Mortgages4me Newsletter Winter 2008

Posted November 17th 2008 by Melanie and Nigel

In these difficult times, it probably makes more sense than ever to take professional advice for your funding needs.  And in this issue of The Mortgage newsletter we cover some of the key areas that I hope will be of interest to you.

We lead off by looking at the turmoil in the financial markets, affecting house prices and making it difficult to decide on the best type of mortgage to go for.  However, recent Government action taken in the US, UK and elsewhere, along with a massive cut in the Bank Base Rate may help pave the way for a revival in the UK mortgage market.

A positive side-effect of the current market climate is that there may be some good deals to be had with New Build properties up and down the country – either dealing directly with the house builder or via a new Government scheme.

Elsewhere, we look at how Critical Illness* cover could benefit you by delivering protection should you suffer a serious illness.  We also look at a sector of the Buy-to-Let industry** - student housing - with student numbers expected to rise markedly over the next few years.

With falling property prices, we also highlight the possible opportunity of owning your own Commercial property.*** And we end with a look at a couple of options to help first time buyers get onto the property ladder.

We hope you find the issue of interest and please do get in touch if you require professional advice for your finances. 

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If you have any questions about this newsletter or would like to be added to our mailing list please contact us

Your home may be repossessed if you do not keep up repayments on your mortgage.

* As with all insurance policies, terms, conditions and exclusions will apply.

** The Financial Services Authority does not regulate most Buy-to-Let mortgages.

*** The Financial Services Authority does not regulate most Commercial mortgages.

Return of the tracker

posted November 12th 2008 by Melanie and Nigel

UK mortgage lenders have been repricing deals after the Bank of England's surprise rate cut to 3%.

Some lenders are relaunching tracker deals for new borrowers, but are increasing the margin between the rate they charge and the Bank's interest rate.  Trackers are typically charged at a percentage over Bank of England base rate, so, when the Bank of England cut its rate, many lenders simply increased this percentage.  Our view is that the Bank of England will cut interest rates yet further in the coming months; the subsequent possible impact on tracker rates remains to be seen.

Latest figures from the Council of Mortgage Lenders showed that the proportion of new tracker mortgage deals and standard variable rate (SVR) mortgages granted in September grew, while the proportion of fixed-rate deals reduced.  This is a direct result of the Bank of England’s interest rate cut.  People have been contacting their lenders directly and switching their mortgages in order to try and take advantage of the lower monthly payments that trackers are currently offering.  However, the fact is that trackers are far more attractive for existing borrowers than new borrowers.

Changes

Mortgage lenders withdrew their tracker mortgage products last week before the Bank of England reduced its interest rate to 3%.

This week Cheltenham & Gloucester, Abbey and Alliance & Leicester all started marketing new tracker deals to new borrowers.  New borrowers will now have to find a larger deposit as the majority of the new products will have a lower loan to value.  For example, Abbey is offering a two-year tracker deal for those paying a 25% deposit, at an interest rate of 4.99%.  Last week this was 1.79% above the Bank rate, and today is 1.99%.  For those people with a mortgage of around 80% to 90% of the property’s current value, trackers are virtually impossible to find.  If the loan to value is over 90%, the number of products available is severely restricted and the interest rates are comparatively astronomical.

Tracker Collar

A tracker collar or floor is a minimum percentage which the mortgage companies will not go below.  If the Bank of England base rate falls past a certain point, this cut will not be passed on to customers (see blog entry of 10/11/08).  Nationwide has set the floor at 2.75%; HBOS can implement a 3% floor and Abbey has the same level on a small proportion of its existing deals.

We believe the lenders should pass on any reductions to their customers and not hold back.  This could then inspire confidence within the market place, which is the key to inter-bank lending and restoration of the flow of credit.

A group of the UK's biggest lenders announced on Friday that it would be passing on the Bank of England base rate cut in full to customers with SVR deals on 1st December.  Unfortunately, this accounts for only 20 out of 96 lenders.  Please see the table below for full details.

Tracker products vanish for the moment

posted November 10th 2008 by Melanie and Nigel

As the name implies, tracker mortgages follow an interest rate, often the Bank of England base rate, plus or minus a certain percentage.  This means that an individual’s monthly mortgage payment goes up or down depending on the movement of the interest rate that the mortgage product tracks.

Since the 1.5% interest rate cut last week, the majority of high street lenders have temporarily withdrawn their tracker products with the intention of repricing and releasing new products.  We hope this will be within the next few days, but there are obvious disadvantages for those who want or need to obtain a mortgage in the interim and want to take advantage of the interest rate cut and any future cuts. 

Lenders have responded to the Bank of England’s decision by cutting their standard variable rate (SVR) by 1.5%.  This will be passed on straight away to existing borrowers, who will feel the benefit in the forthcoming months.  However, the main factor in lower interest rates is not the official Bank of England base rate, but the London Inter Bank Offered Rate (LIBOR).  This is the rate at which banks lend to one another and, on Friday, it reduced from 5.56% to 4.49%, its lowest level since 2005.

We expect that most lenders will hold firm with fixed rates, but hope that they will look to restructure these rates downwards in future. 

It should be borne in mind that, if rates continue to reduce, borrowers will only benefit so much.  Lenders reserve the right to maintain a ‘floor’ below which they do not have to pass on interest rate reductions.  They are still businesses and have to remain profitable to exist.

If you would like more information on the article above or would like to speak with one of the team call us free on 0800 652 5636

Thursday’s dramatic Bank of England rate cut

posted November 6th 2008 by Melanie and Nigel

The Bank of England Monetary Policy Committee (MPC) slashed official interest rates by 1.5% to 3% on the 6th November.  It has not cut interest rates by more than 0.5% since 1993.

The size of the cut reflects the MPC’s concern over the slowing UK economy.  Consumer spending has fallen, businesses are folding, unemployment is rising and house prices are sliding.  Recession is unavoidable, but this move is intended to stimulate the economy and thus mitigate the downturn.

Mortgage lenders will now come under pressure to reduce the interest rates on new loans, but we will have to wait and see what happens with the London Inter Bank Offered Rate (LIBOR) first. 

LIBOR is the rate at which banks lend to one another.  We hope it will reduce, so that lenders will once again be prepared to offer a wide range of mortgage products to a wide spectrum of consumers.  Unfortunately, there is no guarantee that the rate cut will be passed on to the consumers and businesses, although we assume that it will be.  If so, existing customers with tracker mortgages will feel the benefit of today's reductions next month.  The problem is largely one of sentiment.  Banks are still fearful for their own futures and consequently are not inclined to lend to one another on the scale to which we have become accustomed.  This sentiment encompasses lending to consumers and businesses also.  Credit is the lifeblood of the economy: when it dries up, the economy grinds to a halt.

On the downside, savers will receive a reduced rate on their deposits and the value of the pound will fall against foreign currencies.  Foreign investors tend to want to invest in countries where interest – and therefore return – is higher.  It is likely that we will see the cost of foreign travel and imported goods driven up.  

If you would like more information on the article above or would like to speak with one of the team call us free on 0800 652 5636

The views given in this blog are those of mortgages4me, a trading name of Smith & Pinching Financial Services Ltd, which is authorised and regulated by the Financial Services Authority.  These views are market and economic views and should not be interpreted as giving advice.  Whilst every care has been taken in producing this blog, Smith & Pinching Financial Services Ltd will not be held responsible for any inaccuracies, omissions or misquotations.  Registered office: 295 Aylsham Road, Norwich, Norfolk, NR3 2RY.