Bank of England hold interest rates at 0.5%

April 9th, 2009

The Bank of England have today announced, as widely predicted, that interest rates will remain at 0.5%, ending 6 months of consecutive interest rate cuts. April is now the first month since September 2008 that the Bank’s Monetary Policy Committee has decided not to drop the Base Rate. But what does it mean for us?

Are we seeing signs that the worst is behind us? 

It really is too early to say, but many believe that we are certainly at or nearing the bottom of the current ‘dip’. On the other hand, there are those who believe that further reductions in rates would actually harm the economy, rather than improve it. Whilst the initial interest rate cuts were welcomed by most, the latest cuts appear to have done little more than spread panic and fear amongst the financial markets. The Bank of England’s decision to leave interest rates on hold, is simply a message to say ‘we have now done our job, and things are now getting back on track’. Whether this is true remains to be seen but any move that even begins to restore the countries shattered confidence will be welcomed. 

Mortgage holders and savers will see no change following the latest decision, unless individual lenders and banks decide to alter their rates, but on the whole, it will be a sigh of relief that we are entering a more ‘normal‘ phase following months of turbulence.

What next for interest rates?

Again, opinion varies but we can certainly expect to see a period of stability, with economists agreeing that rates are unlikely to get any lower. The question is when, and it is a question of when and not if, will rates start to rise again?

“Looking further forward, we continue to anticipate rates remaining at 0.5% for an extended period of time - in our forecasts that means until early 2011,” said Malcolm Barr, an economist at JP Morgan.

“Rates are at the absolute bottom here,” David Page, economist at Investec Securities told MSN. “The next move is bound to be up and that could come in the first quarter of 2010,” he added.

There are signs that the economy might be improving again, with an increase in mortgage activity and house sales, certainly contributory factors in the Bank of England’s decision. And recent news that HSBC are allocating £1 billion to lend to homeowners and RBS/Natwest stating that they will make £10 billion available to small businesses are all signs of a growing confidence within the financial sectors.

Mortgage Payment Protection Insurance can ease repayment worries

April 7th, 2009

Why take out Mortgage Payment Protection Insurance (MPPI)?

No one knows what the future will hold and if you become unemployed or cannot work due to accident or illness, you may not be able to meet your financial commitments. Job security is now a thing of the past, with record numbers unemployed or facing the risk of unemployment, yet millions of people are potentially putting their homes at risk by ignoring the benefits of Mortgage Payment Protection Insurance (MPPI).

The mortgage on our homes is probably the biggest commitment most people will make in their lives but if you couldn’t make your mortgage or loan payments, could you rely on the “state” for help? Probably not! Over 70% of people will not qualify for Income Support and those who do will only receive a small percentage of their normal income.

Mortgage Payment Protection Insurance(MPPI) can cover the payments on your mortgage, your loans or even your rent if you become ill or unemployed. But what about the cost? Surprisingly affordable with premiums as low as £3.00 per month per £100 of mortgage payment. Whilst the average cost of a mortgage has dropped by more than 50% in recent months, the risk of facing unemployment, accident or illness hasn’t, so protecting your home has never been more important. To find out more and receive an instant online quote, click below

Mortgage Payment Protection Insurance - Peace of Mind for you, your family and your home.

Alternative mortgage product launched by IBB

April 2nd, 2009

Fixed rate Mortgage launched by Islamic Bank of Britain

The Islamic Bank of Britain (IBB) has launched the UK’s first Islamic fixed rate mortgage in a direct bid to win a bigger share of the UK’s mainstream mortgage market, the bank confirmed.

‘We are throwing down the gauntlet to conventional banks with this new fixed rate Home Purchase Plan,’ said Sultan Choudhury, Commercial Director at Islamic Bank of Britain.

‘The mortgage will be available to customers of all faiths, so my call to UK homebuyers and homeowners is to put any misapprehensions to one side and come and find out how a Home Purchase Plan from IBB can really make a difference to your pocket,’ he declared

Mr Choudhury explained how an Islamic mortgage differs from a conventional mortgage. ‘Interest is forbidden in Islamic banking, so the bank will take a share in the property and each monthly payment will consist of a rental portion and an aqquisitian portion which will, over a defined period purchase the banks share in the property’

The bank is offering a rate of 3.99% with an arrangement fee of £299 and claims it is one of the most competitive offers currently available in the UK home finance market. The new product is fixed until June 2010, there is a minimum of £70,000 and a maximum finance of £750,000 as well as a minimum property value £150,000.

‘Not only is our Home Purchase Plan extremely competitive, Islamic Banking is also considered by many as an ethical and stable alternative to conventional banking,’ Choudhury added.

Unexpected Rise in House Prices

April 2nd, 2009

House prices rise by 0.9% in March

March saw a surprise rise in house prices, as buyers started to return to the market, figures showed.

According to the Nationwide, the increase of 0.9% was enough to push the average home back up above the £150,000 threshold to £150,946, but the group added caution to the statement saying that it was “far too soon” to take this as evidence that the bottom of the market had been reached.

The rise also led to a reduction in the annual rate at which house prices are falling, from 17.6% in February to 15.7% in March.

Fionnuala Earley, Nationwide’s chief economist, said: “The Bank of England has already taken strong measures to ease the tensions in economic and financial markets by cutting rates and commencing quantitative easing. However it will take time for these to work through into the housing market before we can expect a sustained recovery in house prices.”

The rise has followed recent positive news on the housing market, as only days earlier the Bank of England said the number of mortgages approved for house purchase jumped by 19% during February.

Estate Agents have been reporting an increase in interest from potential buyers during the last 3-4 months and it appears that this may now be translating into sales. There has been an increase in the number of ‘cash investors’ looking at property again, as interest rates on saving and other deposits continue to fall.

Predictably pessimistic, and dare we say gloomy, economists have greeted the recent run of good news cautiously, warning that, although the housing market may have turned a corner, a sustained recovery in prices was still likely to be some way off with the economy in recession and unemployment rising.

Tesco ‘Bank’ on Success

April 2nd, 2009

Tesco plan to open 30 bank branches in 2009

Tescos attempt at global domination seems set to continue with plans to open 30 bank branches within it’s stores by the end of 2009. Whilst the banking sector, as a whole is retracting and consolidating it’s position, Tesco once again seem to be bucking the trend.

A trial branch has already been running in Glasgow for some time now and the first new branches in Blackpool, Coventry and Bristol will be opened during the next month and Tesco plan to be offering current accounts within the next two years, with a wider range of services to follow.

The company already offer car, travel and home insurance, credit cards, loans and savings accounts under the Tesco Personal Finance brand with plans to possibly move into the mortgage market.

Last month, Tesco said the amount of money deposited in its savings accounts had nearly doubled in the previous six months, although the last few months have seen general industry growth in this sector, as consumers make provision for an uncertain economic period ahead.

Whether Tesco have the midas touch remains to be seen, but they certainly seem to possess one vital factor that is lacking in the country as a whole, consumer confidence, and this alone can make or break a company or country for that matter.

Tesco for government? Who knows!

British Homeowners make record mortgage repayments

April 2nd, 2009

 According to Bank of England figures published earlier this week, Britons paid off a record £8 billion in mortgage debt between October and December last year.

The figures suggest that homeowners, benefitting from low interest rates and reduced mortgage costs, are now cutting down on spending and putting any surplus funds into paying off their mortgage debt. As concerns of the recession and economic slowdown set in, anxious homeowners put more money into paying off their mortgages, with the largest net injection of equity since records began in 1970  

As house prices continued to rise, homeowners were drawing equity from their homes and by 2007, the amount of extra borrowing obtained through remortgaging reached £14.6 billion. However, the last 3 months has seen a reversal of this trend and homeowners are now drawing a ‘negative’ amount of equity from their homes.

Interest rates at lowest ever level

February 5th, 2009

Interest rates fall to lowest ever level of 1%

As widely predicted, interest rates fell today to 1% today, in an effort by the Bank of England to kick start the economy and the housing market. Ironically, the latest cut has come  on the day that Halifax, Britains biggest mortgage lender announced that house prices rose by 1.9% in January, ending 10 consecutive  months of  price falls.

Bad news for savers

The latest cut of 0.5% will not have everyone cheering. In recent months, savers have been hit hard by the fall in interest rates.

With the average savings rate at just 0.81% APR, a further drop of 0.5% will more than half this to just 0.31%. This means that people with the average savings balance of just under £3,000 will get less than £10 a year in interest - a minimal return. Going forward, if we experience one more decrease this year it could mean 0% savings rates for consumers.

And this is having a huge impact on some sections of the population - especially those relying on interest from savings to boost their income, such as pensioners.

Someone who invested £20,000 in a typical fixed-rate bonds last year would have received £115 per month interest after tax, however those opening accounts at the new 1% rate from today would receive £45 per month.

Another issue is that low interest rates tend to hurt the pound.

Like savers looking for the best deal on their cash, traders tend to invest in currencies from countries with higher interest rates. Lower rates could mean the pound falls further.

Despite small rises in the week,  the pound has been collapsing in the last few months as rates have fallen as investors continue to bet against the UK economy.

Who will gain from the fall in rates?

Gainers will be homeowners with tracker mortgages who will see the full benefit of the reduction immediately. A £200,000 interest only mortgage on a 1.5% above base tracker will now be costing £458 per month compared to £958 per month in August 07. Customers on standard variable rate mortgages will have to see how much, if any of the reduction the lenders pass on.

What next for interest rates?

Despite the negative impact on savers and the pound, many economists still think the base rate has to fall further to limit the impact of recession.

Henk Potts, equity strategist at Barclays Stockbrokers, predicted that as the economy weakened rates could fall to almost 0%.

“The UK economy contracted by 1.5% in the fourth quarter of 2008 - its weakest performance since 1980,” he said.

“The threat of inflation has now turned to the risk of deflation due to the sharp drop in commodity prices, the temporary cut in VAT and weakness in consumer demand.

“We now expect the Bank of England to cut rates close to zero by mid-year.”

House prices continue to fall

January 29th, 2009

But mortgage approvals are on the way up!

Figures have revealed house prices fell again in January, the 15th month in a row.

Nationwide Building Society said prices dropped by 1.3% during the month, while the annual rate of decline hit a new record high of 16.6%.
The latest slide had wiped £2500 off the average price of a home, leaving the average home value at £150,501, a fall of £35,500 from it’s peak in October 2007.

Martin Gahbauer, Nationwide’s senior economist, said: “The price of a typical house fell by a further 1.3% in January”, but added that the three-month on three-month rate of change, which is generally seen as a smoother indicator of short-term trends in prices, had improved for the fourth month in a row.

The price drop seen during the three months to the end of January was 4%, compared with a fall of 4.2% during the previous three month period, although Mr Gahbauer cautioned that it was too early to say that this marked the beginning of a sustained improvement in the short-term trend.

However, figures from the British Bankers’ Association have shown that the number of mortgage approvals rose by 27% in December, suggesting that the recent cuts in interest rates and the fall in house prices during the past year may be tempting buyers back into the market. Economists however stressed that the rise was from exceptionally low levels, and at best was likely to indicate that the steep drop in approvals may have bottomed out.

Which lenders are passing on the interest rate cuts

December 11th, 2008

Great news, another 1% reduction in the Bank of England base rate to 2%, but before we all get too excited, exactly how will this latest interest rate cut affect us. Well, the good news, unless your on a fixed rate in which case your stuck with your existing rate until the end of your fixed rate term, is that most of us will see some reduction in our mortgage payments, although it is unlikely that all banks and building societies will pass on the full 1% reduction.

Why is that? Well the rate at which banks lend money to us is governed by the rate at which they can borrow money from each other and at the moment bank A doesn’t trust bank B so they will only loan them money at a relatively high rate. As a consequence, because the banks are paying more for their money they are charging us more for it.

However, if you are already on a tracker mortgage, the good news is that you will get the full 1% reduction in your mortgage rate as your lender is obliged to pass it on. Most lenders will apply the reduction from the 1st of the month following the rate cut (i.e January 2009). Variable rate mortgages will be at the discretion of the lender with Lloyds/TSB and HSBC already confirming the full 1% reduction off their standard variable rate.

As a guide we have published a snapshot of some of the major lenders and their decisions but to be sure how these latest changes will affect you, contact your mortgage lender.

(Click on the image to enlarge)

House Prices predicted to Rise by 25%

November 10th, 2008

Some good news, at last! 

David Orr, Chief Executive of the National Housing Federation, has predicted that the average house price in England will rise by 25 per cent over the next 5 years to reach £274,700. Before we all start popping the champagne corks, the report, published by the Federation and researched by independent economists, Oxford Economics goes on to predict that 2009 may see a further period of decline, with the upturn coming in 2010. The paper, entitled Home Truths 2008, says that house prices will increase by:

• 1.3 per cent in 2010
• 5.2 per cent in 2011
• 9.2 per cent in 2012, and
• 9.3 per cent in 2013 - with the typical price at the end of the period being well above the average price in 2007 of £222,600