Housing package won’t revive the housing market

September 4, 2008 | posted by Pam Atherton in House prices, Mortgages, Uncategorized | comments (0)

The Government’s package of measures to help hard pressed homeowners and first time buyers will do little to revive the housing market, economists say.

The measures focus help on first time buyers and those most at risk of repossession, but will do little to restore confidence among ordinary homebuyers. 

Stamp duty is to be waived on properties costing up to £175,000 or less for the next 12 months, lifting an estimated 50 per cent of property transactions out of the stamp duty net.

On a £175,000 property, this will provide a saving of £1,750 and will apply to transactions that are already underway.

There will also be a new shared equity scheme, called HomeBuy Direct, costing £300m, to help up to 10,000 first time buyers earning less than £60,000 to buy a new home over the next two years.

Buyers will be offered an equity loan of up to 30 per cent of the house value, interest-free for five years, co-funded by the Government and the housebuilder.

Once the five-year interest free loan period expires, homebuyers will be asked to pay a fee, but there are no details as yet as to how this will be calculated.

Another new measure will be an extension of powers for councils and housing associations to pay off debt for homeowners who can no longer afford mortgage payments and then charge them a rent.

Such ’sale and rent back schemes’ will enable  councils and housing associations to buy a property outright  and rent it back to the homeowner so that they don’t have to move.

Although the scheme aims to help 6,000 of the most vulnerable families facing repossession, it is only a fraction of the 45,000 of the households which are expected to lose their homes this year.

Of greater benefit to existing homeowners will be the reduction in the waiting period for Income Support for Mortgage Interest (ISMI) which will be shortened  from the current 39 week wait to 13 weeks.  Interest will be payable on mortgages of up to £175,000 but the new rules will only apply to claims from April 2009.
ISMI will only apply to people under 60, thereby excluding people over that age who have mortgages but cannot work and pay the interest.

Those on Job Seekers Allowance will only be able to claim ISMI for two  years, after which the benefit will stop.

Defaqto, head of Insight, Brian Brown, said: “Overall, this is very good news. In the current climate there is a good chance that an individual unable to pay their mortgage because they lost their job is likely to have their house repossessed long before the current government assistance cuts in. From next April they will be eligible for more support, and after only three months. ”

But some housing experts criticised the package as being “too little, too late” and for offering little to help existing homeowners obtain mortgages - one of the main reasons for house chains breaking down in the current market.

For more on mortgages visit:
http://www.defaqto.com/consumer/mortgages.aspx

See the Defaqto guide to mortgages:
http://www.defaqto.com/consumer/mortgages/mortgage-guide.aspx

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LV= offers guarantee on drawdown plan

July 21, 2008 | posted by Pam Atherton in House prices, Mortgages, Pensions | comments (0)

With soaring inflation and pensions proving to be disappointing, an increasing number of retirees are looking to release equity from their properties as a means of bridging the gap between their actual income and their financial needs.
 
And the equity release market is becoming increasingly flexible, with more and more schemes allowing pensioners to draw down  small sums of money from their property, as and when they need to.

This is more cost effective, as the homeowner only has to be pay interest on the amount drawn down, rather than on a large lump sum which might be more than the pensioner needs at the start of their retirement.

The mutual insurer, LV=, has recently launched a Flexible  Lifetime Mortgage that allows homeowners to access funds,  as and when they need to, together with a 15-year guarantee on the maximum loan amount that can be drawn down.

This means that whatever happens to interest rates and property prices, homeowners have the peace of mind of knowing that throughout this period they can access the total amount agreed at the outset.
 
The product comes at a time when research commissioned by LV= indicates that 6.5m people over the age of 50 admit they are more concerned than ever about their income in retirement.

On average they would need £20,400 a year in retirement, but believe they would have a real income of only £17,200 a year.
 
With the LV=’s plan, homeowners between the ages of 60 and 95 can draw down a minimum amount of £10,000 and subsequent additional withdrawals of at least £2,000, up to the maximum loan agreed at outset.

The rate of interest is 6.95 per cent, or 7.1 per cent APR, fixed for the lifetime of the loan.

As an example, a couple aged 70 and 75 years respectively, living in a property valued at £325,000 could take a starting loan of £15,000.

At the same time, they could agree a maximum loan giving them access to a further £30,000 which they could draw on any time.
 
The initial application fee of £695 includes the cost of two further property re-valuations throughout the lifetime of the loan.

The scheme also comes with an all-important ‘No Negative Equity Guarantee’  which means that both the customer and their beneficiaries will never have to pay back more than the value of their home on death or permanent entry into long term care.
 
Other insurers offering similar equity release drawdown products include Just Retirement and Prudential.

David Black, banking principal at Defaqto comments: “If house prices fall significantly, equity release providers will fear potential liabilities as a result of their no negative equity gurantees. But LV=’s  guarantee that it will honour its initial drawdown offer for 15 years should give customers some reassurance.”

For more on equity release, see the Defaqto guide:

http://www.defaqto.com/consumer/mortgages/equity-release.aspxase

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Intestacy law due for a shake-up

July 15, 2008 | posted by Pam Atherton in House prices, Investments, Taxation | comments (0)

The antiquated rules which apply to the estates of people who die intestate urgently need updating if they are to reflect today’s property values and lifestyles.

 Currently, if you die intestate (without a will) in England or Wales, and are legally married or in a registered civil partnership, your spouse or partner will inherit only the first £125,000 of your estate, plus possessions. Different rules apply in Scotland and Northern Ireland.

 If there are children, your spouse or civil partner will receive the first £125,000, personal possessions and the right to income from half of the rest of the estate. The rest passes to the children.

If there are no children, but your parents are still alive, your spouse or civil partner will receive the first £200,000 of the estate, plus half the balance, and the rest goes to your parents.

The same applies (as above)  if your parents are dead, but you have siblings.

It is only in the unlikely event that you have no surviving parents or siblings that your spouse or civil partner will receive everything.

These rules have meant that bereaved spouses have been left with inadequate funds to live on because their deceased spouse’s estate over £125,000 has gone to the children who may have to pay inheritance tax at 40 per cent.

This has recently led to a mother having to sue her own children for a larger share of the assets because her husband died intestate and the bulk of his estate passed to her two dependant children.

According to the National Consumer Council, only one in five parents writes a will, demonstrating the degree of ignorance in the general population about the law of intestacy.

However, the position is even worse for the unmarried partners of individuals who die intestate. In this case, if there are no children, the estate goes to the parents, or if they are not alive, to any brothers and sisters.

If you are not married and have children, the estate is shared between offspring. This often comes as a complete shock to individuals who may have been in an enduring relationship and have children, but who never got married or registered a civil partnership.

The surviving partner is entitled to nothing. The term ‘common law’ wife or husband has no standing in terms of inheritance rights.

The £125,000 limit was set in 1993 and has long been overdue for updating, given the huge increase in UK property values in the last 15 years and the fact that 40 per cent of children in the UK are born out of wedlock.

Another pitfall is that it is only spouses and civil partners who have any exemption from inheritance tax, so if dependant children inherit directly from a deceased parent, they may well  be liable to pay inheritance tax at 40 per cent, which might trigger the sale of the family home.

For more on inheritance laws visit: The Society of Trust and Estate Practitioners website: www.step.org

Read our guide on inheritance tax:http://www.defaqto.com/consumer/investments/tax/inheritance-tax.aspx

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Flooding poses new threat to property market

July 2, 2008 | posted by Pam Atherton in House prices, Insurance, Mortgages | comments (0)

Defaqto’s 2008 Insight Report on the home insurance market makes interesting reading, or perhaps I should say, ‘interesting and grim,’  as some of its conclusions are enough to make any homeowner turn grey.

With 1 million homes at risk of flooding in the UK, many homeowners will have difficulty in the years to come in finding buildings and contents insurance, as insurers increasingly reject properties which are remotely risky.

With the ABI’s agreement with the Government over the willingness of its members to continue to insure flood-risk properties at breaking point, there will no doubt come a time when all properties in flood-risk areas will become uninsurable.

 Such properties are not only a personal liability, but unmortgageable and therefore unsellable.

As the report’s author, Defatqto principal, Brian Brown, says: “Such a threat to thousands of houses would have a massive impact on the already fragile housing market….. Already many householders in flood-hit areas are finding that new insurers will not take them on their books and that their existing insurer will only continue if they accept significant premium rises, coupled with significant excess levels.”

In fact, it is even worse than that. Halifax has started to increase the excess on properties  to as much as £350 for properties which are simply near to flood risk areas, and even for homeowners who have never made a flood-related claim. 

Brian Brown predicts that for some homeowners, the level of excess will force them to change the way they live. Changes will be needed in the construction standards of homes in flood plains, with features such as plasterboard walls and wooden floors being  having to be replaced with concrete flooring.

Electrical sockets will have to be installed well above ground level and homeowners will need to buy furniture which can be moved easily and at short notice.

Brian Brown warns that otherwise homeowners owning flood-risk properties will face a clean-up bill of £20,000 to £30,000 at least once every 20-30 years. Some householders have already begun to employ private companies to install individual flood protection systems for their homes, he says.

Most worrying of all is the fact that the Government collected more money in VAT revenue from flood repair claims in 2007, than it spent on flood protection measures in the same year.

It’s a bit like the sale of tobacco and the tax revenue it generates. We all know it’s bad for us, but it sometimes it seems as though it is the Government which is the most addicted.

To compare insurance products, visit Defaqto’s unique Compare tool:
http://www.defaqto.com/consumer/insurance/home/compare-buildings.aspx

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New round of mortgage hikes

June 17, 2008 | posted by Pam Atherton in Banking, House prices, Mortgages | comments (0)

Mortgage rates continue to rise as lenders react to volatility in the money markets and try to avoid  being swamped with new business as their rates become more competitive.

Today, the Nationwide building society is increasing rates by up to 0.5 per cent on its fixed-rate and tracker deals for new customers and those remortgaging.
 
The average fixed rate mortgage across the market now costs 6.72 per cent, compared to 6.26 per cent at the end of June 2007.

Rates on all of the Nationwide’s fixed and tracker rates are rising by at least 0.2 per cent - the second increase in June. For those with only a 5 per cent deposit, the Nationwide is raising its two-year fix from 7.35 per cent to 7.65 per cent. 

Nationwide borrowers with a 10 per cent deposit face the biggest rise with a 0.5 per cent hike on two and three-year fixed rate deals, making the typical £150,000 mortgage around £600 a year more expensive for those taking out one of these mortgages today.

Elsewhere, Barclays’ mortgage lender, Woolwich, has temporarily withdrawn its two-year fixed-rate products from today and will be increasing fees on some offset mortgages. It blamed market volatility for the changes.

At least 14 lenders, including the Halifax, RBS, and Birmingham Midshires, increased the cost of various  fixed-rate deals last week.

Defaqto banking consultant, David Black, said: “It’s a sign of the times. Over the last year, mortgage lenders have started offering mortgages on different terms, such as lower rates with higher fees, or higher rates with lower fees. It gives people more options.  Loans-to-value have also come down and 100 per cent mortgages are now difficult to source and very expensive.”

To work out your mortgage repayments, visit Defaqto’s mortgage calculator:
http://www.defaqto.com/consumer/mortgages.aspx

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Lenders raise fixed rates, but savers have rarely had it so good

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

More than a dozen lenders have raised the cost of their fixed rate mortgages, further tightening the credit crunch for homebuyers.

The hikes reflect the higher cost of inter-bank lending rates, falling house prices and fears of interest rate rises before the end of the year.

The average cost of a two year fix, on a 90 per cent loan-to-value loan, has jumped to 6.75 per cent, as major lenders such as Halifax, RRS and Birmingham Midshires reprice their deals.

The Council of Mortgage Lenders says that fixed rate deals became more popular in April, accounting for 59 per cent of all new loans.

The cost of mortgages for those with only a small deposit is becoming increasingly expensive, with Abbey raising the cost of its five year fix (for those with only a 5 per cent deposit), to 7.04 per cent.

This deal  also comes with an eye watering £2,499 arrangement fee, payable upfront.

But for savers, conditions have rarely been better. Research by Defaqto’s banking consultant, David Black, shows that 13 banks and building societies are paying 7 per cent (gross AER) or more on one, two or three year fixed rate bonds, on a minimum investment of  £1,000.

Mr Black says: “It’s a rare event when fixed rate bonds paying 2 per cent above the base rate are freely available. Last year, when the base rate was higher than it is now, a handful of 7 per cent bonds were briefly offered, but these were quickly withdrawn as investors piled in. The sheer volume available now suggests that some of the current crop will be around for sometime longer.”

To compare savings rates, visit: http://www.defaqto.com/consumer/savings-accounts/term-accounts.aspx

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Fixed rate mortgages hit 8-year high

June 11, 2008 | posted by Pam Atherton in Banking, House prices, Mortgages, UK economy | comments (0)

Fixed rate mortgages have become more expensive than at any time in the last eight years, according to data published by the Bank of England.

Fears that the Bank of England will have to crack down on rapidly rising inflation with a series of interest rate rises before the end of this year, is driving up swap rates  which determine the cost of funding fixed rate mortgages.

The average rate that lenders are quoting for two-year fixed rate mortgages for borrowers with a 25 per cent deposit, rose from 6.06 per cent in April to 6.27 per cent in May - the highest since September 2000, when base rate was 6 per cent, 1 per cent higher than today.

Average three year fixed rates have jumped from 5.67 in April to 6.13 per cent in May, while five year  fixes have risen similarly from 5.85 per cent to 6.11 per cent. The data assume a 25 per cent deposit and exclude higher loan-to-value deals as many of these are no longer available.

Fixed rate mortages were the most popular type of mortgage taken during 2007, with the majority of fixed deals taken for a two year period, but more recently borrowers are tending towards variable rate products such as trackers.

Rising borrowing costs are likely to put further downward pressure on the housing market, where the number of house sales hit its lowest level since 1978, with only 17.4 transactions per estate agent in the three months to the end of May.

But although house prices fell on average by 1 per cent in the three months in April, they are still 44 per cent higher than five years ago, according to a house price survey by the Department of Communities and Local Government, based on sale completions.

A spokesman for the DCLG said: “The current issue affecting the market is fundamentally about the supply of credit - a very different situation to the early 1990s which was about high interest rates and unemployment.”

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No respite in mortgage rate rises

June 9, 2008 | posted by Pam Atherton in Banking, House prices, Loans, Mortgages | comments (0)

Despite base rate having been held at 5 per cent last week, mortgage lenders continue to hike lending rates.

On Friday, Bradford & Bingley increased rates for new borrowers by between 0.05 per cent and 0.55 per cent, saying that it was forced to do so because it had become more expensive to raise funds on the money markets.

As the largest buy-to-let lender in the UK, this does not bode well for cash-strapped landlords looking to remortgage. All Bradford & Bingley’s new fixed rate buy-to-let deals have increased by 0.55 per cent, and all its new variable rate mortgages have jumped by 0.45 per cent.

Higher borrowing rates make it increasingly difficult for landlords to arrange new finance on their properties because lenders are demanding that rental come covers 125 per cent of their monthly mortgage payments.

During the credit boom, some buy-to-let lenders relaxed the ‘rental-income-to-mortgage criteria,’ allowing landlords to borrow with only 100 per cent rental cover.

This is dangerous, as it leaves no leeway for the cost of voids, difficult tenants, agency fees, repair and maintenance and other rental costs.

Bradford & Bingley shocked the market last week by announcing a 52 per cent jump in mortgage arrears in the first four months of 2008 and £16m in mortgage fraud. The fear is that more expensive buy-to-let mortgages will simply exacerbate the problem, creating a downward spiral of mortgage arrears and repossessions.

Elsewhere, Nationwide last week raised the price of its new fixed rate mortgage deals by up to 0.3 per cent.

As from today, Abbey is hiking rates on its 85 per cent loan-to-value mortgages and on its 5-year fixed rate range from 0.07 per cent and 0.26 per cent.

But Abbey insists it still offers some of the most competitive deals on the market for those with a deposit, or equity in their property, of at least 30 per cent.

Its best rates at 70 per cent LTV are a 2-year tracker at 5.97 per cent and a 3-year fix at 5.84 per cent. At 75 per cent LTV, it is offering 2 and 3 year fixed rate deals at 6.14 per cent.

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Young workers priced out of housing market

June 4, 2008 | posted by Pam Atherton in Banking, House prices, Mortgages | comments (0)

One in four young workers can’t afford to buy a property because of expensive mortgages and house prices which remain unaffordable, according to research by the University of York.

Unsurprisingly, the worst areas are London and the south east where more than 40 per cent of households between the ages of 21 and 40 cannot get onto the property ladder. Across the UK, more than 28 per cent of young working households are unable to purchase even the cheapest properties in their area, despite falling house prices.

The research, undertaken by Professor Steve Wilcox, using data from Hometrack, defined young working households as those on incomes which are too high to claim housing benefit, but too low to acccess the bottom rung of the housing ladder.

Even in the most affordable area, the north east, 17 per cent of young working households remain priced out of the market.

Although the study took place in 2007, its authors say the market has not changed significantly since the start of 2008, based on the requirement for most young households to take out an 82 per cent loan-to-value mortgage at 5.7 per cent.

In 2007, average mortgage costs for a first time buyer jumped 12 per cent, with the mortgage cost-to-income ratio exceeding the previous house price spike in 1990.

Across the UK, there are 42 areas where households need six times earnings to buy a property, which is far more than most banks are willing to lend on today. By contrast, renting now costs around 68 per cent of the cost of buying a home.

The research concludes that even though house prices are now falling, the higher cost of mortgages, the requirement for larger deposits and tightened loan-to-value criteria will continue to restrict young workers’ access to property purchase and further damage the housing market.

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No end in sight to debt misery

May 2, 2008 | posted by Pam Atherton in Banking, House prices, Loans, Mortgages, UK economy, Uncategorized | comments (0)

New figures published today by The Insolvency Service show that in the first three months of 2008, 25,264 people fell victim to the insolvency epidemic.

9,614 IVAs and 15,651 bankruptcies were reported, with some debt counsellors predicting that individual insolvencies could reach 101,056 by the end of the year.

For these people, insolvency means they have already reached the end of the road as far as their debt problems are concerned. But there are plenty more  people about the befall the same fate.

Today alone, a further 292 people will fall victim to insolvency and 74 homes will be repossessed, according to Credit Action’s debt statistics.

The one piece of good news is that year on year, there has been a 22pc drop in IVAs in the first three months of 2008, compared to the first three months of 2007.

Graham Lund deputy managing director at Call Credit attributes this to the new IVA protocol which came into effect at the start of February, designed to reduce the mis-selling of IVAs, and put an end to unscrupulous IVA firms pursuing unsustainable deals.

Consumer debt in the UK has now reached a staggering £1.4 trillion, a figure that is increasing by £1 million every five minutes, according to Credit Action.

But the credit crunch is not the only problem facing consumers. You Gov says that the real rise in the cost of living is nearer 9 per cent, more than double the average salary increase of just 3.4 per cent, which means that 5 million consumers are spending more than they earn every month.

Small wonder, then, that so many people are getting into financial difficulties. But an IVA or a bankruptcy should be the last resort as both these routes out of financial ruin have a very serious impact on your credit record and ability to borrow in the future. In the case of bankruptcy, it could also damage your employment prospects.

If you find yourself in financial difficulty, the worst thing they can do is ignore the problem and hope it goes away. Under the banking code, banks now have a duty to help people in financial hardship and free debt advice is readily available from organisations such as the Consumer Credit Counselling Service (www.cccs.co.uk) , National Debt line (www.nationaldebtline.co.uk) and Citizen’s Advice www.citizensadvice.org.uk).

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