UK Personal Finance

We aim to provide you with as much information and news as possible regarding the UK loan and mortgage markets. Whilst also providing general money saving tips on all aspects of your personal finance.

Let me declare our interests now, although we provide this site to help inform, we make our money from supplying loans and mortgages. If you do feel maybe with the help of the information on this site, that a loan or mortgage would be appropriate for you, then please complete the form on the left. We aim to call you back within the hour.

Whatever your reason for your visit we hope you get benefit and information from the articles here, and come back to visit the site again.

Owner of www.personal-finance-loan.co.uk

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.

Credit rating agency Fitch have released figures that show 20% of the UK house prices are overvalued, this is compared to the long term average.  Over the past decade house prices have sky rocketed away from incomes.  The UK economy has been made vulnerable to the higher interest rates, due to the high levels of debt.  The UK was ranked third most sensitive to the rise in interest rates out of the 16 countries that were examined.

Economic indicators where used to see if house prices where overvalued and which of the 16 countries examined would be at risk over the rise in interest rates; also Fitch looked at the type of Mortgages that were dominating the market.  Fitch explained that variable rate Mortgages are in vogue, (an example of a country with this would be the UK) would be hit harder by the rising interest rates.  The top 5 most vulnerable countries consist of, New Zealand,  Denmark, United Kingdom, Norway and Sweden.  The top two of these countries, have both have booming houses prices and high levels of personal debt.  Italy, Germany and Japan were all less likely to be hit by the rise in interest rates and debt becoming harder to manage; this is because many consumers have not seen house prices or debt race away to the same extent as the UK.

On Monday The Bank of England explained that UK Mortgage lending had risen in June, which has started to indicate housing market growth.  The total lending has rose by £9.6bn in June, from £8.7bn in May.  114,000 new homeowner loans were give the go ahead, even with the number of Mortgages approved stayed the same in June.  George Buckley from Deutsche Bank explained that, the mortgage lending was holding well against the rise in interest rates robust mortgage approvals, the numbers would weaken toward the end of 2007.

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.

It used to be a known fact that remortgaging would save you money. However, due to the huge rise in arrangement fees is this still the case? The answer is of course that it depends. You definitely will still be able to save money by switching to a mortgage deal with a better rate, the expensive part is how you go about doing it. You need to shop around to find a better mortgage package as your current lender could offer you a better deal, saving you money in the long run as you will not need to involve a solicitor. You need to think carefully about how you plan to remortgage as in the long run it could save you thousands of pounds. It has been estimated that around half of all borrowers are stuck on a Standard Variable rate (SVR) or other expensive mortgage rates.

Example of short term and long term switch

Short Term: A fixed- rate mortgage rate recently came to an end for Mr and Mrs Clark, this means that they are now paying their lenders full SVR of 7.5%. So, the Clark’s decide to remortgage, they agree to change to another fixed rate but they do not want to fix for a long period of time in case the interest rates fall. The Clark’s choose to fix for two years at 5.05%.

The new package allows the Clarks to borrow £100,000 at 5.05%, which is fixed for two years. The arrangement fee on the remortgage is £999, the lenders valuation is £750 and the solicitors will cost £500. That comes to a total of £2,249 in fees. The Clarks feel they don’t want to pay that, so they add the arrangement fee (£1,749) to the new loan amount and they pay the solicitors fee from their savings.

The Clark’s new mortgage, in total, is £101, 749 at 5.05% which is fixed for two years. This will cost them £428 a month or £5,138 a year. The Clarks old mortgage was a £100,000 loan at 7.5% this was costing them £625 a month or £7,500 a year. The remortgage is therefore saving the Clarks a total of £197 a month, which is £2,362 a year or £4,723, after the solicitors fee, over the fixed two year agreement.

After the two year fixed rate is up, the Clarks will again be subject to paying the lenders Standard Variable rate (SVR), to avoid large monthly repayments they will have to remortgage again. Let’s presume the rates are the same as now and that the Clarks choose a fixed rate deal for five years on another interest only mortgage. The Clarks will now be borrowing £103,498 at 5.10% fixed for five years, the arrangement and valuation fees are the same as before and will be added to the loans total. The Clark’s will be paying £440 a month (£5,278 per year) with there new mortgage instead of £636 a month (£7,631 per year) if they stated on the SVR. In total Mr and Mrs Clark will be saving £196 a month, £2,353 a year and £11,764, after solicitors fees, over the five year fixed rate.

You can see from the examples above that money can be saved by remortgaging, even with the large arrangement fees. This may cause arrangement fees to rise in the future or could lead to other possible admin fees stepping into the remortgage process, to reduce the benefits.

At the moment though remortgaging is worthwhile for those paying a Standard Variable Rate. Remember to plan out your finances before making a definite decision and look around to find the best deal.

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.