The MoneySaving Forum: join to chat & swap tips with other MoneySavers. Learn how in the Forum Introduction Guide

Archive for the ‘Consumer’ Category

Why David Cameron writing for MoneySavingExpert is not ‘bonkers’, ‘biased’ or ‘showing your true colours’

Why David Cameron writing for MoneySavingExpert is not  “bonkers”, “biased” or “showing your true colours

Why David Cameron writing for MoneySavingExpert is not “bonkers”, “biased” or “showing your true colours

According to some on Twitter today I’ve been "duped". That’s because David Cameron has written a guest piece for the site called ‘We will give pensioners security and dignity’. He asked if he could do it and we said, "why not?" After all, part of what MoneySavingExpert.com is about is providing a forum for people to engage in the big discussions and debates on consumer finance policy. 

Yet predictably there was the classic backlash. Here’s just a selection of some of the (nicer) anti-comments. I’ve picked the twitter ones as they’re shorter. Of course there were many who were supportive and found it interesting too…

  • @newviv: "@MartinSLewis I don’t approve of @David_Cameron using your website as a political platform."
  • @mheave: "@MartinSLewis @David_Cameron shame on you Martin. This man is vile, pernicious and plain evil to those struggling you try to help #irony."
  • @BillyWits: "Political spinning. You’ve been used Martin, the [obscenity deleted] has used you as you are perceived as trusted."
  • @harriet1dog: "I thought your site was meant to be impartial not a party political broadcast, is it Nigel Farage next week?"
  • @exnhsnurse1: "DC blog is party political broadcast. You are being used because you are a trusted source of financial advice."
  • @meljhenderson: "I can’t believe you’ve let him use this great website as a political platform. #disgraceful"
  • @mathewtedwards: "I think this is a BIG mistake! My constructive criticism would be to politely tell @David_Cameron you have reconsidered."

Yet many people when I responded were unaware of the wider context, some hadn’t actually read the blog, just responded to the fact Cameron was writing. This isn’t new, it isn’t biased, we have regularly offered oppportunities for senior politicians of all parties to write guest pieces for the site. (The only reason Ed Milliband hasn’t appeared is because we asked his team for a piece on energy and he didn’t seem keen; we have also asked for his comments on this issue today.)  

Here’s a list of just some of our past guest bloggers below. We’re also open to more guest pieces from senior politicians of all major parties (and it’d be nice to some get from SNP or Plaid Cymru too), as well as regulators and policymakers.

So, we haven’t been duped, what we have done, like many national newspapers also do, is provided a forum for important individuals who can change policy to try and justify their position, explain what they are planning to do and provided, within our own forum, a place for people to discuss it and give feedback about those issues. 

I consider that to be an important part of engagement with the political process within our MoneySaving community, which has 15 million monthly users. 

We are incredibly careful not to indicate in any way what our position is on these subjects. These are for the politicians to engage in. I think it is a perfectly decent way to behave – after all most national newspapers which do it tend to be biased towards an agenda. 

Our site’s stance is strictly apolitical. We do it as a form of engagement. We have even in the past done the MSE Leaders debate, where we asked all the parties for their views on key matters to consumers. 

So for those having a go, I think perhaps you needed to have done your research first.

Are mortgage affordability rules stopping you getting a cheap remortgage?

Are Mortgage affordability rules stopping you getting a cheap remortgage?

Are Mortgage affordability rules stopping you getting a cheap remortgage?

Over the last year the regulator has introduced stringent affordability rules on mortgage lending. These check all of your incomings and outgoings to see if you can repay not just at today’s rate but at rates of 6% or 7%. The laudable aim is to try and robustly protect you from overcommitting in the event of an interest rate rise.

It’s caused some friction: some are struggling to get deals, others can no longer borrow as much as they want. However, in general I think it’s a sensible move, with one rather large potential hole – and having raised this in passing to concerned senior representatives of the FCA , I told them I’d bash out a blog to see if I could put some more meat on the bones.

So having told you I’m worried there is a problem, let me explain it…

Have affordability rules put the kaibosh on your remortgage?

For those who already have mortgages, right now it is crunch time. Rates for new deals are almost at an all-time low, yet a rise in the UK base rate is getting closer, with most now predicting this will happen in mid to late 2015. So many people are sensibly looking to cut the costs of their existing mortgage deal and lock in a cheap rate now before rates rise. 

However, I’ve heard from a couple of people that they’ve struggled to get remortgage deals due to affordability criteria. To clarify, when I say a remortgage, I’m not taking about borrowing more money, ONLY about borrowing what you currently owe, but on a new cheaper deal. 

If affordability criteria are blocking people from doing that this is a serious problem. After all, it means you are on an expensive mortgage deal and are being told you can’t afford to move to a cheap mortgage deal – nonsense, you can certainly afford to pay less, more than you can afford to pay more. If that is happening, the system is broken.

There is room for lenders to have flexibility, the concern is they’re too scared to use it.

There is flexibility under the affordability rules in the system, but I’m hearing many lenders are struggling to try and incorporate the rules.  We’ve seen an explosion in the length of time new mortgage interviews take, and banks’ systems are nowhere near as efficient as brokers’.  Therefore you can see the attraction of just operating from a standardised rule book

So, have you tried to remortgage to a cheaper deal recently? If so, what was the attitude? Did you find it easy to get accepted? Or did the affordability criteria stop you and are you trapped in your existing deal? Please do let me know using the comments section at the end.

NB. If you’ve very low equity in your property and a very poor credit score, these have always been conditions that stop remortgaging – this is more specifically about affordability

Related Help:

Green energy is surprisingly unpopular

Green energy is surprisingly unpopular

Green energy is surprisingly unpopular

Last week we launched the MSE Big Winter Switch Event – a collective switch where we’ve used the huge user base of this site to negotiate what are mostly cheaper than the cheapest energy tariffs. While all the deals are hot, by far the hottest compared to its peers is the Green Tariff, yet while the event as a whole has been an enormous success, shockingly few have gone green – even though the differential between doing so and getting the cheapest non-green deal is much narrower than normal.

And this is despite the fact the deal coincides with the BBC leading its news programmes with a report on the increasing threat of global warming on the world’s resources.

The definition of green tariffs is a little tricky – and there are many different shades of green available. Some commit to a proportion of your fuel coming from green sources, others promise that 100% of your energy will be renewable. New proposals by the regulator Ofgem say that green tariffs must offer an environmental benefit over and above just supplying renewable energy – see more info on how we picked the Green Winner.

Before I tell you quite how few people went green, I want to set out the price numbers.

All the prices below are the average for someone with typical usage, paying by direct debit, with dual fuel – there are small regional variations.

It’s worth noting that someone on a standard tariff from one of the big six energy companies would be paying £1,180 a year.

Green Tariffs
MSE Big Switch Event Winner: Green Star Energy Collective Fix:

£1,055/yr

Next cheapest that fits new green criteria:

£1,232/yr

As you can see, normally most people would pay a premium to switch to get a green tariff, here you save substantially compared to a standard tariff, and it’s fixed for one year (do a comparison to find how much it’d cost you).

And it’s also only just over £100 more than the cheapest non-green tariff.  To contrast, here’s our non-green winner (which is also a 12 month fix).

Cheapest Tariffs
MSE Big Switch Event Winner: Eon 12mth Fix: £950/yr + 1,500 Eon points (convertible to 1,500 tesco points)
Next cheapest supplier on open market:

£974/yr

Yet staggeringly, of the many thousands of switchers we’ve had so far in our collective switch, only 0.36% of people who’ve switched have gone green.

I’m really surprised by that. We are MoneySavingExpert, so I wasn’t expecting more than 5% to go for it, but the number that did is far smaller than I expected, especially as the tariff is so competitive.  It seems strange as we often get many users lobbying us to include even more of the cheapest ethical and green choices within our guides than we do (we do it in quite a few already).  Yet in truth, very few people seem to be choosing to go that way.

 

Is it age or a different generation that makes older people more trusting?

Is it age or a different generation that makes older people more trusting?

Is it age or a different generation that makes older people more trusting?

I was mulling today about my grandmother who is now in her early 90s. A few years ago, before her dementia sadly progressed so far as to make this issue redundant, she would constantly call me after a salesman had come to her door, asking me if she should switch to their product.

When I asked her why, the answer was always the same, "because the salesman told me it was cheaper". I always replied, "Grandma, you know what I do for a job, I promise I have made sure you are on the very cheapest possible tariff."

Yet, for her, the simple fact someone had told her it was cheaper meant they had to be telling the truth. She spoke of coming from a trusting world – my explaining this was just a commission-based seller using it as an opening line didn’t cut any mustard.

I hear similar tales repeated by many people about their parents as they delve further into old age. 

Now, of course there is no universality here. There are many extremely savvy people out there far older than my grandmother. Yet, it certainly does seem, anecdotally at least, that there is a trend of our older generation being more trusting.

What I am interested to know is, is this an age thing or a generational thing? 

Do we tend to become more trusting as we get older or is this about the ‘war generation’? This generation lived through a time when everyone in the country had to pull together and look after each other to enable them to survive, a better mannered time – is it because of this they have a greater belief that most people are honest and trustworthy? My suspicion is that it probably is. 

That’s not to say that younger generations aren’t trusting, but in a different way. In general I am a great believer that most people are good. 

If you ask somebody to do something for you they will generally do it well, even a stranger, without stealing your stuff or letting you down.  I’ve written before of my joy at seeing the person ahead of me in an ATM queue chase after the person in front of them as they’d walked away with their card but left the cash dangling.

However, when it comes to business and the corporate world I believe we live in an adversarial consumer society. A company’s job is to make money, our job is to stop them. Companies will tweak every possible profit-making nipple and at the sales end of it, if that includes manipulating the facts and using sales techniques to create openings, then they will.

I’d love your thoughts – are the older generation usually more trusting? And if so, why do you think that is… (and to know your age too would be interesting in this).

Don’t shorten your mortgage term if you can overpay

Don't shorten your mortgage term if you can overpay

Don't shorten your mortgage term if you can overpay

This morning a nice lady approached me to ask a quick question about her mortgage. She said that thankfully, her finances were in a good state and she had a cheap variable rate mortgage, so she was considering cutting her mortgage term to be able to clear the mortgage much more quickly.

On the surface this is eminently sensible. Decreasing the term means you pay it off more quickly, which means there is less time for interest to accrue, so you pay less overall.

However, while it is sensible, my question to her was: "I presume you can’t overpay the mortgage?"

She told me she could – in fact she had a mortgage with fully flexible features that allowed her to overpay and even borrow back if she wanted to without penalties.

Overpaying has the same impact as shortening the term

This left me slightly stumped because overpaying has exactly the same impact as shortening the mortgage term, but with the great advantage that you can stop doing it if you want or need to.

Here are some example numbers to prove the point…

  • A 25 year 3% interest repayment mortgage on £200,000
    Monthly cost: £948 | Annual cost £11,380 | Total interest over 25 years: £84,530
  • Shorten that to 20 years
  • Monthly cost: £1,109 | Annual cost £13,310 | Total interest over 20 years: £66,210

As you can see, shortening the term increases the monthly cost, but cuts the total interest by £18,000 – a monumental saving.

Yet she would end up with a very similar result – both in cost and in the time it takes to clear the debt – by overpaying by £160 a month or a lump sum of £2,000 each year – the difference between the cost of each mortgage. (I say similar and not exactly the same as timing issues, and when the interest is calculated, can have a small impact).

If you can overpay your mortgage (and by that I mean choose to pay a variable amount more on top of your set repayments without penalties – rather than formally changing the amount you pay), it’s worth playing with our Mortgage Overpayment Calculator, which shows the impact of single or regular overpayments.

Overpaying is far more flexible

The real key here though is that she said her mortgage is at a variable rate. That means if interest rates rise, as many predict they will, her monthly costs will increase anyway. That could make the payments of the shortened term unaffordable – and there is no guarantee if you shorten your mortgage that your provider will allow you to increase it again (this can be much more difficult to do).

This could mean mortgage arrears because of the inability to pay over the shortened period.

Yet with overpaying, you could simply stop doing so by the same amount, giving you the freedom to control payments.

Overpaying isn’t for everyone

Before you start overpaying – assuming there are no penalties (or shortening your term as the impact is similar) there are a couple of things you need to think through. The first is contrasting the benefit of it against straight savings.

The simple rule of thumb is if your mortgage rate is higher than the after tax rate you can earn on savings, it generally pays, if not – for example, for someone on a very cheap legacy mortgage – you are likely to be better off saving rather than overpaying (best tactic is to put the cash aside ready to overpay in case/when rates rise).

I’d also suggest that before dunking the cash into your mortgage, you consider building up a cash emergency fund of six months worth of bills. This way if something happens you’ve got the cash put aside – rather than locked away in a mortgage (and the fact you’ve overpaid won’t stop them putting you in arrears). For far more on this and much more help see the Should I overpay my mortgage guide.

Thoughts below please.

PS. Having read some of the feedback, it seems after overpaying, some lenders automatically decrease your normal payments. Of course this can help some with cashflow but it doesn’t have the interest and term reduction effect that this blog is about. So when you overpay, ask them to ensure your standard repayments remain the same.

Other ‘interesting’ mortgage stuff I think you may like…