For the first time since the credit crunch struck, first time buyers can now get a mortgage with a 10% deposit. For some two years now, lenders have run scared of high loan-to-value mortgages as house prices fell away. But as prices begin to stabilise, lenders are re-entering the market.

Industry research shows that 21 lenders will now consider low deposit mortgages – although that’s a mere fraction of the number during the property boom years. (HSBC, NatWest, Yorkshire bank and Britannia seem the best)

Nevertheless it’s great news for first time buyers.

But as with all these things, there’s a sting in the tail. The cost of these low deposit loans is high. The average rate charged is close to 6.25% - that’s 5.75% over the Bank of England’s base rate for a 2 year fixed rate.

Before you dash out, consider what could happen when the fix comes off in two years time. Say you took one of these loans and base rate increased significantly during the next 2 years (as it most certainly will). Despite what optimists are saying we remain very worried about house prices and say we are right. What could happen in two years when the mortgage fix comes off?

Well, if the housing market remained down in the dumps you would probably have equity in your home of between 5% to 15%. At the lower end you’d be forced to stay with your lender and accept their standard variable rate. At the higher end you’d have enough to go mortgage shopping for a new fixed rate deal. But it’s touch and go.

Now add the scenario is that prices do continue to fall albeit at a slower pace, and you also need to move, say with your job. As you started with just 10% in your home you’d be lucky to clear that to put down as a deposit on your next home and that would mean that your next home would be rented. Your back to saving up again.

I know that some people will criticise me, but I think it is too soon to go for a 10% mortgage bearing in mind that interest rates are going to rise and the direction of the housing market is by no means clear. I’m not the only one that believes that the current upward movement in house sales and prices is a false dawn. The market still has lots of problems to face and lots to prove.

We are constantly hearing about the results of people’s identity being stolen – the fraudulent debts being taken out in their name, the scams on paypal and so on.

So what can you do to avoid being a victim of identity theft? Well you can never protect yourself 100% but here are some suggestions –

• Take yourself off as many mailing lists as possible – register with the Mail Preference Service (www.mpsonline.org.uk)
• Go ex directory. Contact your landline provider
• Whilst you will want to remain on the Electoral Role you can elect for your name to be taken off the published version. Speak to your local authority.
• Never volunteer any information about your date of birth or job especially to any organisation or web site that may publish that information – such as Facebook.
• When you have finished with any official mail or any mail which contains your date of birth, shred it.
• Many of us constantly receive emails purporting to be from banks, credit cards and other financial organisations. Unless you are expecting a specific email from your bank, delete them. Never reply when they ask you to “confirm any of your confidential banking details” or any personal information.
• Always open all of your mail, especially mail from phone companies, financial organisations or businesses selling electrical goods. It may be a letter about an application that they think you have made. If it does sound like that, phone up the company and check out why you received the letter.
• Always check your bank and savings account statements. If money has gone the quicker you get in touch with your bank, the better.
• If you post suddenly stops arriving contact your Post Office. Someone may have put a divert on your post.
• When you move home always divert your mail to your new address, it costs £39.05 for a year or £26 for 6 months
• If anything suspicious happens, check out your credit file at a major credit agency such as Equifax (www.equifax.co.uk)
• And finally, if you have had your identity stolen, confirm all your telephone conversations with the banks, etc by letter. With something as important as this, you need to leave a paper trail behind you in case disputes arise.

As you may know the Financial Services Authority allowed all the banks to suspend clients’ claims for excessive bank charges for two years. The argument is that the banks charges are excessive and in breach of unfair contract terms. This waiver was authorised by the FSA on 27th July 2007 and to begin with the waiver was just for twelve months whilst the banks and the Office of Fair Trading battled the case out in court.

But here we are two years later and the issue has still not been resolved.

Both the High Court and the Appeal Court have ruled in the favour of the clients but the banks are battling on to the House of Lords. Next week the House of Lords will start to hear the case but the outcome is unlikely to be announced for a number of months.

Let’s hope that things will be resolved in time for compensation to be paid out by Christmas!

We told you on the 8th June to get your mortgage fixed before rates went up. Well, if you haven’t yet taken our advice, you’d better hurry!

Nationwide set the trend last Friday when it withdrew its whole range of fixed rate mortgages and replaced them with rates 0.86% higher. We expect other lenders to follow suit with similar increases and the Yorkshire and Woolwich building societies have already withdrawn their lowest rates.

As we have repeatedly warned, the bank of England will be forced to raise interest rates sooner or later. Their base rate cannot remain at 0.5% for ever. The fears emerging about oil prices and the signs of house prices stirring will only serve to bring the increase closer. On top of that we are seeing the banking industry generally, staking steps to increase their margins.

So the message to borrowers is clear – get a fix now or you may be too late.

Figures from the Bank of England prove that Britains’ banks have been lifting their interest rate margins to unprecedented levels whilst restricting their lending.

Well actually, it shouldn’t have taken the Bank of England to prove what every family already knows. We have seen the average interest rate on our credit cards rise from 14.8% at the start of the year to 15.9% today. We’ve also seen the margin between bank rate and the average tracker mortgage rocket.

So banks are trading down whilst at the same time fattening up their margins. And throughout their investment portfolios, the banks are reducing their risk exposure. That package is a recipe for big profits at the banks – but it is very bad news for the British public.

There is little doubt that the supply of credit is going to remain tight and virtually non-existent for those of us with less than perfect credit histories. Try asking for an overdraft, a mortgage, a loan or a new credit card and watch your bank manager frown and suck his teeth.

And when the economy is confirmed as back in a growth trend, watch those interest rates rise! At the first opportunity the Bank of England will want to increase its base rate from the current lowest level ever of just 0.5%. Hands up who expects the high street banks to reduce their margins when that happens. Oh yes, you in the corner, what’s your name?

“Alice in Wonderland”

Figures from one of the largest mortgage lenders suggests that one in five of its borrowers are overpaying their mortgage. When the interest rate on their mortgage fell, they maintained their existing monthly repayment. If interest rates stay as they are (but they won’t – see yesterdays blog), then a 25 year repayment mortgage would end up being fully repaid after just 14 years.

A year ago a “life of loan” tracker mortgage of £150,000 cost £996 a month but today the payment has dropped to £600. If the borrower had continued to pay £996, instead of lasting another 24 years, the mortgage would be paid off in just 14 years.

That’s fine in theory but life isn’t quite as simple as that. Early repayment will only materialise if interest rates stay low. When interest rates rise, borrowers will have to increase their monthly repayments to achieve the same result. So not everyone will be able to knock years off their mortgage but it is still well worth keeping up over payments for as long as you can.

Just a few things to check out. Many mortgages allow over repayments but only up to a maximum of 10% a year. If you exceed that limit, those mortgages normally apply a penalty – so check that out. The other little trick that some lenders employ is that, when calculating the interest you owe, they don’t credit your overpayment straight away. That means that you are not saving quite as much as you should be doing. Not much you can do about it though!

The answer is – check your bank balance! Because the next 12 months will be the more costly than any other 12 month period in your child’s life.

Clothes, living expenses, University fees and a car add up to as much as £18,302 a survey has revealed. When a teenager goes to Uni their cost of living soars – and parents are left holding the cost of an active social life and education. So this cost is made up of around £1,300 a month plus a second hand car costing £2,700.

This cost comes as a big financial shock as the first 17 years of the child’s life were relatively cheap. During earlier years the costs involved in raising them were effectively absorbed into the wider household budget – they ate the same food and lived in the same house. The only “extra” was the weekend spending money.

Then suddenly the child turns 18 and the parents are automatically expected to fork out thousands that they had not previously thought about. The biggest cost relates to Uni. Tuition fees average £328.45 a month only to be exceeded by the £527.33 it costs each month for their rent. Then there’s £59.50 for clothes and accessories, £78 for food, mobile phone £50.88, £120.75 on extra curricular activities such as gym and sports clubs, and £60.45 on electronic gadgets such as video and games consoles. Phew, what a list!

It is little surprise therefore that many 18 year olds are forced to start earning for themselves. Around two thirds of all 18 year olds get themselves a part time job even if they’re studying - bringing in an average of £167.45.

The British Bankers Association has announced that lending by the major UK banks in April was £2.7 billion, down from £3.4 billion the month before. But mortgage approvals in April were actually up on the previous month by 4% - but still 16% down on April last year. And perhaps not surprisingly, the average mortgage value was £129,100 having been £155,100 a year earlier.

Bank loans for car buying was £1.5 billion, the same as the previous month but still 39% down on the same month last year. And credit card spending was down 11% lower than 12 months ago.

What does all this mean?

Well, the massive stimulus injected into the UK economy by the Bank of England has stimulated nothing. What it has done, is arrest the decline. What would have happened if the Bank hadn’t injected the money, we hate to think about!

The housing market remains weak as mortgage lenders control advances through restrictive lending conditions and, whilst the numbers of house sales are marginally picking up, prices continue to fall albeit at a slower pace. Estate agents will try to talk the market up referring to higher mortgage approvals – but the fact is that the value of mortgage lending remains weak.

In our view, until consumers’ confidence returns and the banking system regains its ability to lend (is that a chicken and egg scenario?), tough times will remain. Still no “green shoots”.

Hire purchase, the original consumer credit option favoured by millions in the 50’s and 60’s before sportier credit cards and personal loans came into vogue, is back in town.

The lenders like HP because the product that has been “hired” remains the property of the finance company until the last payment has been made and this increases their security. Consumers like HP because it has traditionally been cheaper.

Figures just released by the Finance and Leasing Association show a 10% increase in HP sales in the year to March. And in March alone sales were up 25% over the previous March.

Historically, the popularity of HP rose during Harold Macmillans’ premiership (remember his phrase, “you’ve never had it so good”) on the back of household items worth up to £1,000 – items such as washing machines, fridges, TV’s and carpets. It also flourished as a way of purchasing the family car.

It now seems that the wheel is turning round again. The Association says that HP has rebuilt its market share within the car market back to 54% and it’s increasing. And within Britain’s shops HP is now being used to support promotions such as “nothing to pay for a year plus 2 years interest free credit”.

Will HP pull us out of our recession? I don’t think so, but perhaps we’ll be a little more comfortable!

The “bangers and cash” scheme under which owners of cars over 10 years old get £2,000 off the price of a new car when their old car is scrapped, has fallen into total disarray.

On the scheme’s first day, major car manufacturers refused to register any cars sold under the scheme leaving thousands of clients disappointed. The chaos has arisen because the Government hasn’t sorted out the details of the scheme. The manufacturere do not know how to register the cars onto the scheme or who should scrap the bangers. There are also problems relating to the treatment of VAT on the price of the new car.

All these problems mean that car deliveries are suspended and the prospective owners have no idea when their new car will be delivered.

This embarrassing situation arose after Gordon Brown and Lord Mandelson, the Business Secretary, were crowing about how popular the scheme was as they launced it at a dealership in North London. They expect some 300,000 new cars to be sold under the scheme.

Isn’t this absolutely ludicrous. With all the resources at the Governments disposal, can’t they get their paperwork sorted out?

Extract um digitum Mr Brown.

Apparently the Government’s £200 million Mortgage Rescue Scheme that has been running since last January, has saved only one family. At the same time 15,000 families lost their homes.

The Scheme was trumpeted by the Government as a life line to those in danger of losing their home because of mortgage repayment problems.
But figures just published by the Department for Communities and Local Government showed that of the 3,070 families which discussed their mortgage problems with the council, only 452 actually applied for help. Of these just one has been approved to received assistance under the Scheme. And we don’t actually know whether the transaction was completed because, as we all know, there can be a world of difference between “being approved” and the deal actually going ahead!

Under the Scheme, housing associations and councils were given state funding to buy a share in families’ properties inorder to reduce their mortgage payments and avoid the fear of being made homeless. When the scheme was launced ministers claimed that it would help 6,000 families over 2 years.

Even if it had suceeded as ministers predicted, it would have made little impact on the 75,000 repossessions forecast for this year alone.

No wonder ministers are tight lipped about the Scheme. This is an appalling state of affairs.

And by-the-way, what’s happened to the £200 million?

As if familes don’t have too much on their plates already, research has revealed that 1 in 3 have been billed incorrectly for their power.

In the last two years more than 9 milllion people have had to deal with inaccurate invoices for the energy used in their home. And 6 million, a fifth of UK households, reported that they received inaccurate correspondence from energy companies. This is at a higher level than water companies, councils, banks, and even the tax people.

The survey of 2400 energy customers found that to resolve billing problems, it took an average of 2 months. The next worst for inaccuracy was your friend and mine, the taxman!

In third place came the communication companies – phones, broadband and digital TV companies.

If you have a problem with an energy bill what can you do? The best thing is to send in by phone, text or email, your latest meter reading. And then keep on chasing!

It is hoped that the latest “smart meters” which are being progessively introduced, will definitely help to sort out discrepencies between estimated and actual meter readings. Even if you don’t have one of these new meters, our advice is always promptly send in your actual meter readings whenever you get an estimated bill.

The Nationwide, Britain’s largest building society, yesterday announced an increase in its standard variable rate (SVR) from 2.5% to 3.99%. The SVR is the interest rate that borrowers pay when their existing mortgage deal ends, whether it be a tracker or a discounted deal and the rise will affect around a third of Nationwide’s borrowers.

For a homeowner with a Nationwide mortgage of £150,000 on the society’s SVR, this means that their monthly repayments will increase from £673 to £791, an increase of £118 a month.

The Society says that the change will enable it to promote better interest rates to its savers – but so far their rates to savers have not changed.

A spokesman for the Nationwide said, “This is about balancing the needs of savers and our borrowers, which has become increaingly difficult in the current economic climate. We feel that our 1 million mortgage customers have benefitted from a boost for some time now and this will give us chance to give something back to our 10.4 million savers”.

The Nationwide’s move has raised concerns that other lenders will follow suit.

One of their main competitors said, “At present we have no plans to increase our SVR but we will keep it under review.” For those that do not understand “bankers speak”, this means, “This has totally taken us by surprise. At the moment we have not decided what to do but we’ll have a meeting this afternoon and we’ll almost certainly follow suit”.

It is estimated that 1 in 3 pensioners still have to make mortgage repayments with an average debt of £43,069. This is partly due to the failure of endowment policies to repay mortgages as planned and partly through poor financial planning.

As a result many pensioners are investigating the possibility of releasing equity from their houses to make the repayment and provide surplus cash.

With equity release schemes, you take out a lifetime mortgage which releases cash from your home but there are no repayments to make. Interest is charged until you die, the current rate is circa 6%, and then the total is repaid from the sale of the property via the solicitor who handles your estate.

There is another form of equity release called a “reversion scheme”. Here you sell a percentage of your home to the reversion company and when you die, the company claims the percentage you sold from the proceeds of the house sale.

These types of schemes are becoming much more popular but you must take professional advice before entering one of them.

If you have paid a mortgage exit charge you may be able to reclaim the money back from your ex-lender. Theses days mortgage exit fees are charged under a number of different names, and the amounts charged similarly vary hugely.

When your lenders paperwork describes the exit fee as paying for “administration” or “the costs incurred by the lender”, then you might have a case for a refund. Your argument should be that the charges are in fact a penalty for exiting rather than a reimbursement of costs.

Ask your lender to detail how the costs have been calculated and see what happens. Someone from the Financial Ombudsman Service is reported as saying, “When people make claims for repayment of exit charges, it relates to the precise wording in their mortgage contract. If it states that their charge is based on the costs of administering the exit, then the lender should prove that this was the case.”

We understand that when claims are made on this basis, many lenders have simply paid out on a goodwill basis to end the complaint and avoid having to prove their costs.

A few years ago a large numbers of homeowners complained about the exit charges they had been charged. These charges came under scrutiny after mortgage lenders began increasing them part way through mortgage contracts. The Financial Services Authority effectively put an end to this practice by issuing guidelines to the mortgage industry. It said that lenders should not increase exit fees whilst the contract was still in place.

We have already commented on excessive executive bonuses. But once again the Americans seem to be pointing the right way to approach the issue.

A very large and influential US pension fund has threatened to take legal action against 29 financial companies in the USA unless the attempt legal action to recover more than £5 billion in excessive bonuses and pay.

Good on them!

The 29 nine companies threatened include AIG (who sponsor Manchester United), the merchant banks Morgan Stanley and Goldman Sachs and Citi-Group.

Like us, the pension fund is highly critical of top executives that reward themselves despite delivering losses. “It’s like these guys got a windfall payment for betting the family’s entire savings on the wrong horse”, a spokesman said.

Anger in the USA boiled over last month when AIG paid $165 million in bonuses – after the company had been bailed out no less than four times by American taxpayers. To date the bail out amounts to $82.5 billion, yes, billion!

The culture that seems to continue both in the US and here in the UK, of rewarding failure, MUST STOP.

Bonuses can only ever be paid for proven profit performance and bonuses incorrectly paid, must be reclaimable.

The Council of Mortgage lenders has published data provided by all the UK’s mortgage lenders which paimts a startling picture of how the recession is hitting families.

The figures, from last February, show that 565,000 homeowners only have 5 per cent equity remaining in their homes. And a further 10 per cent have between 5 and 10 per cent.

This is not the first time in the UK’s history that negative equity has cast a long shadow. Back in the early 80’s the same thing happened and most homeowners survived. Homeownership is a long term commitment and given time house prices will recover.

However, if you are faced with negative equity and want to move house you have problems. Unless you are in a position to pay off the deficit when you sell your house and then raise another deposit for a new home, then moving is simply off the menue. That probably rules out a move for 99.9 per cent of the homeowners affected. So in practice, those in negative equity are stuck. Their only option is to wait and hope that time and rising property prices will weave the magic.

Current figures from the Nationwide Building Society show that house prices have fallen by 17 per cent in the lat 12 months and the Financial Services Authority predict that 2.5 million homes could be in negative equity by mid 2010 if prices ontinue to fall.

Homeowners can now cap the maximim interest rate they could pay on a tracker mortgage.

The Coventry Building Society and the Woolwich now have a tracker that tracks the Bank of England’s base rate but also have guarntees that the interest rate on the mortgage will not be allowed to exceed a certain level.

Woolwich’s tracker is runs at 2.99 per cent above base rate with the maximum set at 5.99 per cent during the first 3 years of th mortgage. Coventry’s 3 year tracker is also set at 2.99 per cent above base but the maximim is capped at 4.99 per cent. This means that on a typical £150,000 mortgage the maximum monthly repayment with Woolwich tracker would be £966 and £876 with the Coventry.

But there are cheaper trackers available. 2.99 per cent over base is relatively high. For example, First Direct has a lifetime tracker at 2.39 per cent over base and HSBC has one at 2.89 per cent.

If you are looking for the securioty of a fixed rate mortage consider HSBC’s 2 year fixed rate. If you had a 40 per cent deposit the rate would be just 2.89 per cent. But watch out, you’d have a starting fee of £1,499.

After it was handed a multi-billion bail out by UK tax payers, the Northern Rock continued to grant 125% mortgages. A hard hitting report from the National Audit Office suggests that the bank lent 1.8 billion though high risk mortgages between September 2007 (the time when the Government had to step in) and February 2009.

In housing market where house prices were falling at about 20% per year, such massive mortgages start borrowers off in negative equity and market forces make that situation even worse.

Even just 5 months ago mortgages of up to 125% represented 30% of Northern Rock’s mortgage loan book. And 70% of the repossessions it made came from the same group of borrowers.

That means that whilst depositors were queuing up to get their money out and the government were pouring money in, the bank was still agreeing mortgages up to 125% of the property value.

And it is no as if the Government didn’t know! The Chancellor, Alistair Darling was challenged about the banks lending policies as late as February 2008 but nothing was done.

Thousands more borrowers may now be facing repossession because they were given excessive mortgages. But we should remember it takes two to tango. A person applied for the excessive mortgage and an irresponsible bank granted it.

It seems to me that whilst the banks were in the controlling seat by promoting these mortgages, the homeowners that took the mortgages must also bear some responsibility. What did they do with the “spare” 25% of the mortgage?

I presume they spent it.

As from 6th July this year the cost of registering your property at the Land Registry is increasing by as much as 300%. At the moment it costs just £50 to register a house costing £150,000 but from July it’ll be £200. How’s that for another blow against inflation!

Land Registry charges are paid whenever the freehold or leasehold of a property is registered.

There will also be increases in the fees for land searches and copies of documents. A postal official search fee is going up from £6 to £8. The official line is that these increases are required because of the decline in the number of properties changing hands as a result of the credit crunch.

What rubbish! The numbers of house sales are down 25 to 40% depending on the region and month you are talking about. How does that justify 300% increases in Land Registry fees?

A spokesperson from the Land registry is reported as saying,” We do not believe that this will deter a recovery in the property market, especially with interest rates at a historical low and lower house prices”.

These costs will hit all home buyers as all changes in the ownership of properties have to be registered. So you will not be able to escape these higher costs.

This is the second set of rising costs to hit home movers this month. Last week, those putting their house up for sale had to have a Home Improvement Pack available before the property went on sale. That’s a cost of about £300, plus or minus £100 depending on who supplies it.