26 November 2010

Credit is easy to obtain, but you have to pay it back!

With reports of snow on the horizon and rising energy prices hitting the press recently, uSwitch estimate that 61% of households are worried about the cost of their energy bills this coming winter.

According to creditaction, more than four in ten adults in Britain struggle each month to make it to ‘payday’. And 41% of consumers feel worse off now, than they did this time last year, according to Gocompare.com

In terms of payment difficulties, the UK Payments Council suggest there are more credit cards in circulation in the UK than people and the average rate of interest is currently around 18.86%, which is 18.36% above the current Bank of England Base Rate! uSwitch estimate that 14 million consumers now use credit cards for day to day spending, whilst confused.com estimate that 26% of credit card holders have been charged at least once in the last year for missing a minimum payment.

If credit cards or other unsecured payments are late or missed, your credit report will be affected and only a limited number of lenders will look to assist when applying for a mortgage, but at a premium interest rate. This extends to insurance and mobile phone providers. You may not even know a default has been registered against you, until you apply for further products.

178,200 mortgages ended Q2 2010 with arrears equivalent to at least 2.5% of the outstanding mortgage balance and 9,400 properties were taken into possession, according to the Council of Mortgage Lenders. The equivalent of 1 property being repossessed every 14 minutes. In comparison, the US amassed a record 102,134 repossessions in September alone.

These are stark figures indeed, but the reality is, if you miss one mortgage payment, or secured loan payment in the last 6 months, your chances of getting a new mortgage are almost zero.

I make no apologies for showing the stark figures above as we move in to the Christmas period. Credit is very easy to obtain, but a) you need to pay it back and b) if you get it wrong, it could affect any future financial applications for a considerable period of time.

19 November 2010

Track and then Switch!

The remortgage market is on the increase! Customers are taking heed of the low mortgage rates currently available and are reviewing their finances in the run up to Christmas and in preparation for 2011. Many lenders are offering free valuations and free legal costs (using the lenders solicitors) in order to attract new customers. However, the conundrum on whether to take out a fixed rate mortgage continues. With more pundits predicting that the Bank of England Base Rate (BBR) will remain relatively static throughout 2011, one could say a short term mortgage product that tracks the BBR is attractive. At the same time, a fixed rate could be more beneficial over the medium to long term when, it is estimated, the BBR will increase.

So, to cater for both, some lenders have launched a ‘switch and fix’ option, offering the best of both worlds. The products tend to track the BBR over a period of two or three years. Within this period, you have the option to switch to one of their fixed rates (at any time after 3 months) with minimal costs to pay. A clever and innovative way to attract new business! Although, if this is of interest, you need to accept that you will only have the option of the fixed rates available at the time from that lender, and they may be substantially higher at the time of switching, than those on offer today. If only we had a crystal ball…!

The other thing to think about when taking out a new mortgage is the reversion rate of that product (the rate at which the mortgage reverts to, once the incentive fixed, discounted, tracker rate period expires). Some lenders tend to revert to a tracker rate at an amount above BBR. Others revert to their own Standard Variable Rate (SVR), and even in the current climate, they can be high (5.99% +). Always do your homework and make sure you understand all the elements of your mortgage before signing on the dotted line. Ensure that you have no cause for regret later.

12 November 2010

Market leading rates for a very limited time!

With Bank Base Rate held for the 20th month at a record low of 0.50%, the question on everyone’s lips continues to be, when it will it rise? We all believe it will, but have no idea when. Many pundits are suggesting that the BBR will now stay low for at least 12 months. However, a few, believe it will rise much sooner and even one of the Monetary Policy Committee has pushed consistently for a raise over the last few months, although they were out-voted by other members. So, the real conundrum in the run up to Christmas and New Year remains…to fix or not to fix?

We are seeing some really competitive rates being offered and some lenders are even providing market leading products with minimal costs for a mere number of days – fire sales! Two lenders recently launched fantastic products only available for a period of 8 days! This causes mayhem and pandemonium within the industry as intermediaries race to submit customer’s applications in time to meet the deadlines and secure these rates.

The BBR being held is good news for anyone with a mortgage on a base rate tracker or discounted rate facility. Bad news for savers though and particularly those who geared their investments and savings to provide for them in retirement. It is hard to know how this can be overcome as the only route for better savings income is higher rates. It is a Catch 22 situation!

This week sees the great and the mighty of the mortgage industry meeting together at Olympia 2 for Mortgage Business Expo 2010. This two day event consists of lenders and ancillary businesses showing their wares and seeking to establish increased business relationships and volumes. The Financial Services Authority will be there and they will be presenting their report on the forthcoming Mortgage Market Review. This is their latest initiative designed to provide the consumer with yet greater protection and more qualified advice and choice. I suspect that the presentation will be 'lively' as not all in the profession, particularly those who are set in their ways, are happy with the changes proposed. Watch this space!

05 November 2010

New lender comes to market!

Each week in this column I attempt to explain what happens behind the scenes in the world of mortgages and try to keep you, the consumer, updated on information that is not readily available to the general public. At the same time, trying to keep the detail clear, concise and, where I can, positive! Although the latter has been very difficult of late!

As you know, the mortgage market is heavily regulated by the Financial Services Authority (FSA). But even I find it difficult at times to understand the breadth and depth of legislative requirements which are becoming an everyday way of life in the mortgage and financial services sector.

I am an unashamed supporter of consumer protection, but now, it seems, Brussels are to get in on the act and are looking to issue regulatory impositions which will steamroller the FSA. One of its stated initiatives is to insist on a ten day cooling off period on all mortgage business. This is fraught with potential problems, not the least of which being the additional time added to an already lengthy house buying process.

Our own regulator has issued such strict rules and restrictions that mortgage lenders are already constrained on what they can and cannot do and this is being felt in every area of mortgage lending. Impositions on mortgage types such as interest only, lending into retirement, self employed and (thankfully) self-certification have already had a major impact. The thought of further restrictive regulation is frightening! Watch this space..

On a more encouraging note, October was a fantastic month for new business for AToM. Not since July 2009 have we seen those levels of new business. We have also seen a new mortgage lender come to market. Portal Portfolio is to provide secured second charge mortgages specifically to people with pension portfolios. AToM is the sole launch distributor for this lender. And Precise Mortgages have recently launched in to the Residential mortgage sector, having previously been in the Buy to Let arena. Both lenders have their own niches and I will explain more in the coming weeks. Suffice to say though that their launches have given the sector a much needed boost.