp reduction in mortgage profitability."
The change in the way banks assess risk can be traced back to
the fall-out created by the failure of thousands of subprime
mortgages in the United States. Global banks have been left
carrying mind-boggling losses running to billions of pounds and
so have become reluctant to lend to one another. The resulting
credit crunch has pushed up the cost of short-term borrowing on
international money markets. While banks and building societies
have now adopted much tighter lending rules for mortgages, loans
and credit cards. Any payment shock to home buyers could have
wide-ranging consequences for the property market. The failure
of thousands of sub-prime mortgages in the U.S. triggered a fall
of 4.5 per cent in average prices because of a blow to
confidence and the available of a flood of cheap property on to
the market.
27th September 2007 - Mortgage News
US loan woe 'to hit UK mortgages'
The US sub-prime loan crisis may push up mortgage rates in the
UK, a former Bank of England adviser has warned. Professor
Willem Buiter, an ex-member of the Monetary Policy Committee,
said UK banks were in crisis over their exposure to bad loans in
the US. He said this had made them reluctant to lend to each
other, which had raised interbank lending rates. The banks were
in a state of "fear and loathing" that could increase
standard mortgage rates as well, he added. Some banks are
worried that their rivals may not have revealed multi-million
pound losses on sub-prime mortgages in the US. As a result, they
are currently lending to each other in the interbank money
markets at an interest rate of nearly 6.9%. That is
significantly higher than the standard bank rate of 5.75%, which
the Bank of England kept unchanged after its monthly MPC meeting
this week.
New type of mortgage crisis
Professor Buiter told the BBC's Today programme: "The extent to
which this translates into higher rates being charged to
households and mortgages or hire purchase loans or higher loans
to businesses in the real economy, that, I think, is an open
question.
"The longer it lasts, the more likely it is that all rates from
deposit rates to mortgage rates to loan rates will, ultimately,
in the private sector get pulled up to that level," he added.
The current liquidity problems in the banking system have driven
up interbank lending rates sharply in the past few weeks.
Professor Buiter said: "It is a new type of crisis - it is not
an old fashioned banking crisis. We don't know how long it is
going to last. "Gradually clarity will dawn, but how long it
will take, it could be weeks, it could be a few months."
Higher savings rates
Evidence that these higher interbank rates are now starting to
affect financial deals offered to the public has come from
several lenders. This week, five lenders - the Anglo Irish bank,
Northern Rock, Heritable bank and the Derbyshire and West
Bromwich building societies - have each offered new fixed-rate
savings deals, but at rates up to 0.55% higher than before. For
instance, the Anglo-Irish bank is now offering to pay savers
6.9% if they lock money away for one year. "It is unusual to see
rate rises that are not triggered by increases in base rate,"
said Andrew Hagger of the financial information service
Moneyfacts. "However, with money markets in a volatile state on
the back of the US sub-prime mortgage crisis, it is not
surprising to see savings rates being increased, in an attempt
to bring funds in via their front doors, rather than resorting
to traditional methods." So far, though, the higher cost of
borrowing in the wholesale money markets has not filtered
through to mortgages, apart from those offered to people with
poor credit histories. This may change, said Ray Boulger of the
mortgage brokers John Charcol. "If the current Bank Rate/Libor
spread prevails for much longer, we may see some lenders
increasing the cost of their Bank Rate tracker mortgages, and
mortgages offering a discount off their standard variable rate."
13th August 2007 - Mortgage News
Interest rate has peaked and can only go down, says Charcol?
In light of the Monetary Policy Committee’s decision not to
change the Bank of England’s base rate this month, independent
mortgage adviser Charcol says that 5.75% is probably the top of
the scale and the rate will only go down. Fixed rates on
mortgages will not rise any more, they predict, and will creep
downwards whilst still remaining pricey for borrowers. Ray
Boulger of Charcol said on the 2nd of August when the decision
was announced: “Today’s decision by the Monetary Policy
Committee is the first in many months that will bring cheer to
the UK’s mortgage borrowers. A simple hold would not normally
bring sighs of content around the country, but today’s decision
may well signify that rates have reached their peak and that the
next movement in bank rate will be downward, albeit not until
next year. "Some very encouraging news last month came from the
minutes of the last Monetary Policy Committee meeting, which
highlighted the fact that most of the impact from the previous
five bank rate rises has still yet to be felt in the housing
market.” This is put down to borrowers sheltering from the
immediate effects of rises by short-term fixed rate deals, but
as an increasing number come to the end of these agreements, the
cumulative impact on borrowers will be significant. “Whilst
predicting interest rate movements is far from an exact
science,” Mr Boulger continued, “I would say that the argument
for the current 5.75% being the peak is now stronger than the
one that calls for more rises…Even if the bank rate does move up
another quarter percent, which certainly looks less likely than
a month ago, trackers will still offer better value.”
Learn more and compare fixed
rate mortgage deals
10th August 2007 - Mortgage News
Britons take higher mortgage for a garden
A large proportion of people in the UK would be prepared to pay
significantly more for a property if it had a garden, according
to a new study. Research from Halifax revealed that 78 per cent
of house-hunters would pay a premium for outside space - on
average £10,000 more. Some 88 per cent of people aged between 35
and 44 would pay more for a garden compared to just 66 per cent
of 16- to 24-year-olds. Single people were less likely to fork
out extra for external space than married couples, with just 67
per cent willing to pay more, compared to 84 per cent of those
in relationships. While most people would pay an average of
£10,000 more, eight per cent would pay more than £20,000 and
four per cent would hand over an extra £30,000 for a garden.
Recent figures from Abbey showed that the average first-timer
buyer has a mortgage of £130,000 - nearly twice the amount
borrowed on average four years ago.
6th August 2007 - Mortgage News
Mortgage equity withdrawal robust
Homeowners are looking to unlock equity from their property.
The amount of money people are borrowing against the value of
their homes is rising, official figures show. Homeowners
released an estimated £14.6bn in the final quarter of 2006
through mortgage equity withdrawal, the Bank of England said.
Mortgage equity withdrawal totalled £49.7bn for 2006 as a whole,
up from £36.6bn the previous year.
Economists suggest that rising mortgage equity withdrawal could
bolster consumer spending on the High Street. "The figures
suggest that in the short-term, the recent strength in the
housing market will support consumer spending," said Vicky
Redwood, UK economist at Capital Economics. "Despite higher
interest rates, households are still keen to unlock money tied
up in their house into a more spendable form." Ms Redwood warned
that if house prices were to fall, homeowners could live to
regret their decision to borrow against the value of their home.
But she added that price falls, in the short term, were not
"expected". Homeowners also commonly use mortgage equity
withdrawal to fund improvements to their property and repay
credit card and personal loan debt.
3rd August 2007 - Mortgage News
Are offset mortgages just hype?
Offset mortgages - where money held in savings and
current accounts automatically pays down mortgage debt - have
been marketed as a no-hassle way of managing money. But how good
are they? Are they hype or right?
Offset Mortgages Right?
Offset mortgages are a relatively new innovation. And as with
any new type of financial product, all providers have a fight on
their hands to overcome consumer lethargy and lack of financial
awareness. Nevertheless, the simplicity of the offsetting
principle - that interest on your savings goes to reduce your
mortgage debt - has caught the publics' imagination. No
surprise, therefore, that the market has grown from a couple of
providers seven years ago to about 40 now. And this growth may
well be set to continue with market analyst firm Datamonitor
predicting a sharp increase in the number of new offset
mortgages over the next couple of years.
Offset Mortgage Appeal
There are a number of reasons for the appeal of offsetting:
- Generally, offset mortgages offer a competitive borrowing
rate
- In most instances they are very flexible. You can often
overpay or underpay on the mortgage
- By offsetting the interest earned on savings against the
mortgage debt, the total cost of a mortgage can be cut
dramatically
- Crucially, interest paid on savings which is offset
against a mortgage debt, is tax free.
Number crunching
The figures for how much can be saved through offsetting can be
dramatic.
As an example, someone with a £175,000 mortgage choosing to keep
their Individual Savings Accounts (ISA) and current account with
the same provider and overpaying £50 per month into a 25-year
mortgage could shave off in the region of £80,000 in interest,
and knock almost five years off their payment term. The majority
of offset banks have online calculators that allow people to
work out the savings available to them.
City workers
In the main, people with larger mortgage borrowings and savings
are attracted to offset - a reflection of the built-in
flexibility for those who can afford to make overpayments and
who will reap more of a tax benefit from the offset concept. It
is particularly popular with City workers - who can use their
bonus to drive down the interest on their mortgage whilst
deciding how best to spend it. It is also a popular product with
the self employed as they save for their tax bill. All the time
they are saving to pay their tax bill whilst offsetting their
mortgage. Because they earn no interest on their savings, they
are not taxed. The appeal and the irony of this is not lost to
these customers.
Offset Mortgages Hype?
When offset mortgages entered the fray in the late nineties, a
lot of people got carried away by all the bells and whistles.
They exclaimed that this would be how all mortgages would look
in the not too distant future. Offset mortgages allowed
borrowers to do lots of different things, not least pay off
their mortgages early. Therefore there was a school of thought
that they surely had to be better than conventional loans. In
the early days, however, the pricing of most offset mortgages
was quite some way off the most competitive products in the
market. It often worked out better for borrowers to plump for
the cheapest two-year fixed rate instead.
Chunky bonus
These days we are beginning to see more competitively priced
offset products from providers. However, the rest of the market
has been slow to follow, and many lenders' offset products are
still less than exciting. In terms of the advice process, for
certain borrowers offset products should always be considered as
a possibility. For example, City workers, and anybody else who
receives chunky bonuses or who has sizeable savings, should look
at the possible benefits of offset mortgages. There chances are
that these people will have large amounts of funds on deposit
for a period of time. Therefore they are more likely to benefit
from flexible offset arrangements, such as the ability to make
lump sum payments, borrow money back and, of course, offset the
interest on their savings against the loan.
Less wealthy
However most people haven't got thousands of pounds lying around
in the bank and aren't really going to make use of the various
benefits. They would often better off looking for cheaper rates
on more conventional mortgages, many of which have a number of
flexible features anyway. Less wealthy individuals may also wish
to take out a fixed rate mortgage to protect them against
possible interest rate rises. This is not often possible with
offset mortgages, as the majority still tend to be on a
variable-tracker basis, where rates move with the base rate.
Disadvantages
Offset mortgages also require a lot of discipline. After all, if
a banker has £100,000 in a savings pot offsetting the interest
on his mortgage, but then pops out and buys a flash sports car
for the exact same amount, he could be left with an
uncompetitive mortgage product. In other words, they are great
in theory but often not in practice. There is also a
psychological point to consider. For some people, receiving a
statement every month that represents an amalgamation of
mortgage debt, savings and current account, and seeing the large
negative balance may probably just depress them. All in all,
offset mortgages may just be better for wealthier clients.But
unless they really do intend to make the most of the benefits,
and have the discipline to do so, products with cheaper
underlying interest rates may be better.
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