Is this the return of the 100% mortgage?

On March 18, 2011, in News, by Lewis Alexander
  • free credit report UK from ExperianMuch maligned for its perceived part in the credit crunch, the 100% mortgage may make a return in the UK during 2011 as a matter of necessity to avoid plunging the UK banks into further swathing write-offs for bad debt.

A serious concern for the Monetary Policy Committee and leading economic advisors is that by raising interest rates in 2011 (arguably required to control inflation and encourage economic growth) it will plunge many customers currently in negative equity paying standard variable rate mortgage rates into a position whereby they can no longer afford their monthly repayments.

Such an impact is considered too great a risk to the economic recovery as large volumes of customers defaulting and banks suffering from reduced profits will undermine the fragile confidence in the banking system.  Therefore, the government owned banks (such as RBS, Lloyds TSB & NRAM) are rumoured to be ‘under significant pressure’ to review their lending policies for mortgages.

Essentially the choice offered is stark – either offer existing customers a reasonable rate on a fixed term or risk having to write off £millions more in bad debt as mortgage customers find it difficult to keep pace with rising standard variable rates as the MPC hikes interest rates, as expected, during 2011.

As recent market responses to bank results show, large provisions for bad debt do not help support high share prices so this is something that banks very much wish to avoid.

Put simply, if the banks don’t come up with decent deals, then there will be more people struggling to pay their mortgage payments and thus repossessions will increase and there will then be more people queuing at the door for social housing and less people from ‘Alarm Clock Britain’ focusing on the big society.

  • Still with us? We hope so!
  • So what does it mean for you and I?  Well not a lot if you bought your house before 2005 and haven’t taken any further loans secured against your house.
  • If however you bought at the top of the market or currently have a loan to value of 95% and more, then this may be of concern.  Worrying about being able to meet your mortgage commitments is not a good place to be in, and actually being in or having mortgage arrears is worse.

Failure to keep up repayments on a mortgage or any other debt secured on your home may result in you losing your home through repossession!

As debt management specialists, we may be in a position to help you change your current unsecured debt repayment arrangements to reduce the impact that an increase to your monthly mortgage repayments would bring.

Help is at hand and here at Lewis Alexander as we have personal debt specialists available to try and help you.  If you are in a position whereby your household finances are carefully balanced and any increase in your mortgage rate would cause a real difficulty then call us on FREE today using 0800 018 6868.

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Are low UK interest rates a ticking time bomb?

On December 27, 2010, in News, by Lewis Alexander
  • Interest rates in the UK have been held by the Bank of England’s Monetary Policy Committee at an all-time record low of 0.5% since March 2009. 
  • For many on variable rate or tracker mortgages, this has meant some 21 months of financial heaven, with reduced mortgage payments or the opportunity to pay down some of the capital. 

free credit report UK from ExperianFor many, it has represented a welcome breather from the sky-high mortgage payments, but for those who have not budgeted properly, any rise in UK mortgage rates could prove a nasty financial surprise during 2011.

Without wishing to go into the long (and frankly boring) relationship between the Bank of England base rate, the rate that banks lend to each other (LIBOR), how banks actually fund mortgage lending and mortgage rates themselves, instead this short blog post will focus on what this means for general vulnerable consumers.

  • In the pre-credit crunch world, mortgage rates tended to sit between 0.19% and 1.69% above the Bank of England base rate.  So, with base rates sat at 5%, mortgages were commonly available between 5.19% and 6.69%.

Now, despite the government offering significant financial support to the UK’s retail banks and also pumping billions of £ sterling into the economy through a policy of quantitative easing, the difference between the BoE base rate and mortgage rates is significantly higher.

At the time of writing this post, the BoE base rate is still set at 0.5% and according to a very well known animal-friendly comparison website “compare the market” mortgage rates for comparison varied between 2.3% and 5.9% – as much as 5.4% above BoE base rate.

Whilst this is a very crude measure (as mortgage rates are impacted by costs of application, valuation and arrangement) it is clear that the cost of borrowing to the everyday man in the street is higher. 

If there are interest rate rises during 2011, customers on variable or tracker rate mortgages would not need to see rates rise massively, before their mortgage payment is back to pre-credit crunch levels.  Indeed if Bank of England base rates were to return to close to 5%, this could cause considerable problems for many households.

  • Is there anything that you can do to prevent this situation from affecting you and your family, to avoid getting into financial difficulties?

Well, a good start would be to review your household incomings and outgoings to understand exactly where money is being spent.  Here at Lewis Alexander, we have in house debt management experts who have considerable experience in working with consumers to help them solve personal debt problems.

  • And in our experience, many financial difficulties can be avoided through sound financial planning. 

Having understood your household budget, if you have any surplus available, then rather than spending your entire income, it would be worth investigating savings options or the flexibility of your mortgage.  By building up your savings, or by over-paying a flexible mortgage you may be able to build up a pot that will help you cover the rising cost of your mortgage should interest rates rise significantly in the coming year.

The most important thing to remember is that interest rates will have to go up at some point if inflation continues to rise.  It is also worth remembering that the spare income you may have now is not actually spare, it is an extra disposable gift for a certain time that you should take full advantage of as when interest rates do increase that gift will seem somewhat in the far and distant past!

  • Some people are being careful and taking advantage of the reduced rates others are not!

If you are not able to budget for this rise in living costs, and you have other unsecured debts that you are struggling to repay, then don’t worry, help is at hand! One free call to our debt management experts at Lewis Alexander can be the start to a less stressful and healthier financial existence.  We start by understanding your financial situation, before recommending a financial solution that is appropriate to your personal circumstances.

At Lewis Alexander, we are able to help a wide variety of ordinary people who are experiencing financial difficulties so long as they have a regular income and the self discipline to stick to a debt repayment schedule.

  • Call us free using 0800 018 6868 to discuss your personal situation with one of our personal debt specialists.  Our lines are open 24 hours a day to take your call in confidence.
  • One call could change your financial future, so make that call today!
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