Can we cope with longer life expectancy?

February 20, 2008 | posted by Pam Atherton in Investments, Pensions, Savings | comments (8)

I’m going to resist the temptation to write about Northern Rock, given the blanket coverage elsewhere. Suffice it say that Alistair Darling has a Northern Rock mortgage on a London property, (http://www.telegraph.co.uk/money) so presumably he’ll have the interests of the bank’s customers at heart, if not those of shareholders.

Instead, I am wondering how we are going to cope with increasing longevity, given the implications this will have on annuity rates and our ability to fund our pensions.

The Pensions Regulator, who oversees UK final salary schemes, issued a timely wake-up call this week about the need for actuaries to factor in lengthening life spans into scheme funding arrangements. Apparently, scheme actuaries have been underestimating how long scheme members are likely to live and need to increase longevity assumptions by 18 months.

This means assuming a 65 year old man today will live to age 89, and a 65 year old woman to age 92 - roughly two years longer than the current presumptions in more than half of UK company schemes.This might seem like great news for pensioners until you realize that every additional year of life expectancy increases scheme liabilities by 3-4 per cent.

Even though members of final salary schemes tend to live longer than those who don’t benefit from this luxury, longevity is rising across the board and will have a knock-on effect on annuity rates for the majority of people who will have to buy an annuity when they retire.  

And if you believe American pensions expert, Aubrey de Grys, who claims that there are people alive today who will live to 1,000, a lot of people are going to outlive their assets.

This is not as fantastical as it might at first appear. A quick search on the Defaqto annuity calculator http://www.find.co.uk/pensions/annuities_centre/annuities-calculator) shows that the best deal for a 65 year old man buying an annuity today (increasing by 3 per cent a year), with a £100,000 fund, is just £5,417 pa – and that’s excluding any partner’s pension or guarantees.

So the outlook for those of us who will be at the mercy of annuity rates when we retire is grim. We will either have to accumulate enormous savings to sustain us through our increasingly long retirements, or step up the intake of the deep-fried Mars bars and hope for an early demise.

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

There’s worse to come on the housing front

February 13, 2008 | posted by Pam Atherton in Banking, House prices, Loans, Mortgages | comments (0)

So now it’s official. 27,000 homes were repossessed in 2007, the highest figure since 1999, with the sub prime market responsible for half of current repossession orders, despite this sector accounting for only 6 per cent of outstanding mortgages, according to a BBC report.

For those of us who have had their concerns about the goings-on in the sub prime market, this hardly comes as a surprise. But the difference between now and previous house price recessions is that, this time, the chances of sub prime borrowers being able to re-mortgage to a better rate is virtually nil, thanks to the credit crunch.

It is hard enough for prime borrowers to get the sort of mortgage they want, let alone individuals with a poor credit history. While not all repossession orders end in the occupants losing their home, the omens are not good.

A report by the Citizens Advice Bureau claims that sub prime lenders are less willing than mainstream mortgage lenders to negotiate with borrowers in arrears. The report also says that the level of repossession actions in the county courts is now running at a rate last seen in the housing downturn of the early 1990s.

Furthermore, with inflationary pressures building in the economy, there’s no certainty that the Bank of England will cut rates as quickly as the market expects and even when there are reductions, mortgage lenders aren’t always quick to pass them on in full to their borrowers.

So stand by for more depressing reading in the months to come, as the outlook for the housing market turns distinctly gloomy. The latest RICS survey shows that 56 per cent of respondents reported house price falls, compared to just 2 per cent reporting house prices rises, as well as a a decline in the number of enquiries from new buyers.

With first time buyers priced out of the market and buy-to-let purchasers having to pay more for lower loan-to-value mortgages than previously, one has to ask who is going to pick up the slack?

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Mortgage fraud rears its ugly head

February 5, 2008 | posted by Pam Atherton in Banking, House prices, Mortgages | comments (1)

If you’re tempted to indulge in a spot of schadenfreude at the woes of the US sub prime market, think again. The UK needs to confront the extent of its own mortgage fraud and mis-selling .

A BBC1 Panorama programme screened this week showed evidence of alleged collusion between property developers and solicitors, with the aim of  inflating the value of buy-to-let properties in Docklands and the north of England.

In some cases, the solicitors, allegedly acting in collusion with the property developer, provided the Land Registry with inflated sales prices in order to boost valuations on other properties being sold in the same development.

In other cases, the property developer concealed the fact that it had paid the deposit on behalf of the borrower, so that the lender was unwittingly providing a 100 per cent mortgage and the borrower was in negative equity from day one.

Either way, borrowers overpaid for their properties, as well as being mislead about the amount of rent and the quality of tenant they could expect. Once the borrower defaulted and the properties were re-sold, the gap between the  purchase price and the true value of these properties became alarmingly apparent.

However, these are just two examples of the way in which house prices have been ramped up in recent years, by those with vested interests in seeing property prices soar. 

In a tight market, estate agents are always keen to encourage vendors to sell via ‘sealed bids’ – a pernicious practice which invariably encourages desperate purchasers to overpay, which is great if you’re trading down, but a nightmare if you find yourself bidding blind in what is effectively a house price auction.

And that’s not to mention all the skullduggery that has gone on in recent years in the self cert. and sub prime market. Call me a doom and gloom merchant, but I can’t believe there isn’t more bad news to come on the property front. The Council of Mortgage Lenders’ figures on arrears and repossession due to be published on Friday, may provide a pointer to what’s in store. 

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit