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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Good and bad news on the mortgage front

July 17, 2008 | posted by Pam Atherton in Banking, Mortgages | comments (0)

Many mortgage advisers are failing to do their job properly,according to an undercover investigation by Which? Money researchers, with only four out of 50 advisers found to be giving acceptable advice.

80 per cent of them failed to provide one or more pieces of key information and 35 failed to do proper checks on the applicant’s ability to repay the mortgage.

Two out of three of advisers tried to sell the mortgage applicant insurance at the same time, often for an unsuitable product, and many failed to tailor their advice to the individual’s needs.

Which? Money editor, Martyn Hocking, said: “With mortgage costs soaring and the spectre of negative equity returning to the property market, it’s important that people get help to find the right deal.

There are still more than 3,000 mortgage deals out there, and the difference in cost can be thousands of pounds a year, so it’s vital people do their homework and chose the right adviser with care.”

The good news is that Nationwide is to cut the cost of mortgages for new borrowers from tomorrow, with rates falling by up to 0.46 per cent on some of its fixed rate and tracker home loans. 

Mortgage rates have fluctuated during the credit crunch due to the cost of wholesale borrowing for lenders. Swap rates, the rates at which banks lend to each other and which influence mortgage rates, have been stubbornly high until recent weeks, when they started to fall.

Nationwide is cutting the rates on its two year fixed rate deal (75 per cent loan to value with a £599 fee), from 6.48 per cent to 6.18 per cent. For 90 per cent LTV mortgages, the rate drops from 6.88 per cent to 6.58 per cent.

On its Lifetime Tracker mortgage, Nationwide has reduced its rates to 5.98 per cent (on up to 75 per cent LTV) and 6.38 per cent (for 75-90 per cent LTV).

Ray Boulger of mortgage broker, John Charcol, commented: “Swap rates peaked in mid-June at 6.5 per cent, but are now 5.82 per cent. Nationwide has also aligned its purchase and remortgage rates making it possible for existing customers to enjoy the same deals as new customers.”

Nationwide attracted a great deal of criticism a few years ago for limiting its best deals to new customers only.

But the mortgage market is expected to remain difficult and volatile in the coming months as the credit crunch continues to take its toll and the outlook for interest rates remains unclear.

Take a look at Defaqto’s uniuqe mortgage calculator to see how much you can afford to borrow:

http://www.defaqto.com/consumer/mortgages.aspx

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New mortgage protection product worth a look

July 14, 2008 | posted by Pam Atherton in Insurance, Mortgages | comments (0)

It’s not often that I’m impressed with a new product launch, but LV= (formerly known as Liverpool Victoria) has recently launched a mortgage protection insurance  plan which doubles up as an income protection plan.

Crucially, it offers ‘own occupation’ cover to all but the riskiest of jobs, allows applications up to age 65 and only charges ‘guaranteed’ rates, which means that your premiums will not rise as you grow older.

It provides cover for accident, sickness and unemployment, with level mortgage payment protection and a choice of level or index-linked living expenses protection.

You can choose a deferred period of one, two, three or six months and waiver of premium automatically kicks in during a claim.

Another plus point is that the plan allows you to run the plan until you are able to resume work, until the end of your mortgage term or until you die, unlike most MPPI policies which terminate at age 55, 60 or 65.

LV= employs telephone underwriting which means that clients are interviewed over the phone by medically qualified staff - a process which has been found to lessen the risk of the insured failing to disclose relevant medical details and hence the chances of non-disclosure disputes.

Premiums reflect age, gender, smoker status and occupation and premiums for lower-risk occupations are especially competitive.

The product has a Defaqto 5 Star rating. Defaqto insurance principal, Mike Powell, says: “This product is flexible, simple and easy to understand, and can be tailored to the consumer’s needs. The introduction of a long term contract with guaranteed premiums for an MPPI product is a massive step in the right direction for the MPPI market”

For more on income protection, read our guide: http://www.defaqto.com/consumer/insurance/life/income-protection.aspx

For more on LV=s products visit: https://www.lvmlp.co.uk/

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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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HBOS shares recover but is the rights issue worth taking up?

June 16, 2008 | posted by Pam Atherton in Banking, Investments, Mortgages | comments (0)

Given the recent gyrations in HBOS’s  share price, private investors could be forgiven for giving the company’s upcoming rights issue a definitive thumbs down.

Heavy shorting of the shares last week drove the HBOS price briefly below the rights issue price of 275p, causing alarm at HBOS HQ, its underwriters and shareholders.

The bank, whose shares are down around 70 per cent in the past year, has 2.1m retail shareholders who hold 27 per cent of the company. They are unlikely to take up their rights if the share price does not stay well above the rights issue price and recover some poise.

But following the FSA’s dramatic move on Friday to support companies conducting rights issues, HBOS shares rose to 329.25p this morning, indicating that the regulator’s action may have had some effect already.
 
By introducing a requirement that anyone short selling more than 0.25 per cent of the outstanding shares of a company conducting a rights issue must disclose their short position from this Friday [20 June],  the FSA hopes to inject some stability into the market.  
 
But the situation remains volatile and if the price goes back down below the offer price, it clearly would be cheaper for private investors to buy the shares in the open market.

Justin Urquhart Stewart of stockbrokers 7 Investment Management comments: “To be fair to HBOS, when they originally set the offer price, it was at a 45 per cent discount to the then current share price and so it was offering quite reasonable value for shareholders.

“However, since then, the story of the UK mortgage markets has gone from bad to worse, which is crucial for HBOS as it includes the Halifax, the UK’s largest mortgage lender.

“The effect of this has been to see a dramatic fall in most bank shares and especially those involved in the mortgage markets.  Just to put this in some perspective, the share price stood at 608p on 1 April and then plummeted to below 275p in just a few weeks before staging a partial recovery.

“If the prevailing share price falls below 275 pence again, I would not be surprised if HBOS took the opportunity to re-price the issue at a lower price and try to tempt shareholders back to see if they will support the issue again.”

The  1.4 million shareholders who do not have share certificates have until Friday 11 July to decide if they want to take part in the rights issue.

The 640,000 shareholders who do hold share certificates have until Friday 18 July to make up their minds.

So what to do?
If the share price stays significantly above the offer price, then you may wish to consider applying.  If the company comes out with a new reduced offer price, then it may be attractive. But if the price in the market is below, or barely above, the offer price then it is hard to make a case for investment.

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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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Watchdog warns against false IVA claims

June 12, 2008 | posted by Pam Atherton in Banking, Loans, Mortgages | comments (0)

It must be a sign of the times. As though the soaring number of individuals with serious debt problems was not bad enough, a new breed of vulture is trying to exploit their misery by giving them poor advice. 

The Office of Fair Trading has warned a dozen firms to stop making false claims to individuals who have declared themselves insolvent and taken out an Individual Voluntary Arrangement or IVA.

The latter is an agreement,  between a debtor and his or her creditors, to repay  a portion of the money they owe over a set period of time, with the help of an insolvency practioner.

There is less stigma associated with IVAs compared to bankruptcy and you will normally be able to keep your home.  To abandon such an agreement could have serious consequences as the cost of setting up an IVA can be considerable and is irrecoverable.

Bankruptcy, by contrast, is the ‘nuclear option’ for anyone in serious debt.  It can mean the losing your home, forfeiting control over your finances, losing access to credit and can place restrictions on the type of employment you can pursue.

The offending firms have been sending unsolicited letters to insolvent individuals advising them to cancel their IVAs and to go bankrupt instead. The letters suggest that the individual’s original IVA might have been mis-sold or inappropriate and that to go bankrupct would be a better course of action.

The OFT has warned the companies that if they do not stop their mailings they will be fined or closed down because encouraging someone to scrap an IVA could make their financial position worse.

 If you want to complain about receipt of one of these letters, or have another consumer gripe, the OFT Direct website  is a mine of useful information on your consumer rights and how to gain redress  http://www.consumerdirect.gov.uk/

There were more than 44,331 IVAs taken out in 2006, compared with fewer than 5,000 in 1998. The figures began to fall during 2007, but are expected to rise again during 2008.

The number of individuals choosing bankruptcy stood at 13,080 in the first quarter of 2008. This was up from 11,674 in the previous three months, but a decrease of 13 per cent on the number of petitions in the same quarter of 2007.

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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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