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Tracker or Fix in More Possible Scenarios

[ Posted October 25th, 2009 ]

After the Office for National Statistics said the economy contracted unexpectedly between July and September, expectations for rate rises were scaled back,  killing hopes of an end to the recession. According to the same sources gross domestic product fell 0.4%, against expectations of a 0.2% rise.

The Centre for Economics and Business Research, an independent consultancy, predicted that Bank rate could stay at its record low of 0.5% until at least 2011 and remain at less than 2% until 2014.

In its latest meeting The Bank of England’s Monetary Policy Committee voted unanimously against extending the quantitative easing programme, which has pumped £175 billion into the economy to boost growth. The decision prompted speculation about earlier rate rises.

David Page, an economist at Investec Securities predicts a 0.25 point rise at the start of 2010 with rates hitting 2.5% by the year-end, because of rising inflation.

However, the most likely scenarios are: “slow and steady” rate rising; “fast then flat”; and “fast and high”.

In “slow and steady” scenario, Bank rate starts to rise next July (with mortgage rates going up the following month) and climbs steadily thereafter, increasing 0.25 percentage points every three months until 2014, when it hits 4.75%. While borrowers would be paying a higher rate than the fix by the end, the tracker would do better over the five-year term spending less in the early part of the term.

Cheapest alternative is tracker, but, there is the benefit of an alternative , allowing borrowers to take advantage of better deals without penalty .

In the second scenario, Bank rate rises faster — by 0.25% a month from July 2010. With inflation taking off and the Bank of England trying to deliver a sharp shock to control it, this would be most likely.

Borrowers would have paid less in the early years, after which, the fix would be cheapest.

In the “fast and high” rising, bank rate is held until July 2010 and then rises 0.25 points every second month to hit 7%. The tracker would reach 9.24% by the end of the term and the SVR would rise to 10.5%

Expecting rates to rise faster, would be better off fixing now , but you will have to accept much higher repayments for the first few years.

What fixed-rate deals would be on market is a difficult prediction.

Borrowers Facing Unprecedented Uncertainty Over The Future

[ Posted October 25th, 2009 ]

In many instances

standard variable rate (SVR ) is lower than the rate that had been paid during the initial deal. That’s the reason for many borrowers whose current deal is coming to an end to choose between  taking out a new deal or moving to their lender’s SVR.

Sometimes the mortgages arrangement fee cannot be justified due to the risk of defaulting so it must be due to the risk of interest rates rising.

Asking yourself if you should  insure against mortgage hike? There is only one answer:

Unfortunately there isn’t  any insurance that will protect against a rate increase.

Choosing to move to your lender’s SVR for the time being you should consider setting up a savings account in which the difference between your old and new lower monthly payment could be saved.

This money can be utilised in a future event of a of a sudden rate increase, giving you a buffer,  while you are looking for a new deal.

The only way to ensure that your monthly payment remains the same, regardless of any rate increase, is to move from your current deal onto a fixed-rate deal. But, even financial experts can’t agree on the way ahead.

Borrowers are facing unprecedented uncertainty over the future path of interest rates, which means a tough choice between low-rate tracker mortgages and the security of more costly fixed-rate deals.

Accordinding with L&C the tracker would be the best choice in terms of total repayments over the five years if interest rates rose at a slow, steady pace, but the fix would be better if rates rose sharply.

 Homeowners with low SVRs of 2.5% should also stay put. The  research shows that on any SVR at 4% or higher you could end up paying more than on a five-year fixed rate by the end of the term (in this „steady” scenario) and should consider remortgaging.

New Rules for Second Home Owners About To Be Announced

[ Posted October 25th, 2009 ]

The Chancellor Alistair Darling will announce the Pre-Budget Report (PBR) next month. There are few tax changes for holiday home lettings, expected to take effect in April 2010.

Plans by the Treasury to change the system of taxation for holiday home lettings were first proposed in the small print of April’s Budget.

At that moment  the changes attracted little attention, but, opposition is growing as their impact has become clear.

As a result of changes, business analysts are expecting the move to hit an estimated 60,000 property owners who let out their second homes to paying guests for a substantial part of the year,  and 75,000 properties. Meanwhille officials have forecast that they will raise £20 million a year for the Exchequer.

They say knock-on impact could cost the tourist industry £200 million annually with the worst-hit in rural areas . Businesses will close and jobs will be lost especially in the West Country, the Lake District and parts of Wales and Scotland,  with high concentrations of second homes. Devastating consequences for the tourist trade are also expected.

 According to Toby Ryland, partner at Blick Rothenberg accountants, the financial implication could be almost unlimited for some investors.

"If you have a £100,000 income and make a £100,000 loss on rental income you can offset it all and so would pay no tax on earnings," he explained.

"It could be very large figure for people who have a furnished holiday letting as an investment secondary to their main income. The average loss is probably at least a few thousand pounds. The implications could be huge."

The change was justified by The Treasury  saying that the old taxation system, under which Britons who rented out holiday homes in the UK enjoyed greater tax benefits than those who rented out holiday homes elsewhere in the EU, breached European law.

Currently, under the furnished holiday letting scheme, landlords who rent out holiday accommodation in Britain are treated as traders rather than investors as long as their homes are furnished, available to rent for at least 140 days a year, and actually rented out for at least 70 days a year.

Following the changes such landlords will be classified as investors and the tax breaks will be taken away.



Mortgage Lending Market at a Turning Point

[ Posted October 24th, 2009 ]

After the Council of Mortgage Lenders (CML) reported a 2% rise in mortgage lending during last month, the chief executive of property investment firm Assetz, Stuart Law showed himself about the future of the property market. “If lending carries on rising at the rate we’ve been seeing for the last six months then prices will be back to their peak in 18 months time,” he said

According to the Council of Mortgage Lenders (CML) latest report, new mortgage lending increased during September at £12.5 billion. This means up 2% compared to August this year, but down 27% compared to September 2008.. 

But, Is the rise in mortgage lending a positive sign?

The CML prediction was that given the difficult economic backdrop lending is unlikely to rise any further

Despite of Mr Law opinion, Andrew Montlake, director of mortgage broker Coreco, was more restrained in welcoming the lending increase. He explained that: “While these latest figures hardly set the world alight, they do highlight the continued stabilisation in the housing market and some undoubted positive signs.”


On the other hand, Jones Lang LaSalle’s latest report shows that all-property total returns posted positive figures in the third quarter of 2009.

 According to Ian Fletcher, British Property Federation’s (BPF) director of policy:  “This could mark the turning point for the commercial property sector”. But, his assessment of current market conditions was rather cautious.
"Obviously any good news is welcome, but I wouldn’t say that we are suddenly going to see the industry rebounding quickly from the traumas it has faced over the last year or two years," he explained.

Mr. Ian Fletcher also suggested that the Jones Lang LaSalle report wich indicates that all-property total returns posted positive figures in the third quarter of 2009  is it also accurate in its prediction that rents will only start to accelerate in four years’ time

Improving in Buy-to- let Market

[ Posted October 24th, 2009 ]

The National Landlords Association (NLA) representative, policy manager Chris Norris thinks that an 11 per cent increase in the size of the average landlord’s portfolio over the last year is a positive sign meaning there are more home loans being made available.

According to the same sources, a recent research of the Association of Residential Letting Agents (Arla) relieved an improving in buy to let property market.

Mr Norris remarked that the reported rise in portfolio size from 6.3 to seven homes "demonstrates the resilience and counter-cyclical nature of private-renting that the NLA has long recognised".
The expert explained: “Experienced landlords are very keen to make new acquisitions."

Despite all these positive signs in buy-to-let business, as well as in the  almost intire property market, it is important for landlords to protect  their rental income by choosing a suitable insurance policy. Both Arla and the NLA have buy to let professionals urged to consider the various options available on the market. Especially landlords with buy to let mortgages are being warned to take out insurance to protect themselves from rent arrears. Landlords carry greater risks than the average householder, so, for they, making sure that are fully covered is vital in todays blame and claim culture. Insurance in buy to let business is essential to ensure that the investment and property portfolio are protected for the future. For owners of multiple properties it is wiser to ask a broker to look for a blended cheaper rate. On renewal, surfing the market should provide a robust policy that fits better the needs (say 13p per £100)

The NLA  research data relieved that about half of  rent arrears cases have occurred in the last year. Meanwhile the number of those without jobs in the UK grew by 88,000 from May, according to Office for National Statistics data.

House purchase lending on the rise

[ Posted October 23rd, 2009 ]

The flow of total net mortgage lending rose in August, with the annual rate of lending growth edging upwards for the first time since September 2007, according to the Bank of England’s latest trend report.

Research by Find A Property has revealed 55% of first-time buyers are utilising familial assistance of some kind to help them onto the housing ladder,. However, their parents often recognise that the market is beginning to offer good value to first-time buyers, starter homes have become significantly more affordable since the start of the year, and this may be the time to take the plunge .Recent data from the Council of Mortgage Lenders (CML) shows lending for home purchase has risen for the first time in over two years.

Mortgage approvals for house purchase were broadly unchanged in September, according to data from the major UK lenders. Effective mortgage rates rose slightly in August and mortgage credit availability was reported by lenders to have fallen during 2009 Q3, though was expected to increase in coming months. Demand for mortgages for house purchase was reported to have risen further.

New buyers now need to find £11,000 less than they did in early 2009 once they have arranged their mortgage from the bank or building society. At the lower end of the market, asking prices have fallen 3.7% since January, while further upmarket prices have continued to rise.

Michael Coogan, director general of the Council of Mortgage Lenders, said: “As we surmised when we published our September gross lending data, this report confirms that September saw a continuation of the two-speed mortgage market, with lending for house purchase continuing to increase but remortgaging remaining weak.

“However, funding conditions remain challenging, despite the encouraging signs of a slight thaw in wholesale funding markets. This report confirms our own assessment of market prospects – the most likely scenario is a slow and long-drawn out recovery."

Loans for house purchases rise to 2007 levels

[ Posted October 23rd, 2009 ]

According to the Bank of England’s latest Trends in Lending report, published earlier this week , revealed that the UK’s banks and building societies, which means a net balance of lenders, expect mortgage availability to rise “somewhat” during the final quarter of the year.

In related news, the Bank of England’s Trends in Lending survey, published earlier this week, expect the availability of mortgages to improve in the months ahead.

Related news shows mortgage approvals for house purchases by the UK’s leading banks were broadly unchanged in September, although demand was reported to have risen.

New mortgage approvals by High Street banks have now risen for the eighth consecutive month and the BBA claims that loans for house purchases have returned to a level last seen at the end of 2007.

Meanwhile, new mortgages cost more in August, with a typical rate at 4.3%, compared with 4.2% in July.

Commenting on the report, the Council of Mortgage Lenders (CML) says it confirms a continuation of the “two-speed” mortgage market, with lending for house purchases continuing to increase and remortgaging remaining weak.

Figures from the British Bankers’ Association (BBA) show 42,100 home loans sanctioned for house purchases, up from 40,100 in August and a 77% improvement on a year ago.

Other mortgage approvals “remained subdued” last month and the Association concludes that “households are generally cautious continuing to reduce their borrowing and build up deposits”.

However, the body’s statistics director, David Dooks, cautions that future housing market activity is dependent on more properties coming on to the market. Despite a dip in mortgage lending during the third quarter of 2009, banks and building societies expect the availability of mortgages to improve in the months ahead.

Lenders said they were more optimistic about the economy and housing market . In addition, falling default rates could contribute to a keener lending environment, although the bank says defaults are still expected to rise further.

Optimism among lenders apparently reflects their perceptions of a better outlook for both the UK economy and house prices.

First-time buyer enquiries reach all-time high

[ Posted October 23rd, 2009 ]

With housing affordability at its best level for six years, 70% of parents with children over the age of 18 believe now is the right time for their children to get on the housing ladder, according to Lloyds TSB.

One in four of these parents said they were keen to help their adult children take advantage of the current market conditions but just 8% felt they already had a savings pot large enough to help each of their children. On average, they have a total of £41,000 saved. 93% are intending to provide the same financial assistance to all of their children

Lloyds TSB’s Lend a Handmortgage lets parents use their savings without actually having to write their children the cheque. Their deposit is held in a savings account paying a competitive rate of interest and, after three years, they are free to use their savings again as they wish, maybe to help their next child buy their first home.”

After a rapid decline of first-time buyers during 2008, the number returning to the market is gradually beginning to increase. In January 2009 there were 8,600 first-time buyers compared to 19,200 in August. In the second quarter of 2009, first-time buyers accounted for 38% of house purchases.

Research by Unbiased, the professional advice website, has revealed first-time buyer enquiries reached an all-time high in September, representing 51% of all mortgage applicants

Karen Barrett, chief executive of Unbiased, said: “With over half of people searching for advice on first-time buyer mortgages, these figures suggest that many first-time buyers have been waiting to step onto the property ladder and now have regained interest. It appears many have been biding their time but now feel they are in a position to investigate what’s on the market and take the first steps by seeing a whole of market mortgage adviser to advise them on their mortgage options.

Stephen Noakes, commercial director of mortgages at Lloyds TSB, said: “The current housing market presents a real opportunity for first-time buyers, as long as they are ready to buy with a deposit. Housing affordability is back to the level it was in 2003, so many parents with grown-up children want to help them take advantage by using their savings”.

In light of the recent Financial Services Authority (FSA) proposals on a review of the mortgage market, there could be a future dip in enquiries from first-time buyers as, with increased regulation, mortgage lending criteria could become even stricter. While we welcome the protection that responsible lending will bring to consumers, it is vital that first-time buyers are still able to access the property market and get on the housing ladder through an affordable mortgage. Seeking whole of market mortgage advice will always ensure first-time buyers are able to find out what mortgage options available to them.

Rental arrears in buy-to-let business

[ Posted October 22nd, 2009 ]

In addition to the official figures on unemployment, the National Landlords Association (NLA) has conducted research showing that , despite low interest rates and a perceived improvement in the rental sector, nearly three quarters of landlords had experienced rental arrears during their respective careers.

We are not out the woods with the economy just yet: The Bank of England has indicated recently that it expects rates to remain low going into 2010. The small positive signs that we have seen in the housing market will not outweigh the depressing effect of continued job losses.

With unemployment reaching 2.47 million people in the three months to August, landlords with buy to let mortgages are being warned to take out insurance to protect themselves from rent arrears. Office for National Statistics data shows that the number of those without jobs in the UK grew by 88,000 from May – and the NLA has indicated that now is a good time for property professionals to consider covering their income.

But, how to do that?!  What landlords have to do when, eventually, realise they could protect themselves against rental arrears?! Nowadays, taking care of your money could become a rocket science job.

So, it is wise for the landlords to safeguard their rental income.

A rent guarantee insurance is a way for landlords to minimise the risk from loss of rent. An insurance covering legal expenses and, hopefully, providing also a dedicated 24-hour advisory service, could offer you much needed piece of mind.

Landlords are generally being quite cautious at this current time and are focusing on keeping hold of their tenants rather than thinking about raising rents considerably.

Don’t forget the importance of also taking full references and making checks at the outset of a tenancy. Thanks to redundancy and unemployment many tenants are still facing financial pressures, and some of they are struggling to pay their rent.

Keep in touch with your tenants it is a wise step to follow, too, because lots of problems should arise during the tenancy. If the tenants feel they can come to you if they are facing difficulties, you may be able to come to an arrangement before rental arrears become more serious.

Positive outlook for the commercial property mortgage

[ Posted October 22nd, 2009 ]

It has been suggested that "the principal recipient" of recent good commercial property news is the city of London.
There are signs that positive news for commercial property mortgage market are comming.

Clive Bull, head of central London investment at real estate advisor Cushman & Wakefield, said that there has been an increased demand for this type of property and most of it is coming from international investors who tend to look to the capital.

According to the same source, "the general feeling" within the commercial property industry is that rents and rent-free periods in the office sector are stable.

"On the good retail streets, rents are probably under pressure going upwards as opposed to downwards," he explained.

"Across the board you are seeing a greater demand for property," Mr Bull said. "It is international investors, but outside London there is big demand coming back from the institutions." Once they have taken out commercial mortgages or bought property in London, they subsequently move to the provinces, he added.

Earlier this month was reported that the number of top lenders in the UK which are willing to offer finance for commercial property deals has nearly doubled.

This positive outlook for the commercial property mortgage sector comes after October’s Investment Property Databank Monthly Index .

The research indicated that 23 financial institutions were willing to provide over £20 million for commercial property deals during the second half of this year,  which was 11 more than those prepared to lend over £25 million in the first six months of 2009, the largest rise since June 2006.

But, are the commercial mortgage holders seeing rents stabilise?

Those with commercial mortgages in London may be among the investors witnessing a stabilisation in rent levels recently.

"On the good retail streets, rents are probably under pressure going upwards as opposed to downwards," Clive Bull explained. aims to provide every client with cheap, affordable and best mortgage loans in the UK market, however the actual mortgage rate available will depend on client's financial circumstances and credit history. Although, has made every effort to ensure that the mortgage rates listed are correct, it bears no responsibility in case of an error. 
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