The CML in its comment on January’s gross lending figures suggests that it was business as normal. However, it did concede that the coming months were likely to see lower gross lending volumes in the coming months.
We now await the actual composition of the lending figures. Ten years ago, the proportion of loans for house purchase was 79% of all lending; by 2007 this had fallen to 43%, with remortgaging and the buy-to-let category being the major beneficiaries of this reduction1.
David Black, Principal Consultant - Banking at Defaqto commented: “With credit harder to obtain, the housing market in the doldrums and moving costs a major consideration, don’t be surprised if the only sector of the market that is likely to show any sign of life for the next few months is remortgaging. Those lenders with access to funds may be looking for other niche areas to bolster their lending”.
-Ends
1CML Gross mortgage lending by type of advance, February 2008
For further information contact:
Defaqto Limited
David Black, Chris Johnston or Luci Mylward
01844 295 454
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One could be forgiven for thinking that there may be something of a flight to cash given the current volatility in the world’s equity markets. For those with mortgages there’s one product genre that could prove to be a useful ally in such circumstances: the offset or current account mortgage.
The structure of an offset mortgage is relatively straightforward in that your savings balance is offset against your mortgage balance with interest charged on the net amount. So if you have a mortgage of £100,000 and savings (held with the offset provider) of £15,000 you would be paying interest only on the £85,000 net balance.
With an offset mortgage the various accounts (typically savings, current account and mortgage) are maintained as separate accounts with the balances offset against each other to determine the amount on which interest will be levied. Current account mortgages (CAM) however have all the constituent parts held in the same account and resemble one really large overdraft. Both types effectively achieve the same result.
There is a downside to offsets and CAMs: the interest rates charged tend to be at a slight premium to traditional mortgages but their innate flexibility may be enough to justify this premium for many customers. This is because you would effectively earn interest on your savings at the same rate that the mortgage is charged and, crucially, not get taxed on the savings element because it is offset against the mortgage balance.
Customers who should contemplate the offset route typically include those with reasonably high levels of savings in a deposit account, higher rate taxpayers, the self-employed (who may have irregular income and expenditure patterns) and buy-to-let investors. The ability to make underpayments or overpayments and to access your savings balances completes the picture.
If the offset permits you to have a current account as part of the package that’s an additional plus point. The ability to park some cash when reluctant to be fully involved in the stock market and make the cash work for you, while retaining the ability to access it for other purposes, make another potentially powerful argument for the offset mortgage.
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