News in the Wake of the Base Rate Cut
Ever since the Bank of England dropped the base rate 1.5%, there has been a plethora of news in the mortgage and finance industry. Here is a quick list of some of the top stories we’ve recently come across:
B&B chair Pym tells MPs buy-to-let market “now closed” - MoneyMarketing
Shareholders approve Lloyds takeover of HBOS - MoneyMarketing
Tracker mortgages back on the market - MoneyHospital
Banks to Lend More - Nick Robinson’s Newslog
Deflation Looms as Next Challenge on the Horizon - gaurdian.co.uk
One Million Without Clear Mortgage Payment Plan - Telegraph.co.uk
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Interest Rates Drop 1.5%
Wow, didn’t see this one coming, and neither did other industry leaders…
Ben Thompson, mortgages director at Legal & General said:
If you consider that just six months ago Mervyn King was saying that there would be no rate cuts until 2010, the mindset now is completely different.
The size of the cut, the biggest since 1981, is an effort to boost the economy, however, the message it is also sending is to the UK public is that a recession is coming, so we need to protect our finances.
For mortgage owners, this means:
- Fixed Rate Mortgages - Nothing, you are on a fixed rate that is not affected by base rate changes
- Tracker Mortgages - Your rate should drop by 1.5% until you have a minimum rate clause
- Discount or Variable Rate Mortgages - soley at the discretion of the lender, they will probably drop the rate .5 or 1%.
Read more on the new base rate at:
UK Interest Rates Slashed to 3% - BBC News
Interest Rates Drop By 1.5% - Money Marketing
Urgent 1.5% Base Rate Cut - MoneySavingExpert.com
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Pros & Cons of Fixed Rate Remortgages in Credit Crunch
Of those borrowers that bought their homes 3 or more years ago, 47% chose fixed rate mortgages compared to 76% in 2007 - 2008. Clearly there has been a shift towards the more ‘appealing’ fixed rate deal rather than variable rate mortgages. As our economic climate changes, will this continue to remain the case? Here are a few things to consider… 
Fixed Rate Mortgages
Pros:
- Security! Homeowners know how much they will pay each month making budgeting much easier.
- Secure a rate you are happy to pay for couple years or the duration of the mortgage.
- Changes in the Bank of England’s base rate do not affect your rate.
Cons:
- If the base rate falls, your fixed rate mortgage may cost more than the equivalent variable rate deal.
- There are likely to be arrangement fees and early repayment charges.
- Upon completion of the fixed rate term, you will have to default to the lender’s standard variable rate (SVR) or remortgage.
Variable Rate Mortgages
Pros:
- If the Bank of England base rate falls, your monthly payments will fall as well.
- Early redemption fees are unlikely if you decide to move onto another product.
- Initial rates are usually lower than the fixed rate product on offer so you will pay less in the onset.
- You are unlikely to be charged arrangement fees.
Cons:
- If the base rate goes up, so will your monthly payments.
- Variable rate mortgages are more difficult to budget for.
- After the initial fixed rate period, your rates will probably increase.
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House Prices to Recover in 2013
BBC.co.uk is reporting that house prices won’t get back to where they peaked in 2007 until 2013. The source of their information, the Centre for Economics and Business Research (CEBR), is also predicting prices will fall another 25% by the end of 2009 and then level off.
If this forecast is correct, this means that we should expect the average house price to bottom out at close to £157,000, £50,000 less than at it’s peak a year ago before it begins to rise again in 2010/2011.
The finanial crisis that has evolved into an economic crisis with more unemployment and falling household income, has crushed confidence in the housing market. Few mortgage options have left a small amount of sellers chasing an even smaller number of buyers.
I think Daniel Lee of Property Search Engine, summed up the situation well:
“Mortgage finance is a lot tougher to secure and many sellers still are not dropping their prices to realistic levels. They are in 2008 but have a 2005 mindset,”
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Mortgage Fraud Double in Last Year!
IFAonline.co.uk is reporting today, that Mortgage Fraud has increased 100% in the last year as a result of increased cases of identity theft and the lax lending criteria of recent years.
Some interesting stats:
- The amount of funds paid out to lenders on fraudulent purchases rose from £2m in 2006/2007 to £4m in 2007/2008.
- Up to 60,000 UK properties were bought with fraudulent loans.
The FSA has begun an investigation into brokers that have participated in mortgage fraud with more fines and penalties to come. It is also estimated that a minimum of £7bn fruadulent mortgages are currently in lenders books.
Read the article here: Mortgage Fraud Up 100%
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