Mortgage Matters!

Interest rates – How will they affect you?

183:793585269 (Colin Wallace) — Thu, 30 Jun 2022 21:22:29 GMT

Interest rates – How will they affect you?

Interest rates have not been a real topic of conversation for over twelve years. A generation has grown up not having to think that the cost of their mortgages or loans might rise. Since 2008/9 Bank Base Rate (BBR) set by the Bank of England has been less than 1% (as low as 0.1% 2020/21 over the pandemic), which may explain why household borrowing has been so attractive for so long.

Yet interest rates have been raised from 0.5% to 1% and now to 1.25% – their highest level for 13 years1. By doing so, the Bank of England is hoping to slow the rate at which prices are increasing. Price inflation, which is the measure by which the cost of goods and services is increasing, is estimated to reach 11% later this year.

We have all noticed how prices are going up with the cost of fuel, gas and electricity rising rapidly. One of the reasons is that while the world recovers from COVID, demand for goods and services has increased while the ability to supply has struggled to keep up. More buyers chasing too few goods means that prices have risen. The sharp rise in oil and gas costs has been made worse by Russia’s invasion of Ukraine.

One of the few measures available to central banks to try and control rising prices is to raise interest rates. However, that has a negative effect on the cost of borrowing and also encourages people to borrow and spend less.

Mortgages and interest rates.

Even though there is less to worry about in the short term if you are one of the c.74% of mortgage holders who are currently on a fixed rate deal, eventually everyone with a long mortgage end date is likely to be affected once their current fixed rate deal ends. Already, approximately 850,000 people on tracker or variable rate mortgages have started to see their monthly repayments rise.

Credit cards and loans?

Even if you don’t have a mortgage, changes in Bank of England interest rates could still affect you if you have credit card balances or loans.

According to data from the Bank of England, the average credit card interest rate in the UK was 21.46% at the beginning of 20225 and the average arranged overdraft rate has risen from 12.34 per cent to almost 27 per cent according to the data firm Moneyfacts.

If you are looking for ways to manage your monthly outgoings, we recommend that you get in touch with us. We could help to review your existing mortgage arrangements and advise you on suitable options based on your individual needs and circumstances.

Sources

1 – Bank of England (2022) Bank of England base rate. Available at: https://www.bankrate.com/uk/mortgages/bank-of-england-base-rate/ (Accessed on 28th June 2022)

2 – Weardon, G. (2022) Bank of England says Inflation will hit 11%. Available at: https://www.theguardian.com/business/live/2022/jun/16/bank-of-england-interest-rate-decision-markets-pound-ftse-business-live (Accessed 28th June 2022)

3 – UK Parliament House of Commons Library (2022) Rising Cost of Living UK. Available at: https://commonslibrary.parliament.uk/research-briefings/cbp-9428/ (Accessed 28th June 2022)

4 – UK Finance (2022) How the Bank Rates Affect Mortgages. Available at: https://www.ukfinance.org.uk/news-and-insight/blogs/how-the-bank-rate-affects-mortgage-rates (Accessed 28th June 2022)

5 – Thomas, J & Stoneman, J (2022) 21% and Rising: Fury grows as Credit Card rates hit new high. Available at: https://www.theguardian.com/money/2021/dec/05/21-and-rising-fury-grows-as-credit-card-rates-hit-new-high (Accessed 28th June 2022)

6 – Clark, D. (2020) Overdraft rates rise but borrowing becomes cheaper. Available at: https://moneyfacts.co.uk/news/banking/overdraft-rates-rise-but-borrowing-becomes-cheaper/ (Accessed 28thJune 2022)

Renovate, or Buy Already-Modernised?

183:793585269 (Colin Wallace) — Thu, 30 Jun 2022 21:16:53 GMT

Renovate, or Buy Already-Modernised?

If you were looking for a property to purchase today, would you be more interested in something you could do up or a dwelling that had already been modernised and did not need anything spent on it?

Although unmodernised properties are typically 4.5% cheaper to buy than similar modernised examples in the same area recent research by a leading estate agent suggests that on balance it is cheaper to buy a house that has already been renovated. The main reason given was that buyers looking to modernise tend to underestimate the cost of renovation and then find that the true costs are much higher.

For the purposes of comparison, typically an unmodernised property could be defined as one that has dated decorative schemes and whose kitchens and bathrooms have not been updated for decades.

There are variables of course, keen DIY enthusiasts may welcome the challenge of renovating a property, whilst many other homebuyers may not be in a position to consider doing it themselves if they feel they lack the skills, time and confidence required to tackle the often-complex challenges arising in modernising a property.

The cost of hiring tradespeople has increased by approximately 34% over the past year and cost of living rises and shortages have also seen rises in the cost of building materials according to Checkatrade.

According to the research, the estimated average cost of modernisation of a typical unmodernised home would be equal to 15.8% of the property’s original value before starting work.

When buying a home to renovate, the buyer needs to be confident that the cost of renovation would be absorbed by an increase in value once the work had been completed. That being said, the value of having a home which reflects the new owners’ tastes and fulfils the dream of having it meet their precise requirements is not something that can be expressed in simple monetary terms.

So, if the lure of renovation is too great here are a few tips to help reduce the cost –

Make sure you have a structural survey, so you know the property is basically sound
Get at least three quotes. This can help make sure you’re not overpaying – but be wary of any cost which seems particularly low.
Order materials early. Price rises are showing no sign of abating3, so purchasing materials early could work in your favour.
Managing your resources and time. If you’re planning a big project, pay careful attention to how trades are phased to avoid multiple callout charges.
Reuse materials. Consider whether you could salvage timber, pipes or other materials which may otherwise have gone into a skip.

Finally, always try to factor in extra funds for any unexpected expense. There will inevitably be something needing attention that had not been factored in.

Sources

1 – Magnus, E. (2022) Think Twice Before Buying That Fixer-Upper. Available at: https://www.thisismoney.co.uk/money/mortgageshome/article-10809715/Why-buying-fixer-upper-cost-modern-home.html (Accessed 28th June 2022).

2 – Checkatrade (2022) Drilling into the Detail: What’s happened with job prices?. Available at: https://www.checkatrade.com/blog/news/job-prices/ (Accessed 28th June 2022)

3 – Checkatrade (2022) Materials price rise across the UK in 2022. Available at: https://www.checkatrade.com/blog/news/materials-price-rise/ (Accessed 28th June 2022)

Buy Now Pay Later (BNPL) – A benefit or a curse?

183:793585269 (Colin Wallace) — Thu, 30 Jun 2022 21:06:12 GMT

Many retailers are offering flexible payment options - Should you use them?

As the cost of living rises and incomes remain obstinately flat1, it is increasingly tempting to spread the cost of goods over a period of months and pay no interest for a fixed period. On the face of it, it may seem the perfect answer to borrow at no cost and be able to pay off the loan in easy to manage chunks.

The benefits are very clear provided you can keep up payments, however the downsides are not so immediately evident, but can become a major problem.

Missed payments – these can mean paying a fee and then having interest charges imposed on any balance outstanding. Some companies may pass unpaid debts on to debt collection agencies.
Credit score – Buy Now Pay Later (BNPL) services can refer missed payments to credit agencies. So, if payments are made late or missed altogether, a person’s credit score can be affected, especially if debt collection agencies become involved. In turn, this can lead to difficulties in obtaining mortgages or other forms of credit.2

According to a BBC report for Panorama, an estimated 15 million adults of all ages in the UK are actively using this form of credit, an increase of more than two million since the start of the year. Also, research quoted in a report by Equifax suggests about 30% of those are 20- to 30-year-olds.

A sign of the potential problems comes from a Citizens Advice survey of 2,288 people who had used buy now pay later during the past 12 months. It found that while 52% made repayments from their current account, 26% were using a credit card, 9% a bank overdraft and 7% were borrowing from friends and family.

It has been reported that Apple, will soon be adding a BNPL facility to its Apple Wallet for payments through Apple Pay5, and there is growing pressure on BNPL providers to become more transparent with regards to borrowers’ activity, ahead of likely action by the financial regulator to formally regulate the sector. Swedish financial company Klarna, the leading BNPL provider in the UK, started sharing customer data with two credit agencies, Equifax and TransUnion from 1 June, meaning credit card companies will be able to see transactions and debts when conducting formal checks on potential borrowers for mortgages and other finance.

If you have any outstanding BNPL arrangements and are concerned as to how this may affect you or a mortgage application, we would encourage you to get in touch with us so that we can review your individual needs and circumstances, and help to provide you guidance on what it means for your future plans.

Sources

1 – BBC Business News (2022) What is the UK’s inflation rate and why is the cost of living going up? Available at: https://www.bbc.co.uk/news/business-12196322 (Accessed 28th June 2022)

2 – Experian (2022) How does buy now pay later work?. Available at: https://www.experian.co.uk/consumer/help-discover/discover/guides/buy-now-pay-later.html (Accessed 28th June 2022)

3 – BBC Panorama (2021) Buy Now Pay Later: The New Debt Crisis?. Available at https://www.bbc.co.uk/programmes/m0012jqk (Accessed 28th June 2022)

4 – Citizens Advice (2022) Two Fifths Borrowed to Pay Off Buy Now Pay Later. Available at: https://www.citizensadvice.org.uk/about-us/about-us1/media/press-releases/two-fifths-borrowed-to-pay-off-buy-now-pay-later/ (Accessed 28th June 2022)

5 – Montebello, L. City AM (2022) Hot on Klarna’s Heels: Apple Enters Buy Now Pay Later Space With ‘Apple Pay Later’. Available at: https://www.cityam.com/hot-on-klarnas-heels-apple-enters-buy-now-pay-later-space-with-apple-pay-later/ (Accessed 28th June 2022)

6 – Makortoff, K. (2022) Klarna to start reporting UK customer debts to credit agencies. Available at: https://www.theguardian.com/business/2022/may/04/klarna-to-start-reporting-uk-customer-debts-to-credit-agencies (Accessed 29th June 2022)

Mortgages in Later Life

183:793585269 (Colin Wallace) — Tue, 19 Apr 2022 09:27:51 GMT

Research from the pandemic!

From time to time, financial organisations do market research to try and understand what the future holds as they begin to shape their products for the next period of time. One family recently published some research looking at trends for older borrowers following the pandemic with some interesting results.

"Having had a garden during lockdown was a factor in the choice to stay for more than half (53%), while 26% simply realised how much they love their home, having spent more time indoors recently.

Family ties play a role in not wanting to move too. One in four (23%) over-50s, are keen on keeping space at home for loved ones to visit, after being apart during the last 18 months, while a fifth (21%) want to remain in their current house in order to pass it on to family someday.

On the financial side, factors such as high house prices (10%), as well as the hassle and cost that the moving process can involve (31%) are major influences on the decision to stay put.

Three in five (60%) over-50s say they are unlikely to move house any time soon. Of these, one in four (24%) would consider taking out equity release to free up cash from the value of their property, helping them to remain in the familiarity of their home rather than needing to downsize or move to accommodate needs in later life.

Driving this, 17% say they would rather spend money to make their house more accessible than relocate. The same proportion (17%) say they would be very reluctant to move to a smaller warden-assisted flat or care home in old age. While one in 20 over 50s has already taken out equity release (5%), this appetite for renovation rather than relocation could drive new uptake."

When you take into account the recent trend of families increasingly opting to help out family members through gifting deposits, this is a growing market for Equity Release and Retirement mortgage providers.

Equity Release advisers must hold the ER1 Certificate in Equity Release from the Chartered Insurance Institute and have a clear understanding of the variety of later life borrowing options available - At Wallace Home Finance we have Brokers within our business who hold this qualification however we have chosen to partner with Mortgage Advice Bureau Later Life to offer lifetime mortgage products from a carefully selected panel of providers. With competitive rates, high loan amounts and features such as no monthly repayments available, their Adviser will talk you through your options and recommend a plan based on what’s important to you.

Practical ways to cut your costs!

183:793585269 (Colin Wallace) — Thu, 14 Apr 2022 11:41:09 GMT

Practical ways to cut your costs!

With rising prices from food and petrol to domestic electricity and gas bills, what can we do to help ourselves and budget in a way that ensures we can live within our means without racking up overdrafts and other debts?

The golden rule is to make sure that if you are finding difficulty paying for a service, don’t hide away. Call the people to whom you owe money to see if you can come to a temporary agreement. Whilst we can’t control the events surrounding the economic bumps in the road, we can take positive action to cut our household costs by looking at the services and goods we can afford to do without.

The question to ask yourself when you look at your bills is ‘Do I really need this?’ and ‘Is this value for money, for me?’

Subscriptions – Netflix, Amazon, Now TV and Sky are a few of the TV subscription channels that require regular monthly payments, with Sky packages starting at anything between £26 and £46 depending on what services are required. Have a think, do you really value this?

Credit card/store card balances – If you are just making minimum monthly payments on outstanding balances, consider reducing your balance, if possible, to reduce monthly outgoings. Consider talking to your financial adviser about any debt consolidation options that could be suitable for your circumstances.

Home phone, broadband and mobile phone –

Call your suppliers and ask for a better price – you’ve got nothing to lose
Look at price comparison websites to see if you can find cheaper deals – though be careful to check you aren’t eligible for any financial penalties if you do make a change.

Water bills –

Monitor your consumption with a water meter
Take steps to reduce usage, such as switching to showers instead of baths
Check your shower is fitted with an efficient shower head to help save water

Gas & Electricity –

Low income families can benefit from a £140 discount in the Warm Home Discount https://www.gov.uk/the-warm-home-discount-scheme .
In February 2022 the government announced extra help towards rising bills, including a £150 Council Tax rebate for eligible households and £200 towards energy bills in England, Scotland and Wales.1
Thinking of changing suppliers? Unfortunately there are no savings to be had here at the moment – each energy supplier charging to the limit of the energy price cap, and if you are on a fixed tariff coming to an end then you will be placed on your supplier’s standard variable tariff.

Council Tax – are you paying too much? Up to 400,000 homes are in the wrong Council Tax band according to MoneySavingExpert2, so it is worth checking.

Go to the Money Helper guide at https://www.moneyhelper.org.uk/en/homes/buying-a-home/how-to-save-money-on-your-council-tax-bill

MoneyHelper is provided by the Money & Pensions Service – set up by HM Government.

Sources

1 – Gov.uk (2022) Households urged to get ready for £150 council tax rebate. Available at: https://www.gov.uk/government/news/households-urged-to-get-ready-for-150-council-tax-rebate (Accessed 29th March 2022)

2 – Lewis, M (2022) Council Tax Bands. Lower your band and save £1,000s. Available at: https://www.moneysavingexpert.com/reclaim/council-tax-bands-change/ (Accessed 29th March 2022)