The Financial Blog

According to Moneysupermarket figures released yesterday there are £30 billion worth of cheap fixed rate mortgages ending in July and Over half of all homeowners whose mortgages end soon haven’t started looking for a new deal - not a good move.
 
July is set to be a painful month for homeowners with cheap fixed rate mortgages, with £30 billion worth of deals due to finish this month. A Moneysupermarket.com poll of site users reveals 51 per cent of homeowners whose mortmortgages deals end soon haven’t started looking for a new one.

The poll revealed one in six have found a new deal but that monthly payments will be so much higher they fear they will struggle with repayments. A further 18 per cent have struggled to find a new deal they can afford or will be eligible for.

Louise Cuming, head of mortgages at price comparison site moneysupermarket.com, said: “Many homeowners will be plunged into a borrowing underclass in July when their fixed rate deal comes to an end. Banks are cherry picking customers, leaving many people unable to find affordable deals to service mortgages taken out in better times, when they were plentiful and easy to get hold of.

“However, burying your head in the sand isn’t going to help. Anyone whose fixed rate deal is coming to an end should start planning at least three months before the product is due to finish.

“You should approach your existing lender to find out what ‘retention’ product they will offer you. This will give you a useful benchmark to compare against other offers.

“compare mortgage rates across the market to get a rough idea if there are products available to beat those on offer from your existing lender. If you need some extra guidance, a mortgage broker should be able to recommend products to suit your circumstances.

“If you are confident you know which product is right for you, and that you are likely to be accepted, make the application directly to the lender. However, it is always worth double-checking the sums are correct and that all the costs have been factored in.

“Once you have made your choice, move quickly. Competitive deals are being pulled with very little notice and many people have been missing the boat by waiting to see if better deals pop up. In today’s mortgage climate, a bird in the hand is worth two in the bush.”

>>Click here to compare mortgage deals now!

From today Alliance and Leicester will offer a new 2 year tracker mortgage to new and existing customers.

The 2 year base rate tracker mortgage

• 5.98 per cent - which is Base Rate +0.98 per cent, then Base Rate +1.49 per cent
• Customers can borrow up to 75% of the property value
• £999 product arrangement fee
• Maximum loan - £1 million
• Full flexible features

It’s good to see a fairly competitive interest rate with the added benefit of a reasonable product arrangement fee. I say ‘reasonable’; personally I think mortgage fees are a rip off becuase the lender is providing mortgages to people every day, at the very least I think there should be a cap on mortgage fees. However, in today’s market a fee under £1,000 is a good start.

It’s also quite a warning sign for me that all the tracker mortgages seem to have competitive interest rates and low fees at the moment, compared to fixed rate mortgages. I say this because industry experts are predicting interest rate rises in the coming months, no-one knows when exactly of course but I’d say interest rates will rise again before the end of 2008.

This means that everyone taking out a tracker mortgage now will end up with higher monthly payments by the end of the year.

It seems like lenders may be trying to attract new customers with the low fees and relatively low interest rates of a tracker mortgage rather than a fixed rate mortgage. No wonder the fees and interest rates of fixed rate mortgages are increasing - lenders don’t want people to take out these products so they’re pricing consumers out.

I suppose mortgage lenders are running a business and it’s up to them to determine the fees and charges they impose on customers. One thing is for sure though - you have a choice so make sure you research carefully before making a decision and seek professional financial advice if you’re unsure.

>>Click here to compare mortgages online and find the best rates

This isn’t good news for consumers in the midst of struggling property prices and the mortgage market seeing it’s worst time for decades.

Commenting om this Lousie Cummings, Head of Mortgages at price comparison site moneysupermarket.com, said:

“HBOS has waited until the exit fees debate has died down before sneaking in a more expensive charge.”

“When exit fees were under the microscope after last year’s FSA investigation, HBOS was hailed for reducing the controversial charges from Halifax Halifax deals from £225 to £50. Disappointingly it has now decided to introduce a fee of £245 just when borrowers are feeling the pain of increasing rates and the rising cost of living.”

“I urge HBOS to scrap this decision. Borrowers need all the support they can get at the moment, and more decisions like this from other lenders could shift the housing market from a stagnating slump into a fully blown crash.”

It seems to me that banks and mortgage lenders are using the ‘risk’ of lending in such an unstable economic climate as an excuse to pile on the fees; and now this new mortgage account fee has been dreamt up. The only aim of this and other mortgage fees is to line the profit pockets of mortgage lenders - they’re certainly not helping anyone but themselves.

Whatever next? I bet it won’t be long before you have to pay a fee just to submit a mortgage application, regardless of the fact it may be rejected.

>>Click here to compare fee free mortgages, find the best deals today!

I’ve never really thought about it quite like this but smokers are spending on average £170 a month if they smoke 20 cigarettes a day.

The health benefits of giving up are obvious but smokers could also make a fantastic financial decision. If a 20 a day smoker put the £170 monthly spend on cigarettes into a high interest savings account like the Abbey fixed rate monthly saver that pays 7.25 per cent Gross for 1 year, they could have built up just over £2,000 worth of savings in the last 12 months.

The 1st July 2007 was the first day of the smoking ban in the UK, and the anniversary should make smokers think very seriously about quitting and saving money.

Instead of spending £5 a day on cigarettes smokers could save £5 a day and use this money to overpay on their mortgage. Abbey says that customers could knock 8 years off their mortgage and save a staggering £50,000 over 25 years, in the process. Not a bad tip!?

Reza Attar-Zadeh, Director of Savings and Investments at Abbey said:  “It goes without saying that giving up smoking is not only great for your health but also for your bank balance.  Using the saving wisely could knock years off your mortgage”

>>Click here to compare mortgages and make sure you get the best rates

Mortgage expert at Moneyfacts.co.uk, Darren Cook, comments:

“As predicted by Moneyfacts, the average rate for 2 year fixed rate mortgages available on the market today breaks the 7% barrier and stands at 7.02%. Anyone looking to fix their mortgage for five years is also paying the price as the average rate on offer now increased to 6.82%.

“This increase is a result of the two-year swap rate reaching 6.52% last week. Any increased cost to lenders in arranging the funds on the money market is passed on to customers. Lenders are also taking an increased margin on top as they price their products for risk.

 ”The average SVR today stands at 7.02%. With most lenders not charging a product fee for moving onto their SVR, this is becoming a more viable option for many at the moment.

 ”As the rates on offer increase, so does the relative risk. More and more borrowers are likely to find the increased repayment too much to bear.

 ”These are continuingly worrying times for anyone coming to the end of their current mortgage deal. However, it seems not all is lost as there could be some light at the end of the tunnel for borrowers. Today, swap rates have decreased from its 6.52% high last week, by 0.16% to 6.36%. We hope that this recent downturn is not short lived and trust that lenders will play a fair game by reflecting this decrease in the rates that they will have on offer in the next few weeks.”

>>Click here to compare mortgages

>>Click here to find debt advice - If you’re struggling to keep up with loan or mortgage repayments don’t bury your head in the sand, speak to a professional adviser today.

Commenting on today’s figures from HMRC showing property sales plunging by 32 per cent compared to this time last year, Louise Cuming, head of mortgages at price comparison site moneysupermarket.com, said: ”The fact house purchases are stalling is nothing new but what comes as a nasty surprise is how far sales have plunged.

“The mortgage industry should bear much of the blame for the stagnation of the housing market as lenders have distorted the landscape significantly over the past 12 months. The mortgage market is unrecognisable today, with the sheer number of products decreasing every day - from more than 30,000 in August 2007 to around 5,000 today.

“In addition, the average cost of borrowing has risen steadily since December despite three base rate reductions. This has been particularly evident in the past month with a 0.25 per cent increase in the average two-year fix from the UK’s ten main providers since 26 May, including an increase of 0.11 per cent in the past week alone.

“To add to this worrying trend of more expensive borrowing, indications are that the MPC is now more likely to consider increasing the base rate to try and combat inflation. It almost doesn’t bear thinking about what affect this will have on homeowners’ pockets and their increasingly fragile confidence.

“Lenders have done a complete U-turn in respect of the risk they are prepared to take when lending, which is specifically affecting borrowers with little or no deposit or equity. This in turn directly affects first time buyers, who are the absolute lifeblood of the housing industry.”

>>Click here to compare mortgages and find the best interest rates

This is a good thing to see; with the ever increasing costs of living, Yorkshire Building Society is launching 2 new fixed rate mortgages that are simple, straightforward and designed to help people fix their monthly mortgage payments without fuss or huge fees.

From next Monday 23rd June customers will be able to choose from a 2 year fixed rate of 5.99 per cent with a fee of £1,995, maximum loan to value is 75 per cent; and a 5 year fixed rate mortgage, again 5.99 per cent with a fee of £2,495 and again a maximum loan to value of 75 per cent.

Some people may think that a fee of nearly £2.5K is on the hefty side but not when you consider some lenders are charging fees in the region of £5K. Also, the fees on both these fixed rate mortgages can be added to the loan, even if you use the maximum 75 per cent loan to value.

There are also free legal and valuation services provided for re-mortgaging customers.

Yorkshire’s product manager for mortgages, Tom Girling, said: “In the current environment fixed rates on both mortgages and savings seem to be rising every week, with some borrowers finding it very difficult to afford their mortgage payments. These new products have been designed to help borrowers manage their monthly budgets and at the same time provide peace of mind from the security that their payments won’t change during the term they have chosen”.

If you would like further information about these mortgages from Yorkshire Building Society call into any of the branches, call 0845 1200 100 or visit ybs.co.uk

>>Click here to compare mortgages and find the best fixed rates

New research from Moneyexpert.com reveals an alarming hike in mortgage fees over the last 18 months.

Before the credit crunch only 22 fixed rate mortgage deals had applications fees and these were from £750 upwards. Now 323 fixed mortgage deals charge a fee and Moneyexpert.com say that equates to 34 per cent of the fixed mortgage market in the UK.

It gets worse! - not only have the number of fixed rate mortgages charging fees increased but the fees have also rocketed. The average application fee was £517 in September 2006 but now this figure stands at an average of £860 - an incredible 66 per cent increase! The highest stipulated fee was £1,499 with a Halifax 2 year fixed rate mortgage for people with a 25 per cent or more deposit. Today the Halifax charge a fee of £3,999 for a 3 year fixed rate mortgage 3 year fixed rate mortgage for existing customers whose property is worth £500,000 to £2 million.

This seems like a kick in teeth for existing Halifax customers, you’re hit with a £4,000 fee as a reward for your loyalty, nice…

Director of MoneyExpert.com, Sean Gardner, said: “Such high mortgage application fees will come as something of a shock to many homebuyers. We’re just not used to these levels of charge.”

“Anyone looking to remortgage or to buy a property for the first time will need to recalculate their options if they haven’t factored in fees. The days of fee-free mortgages are over and frankly getting anything under £1,000 is something of a coup.  And with stamp duty reaching an average of £4,950 per property moving home is becoming more and more expensive.”

“Lenders are sick to death of risky borrowers and they won’t be taking any chances in the near future. That means high fees, high interest rates and very little manoeuvrability when it comes to negotiating your mortgage.”

>>Click here to compare fixed rate mortgages

I’ve found this peice of advice from Your Mortgage magazine, it’s due to be published in the magazine available from June 19th;

The value of a property (and the amount of equity owned by the borrower, versus the amount still owed to the lender) will only be important if the borrower wants or needs to sell their property or remortgage.

It is also important to remember that house price trends vary widely depending on where you live. Although prices are falling or slowing in the UK in general, that might not be the case in your street or local area. Get some estimates for the current value of your property from a number of local estate agents before worrying about negative equity.

For the small percentage of borrowers that are on such a deal, Pauline McCallion, editor of Your Mortgage, said: “If a borrower wishes to sell or remortgage, having a 100%/100% plus mortgage at the moment does not necessarily mean they will be in negative equity. If they took it out two or three years ago, such borrowers could have repaid enough to bring their loan-to-value (LTV) down to 95% or less over the time they have had their mortgage, in which case they should have no problem accessing a new mortgage deal.”

Remortgaging

“If a borrower has not repaid enough to bring themselves to this level, the chances of getting a competitive deal from another lender are slim. The vast majority of mortgage lenders are currently asking for a 5% deposit or more - meaning remortgagors need to be at the 95% LTV level. However, there are still options for such borrowers. Many of the lenders that previously offered 100%/100% plus mortgages, such as Mortgage Express or Yorkshire Building Society, offer those coming to the end of these deals specially-designed maturity products, so it’s always worth speaking to your lender before panicking if you are in this position.

“Those hoping to remortgage to a new lender may encounter problems, especially if they have a 100%/100% plus mortgage that comprises a secured loan (the mortgage) and an unsecured loan (such as, the Northern Rock Together mortgage). Moving the unsecured part of the loan could prove difficult, as criteria has tightened and rates have increased in this sector too, much as they have in the mortgage market.

“But leaving it with your current lender could result in a rate of SVR plus 5% or even 8%, a massive shock to any household budget.”

Selling

“If you have a 100%/100% plus mortgage and you wish to sell up, you will need to find out the current value of your property and work out how much equity you have. If you have not moved down below the 95% LTV mark, you may need to sit tight and remain in your home until the property market begins to stabilise and/or you have repaid more of the loan. Those in arrears may also encounter problems as they may be forced to sell and so could be left with a chunk of mortgage/unsecured loan that was not covered by the sale of their property.

“The small percentage of borrowers with a 100%/100% plus mortgage do need to consider their options very carefully in the current economic environment to ensure that they do not lose out financially. If you don’t have to sell up, it might be best to stay put for the time being. If you need to remortgage in future months, try and pay as much of your mortgage off as possible now and aim to have at least 5% equity in your property. You should also speak to your lender about its maturity products and work out how much extra it would add to your repayments to revert to your lender’s SVR.

“Panicking will do you no good at times like these. Work out your options, speak to your lender and even consider speaking to an independent financial adviser about what you can do.”

>>Click here to compare mortgage rates and find the best deals

For more information on this subject see the July 2008 issue of Your Mortgage magazine, available from 19 June.

Bradford and Bingley and Abbey have increased the interest rates on specific mortgage product ranges. Both banks say that this is all part of normal business activity.

The rate increases follow the recent rumours that Bradford and Bingley were in financial difficulty because they’d been hit by the credit crunch in the form of £36 million in charges from mortgage arrears.

Bradford and Bingley have increase the interest rates on 2 year fixed rate mortgages by 0.2 per cent. Their buy to let mortgage rates have also increased, by 0.45 per cent for variable rates and by 0.55 per cent for fixed rate mortgage deals.

Abbey has increased interest rates on it’s 5 year fixed rate mortgage deals by 0.26 per cent.

>>Click here to compare mortgage rates today