Mortgage Advice Centre

Mortgage lending is slowly recovering, though it is still a long way down on the pre-bust levels. Total net lending, which strips out redemptions and repayments, now stands at £3.1 billion pounds 4.6 percent higher than last year. According to, The British Bankers Association, 42,238 loans were approved for people buying a property in October. This is nearly double the number seen last year and the highest level since January 2008. The amount of net lending is subdued because many are taking the opportunity to overpay repayments.

The reality of low long term interest rates is helping fixed rate deals to come down. After peaking at 5.15% this summer, average two year fixed mortgage deals have fallen below 5% for the first time since the summer.

Remortgaging which was very popular during the boom years has fallen considerably. Many are now opting to stay on a lenders standard variable rate (which was often significantly higher than special discounted rates)

Although, lenders have tentatively started to raise LTV (reduced amount of deposit required), there is evidence, the number of mortgage products could remain limited even as the market recovers.

The UK Treasury have been looking to extend mortgage protection to mortgage lenders who sell mortgages on to third party. This comes after proposals to limit self-certification mortgages, and high income multiples.

It is hoped stronger regulation of mortgages will make it more difficult for the housing market to create a boom situation. However, it will mean first time buyers will need to save a larger deposit in the new climate of stricter mortgage lending.

On a personal note, I benefitted from loose mortgage rules which allowed me to get a mortgage a large income multiple in 2004, but, given the boom and bust we have seen, it does seem to make sense to create a more stable and closely regulated mortgage industry. I’m just glad I’m not trying to buy a house now…

2010/11 will be the first fiscal year for sometime to feature a top tax rate of 50%.  With national insurance the marginal rate will be as high as 61.5%. If you earn it you will expect to pay tax on it As ever top earners may be able to effect some changes that will help reduce the impact.

Tax Saving Tips

• Timing of financial decisions, using tax efficient saving vehicles and maximising allowances may help mitigate the cost.
• Aim for capital gains rather than income. The former is only taxed at 18% and you have an annual exemption allowance of £10,000 worth of gains.  Equalise gains between spouses to get 2 sets of relieves and lower rates.
• Consider cashing investments like treasury stock and some life assurance bonds in 2009/10 as the gain is treated as income.
• Discuss trust income arrangements with your advisers so complex new rules apply in the next tax year.
• Review your pension arrangements in terms of savings and income draw down to get the amounts in the right year.
• Some people may be able to bring income forward (like bankers bonuses) this may save tax but it will be payable early.
• Consider deferring capital allowances and reclaiming  tax losses until next year.
• Avoid being too creative as a new team has been set up by HRMC aimed at evasion and particularly income generating foreign assets.

In June of this year, the Bank of England estimated that 1.1 million homeowners were facing a situation of negative equity. - A situation where the outstanding mortgage is greater than the value of the house. So many face negative equity because of a rapid fall in house prices and the fact many mortgages were sold in the boom times with a low deposit ratio. The situation of negative equity is worse amongst sub prime mortgages, where 1 in 6 mortgages face negative equity. The Northern Rock has the largest % of customers with negative equity. According to Fitch 32% of mortgages in Northern Rock’s Granite account are in negative equity.

If you need to move but are stuck with negative equity what can you do?

What is Negative Equity?

Negative equity is the paper loss you may have on a property that was bought for one amount but is now worth less than you paid. If you have no mortgage the paper loss is stood by you when you sell.

If the property is mortgaged for more than the house is now worth then the negative equity trap is a concern to the mortgage company as the loss would mean the mortgage isn’t covered by the property value.

Example you pay £200,000 for a house 3 years ago and have a £180,000 mortgage. The property is now valued at £170,000 due to the slump in values. The value is down £30,000 and you have a loss of £20,000 and there is a further £10,000 negative equity between the mortgage value and the realisable value.

The Effect of Negative Equity

It is hard to move home when you have negative equity.

Usually the mortgage company won’t allow the house to be sold unless you have enough spare capital to make up the £10,000 shortfall (the difference between the selling price and the outstanding mortgage).

Crystallising negative equity can damage your credit score.

Negative Equity Mortgage

Coventry Building Society and Nationwide have created a ‘negative equity mortgage’ that allows existing customer to carry forward negative equity if they move house. Up to 25% of the old home value, same or lower total loan, and not trading up are restrictions from Coventry but the scheme seems to be a good one.

Other lenders should and probably will follow suit so it is worth asking your lender if you need to move.

Do not become trapped by negative equity. If you have no new capital to make up the shortfall you may be able to get a family member to guarantee the difference. It may be appropriate to take an unsecured loan to fund the gap but beware the rates charged. Failing all the routes you know pressurise you lender to follow the Coventry Building Society and allow you to carry part of the gap forward to your new property.

Related

Remortgaging with negative equity

Mortgage Equity withdrawal

Much to many people’s surprise, we have seen a recovery in house prices this year. But, it is a recovery lacking conviction or any enthusiasm. A majority of economists still expect house prices to fall in 2010.

As we have often mentioned, the price rises have been mainly due to the shortage of supply on the market, rather than rising demand. This shortage of housing means prices have been squeezed higher by a small number of buyers.

However, the shortage of supply is not the only reason behind the recovery.

• Low interest rates has prevented many mortgage defaults
• Banks are keen to avoid repossession because they want to avoid the bad debts on their books.
• There have been some signs of economic recovery, with improvements in consumer confidence (though official statistics still show we are in recession)
• A feeling that the worst of the house price falls may be over

The economic recovery is, like the housing market, very uncertain and lacking in conviction. Whilst many feel GDP statistics are wrong, and the economy is actually recovering, few expect a recovery to be anything other than weak.

In particular, firms, banks and consumers are all trying to rectify their balance sheets - pay off debt and increase savings. This will depress spending and the housing market into next year.

The UK has experienced its longest post war recession, and the deepest since the Great Depression. Importantly, the UK recession has lasted longer than our main competitors. Whilst members of the Euro like Germany and France are experiencing positive growth, the UK remains stuck in recession.

The UK economy has suffered the most because of its reliance on the financial markets and an asset (housing) boom. The government and monetary authorities must be pretty dissapointed at the sluggish response of the economy. They have done as much as they can with fiscal and conventional monetary policy. Even the scope of quantitative easing is one of the most radical amongst Western nations. (though some commentators say by just buying gilts and not corporate bonds, the impact of UK QE has been diminished.)

Whilst other countries are considering raising interest rates, that looks a long way off for the UK. Any tightening of the economy will need to come from tax rises to deal with the burgeoning debt. (see: prospects for UK Interest rates)

Furthermore, despite a 20% depreciation in sterling, the UK retains a persistent trade deficit suggesting an underlying imbalance in the economy. Since the credit crunch there are less capital flows to finance a current account deficit. Therefore there we may need to have to be a further depreciation to boost exports relative to imports.

Another factor in the equation is the scale of government debt and the purchase of government gilts. This has potential to worry markets and raise future inflationary pressures.

Given these factors the prospects for Pound Sterling looks pretty grim. Low interest rates and quantitative easing will weaken sterling and the government’s fiscal position will not help. The trade deficit just adds to the gloom behind sterling.

The saving grace for Sterling may be the relative weakness of our competitors. The Euro is starting to look prohibitively expensive, at least for south European economies like Spain and Ireland. Though the Eurozone is emerging from recession, it still looks pretty weak. The ECB takes a fundamentalist approach to keeping inflation low, but, even the ECB will be hard pressed to justify rate increases with the Euro economy so weak.

The good news for sterling is that the worst may (hopefully) be over. Forward looking surveys on confidence show improvements. The recent rise in manufacturing output and car sales give hope a real recovery could materialise next year.

It is hard to make predictions because the current situation is exceptional with no real precedent. Alot will depend on the nature of recovery. If the UK’s growth continues to be weaker than our competitors sterling will continue its downward slide. But, if the UK grows quicker than expected and confidence is restored in the UK people may switch back to Pounds. But, overall, I think the most likely scenario is that the Pound will remain weak. Alot of us could be spending our summer holidays in old Blighty rather than paying to goto Euroland.

Recently, I was victim of identity theft. The good news is that two companies very.co.uk and Halifax both recognised the fraudulent application and so the identity thief was not able to use my details to open fake accounts.

There is lots of good information at UK Fraud Service CIFAS After this incident, an extra password has been put in place for anyone opening a new password. These are some tips to avoid Identity Fraud

There are so many ways your identity can be detrimentally damaged and this will give you some tips to protect yourself against others.

On Line Protection

• Think about the risks when working online. Only buy from reputable sites with Https and recognised padlock security.
• Do not be tricked by online crooks into giving them your information. Beware of fake emails with links to convincing but fraudulent websites. They want to spend your money, tap your bank account and use your credit cards.
• Do not succumb to phishing by giving out your name, bank details, passwords or information to anyone. Block unwanted spam and use a modern browser.
• Beware of responding to seemingly innocent emails if the response is driven by your needs
• If you publish anything on line you have no control over how it is stored, copied or archived. Think twice about publishing something you might later regret.
• Use strong passwords mixing several words, letters, numbers and punctuation. Use different passwords for different sites particularly for financial matters.
• Be careful about giving away too much information on on blogs and social networking sites. Identity thieves can piece together your identity from public information piece by piece like putting together a jigsaw.
• Crooks are very good at persuading you to do what they want. Beware the promise of huge rewards, lottery wins, lost inheritances, upfront payments etc.
• If you get a bad vibe or pressured into a quick decision, walk away.
• If you think you have been compromised consider contacting ecommerce sites like ebay and Amazon and ask them to freeze your accounts.
• Keep your guard up and use your common sense.
• Choose a safe way to pay like PayPal or credit card.
• Remember, if it looks too good to be true, it probably is.

Off Line Protection

• Never carry documents or plastic cards unnecessarily. When not in use keep them in a safe place under lock and key if practical.
• In a shop or ATM make sure other people cannot see or hear your pin or personal information.
• If your credit cards, passport or driving licence have been lost or stolen contact the issuing organisation immediately.
• Keep your passwords and pins safe do not keep with your cards.
• Tell your bank, card issuers and all other organisations that you deal with immediately if you move house. Redirect your mail for at least a year. If you suspect your mail is being stolen. Check whether a mail redirection order has been made in your name without your knowledge.
• Be extra careful if you live in a property where other people could have access to your mail. You can arrange to collect valuable items such as new plastic cards or cheque books from a local branch.
• Destroy unwanted bills, receipts, credit-or debit-card slips, bank statements or even unwanted post in your name using a shredder.
• Check statements as soon as they arrive. If any unfamiliar transactions are listed, contact the company concerned immediately.
• Never give personal or account details to anyone who contacts you unexpectedly. Be suspicious even if they claim to be from your bank or the police.
• Dispose of unwanted computers with great care.

Remember just because you are paranoid it doesn’t mean they aren’t out to get you.

In the words of Hill Street Blues ‘Let’s be careful out there’

After falling 25% since the late 2007 peak, UK house prices have made a steady growth during 2009. The increased price has taken a few commentators by surprise. But, behind the figures of rising house prices, it is clear we have not witnessed a return to a thriving property market.

Hometrack stated that UK house prices rose for the third consecutive month, and Nationwide reported the first year on year increase since the credit crunch.

Hometrack report that property sellers are receiving 92.9% of the asking price up from a couple of months ago. However, like other agencies, they report the rise in prices is occuring despite a dearth of buyers. The main thing pushing prices higher is a shortage of supply.

Some factors that will influence the Property Market in the coming months

The price recovery will encourage more property owners to put their property on the market; many have been holding back during the house price falls. However, at the same time, many buyers were put off buying because of the rapid falls in prices. If people feel the worst of the house price falls are over, then more may be tempted back into the market.

Interest rates will rise sometime. At the moment, interest rates of 0.5% are making mortgage payments cheaper and preventing many having to sell. But, economic recovery could lead to higher interest rates. However, the recovery may be muted and interest rates could remain low for a considerable time. Also, unless people are on tracker mortgages, many banks haven’t passed the full rate cut onto homeowners so some will not see the full rate increase when it comes.

Unemployment likely to remain high during 2010 and 2011. The depth of the UK recession is depressing. It has now lasted 6 quarters - one of the longest on records. This will lead to a muted housing market.

• Problems facing UK Economy