April 2012 Easter Newsletter We are now in the Easter break, that traditional spring time period when many people’s thoughts turn to a bit of Spring cleaning, home improvements and moving home. The mortgage market is still in a state of flux but there are some positive signs out there and we approach the house buying season this year with a lot of optimism A Happy Easter to all our clients!
Happy Birthday - 3 years at 0.5% It’s three years now since the Bank of England base rate rate reduced to 0.5% in response to the turmoil of the financial climate at the time. It has remained at that all time low without any sign of movement, the longest hold for 60 years.
This means that when the term of their fixed rate deal comes to an end they switch to the often cheaper SVR rather than re-mortgage on to another fixed rate product.
There are signs however that this option is coming to an end. Some lenders, most notably the Halifax and Bank of Ireland have announced increases in their Standard Variable rates. The Co-op are the latest to The drop in the base rate led to most lenders join the trend, recently announcing an slashing their Standard Variable rates (SVR) to increase their standard variable rate to fall into line with the new reduced cost of borrowing. The Council of Mortgage Lenders have 4.74% to take effect in May. pointed to an increasing trend for homeowners to revert to the ‘SVR’ especially those on former The standard variable rate is arbitarily set by each individual lender and can vary quite expensive fixed rate deals.
considerably. It takes into account not only the Bank of England base rate but also the cost of funding mortgages and the rates it pays to savers. It would appear that whilst the Bank of England base rate has remained unchanged, the latter two factors are the reason for the recent increases. The Co-op points to more ‘savvy’ savers who are shopping around for better returns which in turn is pushing up the cost of mortgages.
This appears to be also impacting on to new mortgage products being offered by the banks. In the last few weeks many mortgage lenders have been quietly re-pricing and increasing their fixed rate deals offered to new borrowers and further restricting their lending policies. We reported for example at the beginning of the year a return to 95% lending with one or two building societies starting to offer 95% mortgages to First Time Buyers - these have recently all but disappeared. Whether this worrying trend is set to continue, we shall see, but whilst the Bank of England base rate is likely to remain at it’s all time low for the forseeable future, general mortgage rates - it would appear - may not.
Interest-Only Mortgages RIP More lenders are now restricting their Interest-only mortgages to a maximum of 50% loan to value which means for many borrowers they are simply no longer an option. For many people, the Interest only mortgage helped provide a flexible option to buying a house by keeping monthly payments low, however lenders have been gradually moving to reduce the options for interest only mortgages at the behest of the FSA. There is no need to worry if you already have an interest-only mortgage because the changes apply to new mortgages only, however problems may occur if you need to borrow additional money for home improvements because this will be deemed a new loan and you will only be able to borrow around 50% of the house value, which in many cases will be less than the original mortgage. So for those who currently have an interest only mortgage, the net effect is they will be locked into their existing circumstances, unable to move or borrow for improvements unless they change to a Repayment mortgage. If you are in that situation then maybe now is the time to think about moving to a Repayment mortgage, whilst interest rates are still low. The longer you leave it, the less time you will have to repay the mortgage debt and the fewer options you will have in the future. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER DEBT SECURED ON IT
Insurance - a time to review? December 21st 2012 is not a date highlighted in many diaries - at the moment. But come the end of 2012 things will change in the world of insurance. The change is substantial and it does affect you. It’s probably the most significant change in the insurance industry since it’s inception 700 years ago. Insurance is all about pricing risk and the vast amount of information and statistics collated by the Insurance industry have revealed many interesting facts - men for example tend get less ill than women and so currently income protection and health insurance is cheaper for men. Women meanwhile statistically live longer than men and so their life insurance premiums are likely to be cheaper.
This is about to change due to the 2004 EU Gender Directive which outlaws discrimination on the basis of gender. For many years the Insurance industry fought hard to be made an exception to the directive however it lost its ability to opt out in March last year and will be obliged to put this into effect by - you guessed it - 21st December 2012. You might be forgiven for thinking that this will just equalise the cost of insurance, so for example life insurance will become more expensive for women but cheaper for men. Unfortunately that will probably not be the case. Early estimates show that the Insurance industry are going to have to put aside over £1 billion in capital to provide protection against the uncertainties of this new market. In addition there is a new tax structure affecting protection and this will also come into force at the end of the year. The net effect of this will be to push up premiums across the whole protection piece and some observers are predicting life insurance premiums for women could rise by as much as 30%.
So what should you do? Nip this in the bud. The new pricing should start to filter through towards the end of the year, so this is a good time to sit down and review your insurance. Life insurance premiums have been coming down over the last ten years so that policy you took out many years ago could actually cost you less on current terms, so maybe consider finding out if it is worth trading in that old policy for a new cheaper one. Consider what sort of cover you might need both at the moment and possibly in the next few years and bite the bullet - look at taking it out now. Generally people have protection for many years and saving yourself a few months premiums at the moment could be a false economy in the long run.
This year represents the Insurance industry’s ‘stock clearance sale’ and there will be bargains around. Make sure you don’t miss out and review while stocks last unlike certain furniture stores, the sale really does end on December 21st.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER DEBT SECURED ON IT
Mortgages
15 Duke Street Chelmsford CM1 1HL
Tel 01245 359536 enquiries@themaps.co.uk
MAPS Mortgages is a trading style of Hometouch Mortgages Ltd who are authorised and regulated by the Financial Services Authority. Number 306063