What next for B&B savers and borrowers?

September 30, 2008 | posted by Pam Atherton in Banking, Mortgages, Pensions, Savings | comments (0)

It is business as usual for depositors and other customers of Bradford & Bingley (B&B), who need have no concerns about the safety of their money.

That was the message from the Financial Services Compensation Scheme (FSCS) yesterday as it stepped in to help the 2.5m B&B customers  after the bank failed to meet its regulatory requirements and the FSA declared the bank in default. 

The FSCS is contributing some £14bn to enable retail deposits held in B&B, and which are covered by the compensation scheme, to be transferred to their new owner, Abbey, which in turn is owned by the Spanish bank, Banco Santander.

FSCS chief executive, Loretta Minghella, said: “This initiative means that some 2.5m people can rest assured that their money is safe and they will not lose it because of the problems at Bradford & Bingley. They can access their accounts in the normal way and it is business as usual for them.”

This effectively means that B&B depositors will have 100 per cent of their savings protected, because the FSA and FSCS have arranged for a smooth transfer of their accounts to Abbey.

Normally, when a UK authorised bank fails,  only the first £35,000 is covered by the FSCS.

So you should make sure you spread your money across different savings institutions (that are not all part of the same group) so that your money is protected.

For instance, if Banco Santander were now to fail and you had accounts with B&B, as well as with Abbey and Cahoot (all owned and authorised under the Banco Santander name), you would  only be covered for the first £35,000 of total savings held with these three brand names, not £35,000 for each.

For borrowers, although existing B&B mortgages will continue to run as they are for the time being, once a mortgage deal comes to an end, it is likely that you will be required to move elsewhere or pay the bank’s prevailing standard variable rate which will almost certainly be higher.

Those with buy-to-let mortgages may have difficulty re-mortgaging elsewhere as a large number of lenders have withdrawn from the market. For example, three lenders previously funded by the now defunct Lehmann Brothers have ceased lending.

For shareholders, the outlook is even worse. There is little prospect of them receiving anything and B&B staff with holdings  in the bank’s SAYE scheme and pension plan will be particularly hard hit.

All of which serves to prove the old maxim that you shouldn’t put all your eggs in one basket.

For more on the FSCS visit:
www.fscs.org.uk

For the top instant access savings accounts visit:
http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx
Top cash ISAs:
http://www.defaqto.com/consumer/savings-accounts/cash-isas.aspx
Top term accounts
http://www.defaqto.com/consumer/savings-accounts/term-accounts.aspx
TOp notice accounts
http://www.defaqto.com/consumer/savings-accounts/notice-savings-accounts.aspx
TOp children’s savings accounts:
http://www.defaqto.com/consumer/savings-accounts/childrens-accounts.aspx

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Protecting your income has rarely been more important

September 17, 2008 | posted by Pam Atherton in Insurance, Loans, Mortgages, Store Cards | comments (0)

As the credit crunch takes hold, 40,000 workers in the financial services industry alone are expected to lose their jobs over the next year.

Some of the 4,000 Lehman Brothers employees, who are set to lose their jobs by the end of this week,  may rue the day they failed to take out income payment protection insurance in happier times.

Not to be confused with payment protection insurance (PPI) which only protects your credit card, loan or mortgage payments for one or two years in the event of accident, sickness or unemployment, most income payment protection insurance policies(IP) will pay out around half to two thirds of your monthly income until you are able to resume work, or until retirement if you can never work agan.

This means that IP is far more expensive than PPI - not only does it pay out for longer, but some occupations are clearly more expensive to insure than others. 

Builders, scaffolders and others in physically dangerous jobs are obvious examples, but in recent months, the employees of investment banks, estate agents and housebuilders have found it hard or impossible to get cover because of the widespread expectation of imminent redundancies in these sectors. Such workers may have no choice now but to go to a specialist broker to obtain cover.

This is why it is always best to buy IP when you least need it. When the economy is heading into recession, underwriters are clearly going to be extremely wary as to whom they are willing to insure.

But you can limit the cost of IP by accepting a long deferment period - the amount of time that must elapse before you can receive a payout. If your employer’s sickness benefits will cover you for the first 3 or 6 months of long term sickness, your IP policy does not need to kick in until then.

You will have to complete a medical questionnaire and for large amounts of cover, you may have to have to undergo a medical as well. It is also essential to be absolutely honest in your responses as insurers will not honour a claim if you have witheld ‘materially relevant information’ - even where the non-disclosure does not relate to your claim.

Regrettably, some insurers  exclude back pain and stress-related illnesses, even though these are the most common causes of long term absence from work.  It is therefore essential that you take independent financial advice so that you select a policy which meets your needs.

LV= recently launched a combined mortgage and lifestyle protection policy, while LifeSearch offers a product called ‘Real Life Cover’ which combines life, critical illness and income protection.

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

www.lifesearch.co.uk

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Mortgage rates falling despite interest rates being kept on hold

September 5, 2008 | posted by Pam Atherton in Banking, Mortgages, Savings | comments (1)

The Bank of England’s decision to keep base rate on hold at 5 per cent was no surprise to anyone.

Caught between a rock and a hard place, the BoE had to balance the need to contain inflation with the clamour from businesses and consumers for lower rates to boost the economy and rekindle the mortgage market.
On the one hand, the recent sharp fall in the oil price increases the chance of the next move being downwards, on the other,  inflation will probably increase for another couple of months before peaking at around 5 per cent.

But despite rates being held, mortgage rates are falling. Swap rates (the rate at which banks lend to each other for a year or longer) have continued to decline over the last month, as expectations of the scale and speed of Bank of England  base rate cuts have increased. 

Ray Boulger of mortage brokers, John Charcol, says: “Two year swaps are over 1.2 per cent down from their June peak of 5.28 per cent. 

“As a result, lenders have continued to cut the cost of fixed rate mortgages, with the cuts now also being extended to 90 per cent  loan-to-value (LTV) mortgages as well as more aggressive cuts for rates on  up to 75 per cent LTV loans. 

“A modest fall in the 3 month Libor rate, to 5.74 per cent, coupled with an increased level of competition in the market, has even resulted in some lenders cutting the margin charged over base rate on some of their tracker mortgages.”

Boulger says that even though base rate is expected to fall significantly over the next year, it is still too soon to buy a fixed rate mortgage and continues to recommend trackers. 

However, for those borrowers who want, or need, the security of a fixed rate, the good news is that the best fixed rates have now fallen to a similar level to the initial rates charged on the best trackers, and in some cases even a little lower.

Meanwhile, savings rates continue to be extremely competitive with many banks and building societies paying 1.5 per cent or more over the 5 per cent base rate.

For instance, Icelandic Bank Kauphting Edge continues to offer savers a rate guarantee of at least 0.3 per cent above base rate until 2012, and is currently paying 6.55 per cent gross AER on its instant access account and 6.97 per cent AER on its 6 month term account.

But Defaqto banking principal, David Black warns: “Longer term fixed rates are reducing and a handful of banks have reduced their variable savings rates recently.”

For more on mortgages rates, visit Defaqto’s unique mortgage search tool:
http://www.defaqto.com/consumer/mortgages.aspx

For more on instant access savings rates:
http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx

For more on term account rates:
http://www.defaqto.com/consumer/savings-accounts/term-accounts.aspx
   

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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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Adviser news round up - August 2008

September 2, 2008 | posted by Pam Atherton in Insurance, Mortgages, Pensions, Savings | comments (0)

Adviser news round up

Personal accounts dominated the news in August as the Government announced that its research into the effect of means testing on personal accounts showed that individuals with less than 20 years until retirement in 2012 and earning up to £25,000, will see hardly any benefit from personal accounts.

Individuals in these circumstances would see returns of between only 1-3 per cent greater than if they did not save in the scheme. Someone on £10,000 a year, after 20 years of auto-enrolment in a personal account, paying 4 per cent of earnings each month, would be only £2 better off a week, according to the DWP figures.

Industry experts seized on the figures as proof that low earners in this position would be better off saving in an ISA, savings gateway or simply paying off debt rather than being automatically opted into Government’s new flagship scheme which is due to start in 2012.

Scottish Life, head of pensions, Steve Bee said that improving the basic state pension would be a far more cost efficient way of achieving a decent replacement rate of 84 per cent, than personal accounts which might provide a replacement rate of 92 per cent, but at a cost of savings over 40 years.

Standard Life’s John Lawson attacked the DWP for abandoning its discussions with pension providers about an acceptable quality test for existing pension schemes in 2012, but a spokesperson for Aegon insisted that the talks were ongoing.

The solution put forward by a number of trade bodies, including the Association of British Insurers, would have allowed employers to certify that the majority of their employees would be as well, or better off, under their existing pension arrangements than they would be in personal accounts.

Such a test would allow schemes to continue using their existing definitions of pensionable earnings and would only require companies to review their pension arrangements against personal accounts every three years.

Failure to agree would mean that employers would have to measure contributions to their existing schemes against what would be required under personal accounts, and in the event of a shortfall, reconcile any differences through top-up payments.

There was also concern over the future of Qrops in the wake of HMRC striking off three Singaporean Qrops from its permitted list and some expatriate advisers warned of a potential mis-selling scandal.

Elsewhere, the FSA is to delay publication of its feedback report on the RDR discussion paper until November 2008 (previously due in October) to allow its recently appointed MD of retail markets, Jon Pain, to settle into his new role.

Following the upsurge in cases of mortgage fraud, the FSA said it is considering regulating every individual mortgage broker and making all IFAs giving mortgage advice subject a separate approved person status for mortgages.

The extra cost of bank regulation in the wake of the Northern Rock debacle means that the FSA might exceed its budget this year and the industry could face fee rises in 2009 and 2010.

The ‘treating customers fairly’ regime came under attack from Nick Prettejohn, chairman of the Financial Services Practitioner Panel, who said it was taking up too much of the FSA’s resources.

Elsewhere, a Standard Life survey showed that nearly 70 per cent of advisers believe they can achieve a diploma standard qualification within three years and 83 per cent within five years.

In a sign that investors are diversifying their investments, the IMA said nearly half of total net return fund sales in Q2 2008 were attributable to fund of funds, while tracker funds saw a net outflow of £700,000.

Norwich Union said it is looking to enter the variable annuity market, following similar announcements from AXA and Standard Life.

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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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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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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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