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Neil Conrad, a regional advisor at Eurodebt Financial Services, said: “I think the super complaint by the CAB, who seem to want the OFT to blanket ban cold calling & up-front fees, is in danger of tarring all companies with the same brush, and could prevent people being contacted by companies such as EuroDebt, who can provide them with genuine help.”

Beverley Budsworth, Managing Director of The Business Debt Advisor, added: “The OFT guidelines on debt management do not permit cold calling by personal visit. If people have opted in or ticked a box that says they want further help, then this is permissible.

“I do hope that the OFT takes a practical approach and stamps out sharp practice but leaves intact compliant debt management companies who genuinely care about improving people’s awareness of the excellent rescue culture we have in this country.”

The OFT’s investigation is currently on-going, but the OFT is expected to publish a response to the Bureau’s complaint within the next 90 days.

Wednesday 2 February 2011

How to protect your home

The first issue troubled borrowers might consider is whether they can find a sum of money to use to pay off a proportion of the mortgage to bring it in line with the 75% LTV average. "Is there any money a relative could help with ,could your relatives help you out with money. Are there savings you have that you don't need access to? By reducing the borrowings you can shop around better and find a cheaper rate. It's that simple.

Another solution could be to start managing your finances now as if the costs of your mortgage had gone up already. Move a sum each month into a savings account. Sometimes it can just mean getting used to the higher outgoings and this way you still have access to those extra funds, if needed.

A succession of interest rate rises could see a fixed rate of 6%, which might look unattractive now but appear "incredibly low" in a few year's time. Many independent mortgage brokers are urging borrowers to take out a fixed-rate mortgage as soon as possible because providers have already begun to factor in future interest rate rises and have raised the price of their fixed-term products.

Fixed rates have been climbing, but they are still the right choice for those who are fearful of how they will deal with a rise in mortgage costs. They help protect against any increase in interest rates but will also bring some stability to the monthly budget at a time when inflation continues to push up other household bills."
A two-year fixed rates can be found with rates a little below 3%. Santander offers a rate of 2.65% at 60% LTV but with a hefty £1,995 fee. For longer-term security, RBS offers a five-year fix at 3.95% with a £699 fee but only up to 50% LTV. Yorkshire Building Society offers a five-year fix at 3.99% to 60% LTV, with a £1,495 fee.

Those "with more slack in their monthly budget" (especially those who believe the recent contraction in the economy will stall the interest rate rises) may wish to opt for the initially lower variable rates. HSBC offers a lifetime tracker at 1.79% above base rate to 60% LTV with no fee.

Among other product options, capped trackers (which track base rate but have a ceiling on how high they could go) such as Coventry Building Society's three-year tracker at 2.49% above base rate up to 75% LTV with a £999 fee and capped at 3.99%.

Lenders like Nationwide, Woolwich and RBS also offer the option to switch out of a tracker rate to a fix without penalty. Finally, those that do stick with a variable rate would be well advised to prepare for rate rises by taking advantage of the low rates now to overpay their mortgage, cutting the balance and making life easier when rates start to lift.

Find out how your mortgage payments will vary if the rate rises For independent mortgage advice

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Monday 31 January 2011

Interest rates: could you soon face financial ruin?

Homeowners who bought at rock-bottom interest rates are 'on the edge of an abyss' and could have problems paying their mortgage when rates finally rise

Homeowners who took out a mortgage during the past two years and know nothing other than rock-bottom interest rates could face financial ruin when the Bank of England finally raises the cost of mortgages.
The rate-spoilt generation are "standing on the edge of an absolute abyss", according to Heather Keats of the Community Money Advice debt charity. She said: "This is going to be the most enormous problem for us, because people are simply burying their heads in the sand at the moment."
Some economists believe a rise in base rate, previously not expected until the end of 2011, could be closer following spiraling inflation and last week's news that two of the nine Monetary Policy Committee members voted for a rise in January.
The outlook is particularly grim because consumers are already feeling the squeeze thanks to a combination of "toxic" factors: the recent VAT increase, rising inflation, imminent public sector redundancies and the knock-on effect in the private sector.
Moreover, wage freezes and overtime bans have led to real wages being eroded to 2005 levels. "One has to go back to the 1920s to find a time when real wages fell over a period of six years," said the Bank of England's Mervyn King last week.
Mortgage borrowers can therefore ill afford to ignore the prospect of interest rate rises. But more than seven million homeowners have not reviewed their mortgage since the base rate first fell to 0.5% in March 2009, according to research by advice website unbiased.co.uk. With the base rate remaining at 0.5% for a record 22 months, homeowners have been lulled into a false sense of security and have failed to review their mortgage rates, the website said.
One in 10 homeowners said they have never reviewed their mortgage at all, and a small but significant proportion of those who have (4%) said they had failed to take any action because they did not understand what effect a change in base rate would have on them.
The real nightmare is for those who took out their mortgage some time ago and borrowed at 75% or more loan-to-value (LTV). For these people it will be more difficult to secure a fixed rate now and the higher the mortgage percentage, the harder it will be to find a decent rate. They might find there is little they can do. But make no mistake, a rise in interest rates will impact hugely on a household's finances.
A rate rise of one percentage point would add £76.38 to the £648 monthly cost of a 25-year £150,000 repayment tracker mortgage with a rate of 2.17% (the average of the three current best buys), according to Moneysupermarket.com. A two percentage point rise would add £158 per month and if the mortgage rate rose by three percentage points to 5.17%, borrowers would face an extra £244 each month.
Even a 0.5% or a 1% rise will lead to her charity being flooded with people who are desperate. "It will affect everyone all across middle-income Britain, as they are often the ones who had previously used different types of credit, such as loans and credit cards, because they knew how to. Credit tightening now means they will have few other options.
The problem of rising mortgage rates applied not just to first-time buyers, but anyone who has stretched themselves financially, regardless of how long they have had their mortgage.
"The banks' attitudes are different now after they all got their fingers burned by the credit crunch. When a borrower gets into trouble, instead of looking at different repayment structures or helping customers, they will want to dive in and get their assets back. It could have a snowball effect on household debt."
Keats said her charity usually starts dealing with consumers' problems around eight months after a rate rise occurs, when everything else they have done to meet their housing costs has failed. Even if someone's home is repossessed, that's not always the end of it,A bank can still pursue former homeowners for any shortfall they believe they are owed for up to 12 years. When interest rates hit 15% in 1990, we were still dealing with related financial problems in 2002. The fall-out is incredible."
Una Farrell of the Consumer Credit Counselling Service said the charity's clients are currently making an average monthly mortgage payment of £564.60, meaning a two percentage point increase in rates would see client's mortgage costs rise by £308. "That is quite an increase when the average CCCS client only has a budget surplus of £43," she said.
Debt counsellors say that when borrowers are put under financial pressure a debt spiral occurs, where they try to juggle their debts and make a choice as to which repayments or bills they should pay first.
The problem is that when consumers panic and there are people knocking on the door for their money, they can make the wrong choices.
Whether you have done a budgeting exercise before or not, do one today go through your expenses and see if there is anything that can be stopped for the time being and, for the essentials, can you find a cheaper provider? There are so many resources available online these days it is almost impossible not to be able to save money on your bills, but no one else will do that for you – you have to do it yourself.
Clearly, the best advice is to take action now, because the headache of interest rate rises is undoubtedly on its way. There is nothing you can do to stop it, so prepare yourself.

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Tuesday 25 January 2011

lack of mortgage lending

Bank of England's Adam Posen warns over lack of mortgage lending

Bank of England policymaker Adam Posen has told Bloomberg that he sees a “downside” risk to the UK housing market due to the lack of credit for first-time buyers and “very low” levels of home sales.

House prices rebounded last year from their worst slump since the early 1990s, as the Bank's Monetary Policy Committee held the interest rate at a record low of 0.5pc, however demand for mortgages weakened. Data last week from the Council of Mortgage Lenders showed mortgage advances for 2010 sunk to their lowest level in a decade.
“You look at the difficulty many first-time buyers or younger people have in getting mortgages [and the] very low volume of transactions – these to me are things saying ‘I am much more worried about a downside risk to the housing market from here than any further appreciation,’” Mr Posen told Bloomberg.
“My view is two things have supported the UK housing market in the last couple of years,” Mr Posen said. “One is our interest-rate cuts and quantitative easing directly affecting mortgage affordability” and the second that the level of UK homebuilding was “relatively small for the size of the economy compared to Spain or Ireland or the US”.
“You have both a demand factor through aggressive monetary ease and a supply factor in that the oversupply was much less,” he said. “That to me is a very straightforward explanation for why housing prices have been relatively resilient.”
Mr Posen has repeatedly urged his Bank of England colleagues not "overreact" to inflation remaining over target by increasing interest rates and in recent months has argued for policy to move in the opposite direction – to provide further stimulus.
He previously said he thinks the economy still has a long way to go to run at full tilt in the wake of the recession. "The workers of the United Kingdom did not wake up one morning ... and find that their left arms had fallen off and half of their offices had disappeared," he said last month.
A total of just £136.3bn was lent during the year, the lowest level since 2000, and 5pc below the 2009 figure, which was the lowest total for nine years, according to the CML.
The group, which is predicting total advances of around £135bn for 2011, also warned that consumer demand could be even weaker than previously expected if inflationary pressures led to an early rise in interest rates.
Advances during the final month of the year were also low, with just £11bn lent in December, the most subdued figure for the month since 2000, and 6pc down on November's total.
It was also the fourth consecutive month during which lending levels had been the lowest for the month in question for a decade.
But while December is traditionally a quiet month for the mortgage market, there were few signs that lending levels would pick up during January.
The Bank of England's Trends in Lending report showed that the number of mortgages approved for house purchase by the major lenders had dropped to just 40,000 during the month, the lowest level since March 2009 and down from 45,000 in November.
The number of homes changing hands also fell during December, with just 75,000 properties sold for more than £40,000, down from 77,000 in November, according to figures from HM Revenue & Customs.
Paul Sabbato, a director of broker First 4 Bridging, said: "The near-paralysis of the mortgage market continues. December is always a quiet month but this was a quieter December than usual.
"There's no doubt that many people who may have been considering buying a couple of months ago have shelved their plans until there is more clarity on when, and by how much, rates will rise."
Howard Archer, chief UK and European economist at IHS Global Insight, said: "Latest data suggest that housing market activity ended 2010 very much on the back foot, which suggests that house prices will remain under pressure in the early months of 2011 at least.
"This evidence of ongoing very weak housing market activity reinforces our belief that house prices will fall further in 2011, although current mounting signs of fewer houses coming on to the market could provide some support to prices."
Although any increases to interest rates are likely to be small, the move would have a big impact on the confidence of potential buyers.
CML economist Peter Charles said: "Money market rates have recently moved higher in anticipation of a rise in base rate and some lenders have recently reflected these increases in their product pricing.
"Against this backdrop, consumer demand may be weaker than we would otherwise have expected. Higher interest rates will also hit the budgets of existing borrowers, although the expected modest rises in base rate will result in a relatively small proportionate rise in monthly payments for most mortgage holders."
He added that the group did not think this would have a big impact on the number of people who struggled to keep up with their mortgage, and it did not anticipate revising its current arrears forecast.

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Monday 24 January 2011

Homeowners and fixed rate mortgages

Homeowners who want a fixed rate mortgage were today urged to move fast as lenders began pulling their best deals, following rising funding costs.

Nearly a dozen lenders have either withdrawn or increased some of their fixed rate mortgages during the past week, including First Direct, which has pulled its best buy two and five-year fixed rate products

Other lenders that have hiked at least some of their mortgage rates include Lloyds TSB, Halifax, Northern Rock, Skipton Building Society and the Co-operative Bank, with some groups increasing rates by up to 0.7 of a percentage point.

The latest round of re-pricing has been sparked by a steep increase in swap rates, upon which fixed rate deals are partially based.

Since the beginning of the year two-year swap rates have risen from 1.53% to 1.79%, while five-year ones have jumped from 2.66% to 2.93%, amid speculation the Bank of England's Monetary Policy Committee will raise interest rates sooner than previously expected because of high inflation.

The Confederation of British Industry (CBI) predicted last month high inflation will force the Bank of England to raise interest rates gradually in the spring from its 0.5% historic low. Others suggest the rise may come later.

The latest inflation figures yesterday showed the Consumer Prices Index rose by more than expected during December, increasing to 3.7%, up from 3.3% in November, and well above the Bank's 2% target.

We saw lenders pulling their fixed rate deals last week and that trend has continued into this week.

Swap rates have been increasing over the past couple of weeks, putting upward pressure on the prices of fixed rate mortgages.

"Once you get a few lenders re-pricing, that puts pressure on other lenders to respond. There are very few five-year fixed rate deals still available for under 4%.

"No-one knows what will happen to rates in future but the trend is upwards at present."

He suggests people who want the security a fixed rate deal should consider remortgaging now in case they rise further.

Although many economists now expect interest rates to start rising sooner than previously expected because of inflationary pressures, they are still set to remain low by historic standards.

It is also important to factor in any arrangement fees, which can be as high as £1,500, when considering which mortgage to take out, while borrowers should also remember that fixed rate mortgages can come with hefty early redemption fees if they want to get out of the deal early.

some deals allow you to book a rate but not draw the money for a few months.

If rates jump and you move to a pre-booked fix you've not lost out.

But if you dump the fix because you want to continue on a variable rate or you find a better fix you will lose any fee – that can hit £200 – payable on application. So view this charge as an insurance policy. For independent mortgage advice

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