Fall in UK House Prices
Many homeowners in the UK are alarmed and concerned at the steady drop in housing prices over the last year, especially in the context of an increasingly insecure economy.
As a house is the most valuable and important asset within a family, which is why many homeowners are concerned this current steep drop in property value may make their homes worth much less than they initially paid, sending them into a negative equity situation. This will of course make it harder for a homeowner to sell their house without having to dip into their home’s equity or even to take out a loan secured on this.
The fall in housing prices is a direct result of negligent borrowing and lending on the behalf of UK banks. Over the last few years some UK banks sought to lend and borrow money cheaply in America where interest rates were lower. This allowed them to easily make larger loans domestically, which meant that people were able to pay more for their new house, sending prices upwards. Unfortunately when the American credit crisis hit, these UK banks found they were unable to continue borrowing American money to lend to UK consumers, and also they were now saddled with bad debt from poorly-made mortgages that American banks had sold them.
There is hope, however. The UK has kept it’s bank interest rates at 5% to ensure that banks lend sparingly and that they do not let irresponsible people borrow excessive amounts for property. Additionally, UK banks are consolidating, reinvesting and becoming nationalised so as to purge themselves of bad American-based debt.
In the long term, housing prices should stabilise, and hopefully return to their appropriate values.
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Aegon UK Calls on Government to Restore Confidence in Financial Services Industry
Aegon UK CEO, Otto Thoresen called upon the government to make financial advice more available to the public as part of it’s policy response to the current economic crisis.
Speaking at the Labour Party Conference this past week, Thoresen confirmed what we are all thinking: The heightened turmoil in the economy has increased the urgency for financial advice. People are feeling confused and are looking for information. Confidence in the UK financial industry is faltering.
He urged that financial guidance and assistance be accessible to all walks of life, not just those that are in debt, weathly or extremely poor. All UK citizens need support living in today’s turbulent economy.
Although the government won’t be providing advice on specific products or services, for example what is the best credit card to use or the best mortgage deal, it will be providing guidance on overall budgeting, planning and investing.
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Lloyds TSB and HBOS Merger
Lloyds TSB and HBOS Merger has sent shockwaves throughout the financial system of the United Kingdom. While there was no doubt that the effects from the American sub-prime loan catastrophe would crash hard on the UK’s shores, a lot of people are concerned that it might affect more than the thousands of employees who could be laid off. So if you’ve got a mortgage with Lloyds TSB or HBOS, should you worry? How might this affect you?
First it’s key to understand what’s happening. HBOS has been caught in the sudden disappearance of credit worldwide as banks have pulled back capital in order to protect themselves from the mortgage crisis abroad. Without the ability to quickly borrow money, and with an unsure future, HBOS needed a way to shore itself up and ensure it had the funds necessary to meet it’s obligations to it’s customers. To do this, they sold themselves to Lloyds TSB.
For most customers, especially mortgage customers, the changes should be minimal. In the end, someone will still own your loan, and you will still be required to make payments. When the merger is complete, you should contact your bank and find out if your terms have changed. Odds are they haven’t, but your “new” lender may want to renegotiate terms.
It’s important to keep a cool head, and if you continue to keep tabs on your mortgage and make payments, you should be fine. Problems should only arise if you fail to make your normal monthly payments.
Remember, a change of lender does not let you eschew your obligations!
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Mortgages - How Much Can I Borrow
Buying a house is one of the biggest purchases you’ll ever make so it is important you know how much you can afford before you go house hunting. You don’t want to be disappointed! These five factors will give you an indication of how much you can borrow:
1. Salary Multiples
2. Affordability
3. Deposits
4. Valuations/Lawyer Fees
5. Stamp Duty
Salary multiples
As a guideline, a mortgage provider will lend you between 3 and 4 times your gross salary. This can change if you’re willing to pay a higher interest rate. Also, if you are buying with a partner a provider can lend you based on your joint income. For example if your income in £25,000 a year and he or she is on £30,000, you should be able to borrow close to £165,000. Any additional income from bonuses, commission or investment can be taken into account as well.
Affordability
In addition to salary multiples, lenders will look at your affordability. This includes bank statements and any regular outgoings. If you have a record of being smart with your finances this may enable you to get a bigger mortgage however if you are in debt this may hinder the size of the loan they will offer.
Deposits
Simply put, the bigger the deposit you have the more mortgage options you will have including lower interest rates and therefore lower monthly payments.
A 100% mortgage is the only mortgage type available to you if you don’t have a deposit. Not all lenders will lend 100% of the property price and if they do, the loan tends to be at a higher interest rate due to the risk involved. Most lenders will loan up to 95% of the value of the property, leaving you to provide the remaining 5%. So if the value of the property you want to buy is £100,000 your deposit would be £5,000.
Stamp Duty
This is a tax to be paid upon the purchase of a house valued at over £125,000. It varies with the increase of the property value:
· £175,001 - £250,000 – Payment is 1%
· £250,001 - £500,000 – Payment is 3%
· £500,001 or more – Payment is 4%
Valuations & Lawyer Fees
This is typically in the region of £1,000 - £2,000.
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