Personal Finance

The latest figures show that over the past month homes in England and Wales, have decreased in value by 1.2%. This makes a total of a 4.4% decrease over the last 10 months. This is the fasted rate of decline since the index was launched back in 2001. Many home owners are feeling the pinch but good news for those needing a remortgage, as last week several high street retailers cut their rates. For more information on the rate reductions, you can speak to a professional adviser through our partner site www.cosmicremortgage.com just complete an enquiry for for a call. back.

Recent figures published by National Association of Estate Agents has shown the number of first time buyers entering the property market has increased by nearly 12 percent over the last month. This time last year the figures were only 8 percent.

Many first time buyers could be taking advantage of the decreased house prices, those in good jobs and have a deposit are likely to benefit from attractive mortgage deals such as those sourced by www.cosmicremortgage.com.

Spanish bank group Santander, who currently own the Abbey, have reached an agreement on a takeover for Alliance and Leicester. The acquisition is subject to FSA and the Bank of Spain approval and is likely to take place in October 2008. Alliance and Leicester shareholder have been offer one Santander share for every three A&L shares they have.  

A&L customers can expect to see a change in how the bank is run as Santander plans to combine A&L and Abbey services to benefit customers.  

Following yesterday’s announcement that the base rate is being frozen at 5% many would expect the mortgage market to react by keeping products at the same rate, however many lenders have decided to continue increasing their fixed rate deals. Less than two weeks ago you could get a fixed rate product with an arrangement fee of under £1,000, free legal and valuation fees on a rate of 5.99%. Now for a similar package you are looking at a rate of 6.24%. On a £100,000 repayment mortgage over 25 years this is an increase of £180 per year.

As the base rate has not changed why have the deals gone. Lenders are still making their profits on the difference right? …….. Wrong.  Many lenders base their product rates on several key factors, only one of those is the base rate. Available funds are earmarked at predetermined rate. Once these funds have been used up the products are withdrawn and rates are changed with the next product launch.

Calls have been made for the government to step in and offer relief to lenders but as of yet no action has taken place. One of our trusted brokers from www.cosmicremortgage.com commented. “The government have to act fast. A few weeks ago Gordon Brown had a meeting with lenders to pass on the rate savings when the base rate was lowered, but since then rates have increased.”  ”More has to be done by the government to support lenders and promote affordable housing, to prevent a greater economic downturn.”

Many are finding that they are strugelling to afford mortgages and bill repayments. If you fall into this category you can find out more information on debt from www.grhdebtadvice.co.uk .

The 1st of July 2008 saw the deadline for registration with the HMRC if you provide services in relation to the following areas: 

The 2007 anti money laundering legislation (part of the anti terrorism act) requires businesses who deal with the transfer or recording of monetary transactions to be registered. The current fee from the HMRC stands at £95 and this is multiplied by the number of premises traded from.

The majority of Book keepers have no professional qualifications, so are unaware of the current ruling. People who fall into this category are small businesses who handle their own accounts, or have a friend or relative sort them out. Inadvertently these people are now breaking the law and could be detained up to 42 days under the anti terror rules.

Many see this process as a way for the government to get yet more revenue from small businesses. A Director for one of our partner company’s commented “The small business does not have much choice in this matter, £95 a year is not a huge sum of money, but if you add this onto other taxes and charges it soon mounts up.  It’s either pay the registration fee or find an accountant that is registered”.

For a small saving it may be worth non-registered book keepers, looking into membership of some professional bodies. For subscriptions from as little as £25.50 a year the IAB are approved by HMRC and offer a range of training courses.  

Details for registration can be found on the HMRC’s website at http://www.hmrc.gov.uk/mlr/bus-areas.htm 

Last month saw building societies receiving inflows of £853 million. Investment has not been this high since 2002. This reflects the market conditions with savers eager to reap benefits from high interest accounts currently on offer. This could also indicate that savers  may be losing confidence in the market and are switching their investments from higher risk areas such as the stock market and some investment funds to the less risky building society accounts in order to safe guard their capital.

In contrast lending from building societies has fallen, reflecting the current market “credit crunch” climate. Despite this house prices in some regions although falling have not dropped by as much as previous months. A broker on behalf of www.cosmicremortgage.com commented “some areas have seen house prices fall but not as dramatically as others. This is due to supply and demand. People are still wanting to purchase their own property and are taking advantage of the lower cost of housing. Those that are able to get a mortgage are still doing so in order to move in to their dream home”.

UK lenders are starting to make it more difficult to get mortgages but making their lending criteria more strict. Last month saw a record low on mortgage approvals at 27,968 for house purchases dropping from 34,752 in April of this year. This is a sign that lenders are tightening up on the amounts they are willing to lend.

People are spending more on credit cards to help free up money to meet the increasing costs of their mortgages. However This can lead to a downward spiral. Credit card borrowing is not recommended as if you are only meeting the minimum repayments with interest charges it can take over 40 years before the debt.

If you are experincing debt problems act now don’t let your finances spiral out of control.

Protecting your income is essential during times where the economy is experiencing a down turn. If you find your self in negative equity and are not able to repay your mortgage as a result of an accident or job loss your situation can get from bad to worse. If your home is repossed the lender can still chase you for the difference between the house sale proceeds and the mortgage balance plus associated costs, if you are unable to pay them you may find your self facing bankruptcy.

In order to avoid not being able to pay your mortgage www.cosmicassurance.com recomends looking at getting income protection.

What is income protection?
Unlike mortgage payment protection policies or payment protection policies income protection provides long term cover. The term of the policy usually covers up until retirement or at least to the end of the mortgage. During this term you can claim as many times as necessary and as long as the premiums are guaranteed not face a premium increase. For example say you fall ill in year two of the policy which has a 20 year term. You put in a claim and recieve a tax free monthly pay out of the assured amount. After a year you get better and return to work so the policy stops paying out. But in year 5 of the policy you have an accident this time you are unable to work for 6 years. The policy pays out the monthly benefit again for the duration of this period.

I have got mortgage payment protection insurance isn’t this the same as income protection?
No, there are several important differences between the two types of cover:
The maximum term MPPI or loan PPI pays out for is two years, on most policies it’s just one. If you are unable to work for longer than this period you will be o.k for the first year or two but beyond that you are on your own. One case that a broker for www.cosmicremortgage.com recals; I was called to a young couple who needed advice as they had problems affording their mortgage, the origninal broker who got them the mortgage sold a MPPI policy. Unfortunatley one of the couple who was also the main bread winner became seriously ill and was unable to work for the last three years. The policy allowed them to repay their mortgage in the first year, but during the following years when the benefit stopped, mortgage payments were missed. The couple were in a poor financial situation and sadly had to sell their home to pay for the mortgage and other debts against them. With no continued income at a suffcient level, and no local family the couple ended up in corporation housing in a rough area. I often think to myself that if the couple took up income protection they would still be in their private home with the mortgage still being paid.

The other important difference is with MPPI if you make a claim, on the policy renewal the chances are you will no longer be covered for the same condition again. For example say you fall ill with chrons disease you get your payment for the first year you then recover and return to work. 3 Years later the chrons reoccurs, this time the MPPI policy has an exclusion for chrons as you had it before so no pay out. 

If on the other hand you had income protection for a 20 year term and got crohns 3 years later you would get a pay out again, even if you recovered and 2 years further on down the line the illness reoccured you still get the monthly payment.

Hasn’t MPPI and PPI got some bad press?
Recently payment protection insurance policies that were sold with credit cards, loans and some mortgages have been criticized as a lot of the time checks by the providers are not made to see if the product is suitable and can fail to pay out in the event of a claim.

MPPI and PPI attached to a loan or mortgage should cover the montly payment for that produt, however there is a rule (often overlooked) that the total montly benefit paid by these policies is capped up to 70% of the individuals income. For example if you earn £,1000 per month have a mortgage for £500 and loan repayment of £300 if you are unable to work the maximum payout you can get is £700 each month you will be short £100 so you are paying for £100 worth of cover you are not using. Another broker for www.cosmicremortgage.com recollects “Clients that I recommended a mortgage and income protection for were full covered, however on a follow up visit two years later I noticed that they had taken up a loan with PPI cover just over a year ago. Since the income protection was at the maximum benefit I explained to the client that the loan protection that had been paying £15 a month for over the last year was a waste of money as it would not pay out.”

As the proper check were not made on the sale of the loan the brokers clients were out of pocket this is where the bad press has come from. 

You can get a quote or find out if policies you have for payment protection will pay out by completing a quote form at www.cosmicassurance.com/quote.html.

Economists expect an 11 to 20 percent fall in house prices over the next two years, with 95 percent of top city economists are not suprised by the current market conditions.

This fall could leave many in negative equity but what are the real implications of this? In conjucntion with a leading U.K mortgage broker www.cosmicremortgage.com has put together this survival guide.

What is negative equity?
Negative equity is where your mortgage amount is greater than the value of your property. For example Mr and Mrs X bought a house one year ago for £160,000, they had a £5,000 deposit and got a mortgage for the remaining £155,000. The mortgage represented approximately 97% of the value of the property so their equity was the 3% deposit. Lets say that their house has devalued by 5% from when they purchased and is now valued at £152,000 the interest only mortgage is still at £155,000 so the negative equity, or the money lost if they were to sell their house now is £3,000.

What happens if you are now in negative equity?
If you continue to meet your mortgage repayments usually nothing will happen if you are in this situation, so don’t panic. The only issues could be if you are looking to remortgage with a different company or need to sell your home. 

What are the options?
Going back to our example lets say that Mr and Mrs X had a one year fixed deal that has now expired and they are currently on the lenders variable rate. They find that the maximum remortgage they can get is 97% of the current value of the property. This leaves a short fall of £7,560 (new remortgage of £147,440 less current mortgage of £155,000). In order to get a remortgage they would need to get a product that is 102% of the value of their home, a product of this at this level is currently not available on the market.  
In the case of the example unless Mr and Mrs X have the £7,560 that they can put into the mortgage they are probably better off accepting a new deal from their current lender, as they have built up a track record of regular payments the chances are the lender will continue to provide the mortgage at the same amount. Mr and Mrs X  could also consider getting a loan for the £7,560 providing it is affordable the remortgage lender could accept this, however they would need to ensure that the figures fit as there is no point paying high interest on an unsecured loan if their existing lender can offer a better deal than the remortgage payment plus the loan.

What happens if I need to sell my home?
If you look at your property as an asset and you need to sell you home you will be faced with a loss. If you are a buy to let investor this loss can be offset against tax but as your main residence this cannot occur. Selling your home would mean that you would have to pay the mortgage company the difference which if you use our example could be upwards of £10,000 after you take into account selling fees and legal costs plus possibly the HIP cost. So if possible stay put for the next few years.

I had a Northern Rock Mortgage of 125% and the deal is due to expire, also my house has fallen in value what can I do?
The Northern rock product was a split between a mortgage usually up to 95% of the property value and an unsecured loan which made up the remainder. Lets look at another example and say that Mr and Mrs Y took up a 125% mortgage. The house was valued at £110,000 total borrowing is therfore £137,500 the split would be mortgage amount of £104,500 unsecured loan of £33,000. Depending on how you look at it the couple were in negative equity of £27,500 straight away, however you could argue that they have 5% equity in the home as the £33,000 is unsecured against their property and could be looked upon as a personal loan. If the property value falls by say 2% to £107,800 the secured mortgage represents 97% of the value of the property therefore it is possible if they can keep the secured loan of £33,000 and it is affordable they could remortgage onto a better deal. However if the situation is that the property falls by 5% remortgaging  is not an option. The unsecured loan element may also be a problem because once the deal expires it can be up to and over 11% apr. In these circumstances you may wish to speak to a professional for individual advice such as those found by www.cosmicremortgage.comas there are a range of options you could consider but may need advice in selecting the best one. In brief your options could be to pay off the unsecured loan with another loan at a better rate, borrow extra money to remortgage and then restructure you finances with a secured loan still available up to 125% or if repayment are too much consider debt management. Again if you are in this situation it pays to speak to a professional.

Conclusion
If you are able to stay in your home and continue with your mortgage repayments for the next few years it is likely you will be able weather the storm and in the long term see your property value increase again. If you do have problems making your mortgage and loan repayments there are still a range of options as discussed.

Government ministers and the council of mortgage lenders are looking at forming a national mortgage rescue scheme.

The scheme will involve the council of mortgage lenders working closely with local government, the national housing federation, housing associations and the housing corporation to develop solutions for at risk borrowers who may find themselves in difficulties paying their mortgages.

A spokes person for www.cosmicremortgage.com commented “With arrears and repossessions on the increase setting up a scheme of this nature is a good thing for at risk borrowers. Hopefully the government will act quickly to implement this scheme.” 

Currently there are alternatives to repossession as reported in  our guide to finding the right debt management company so as long as the new scheme can put borrowers in a better situation it will be eagerly awaited.