UK Personal Finance

A report from the Citizens Advice has shown that it could take, on average, 77 years for people asking for advice from the charity, to recover from their debts. This is because the people asking for help were on half of the national average income.

It seems that low income, combined with poorly informed and badly understood financial decisions are a main cause of debt problems. The charity reported that people were faced with a “lifetime of poverty” caused by the burdens of debt. With many people unable to afford the fee to declare bankruptcy.

Citizens Advice have reported that the number of people seeking advice with their financial problems have doubled in the past eight years. Many people seem to be stuck in the repetitive spiral of low incomes and very high debts.

Citizens Advice has called on the government to introduce Debt Relief Orders (DROs). DROs are intended for people on low incomes, who owe less than £15,000 and have very small assets. They would work like bankruptcy, although they would be very low- cost to initiate. The DROs would be intended to provide reassurance to those unable to afford other debt solutions.

It has been reported by the National Housing Federation that house price will rise by 40% in the next five years, breaking the £300,000 barrier.

The boom may accordingly provide reassurance for homeowners as they could profit from the increase, however there could be nasty consequences as parents may face paying their children’s mortgages. This may cause considerable problems for first time buyers as they could experience considerable personal and financial costs, reports have shown from the National Housing Federation who represents 1,300 housing associations. A generation of first time buyers may be stopped in their tracks as house prices reach exceptional figures.

Oxford Economics have researched Home Truths, which have detailed the current housing market as “distorted and dysfunctional”, showing that the average house price is eleven times the size of the average annual salary and has revealed that four million people are on waiting lists for social housing.

It has been argued that the increase in buy to let properties and second homes is undeniably contributing to the overvaluation of housing.

The government published a green paper , in response to the housing crisis, last month, in which it stated that plans were being made to build numerous three million houses by 2020, 70,000 of these new units being homes for key workers and lower income families. It is clear that the current housing problems are set to stay with Britain for a long time. Recent pronouncements from Gordon Brown have shown a step in the right direction for house buildings and it is now crucial that minister’s promises are delivered to help the current situation.

Reports have shown that the areas that will be hit hard by the boom are the south- east, revealing that the average house price will hit £392,900 com-pared with £247,762 which is the current average. The east will also reach prices of £340,200 against £211,880 which are the averages prices at the moment.

The reports forecasts that there will only be seven areas in England where the cheapest homes cost less than four times the average local salary;

• Barrow
• Burnley
• Hartlepool
• Hull
• Pendle
• Stoke- on- Trent
• Wansbeck

The report shows that in London the average house price will have reached £478,300 compared to the current prices of £318, 864.

London seems to be attracting particular attention from investors in countries such as France, Italy, Russia and Saudi Arabia, who are looking for properties for letting purposes rather than permanent residence.

The report advisors the Government to continue to increase its investments in preventing homelessness and to continue to support the regeneration of England’s most deprived housing markets by investing £400m a year in low- demand areas.

The number of first time buyers, looking for there first home, has fallen at the fastest rate in over three years.

The Royal Institution of Chartered Surveyors (RICS) has reported that searches from first time buyers decreased in July and the number of unsold houses rose.

It is thought that aspiring First time buyers are continuing to rent until the market movement becomes clearer.

 Interest rates have risen to 5.7% causing a failing demand in the property market.

House prices continued to increase for the 21^st month in a row, in July, RICS reported.

As the Bank of England’s Monetary Policy Committee attempts to rein in inflation, analysts are expecting interest rate to increase to 6% by the end of the year.

The RICS report was revealed a day after Government figures show that UK house prices were 12.1% higher in June than the previous year. The growth was the highest since March 2005.

According to the Department of Communities and Local Government the average UK house price rose from £210,793 in May to £214,222 in June.

Which? A consumer group, released information that the 4 big high street banks were not keeping up standards when compared to internet and phone based counterparts.  Barclays, HSBC, Lloyds TSB and NatWest are all on the bad list when it came to the results of a survey of 4,680 of consumer organisation’s members, which asked about how happy they were with the banking society.  61% of the people questioned banked with one of the 4 high street banks, but still scored very low for customer satisfaction.  Which? Adds that interest rates available where also very poor; with most banks only paying 0.1% on credit balances.  This research comes after many banks reported a higher profits for the past 6 months, showing higher levels of satisfaction amongst their customers. 

Interest rates of 2% and 3.04% offered by First Direct and Smile, had the most satisfied customers.  The happiest customers on the high street where found at, Halifax, Nationwide building society and Alliance & Leicester.  The full results of this survey where published in Which? Money last month.  Martyn Hocking, the editor, explains that its time to move banks if people are still with one of the 4 big high street banks.  Many internet and telephone banks seem to treat customers better and people would be able to find higher interest too.  A third of all Which? members stated a better interest rate was why they had moved banks; where as the other two thirds stated they had switched due to the poor service; 72% of the people who have switched have stated that it was easy to change and get better service.

A recent survey by Nationwide has shown that the effects of the higher interest rate are causing the growth in house prices to stall. In June house prices grew by 11.1%, in July prices grew by only 0.1%. This has therefore cut the annual rate of growth to 9.9%.

This has been surprising as in the past three months house prices have been up by 2%, compared to the three months before that and down from Junes comparable figure of 2.2%. The survey has shown that house prices should be lower in the second half of the year.

The Bank of England has raised interest rates five times this year in an attempt to decrease inflation. The Banks key rate is now at 5.75%, it believed by analysts that the rates will reach 6% before the end of the year.

Consumer spending and house prices should slow down in the second half of the year. The sharp slowdown in house prices in July may show that homebuyers will start to think twice before straining due to the higher interest rates.

With Housing being top of the political agenda, currently, Prime Minister Gordon Brown has planned to provide more long- term, fixed rate mortgage deals as an important measure to control the potential affordability problems.

It was in fact, Mr Brown, as chancellor in 2003, asked Professor David Miles to report on why there were not very many long- term, fixed- rate mortgage deals available on Britains market. Mr Brown had said that if there were more of these deals around they would help to iron out the problems with the volatile property market.

In 2004, Professor Miles did seem to agree with the idea that more long- term borrowing would be a better thing but only if it could be made cheaper.

Mr Brown does still wish to make fixed- rate deals more commonly available with house prices on the increase and the ever- increasing problem that first time buyers are faced with. Industry experts are not sure that Mr. Brown’s solution will work as expected.

Mr Brown wants to make it possible for banks and building societies to borrow more money from the financial market.  Formally known as covered bonds, the theory behind these is actually quite simple. The bonds are basically a more complex version of I.O.U’s, these are issued by companies and the government as an alternative to putting up taxes or borrowing from a bank. A covered bonds eventual repayment is secured by a mortgage. The bonds can be issued directly by the lenders (banks or building societies), by companies, or the government. The bonds back their own lending having been bought by the lender.

The Governments subtle idea to effectively increase the availability of covered bonds, that can then be used to finance long term mortgages can be offered to the public. Another idea is to allow building societies to gain more money in the financial markets to improve their ability to lend. This would also bring Britain into line with the EU measures, the way that UK companies account covered bonds on their balance sheets- making it easier to issue the bonds in the first place.

Therefore, this should allow house buyers to borrow more money from the lenders in the form of 15 to 25 year mortgage products.

It has not been obvious as to how these plans for longer term deals will, in fact solve the house price situation. The reaction from the industry experts is showing a certain amount of scepticism. The overall benefit for consumers for long- term, fixed- rate mortgages is not quite known. These deals have been unpopular in the past due to interest rates on the mortgages being substantially high.

It seems people in Britain are not to keen on the idea of tying themselves to such a long term deal.

According to the Council for Mortgage Lenders, mortgages that are fixed for five years or more account for 8- 10% of new mortgage lending. Only 25 lenders offer a 10 year deal, four lenders offer a 15 year deal, two offering a 20 year deal, three offering a 25 year deal and only one offering a 30 year fixed rate deal. This is quite a contradiction when compared to the US and EU where long- term, fixed rate deals are very common.

However, making these long- term, fixed- rate deals commonly available on the market will not necessarily mean consumers are more likely to ask for them. The consumer’s appetite for these deals is just as important as how these deals are funded. These changes are in their infancy and it is too early to say whether there will be a shift in the market to the long- term deals.

With interest rates on the rise customers have been seen to choose fixed rate deals, in the past year, as borrowers have sought to protect themselves, against possible increases.

Fixed- rate deals are currently used by 89% of first time buyers and 73% of homeowners that have moved. In total, almost half of mortgage deals are fixed rate in one shape or another, however, most being of the two- four year variety.

It seems at the moment homeowners are unlikely to commit to a long term mortgages, they normally consist of 5 years, let alone 25 years.

A recent survey completed by Halifax has shown that in the last three months up to June, house prices in London have risen by 4.9%, taking the average house price up to £3000, 000 in London.

The survey shows that this means that the capitals average house price is above the threshold for inheritance tax, currently at £3000, 000.

According to the survey house prices are rising fastest in Northern Island. There has been a rise of 8.5% in the same three months and an increase of 47% in the past year.

As well as the rise in house prices reaching the inheritance tax threshold, the recent rises has pushed the average prices above £250, 000 watermark for 3% stamp duty, for the South East.

Due to the governments continuing failure to increase the inheritance tax and stamp duty thresholds, the typical homebuyer in London and the South East will be forced to face the oncoming tax burden, caused by the current house inflation.

With house prices accumulating in Northern Island, it has been a sudden change in the last two years. With the average house costing in region of £229, 000 it is the most expensive area in the UK outside of London and the South East. Two years ago Northern Island was the second cheapest region in the UK.

At present there are eight towns listed at the top of the list where house prices have risen, in Northern Island. The cost of a house or flat in Newtonards has ascended by 64% in the past year- to £228, 000. This has been followed by various house increases in Craigavon, Newtonabbey, Downpatrick, Carrickfergus, Belfast, Lisburn and Newry.

The survey has shown that this regional expansion was due to a strong economy, immigration and constant pursuit from second time homeowners.

Halifax have raised there house price forecast for this year from 4% to 6%, even thought the interest rights have increased rapidly.

HBOS group which Halifax is part of, made this dramatic change after House Prises rose faster then the year has expected; this is due to stronger economies and shortages of new build.  Even though Halifax have decided to change there forecast Nationwide Building Society are sticking to there guns at between 5% and 8%, this is despite the rise in the property market in the past 6 months.  Halifax have released that prices are now easing.  Martin Ellis explains an increase in mortgage rates have had a large effect on housing affordability and will increasingly bite over the next 6 months.  Nationwide Building Society agrees with this statement.  Fionnuala Earley explains that they believe that house price growth will fall from 11% to between 5% and 8%.

The main borrowing cost has been raised 5 times in the past year by The Bank of England to 5.75%.  The effects of higher rates are filtering through slowly.  In June a new record was reached by the amount of Mortgage Lending according to CML.  Despite 5 increases in the interest rates, the total lending rose by 9% to £34.2bn in May.  CML explained as this is the peak time for house buying the rise was seasonal.  CML added fewer people would move house, while more would re-mortgage, as borrowers begin to fix there mortgage rates.

In a bid to solve a potential affordability crisis, it has been suggested by the government that there should be an increase of long- term fixed rate homeowner loans, available on the market today.

Some money analyst’s feel that this is a broad solution to tackle the uncertain affordability problem, and it certainly could prove to be a difficult decision for lenders. There are only 141 products out there on the market that offer a fixed rate of ten years or more, most of which being restricted to ten- year- terms for current borrowers. This area of the market is still in its prime and is showing growth, however there is only a 6% section of fixed rate products available on the market.

While some long term packages can provide contentment for borrowers, there may be a potential consequence if rates fall as customers may be left paying a higher level of interest.

Recent hikes have been made by The Bank of England Monetary policy committee which has increased the interest rate to 5.75%, this has been the second increase in three months and the third this year.

From figures released this month Mortgage Lending is the highest it has ever been as a reaction to the new Interest Rates.  In June Mortgage Lending raised to £34.2bn, a further 9% then the previous month.  In effect Homeowners sought to lower their costs by Remortgaging.

Mortgage approvals grew as a result of this and many people were coming to the end of their Short-Term Fixed-Rate deals.  CML explained lending figures were still Lower Rate then this period last year where it increased to 12%.  CML went on to say although strong levels of lending were expected in autumn; this driven by Remortgaging was expected to make the number of home purchasing to fall.

CML’s director, Michael Coogan, explained that there might be signs in the market for the cumulative effects from the 5 Interest Rate rises.  All effects will become more evident over the next few months; many borrowers with Fixed-Rate Mortgage deals will end the existing deal.

Building Societies Association shows figures to back up the significant drop in gross advances; the figures falling from £5.13m in 2006 to £4.65m last month.  Building Societies also experienced a significant fall in Mortgages Approved this is £6m to £4.6m.

BSA’s head of savings policy, Brian Morris, explains that people who decide to borrow money should be very careful not to overstretch themselves at the time of high Interest Rates and only borrow if they are sure they can afford it.

British Bankers Association have released information that they have seen a slow down in the amount they are lending in Mortgages and Credit Cards. The Net Mortgage lending rate has also rose by £5.3bn this is down from the previous month’s figure £5.8bn and recent monthly average if £5.3bn.

In June unsecured lending remained unchanged, following a fall in may of £0.5bn.  It’s said that as a £0.1bn fall Credit Card borrowing has been cancelled out by the £0.1bn rise in the personal loans and overdrafts.  Also continuing to rise if the Household Savings, deposits into banks are also rising over the month by £3bn, with the monthly average of £3.1bn.

David Dooks, the BBA’s director of statistics, explained that the increase of money on deposit and the unsecured lending shows household budgets seem to be in a good shape.  Chief United Kingdom economist as Global Insight’s, Howard Archer, said that BBA’s and BSA’s Mortgage figures are a general impression that the Housing Market is coming off the boil.  Mortgage activity fluctuates on a monthly basis; falls in the activity are being exaggerating by the activity in 2006 was robust.  Overall all the evidences is pointing to the housing market activity.

HBOS are revising their forecast in the Housing Prices that will rise next year, because of the expected growth in the market.

Some Banking Groups believe that a 6% rise will happen in the growth of House-Price in 2007, but the previous forecast was 4%.  The revision should reflect the greater movement in the prices in January, February, March and April next year.