The UK’s mortgage ticking time bomb… Mr Osborne will you help?

Last week on ITV’s The Agenda (watch it back), I challenged the Chancellor about what he’s going to do to defuse the UK’s mortgage ticking time bomb. Sadly, as is the wont of politicians from all tribes, he avoided the question… something I then continued to point out throughout the programme.

Yet this wasn’t a party political point. It was a warning about perhaps the biggest danger to UK consumers of economic recovery and it remains unaddressed by any major party. Although with the current Government pushing people into the mortgage market with Help to Buy (see our First Time Buyers guide), it has a moral responsibility to address this.

If you feel a sense of déjà vu over the phrase "mortgage ticking time bomb", don’t worry. It’s not you, it’s me.

I first wrote about my fears of a time bomb in November 2009, and then again in March 2012, and little has changed – the threat is still here alongside the lack of action. The only problem now is we’re closer to the time interest rates will rise, which is when this bomb will explode. So let me lay out the case again…

Any similarities between this blog and the earlier ones are entirely deliberate – little has changed, so why rewrite?

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Mortgage costs, for most, are hugely expensive – a ticking time bomb ready to blight the finances of millions and put the economy at risk. Whether it’s a lack of political will, clout, or ideas, nowt’s being done to stop it.

Standard variable mortgage rates (SVRs) have gradually crept up over the last few years, even though UK base rates haven’t. SVRs are now as high as 6% in some places. It’s easy to think that isn’t such a problem, as historically these rates still sound pretty cheap, but look at the bigger picture.

To say UK interest rates are low right now is a bit like saying the phone-hacking scandal caused a small PR issue. Interest rates aren’t low, they’re stuck in a drain, wallowing 1.5% beneath the recorded 200-year historic low.

The Bank of England’s reason for slashing rates, and keeping them low, is economic stimulus. And while our nation’s arteries are hopefully unclogging, the continued aim is to boost growth. Mark Carney, the bank’s chief, has said rates are unlikely to move this year. Yet the margin lenders now make compared to before base rates plummeted means in real terms some mortgages are four percentage points higher than back then. 

The evidence

So let’s have a bit of nerdom and play with the stats.

  • October 2008. Base rate: 4.5%. Halifax SVR: 6.5%.
  • February 2014. Base rate: 0.5%. Halifax SVR: 3.99%.

Back then, Halifax’s rate was 2% over the base rate. Now it’s 3.49%, a mammoth increase. And this is reflected as a whole:

Mortgage rates

Mortgage rates

The average gap over base rate used to be around two percentage points. When rates were first slashed, Government pressure to keep it there was partially successful, but now the gap’s around four percentage points. Having said that, there are some smaller lenders who have SVRs over five percentage points higher than the base rate.

However, there have been some improvements since I first wrote this in 2009, at least with new mortgage deals (I’ve excluded some with really hefty fees):

  • October 2008. Base rate: 4.5%. Cheapest 5-year fix: 5.49%.
  • October 2009. Base rate: 0.5%. Cheapest 5-year fix: 4.99%.
  • March 2012. Base rate: 0.5%. Cheapest 5-year fix: 3.29%.
  • February 2014. Base rate 0.5%. Cheapest 5-year fix: 3.19%.  

However, the gap between base rates and mortgage rates is still far wider than back in 2008. Plus, the required loan-to-value ratios have got more stringent, meaning you need far bigger equity in your home (or a bigger deposit) to get the hot rates, and the fees to get new mortgages are pumped up too.

Of course, as many will know, fixed rates don’t actually follow base rates. Their funding’s more closely associated with swap rates which, in simple terms, are the City’s view on interest rates over a set period – and they’re depressed at the moment.

Yet it still means whether you’re on an standard variable rate (SVR), or getting a new mortgage, the margins are now much higher than they were pre-crunch for all except those on  tracker mortgages, who are still gleefully dancing around their tracker-mortgaged homes.

Even then though, if you’re getting a NEW tracker, they’re now typically three percentage points above base rate (based on the average two-year tracker rate), where once it was half a point or even less.

The underlying problem – evaporating equity

Perhaps far more worrying is how many people are now forced to stick with their SVRs compared with before the base rate cut. This is all about the spectre of what I call evaporating equity. This affliction means you can’t get a new mortgage deal, due to a raft of new factors…

  • Tougher LTV limits. Pre-credit crunch, loan-to-value (LTV) ratios of over 100% (borrowing more than your home’s value) were possible and competitive rates were available at 95% LTV. Now to get a stonkingly good deal, you need to borrow less than 75% of your home’s worth or 95% to get any deal at all. This cuts out huge swathes of existing mortgage holders.
  • Credit scoring. Credit history is a far bigger part of mortgage acceptability than it used to be. If you’ve had what were once relatively minor problems such as missed payments, you could still be scored out by some mainstream lenders. Of course, for the seriously credit-inflicted, there’s nowt available as sub-prime is (probably thankfully, on the whole) no more. For a full guide to boosting mortgage acceptance, see our First-Time Mortgage guide.
  • Self-employed. Once one of the great feeders of mortgage over-lending was self-certification mortgages, where the self-employed declared sometimes fictional earnings and were lent to based on that. These mortgages no longer exist, so a by-product of the crackdown on this fraud is that it’s much more difficult for the self-employed, especially those without a few years of accountant-provided accounts, to get a mortgage.
  • House price decline. The ‘value’ bit of LTVs means current house price values. So in the areas around the UK where prices have plummeted, people’s LTVs have worsened. Many who were once in that competitive sub-75% zone aren’t any more. Of course, those who are finding big house price gains will get an improved LTV.

Ticking time bomb

The paradox is that while mortgage rates have been relatively unresponsive to falling base rates, it’s likely they’ll shoot up, mostly in parallel, when they rise.

Millions are locked into standard rates or high-margin trackers, or are due to be when their current deal ends. So when rates finally turn and start to rise, it’ll be like a smash-and-grab brick through windows.

Imagine the base rate returns to 2008′s historically normal 5% (not a prediction – just a possibility). Someone with a £200,000 interest-only mortgage tracker would see their payment explode from £350 to £1,100 a month.

For many on top of the recession-led financial freeze, that’s catastrophically unaffordable.

Rising bills don’t simply flick back into place like elastic. The pain of increased costs out-balances the joy from when they fell. People have re-jigged their finances around new lower rates and locked into other commitments.

Waiting to administer treatment when rates rise will be too late. This mortgage margin time bomb’s growing now, so we need the Government to act. Have you heard anything?

I’ve mentioned this problem over the past few years while giving evidence at parliamentary select committees. The regulator, the FCA, put out a report last year with a similar message, and of course last week I managed to get it under the nose of the Chancellor himself.

If nothing happens, that means many must prepare for the possibility of even harder income squeezes.

DIY help

You can’t bet on any government laying a golden mortgage egg anytime soon. Your best bet is to crack it yourself.

  • Repay your mortgage with savings. Reducing outstanding debt means you’re less at mercy from mortgage rate rises, and it helps lower your LTV, possibly meaning access to more competitive deals. Plus, it can add up. Someone with a £100,000 mortgage at 4%, overpaying £100 a month, would clear the mortgage six years earlier, saving £21,000 in interest (try it yourself using the Mortgage Overpayment Calculator).

    Of course, you should check whether you’re allowed to overpay without penalties first. If not, the penalties will usually kibosh any savings. Assuming no penalties, the financial mathematics to decide if it’s worth it is simple. If your after-tax savings rate’s lower than your mortgage rate, pay it off. If you used £1,000 of savings currently earning a decent 2% after-tax to repay a 5% mortgage, then you’re £30 a year up.

    If you’ve other more expensive debts, pay those off first. Plus keep an emergency fund, as with most mortgages, overpayments can’t be borrowed back, so ensure you’ve money to keep paying all bills and future mortgage commitments. For more, and a special calculator, see the Should I Repay My Mortgage? guide.

  • Build a war chest. If you’re on a super-cheap rate now and haven’t got savings, put money aside in case rates rise. This way, you’ll avoid mortgage payment default.

  • Find the very best deal. This is a combination of knowing what you’re doing, using a good mortgage broker and checking the deals brokers don’t cover yourself. For full help on how to do this, grab my Free First-Time Buyers’ Printed Booklet or Free Printed Remortgage Booklet.

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Dear travel agents, I have nothing against you, but I won’t stay schtum to protect your profits

Dear travel agents, I have nothing against you, but I won't stay schtum to protect your profits

Dear travel agents, I have nothing against you, but I won't stay schtum to protect your profits

Sadly, travel agents are up in arms at me again for suggesting people haggle down the price of package holidays. I have no axe to grind against travel agents, but I can’t and won’t apologise for the fact that my job is to show consumers how to get the cheapest deals.  

This flared up again after the last episode of the latest series of The Martin Lewis Money Show, where my challenge to my co-presenter Saira Khan was to see if she could haggle the price of a holiday down following my tips. (Watch the show.)  

The results proved it works, with savings of £200+. This was backed up by a raft of tweets from people who’d tried the technique too, one with savings in the £1,000s. Read the full Haggle Down A Package Holiday technique – where you’ll also see the "travel agents don’t like this" section, deliberately in there so people can make their own moral choice.

In the immediate social network aftermath of the programme, several agents started accusing me of being "inaccurate" or "untrue". Yet when I challenged them to tell me exactly which facts were incorrect, funnily enough, they went quiet.

The majority though were courteous, but annoyed, and wanted me to stop telling people to haggle because it was damaging to their (sometimes small) businesses – and I believe similar’s been reflected in the trade magazine Travel Weekly.

However, let me be plain. Asking me to shut up about haggling doesn’t wash. The only way to shut me up about it is to stop it working.

I am not an unbiased journalist. I am very proudly biased, on the consumers’ side – I’m an opinion journalist with a focus to save people money. While I have no intent to hurt businesses, I won’t pull punches because it impacts corporate profits. 

So whether it’s travel agents, banks, supermarkets, electronic retailers, mortgage companies, childcare providers or more, if you want someone to represent your industry and act in a protectionist way for it, I suggest you speak to your trade association, or the hugely resourced big bodies set up to promote business like the Confederation of British Industry (CBI) or the British Chambers of Commerce (BCC).

To those travel agents who say "I get so little commission if I discount it isn’t worth it", then I say, quite simply, don’t discount – the choice is yours. But the likelihood is another firm which says "yes" will get the business – it’s called a competitive marketplace. 

Of course, I don’t do this in a moral vacuum. Below is the (tidied up) quick response I made to a travel agent who politely tweeted me about this. I think it covers it well.

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“I have no axe to grind against travel agents, but my job is to show consumers how to get the CHEAPEST deal. Haggling works, so I include it. Please, can I ask you go and watch the show again and listen closely to what I actually say.

1) These days more and more people do DIY online bookings. I am one of the few voices saying not to ignore travel agents, as they can, and do sometimes provide cheaper deals (and a few agents have thanked me for doing just that). It is frustrating that agents choose to focus on the haggle element, and not that.

2) I specifically point out that we’re talking haggling down BIG TOUR OPERATOR packages – not bespoke packages from independents. And as you and I well know, these are commodities and therefore haggle-able.

3) It wasn’t my choice for Saira to start in a travel agent’s branch, so you’ll hear me in the voiceover say: "I wouldn’t have started with a travel agent, I’d do it with a late booking specialist on the phone. If you’re not going to buy from an agent, don’t waste their time."

4) As Saira started at a travel agent, I asked the producers to ensure she went back to the same agent to give it a chance to match the best price.  You’ll hear me say this in the voiceover too.

5) Of the messages from people who’d successfully haggled (eg, the woman who got 40% off saving over £1,000), I deliberately ‘managed expectations’ by saying they were the exception and 5% off was more likely.

6) I make it plain no-one should be rude or aggressive, that this is about trying to charm a discount.

While your invite to come and spend a day in a travel agent is kind, it’s also irrelevant as it won’t teach me anything about haggling. I’m sure you do a great service, and if you do, people will stick with you rather than go elsewhere."

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My five rules for a happy relationship

My five rules for a happy relationship

My five rules for a happy relationship

They say you should never mix love and money, but for most, they’re both building blocks in our lives. The two can clash; financial problems are one of the major causes of relationship break-up. So taking a little time to think about how you manage them can pay off.

As it’s Valentine’s week, I was asked to come up with my "love and money" rules for This Morning. As I’d done the thinking, I thought ‘em worth bashing out here too.

1. Opposites may attract, but they shouldn’t have a joint bank account.

Many members of the older generation have completely joint finances, and I certainly am not going to preach to people who’ve successfully managed this for 40 years.

Yet these days, many new couples have spent a substantial period of time financially independent before they get together. Therefore, fusing finances together can cause rows. 

This is especially pertinent if you’ve developed different money personalities. If one partner’s saving up for something, and the other spends that cash willy-nilly, you’re not in a good place. Far better to continue to independently manage your affairs but co-operate on the areas where the financial Venn diagram does overlap.

The classic example of that is to have a joint bills account – where each contributes to the pot of necessary expenses. The amounts contributed don’t have to be equal if your income and expenses aren’t (this fits well into my general piggybanking budgeting technique).

NB. People often ask me ‘what’s the best joint account?’ The answer’s simple, almost all accounts allow you to hold them jointly, so it’s the same as for a single person. See Top Savings and Top Bank Accounts.

2. Bad debt is more like an STI than a marriage.

You can be as lovestruck as Romeo and Juliet (and we all know how that ended), but what lenders care about is the financial products that link the two of you.

There are only two types of product which can be linked to your credit file; a joint bank account or a mortgage (joint credit cards don’t exist, just second cardholders). If you have one of these, it connects your credit files. So if you apply for credit, your partner’s finances are likely to be looked at too. Therefore, if one of you has bad credit, it can impact the other.

The reason I liken it to an STI is that if your relationship breaks down, separating or getting a divorce doesn’t make the linkage go away – problems can linger long after. The solution is to apply for a ‘notice of disassociation’, but only if your finances are truly separate. If you still have a house or joint finances, this won’t be granted. (Full help in my Boost Your Credit Rating guide).

In a nutshell, be very careful before getting any products with someone who has a bad credit history – no matter how much you love them! If you do want a joint account (for bills, for example) then make it a savings account where there’s no credit linkage (though you get less functionality).

Bad debt is more like an STI than a marriage

Bad debt is more like an STI than a marriage

3. Never let your partner look after the finances.

"My partner deals with all the finances – I haven’t got a clue." If this sounds like you, then alarm bells should be ringing (and if you’re the one who does the looking after, read this in reverse).

Let me be blunt. Imagine for a second the worst were to happen and your partner died or left you – this would leave you with untold financial disorganisation and grief on top of the misery.

While it’s common for one half of a couple to be better with money than the other, you both need to be involved. I suggest the ‘senior’ financial half creates a simple factsheet detailing all your products – savings, debts, energy providers, insurance, bank accounts and more (avoid noting down sensitive passwords though). This should then be kept up-to-date and somewhere safe, in case, heaven forbid, something happens.

It’s also worth arranging a budget and finance meeting across the kitchen table to discuss it at least every three months (or every week if your finances are in dire straits). This will diminish the risk of problems.

Budget meetings are also great for those who struggle, so discuss before you spend any money, as two have better discipline than one.

4. You CAN use a 2for1 voucher on the first date (and every date, in fact).

Worried about whipping out that crinkled up 2for1 restaurant voucher on a first date? Don’t be. Our Valentine’s poll of over 7,000 users shows being savvy is officially attractive!

The scenario was a man asks a woman out and says he’ll pay – but uses a 2for1 voucher.  

30% said using a voucher was a good thing, it shows he’s a keeper.
56% say it’s not an issue.
14% say it’s tight and avoid.

So, if first-timers can do it, those in established relationships should relish it. If you want to go out and a voucher’s available, it’s far better to use that than to overpay, think what you could do with the cash saved.

See the latest restaurant vouchers, including for Valentine’s Day.

You CAN use a 2for1 voucher on the first date

You CAN use a 2for1 voucher on the first date

5. Trust pays in a relationship (and in your finances).

If you’re in a trusting relationship, you can use that to gain financially.

  • Savings: If you’re married or in a civil partnership, move any savings you have into the name of the lower rate taxpayer to maximise the interest payments. You can do this if you’re not married, but then there’s a minor risk of inheritance tax issues if one of you died and you have substantial assets. See Top Savings.

  • Double cashback gain. My top pick cashback card is the Amex Platinum Everyday, which pays new cardholders 5% cashback for the first three months on up to £2,000 spending.

    If you’re in a couple, one of you can sign up to the account and get joint cards so you can both spend on it. Once the three months are up, get your partner to get a new card to keep the 5% for another three months. Remember to always REPAY IN FULL each month or it’s 19.9% representative APR.

  • Bank account boost. As the top bank accounts require a set amount of income, if you’ve each got that, you can marry together accounts to get the maximum perks.

    For example, one of you can get a Santander 123 current account – which while it has a £2 a month fee, pays cashback on bills, eg, 3% on phones, 1% council tax, and 3% savings interest (if you’ve £3,000 to £20,000). Then whomever gets that should pay all the bills from it.

    The other can then go and get an account such as First Direct‘s, which gives a £100 switching bonus, top rated service and a 0% £250 overdraft.

I’d love to read your money and relationship tips in the comment section below.

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Are you due money back from Lloyds, TSB, Halifax and Bank of Scotland for debit card outage?

Are you due money back from debit card outage?

Are you due money back from debit card outage?

Are you entitled to recompense from Lloyds, TSB, Halifax and Bank of Scotland outages today? I thought I’d bash out a quick note to explain.

This afternoon, substantial numbers of customers of Lloyds, Halifax, Bank of Scotland and TSB (which, works on the same system) have found their debit cards not working when they try and pay in stores and elsewhere, and in some instances ATMs are not giving them cash.

We haven’t yet heard from the Lloyds Group, I suspect it needs to get its team together on Monday morning to decide what it’s policy will be, yet the precedent for this is how NatWest and RBS dealt with their similar issues last year.

More so, I would argue the RBS/NatWest issue has set the ‘standard industry practice’, which is enforceable by the Financial Ombudsman. So if Lloyds fails to do the same, as a bare minimum, you could take it to the Ombudsman.

At the time NatWest effectively said if you can prove you are out of pocket because of its outage (eg, late payment fines with other banks, extra hotel charges etc.), it would give you your money – it didn’t however, have a policy to pay compensation for distress.

I would suggest Lloyds will and must do the same. It is worth noting though that actually, when some who had been put in genuinely distressful circumstances spoke to NatWest, it did pay out compensation in some cases, so it’s worth calling Lloyds if that’s happened to you.

Lloyds says the problems are now fixed and I will update any news on this tonight on my Twitter feed (@martinslewis). Also, please use that to let me know if Lloyds’ statement doesn’t match up to your experience.

Ps. Apologies for the poor formatting of this blog post and the slightly scrappy prose. Normally it is laid out and subbed by my team, but as it’s a Sunday evening I wanted to get something out quickly as many are asking about it.

Pps. Thanks to Mrs MSE for stepping in as an impromptu proof reader.

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Is the Post Office playing fair about its mailing list?

Is the Post Office playing fair about its mailing list?

Is the Post Office playing fair about its mailing list?


Junk mail, calls and emails are all annoying. Yet not all of it comes from spam companies on the fringes of the law. Many are from big, legitimate operations. They often do this by using opt-in boxes, or by designing forms in such a way that we say ‘yes’ when we mean ‘no’.

That’s not behaviour you would expect from the Post Office – it’s a national institution and many people wrongly see it as a part of the State rather than a commercially-run organisation. In fact, its savings arm is actually run by the Bank of Ireland.

However, while doing research, I came across this as one of the many questions on the Post Office’s online savings application form.

______________________________________

Contacting you

Post Office®, Royal Mail and our trusted partners would like to contact you about other products, services and offers that might be of interest to you.

By clicking on the continue button and submitting this form you will be indicating your consent to receiving marketing communications by post, phone and email unless you have indicated an objection to receiving such communications by ticking the relevant box(es) below.

Contacting you

  • Post
  • Telephone
  • Email

_______________________________________________________

After scan-reading it, I couldn’t easily work out whether to tick or not to tick. So I had to stop and read it slowly to work out what to do.

GIVE IT A GO YOURSELF. DO YOU FIND IT EASY TO UNDERSTAND?

So what I want to know from you, is – do you feel the same? You can answer in the comments section below.

  • How easy did you find this to work out what to do?
  • Do you feel this is confusing? If so, in your view, is this just poor drafting or a deliberate attempt to confuse?

SPOILER ALERT:

From here on, I will assume you’ve already worked out what to do – if you haven’t, read it first or you can’t take a proper judgement.

In effect, what the Post Office has created is an ‘opt-out’ system, which to my eyes looks like an ‘opt-in’ system. Unless you tick the boxes, you will get the marketing.

Therefore, you’re effectively automatically signed up unless you choose not to.

Of course, an ‘opt-in’ system is favourable (we always use that here on MSE and try and make it as obvious as possible).

But if a firm is going to use an opt-out, the very least a responsible one should do is be very plain about it.

Yet here again, in my view, the Post Office fails. I suspect that were it to put ‘tick these boxes if you don’t want our marketing’ in bold above the boxes, it’d have far fewer sign-ups.

However, I’d like to see if you’re in sync with me, or you think it’s done it clearly.

Update by Martin: 20 January 2014:

I received this tweet from the Nina Arnott, the head of PR at the Post Office, a few hours after this blog was published: "@MartinSLewis thanks for highlighting this. Essential that forms like this are v clear. We’ll look into first thing tmrw @PostOfficeNews"

Related info:

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