Building on a Happy New Year!

Despite the continuous bad news headlines churned out by the lenders and the media, it’s heartening to hear that the average person can now see a light at the end of the property tunnel.

With the prime interest rate sitting at an all time low of 0.5% it’s easy to forget that in April 2008 the prime interest rate was sitting at a whopping 5% having been reduced from the previous July’s 5.75%!

There has been a lot of talk about the UK recession in 2009 and while British consumers anticipate the unexpected in property, it seems we are set to continue to enjoy the impact of the current low interest rate for some time to come along with other positive 2010 predictions.

Reasons for optimism

- House prices have risen in 2009 despite the double dip warnings and we look set to enjoy a more moderate pace of house price increase in 2010

- The interest rate will remain at 0.5% which is way down on the 5.5% we had in May 2007. This should last at least nine more months allowing us all a bit of extra cash and clearing the way for more money printing and continued low rates

- The buy to let market is seeing strong signs of improvement

- A weak pound has made British products cheaper, helping exporters

- The UK economy has shrunk less than we actually thought

- Loan lending is down due to lack of supply not demand!

- Offset mortgages are now being offered

- HomeBuy Direct has received an £80m extension. This is the government shared equity mortgage scheme where up to 10 000 first time buyers are helped to buy specified newly built homes. This scheme has already received interest from over 32,000 people since September

- Green housing measures are increasing dramatically which can only improve our living standards

- A powerful stock market rally has boosted confidence.

- Natural disasters are at their lowest in a decade globally

- Unemployment rises have been smaller than originally forecast.

- The upcoming election will keep all parties on their toes and the power with the people – so vote!

- The effects of Quantitative Easing take nine months to work. QE began in March so we should start to enjoy its benefits around the New Year onwards.

- The ‘libor’ rate (a measure of bank trust) has fallen back to BELOW pre-crunch levels.

- France and Germany are just out of recession along with South Africa, Japan and the US

Obviously one of the biggest factors for 2010 is the upcoming election and all indicators are that the Conservatives will sweep the board with an overwhelming majority. Considering their election promises of abolishing stamp duty and raising the threshold on inheritance tax, freezing council tax for two years and providing tax cuts for new jobs to get people back to work, it could be a better 2010 under their guidance for home owners and first time buyers.

In conclusion, 2010 should see us well on our way to recovery!

Interest rates to go up in Spring 2010

Latest news item I just received:


Interest rates are expected to go up in the Spring of next year, reaching 2% by the end of 2010, according to the CBI.

Ian McCafferty, CBI chief economic adviser, said: " The UK Bank rate is forecast to start rising in spring 2010, as the Bank of England withdraws some of the monetary stimulus in order to minimise the risk of undesirable inflationary pressure in the medium term. The Bank rate is expected to reach 2% by the end of next year, with no further rises during 2011, to assist the sustainability of the recovery as fiscal policy begins to tighten."

It's now more important to overpay your mortgage than ever before.

Overpaying your mortgage now could lead to a better deal next time you remortgage.

With the Bank of England base rate down to just 2%, many borrowers on tracker and standard variable rate mortgages will now be enjoying lower monthly repayments.

If you can afford to, you may already be making the same monthly mortgage repayments before the reductions of the last 3 months. This means you can overpay your mortgage without actually spending any extra money every month.

Overpayments allow you to do two things: clears your mortgage early, and save interest charges.

Overpaying is a good solution right now.

We all know the dreaded credit crunch has played utter havoc with the mortgage market. A couple of years ago, a 10% deposit or equity stake in your home would have been more than sufficient to secure a decent mortgage deal.

But these days the most competitive home loans are reserved for borrowers with a 40% deposit That’s one reason why it’s so important to get your loan-to-value (LTV) -- which is your mortgage loan as a percentage of the value of your home -- as low as possible. And the quickest way to do that is to pay your mortgage down as quickly as you can by overpaying.

Borrowers with a 60% LTV -- in other words, those who have a 40% equity stake -- could pay an average rate of 4.75%. This is 0.34% lower than the deals available at 75% LTV, and a whopping 1.67% lower than the average rate on offer to borrowers with just 90% LTV.

Having a 60% LTV is a good position for any borrower to be in. However, a 61% LTV normally puts borrowers up into the next category, making interest rates more costly, even though the difference in equity is just 1%.

When you next come to remortgage, you’ll put yourself in the best possible position for a competitive mortgage deal if you manage to get your LTV down. But the trouble is, as house prices continue to fall, reaching that all-important low LTV is becoming increasingly difficult.

According to research by Savills Estate Agents for The Sunday Times, even people who bought homes ten years ago could see the level of equity in their properties slump dramatically by 2010. These homeowners currently have 51% equity, but Savills reckons this could drop to just 25% (or a 75% LTV). If Savills are right, when these borrowers next come to remortgage, the best deals will no longer be in reach.

Indeed, brokers say the average LTV for borrowers who have remortgaged in the last three months is 51%. Right now these homeowners should be able to access the best mortgage deals, but it could be a very different story if house prices do indeed fall significantly by 2010.

So that’s why I think it’s really important to overpay your mortgage if you can. This will help you to combat reducing house prices and reach a lower LTV.

Even if you haven’t just had the benefit of an interest rate cut, it still makes sense for all homeowners to overpay. After all -- credit crunch or not -- the sooner you become mortgage-free, the better!

If you want to discuss your options, you can either telephone me on 08458 386938, or email me using the link above.

Historic interest rate cut

Bank of England cuts Base Rate to 3%

The Bank of England has made another emergency cut in interest rates, taking them to 3 per cent. With the UK recording a fall in economic growth of 1.5 per cent in the third quarter of this year, this emergency reduction is seen as essential to minimise the all-too-inevitable recession. Experts expects further rate reductions in coming months.


Tracking the Base Rate

With fewer than half of all mortgage lenders passing on the previous half-point base-rate reduction via their standard variable rates (SVRs), borrowers need to take care when re-mortgaging to another deal.

Lenders withdraw all Tracker products
Inevitably, all the major lenders have now withdrawn their Tracker products, those that had any left, and so there are no tracker products left on the shelf. They will now be pondering this situation and will announce a new range of Tracker products, probably early next week.

A discounted-variable rate may seem as good a bet as a base-rate tracker but discounted products are linked to the lender's SVR, which is set at its own discretion. As we saw last time rates were cut, there is no compulsion on the lender to pass on any of the reduction. A tracker is more transparent as the margin with base rate remains the same so your monthly mortgage payments fall accordingly.
Expect Fixed Rate products to fall shortly, but not having the full rate reduction applied. Lenders have to maintain the differentials to maintain their own liquidity margins.

Repayments soar at end of current fixed rate deals

Mortgage borrowers coming to the end of fixed rate mortgage deals this month could see their monthly repayments soar by more than £300, by my reckoning.

£30 billion of fixed rate mortgages are due to expire by the end of this month, and with lenders’ rates running at much higher percentage rates than previous years, many borrowers face a drastic increase in their monthly repayments.

On a typical two-year fixed rate mortgage signed in 2006 at a rate of 4.5%, repayments on the following loans would be £277.92 on a £50K loan; £555.83 on a £100K loan; and £1111.67 on a £200K loan. On a typical rate of 7.1% today, however, monthly repayments would increase to: £356.58 on the £50K loan; £713.17 on the £100K loan; and £1426.34 on the £200K loan.

Few people are actually aware that even a half or quarter per cent of an increase in interest rates can translate to £50 less in their pocket each month, so for the rate to jump up by 2% or 3% overnight could come as a big shock. The rates I’ve quoted are fairly typical of the current market, and whilst they represent a rise of 2.6%, this equates to a 65% increase in the interest payments.

If you are concerned about the above situation, as ever, I am able to lead you through the mortgage maze. Just use the links to the right hand side to make contact with me.