Borrowers suffer triple whammy with tracker mortgages, says Defaqto

April 8, 2008 | posted by Chloe Cottam in Banking, Insight, Mortgages, Press Release | comments (1) |

In the days before the credit crunch, people took out mortgages that tracked the Bank Base Rate because they thought the rate would drop in the future. The loading above BBR was generally stable in the region of 0.5% to 0.75%, depending on the length of the tracker term.In today’s increasingly difficult conditions, all this has changed. Not only has the number of available BBR tracker mortgages dropped by almost a quarter since July 2007, the higher loadings on the BBR have, on average, has more than negated the half percent decrease in BBR since then.

For two year trackers, the period with the most plans on offer, the average loading above BBR increased from 0.49% to 1.17% over the eight months since July 2007, an increase of 139%,  while the BBR rate fell from 5.75% to 5.25% over the same period.

It’s a similar picture for three year trackers with an average loading increase from 0.52% to 1.14%, an increase of nearly 120%. For the other main mortgage term products, there have been increases, even if they have not been quite as swingeing.

For the consumer the pain doesn’t stop there. Not only has the number of mortgages on offer decreased while loading percentages have increased, but application fees have seen huge uplifts since July. Fees for a typical 2 year mortgage have gone up from £688 in July 2007 to £1,005 currently, a 46% increase. This gets worse at the tracker term increases, rising to a massive 139% for term trackers.

David Black, Principal Consultant - Banking at Defaqto said: “With banks and building societies trying to repair their balance sheets in an atmosphere of financial mayhem, it is hardly surprising it is the poor consumer who is caught in the middle and is having to pay more for less choice. It is almost as though we are going back to the days when lenders felt they are doing you a favour by offering you a mortgage.”

-Ends-

Bank Base Rate

Tracker Mortgages

July 07

April 08

% Increase/  Decrease
1 year

 

 
Number

7

3

-57.1
Average % Loading

0.48%

1.19%

147.9
Average Fee

£505

£486

-3.8

 

 

 
2 year

 

 

 
Number

265

159

-40.0
Average % Loading

0.49%

1.17%

138.7
Average Fee

£688

£1,005

46.1

 

 

 
3 year

 

 

 
Number

75

74

-1.3
Average % Loading

0.52%

1.14%

119.2
Average Fee

£606

£1,016

67.7

 

 

 
5 year

 

 

 
Number

29

17

-41.4
Average % Loading

0.72%

1.04%

45.0
Average Fee

£444

£789

77.7

 

 

 
Term

 

 

 
Number

215

199

-7.4%
Average % Loading

0.75%

1.15%

53.3
Average Fee

£442

£1,060

139.8

 

 

 
All

 

 

 
Number

591

452

-23.5
Average % Loading

0.6%

1.16%

93.3
Average Fee

£573

£1,013

76.8

For further information contact:

Defaqto Limited 

David Black,Chris Johnston or Luci Mylward

01844 295 454

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Are the UK’s economic fundamentals sound and are they underpinning the housing market?

April 8, 2008 | posted by Chris Johnston in Mortgages | comments (0) |

House price movements can be seen as either a glass “half – full or half – empty” situation – it all depends on how you chose to view the figures.

The latest statistics from Halifax which show a fall of 2.5% in March, should, according to the Halifax, be viewed in the context of significant price rises last year and against the background of sound economic fundamentals which are supporting house prices.

These sound economic fundamentals are described by the Halifax as a strong labour market, low interest rates and a shortage of new houses. However, how robust is the labour market? With 62% of GDP accounted for by consumer spending and with rising inflation and with undoubtedly greater expenditure diverted to mortgage payments, the labour market is more fragile than it appears.

Are interest rates that low? The expectation is that the Bank base rate will be brought down to 5.0% or lower from its current rate of 5.25%, but this is high in comparison with the Eurozone rate of 3.75% and the US rate of 2.25%.

As to the shortage of new houses, this is not necessarily a brake on house price falls. The experience of Japan could be instructive. A boom in house prices in the 1980’s which ended in 1991 was followed by more than a decade of house price falls.

A different view of the economic fundamentals is that there is a crisis in banking, part of the financial services sector which accounts for around 10% of GDP, the Government is borrowing more than anticipated, sterling is falling, inflation is gathering pace and the high rate of consumer spending that has characterised the last ten years, has come to an end. In addition, consumer debt is at a dangerously high level.

With the economy so dependent of consumers borrowing to spend, the party is definitely over, and a new equilibrium will undoubtedly emerge in due time in which house prices assume a realistic valuation.

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The changing face of ethical investment

April 8, 2008 | posted by Chris Johnston in Investment | comments (0) |

In the good old days, deciding to invest ethically was simple. All you had to do was to avoid putting your hard earned cash into companies involved with tobacco, alcohol, pornography or armaments and certain pharmaceuticals. Your conscience could be clear if you invested anywhere else.

Gradually the definition of ethical investments has changed from excluding certain funds to only including those investments that pass through the various screening processes put in place by fund managers who wish to describe their funds as ethical.

The link between today’s ethical fund definitions and the original position are the funds which are known loosely as being environmentally-friendly. The are investments that can demonstrate that they are sensitive to the environment and have policies which encourage recycling or that minimise the use of natural resources or have reduced contamination in the way they carry out their business. In fairly recent times the terminology has changed again to “Socially Responsible Investments” and a new breed of ethical investments has appeared.

Taking Centre Stage

These are investments in alternative energy sources and it is these which now appear to have taken centre stage. If you want to invest in socially responsible funds, all you have to do is to select funds that are described by their managers as being socially responsible investments. However, all this means in practice is that the funds meet the fund managers’ screening criteria. Whether the fund meets the widest possible definition of ethical investment, including the carbon footprint of the fund, may not be known.

While anything that encourages responsible investing can only be a good thing, this needs to be balanced by an equal if not greater focus on the market opportunities and skill of the managers in charge of the funds, if investors are to achieve the returns they are looking for.

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