Tag Archives: mortgage

Looking Forward

My article this month is a bit of a mishmash, in that there are lots of things to write about and not enough space to do them all justice. Investment markets are probably the easiest to sum up: volatility again! Uncertainty abounds. Wherever we look, there are doubts and fears concerning politics, growth, interest rates, inflation, disinflation, deflation, production, demand, supply, exchange rates, Ukraine. Need I say more? Continue reading Looking Forward

Rules is Rules

Greetings, one and all, and welcome to the height of Summer snapshot of the financial world. By the time this illustrious periodical hits the doormat, we may have endured a prolonged spell of thunder storms (this is England, when all is said and done), but hopefully, we have all been enjoying the best of the season, so far!

In my last article, I mentioned the changes that had been introduced, concerning the treatment of mortgage applications. Now that a couple of months have passed, we have seen a number of illustrations of how much they have affected real people, in their quest to purchase a new home, or re-finance their existing one. Today, I saw a lady, who was in the process of re-mortgaging with her (High Street) bank, in order to raise some capital to pay off her current unsecured credit. Not an uncommon scenario, and given that she understood the concept of swapping to a longer-term low interest rate debt, from one with a potentially shorter term, but considerably higher interest rate, and monthly payment, a sensible move. Due to a minor hitch in the legal paperwork, the bank decided that the application would have to be reviewed, and in the light of the new rules, she no longer qualified for the mortgage that she had previously been offered. It fell outside their revised criteria, and therefore the computer said “no”. Continue reading Rules is Rules

(Sm)All Change

Well, well, what a busy time it’s been! When closing my column for the last issue, I alluded to the forthcoming Budget, expecting – as many did – a run- of-the-mill effort from our Chancellor. In place of the usual tinkering, with a fiscal slap on the wrist for the smokers, drinkers and drivers, as has become the backbone of so many Budgets over the years, Mr. Osborne grasped the thorny subject of those folk with relatively small Pension plans.

Provisions have long been in place for those who have saved towards their retirement, but who haven’t been able (or inclined) to amass very much in their plans. To the great surprise of many, the previous limit – under which we could get access to the cash in a small pension plan (known as ‘trivial commutation’) has nearly doubled, to £30,000. Also, the provisions, under which certain other small pension pots can be taken in cash, will be increased from £2,000 to £10,000 and the number of these additional pots from a non-occupational scheme that can be accessed, has been increased from two to three. The income rules applying to ‘Pension Draw-down’ schemes have also been changed. The Chancellor has also stated that the future of pensions will change hugely, particularly regarding the compulsion to purchase an annuity.

All the funds that have been made accessible by these changes, are still subject to the existing pension rules regarding taxation. The first 25% of the funds are available free of tax, and the remainder is added to the individual’s taxable income, and taxed at the appropriate rate.

As if this wasn’t enough for us to consider, new regulations for the marketing and operation of mortgages have recently come into force, with the upshot that mortgages will become harder to get. This may be a generalisation, but for the greater majority of cases, it will be the case. Mortgage lenders will have to prove that they have taken the appropriate steps to ensure that prospective borrowers are able to afford their mortgage commitments. Whilst the rules are very new, it appears that they will (at least at first) be strict. Loans will be assessed, and therefore limited, by evidence of the borrowers’ expenditure over previous months. Initial observations seem to be that individuals cannot be trusted to alter their expenditure after entering into a mortgage arrangement, and that the ability to afford a housing expense in the past does not mean that they will be allowed to do so in a new arrangement. There was a time when, as long as one could prove to a lender that a previous mortgage or rent commitment was paid regularly, then the lender would be perfectly happy to lend a new mortgage, at the same monthly cost. Such good sense is now not allowed. Maybe I am becoming a little cynical, as the years go by! More than ever, though, professional guidance may mean the difference between getting a mortgage or not.

It appears that this will have the effect of dampening the housing market, but this cooling-off of the economy may well be offset by the flood of newly-freed pension money being pumped into market. Ah well, enough of this, I’m off. Enjoy the recently forecast heatwave, I’ll be back in the blazing Summer.

David Foot


Economic Weather Set Fair?

UmbrellasWell, here we are, Whistler time again, and it seems that the summer has eluded us! The evenings are starting to draw in, and there is a slight chill in the night air. Yet, the trees are heavy with the fruits of autumn. Yes, there is something of the Equinox about the financial markets at the moment. Equal measure of good and bad news, those foretelling a long, cold, winter; those revelling in the joys of picking the fruit to pop in the brandy, and looking forward to Christmas!

Little by little though, economic indicators continue to improve. Despite the dark spectre of unemployment, still we have seen increased mortgage lending, and yet more (if small) increases in the major house price indices. The Bank of England Base Rate has consistently been held at 0.5%, though on the negative side, there has been another rise in the number of house repossessions (albeit smaller than predicted by many). The rally in the UK stock market, to which I referred in my last article, still has prices on a rocky sort of plateau; a situation that I still feel may well be the case for the remainder of the year, and probably the first quarter of the next. Volatility (within a certain range) has been very much a feature of world markets recently, and there will be opportunities for profits to be made, but probably not to any great degree for the smaller, long-term investors – we will probably have to wait for a while to reap our rewards. Markets are still at a reasonable level, on a long-term scale, and still worth dripping money into, but the fire sale valuations that we saw in the early part of the year, that provided us with such bargains, are gone until the next crisis scenario arrives.

Just time for an update on the mortgage market: there is still a weekly increase in the number of schemes that are available and in the percentage (slightly) of the purchase price that they will lend. Rates of interest are gradually getting less, but the profit margins made by the lenders remain high. (It seems that, in their business anyway, “the customer is not the King”). The Treasury has thrown billions at the UK’s financial institutions, but it seems to have been spent, predominantly, on bolstering up their own balance sheets, and ensuring that their executives maintain a healthy bonus.

Stop press! As I put the finishing touches to this piece, I am thinking back on a meeting that I had today with a Director of one of the country’s leading fund management companies who commented that “it feels like a Bull market again”, the Footsie 100 index is up over 40% from its recent low – to over 5000, talk of bids and mergers abound and, to cap it all, we are just starting to enjoy the first days of an Indian summer. It is easy to get lulled into a false sense of security at times like these. I, for one am packing an umbrella, just in case!

David Foot

Any Change?

Any changeIn my last article, I promised a more detailed comment on the Budget changes to the tax treatment of pensions, but it seems that these changes are not yet ‘cast in stone’. There have been some alterations since the Budget, as I last wrote, and we may not have seen the end of these. Briefly, the changes only affect those earning in excess of £150,000 and are applicable until 5th April 2011 when further restrictions on pension contribution tax relief will be put in place. If you are fortunate enough to be in this position, then the important parts are: all regular contributions (monthly or quarterly) in existence before the 6th of April 2009 will continue to receive full tax relief, as will those pension investors that have made irregular contributions – who will benefit from full tax relief on the lesser of the average of three years ‘infrequent’ contributions or £30,000. The changes do not apply to those members of occupational ‘defined benefit’ (final salary) pension schemes, only ‘money purchase’ arrangements. Confused? You should see the unabridged version! It is not inconceivable that there may be other alterations to pension tax relief – which still remains a valuable benefit for many – so watch this space.

Meanwhile, economic indicators continue to be conflicting: signs of increased mortgage lending, another small increase in a major house price index, Bank of England Base Rate held at 0.5% tempered with increasing unemployment and house repossessions. It appears that the recent rally in the UK stock market has reached somewhat of a plateau; a situation that I feel may well be the case for the remainder of the year. Volatility will probably be a feature of world markets for some while to come, a good thing for some people, and doubtless a great deal of money can be made by relatively few ‘day traders’ brokers and ‘market makers’. Most of us, however, will not benefit to any great degree from this situation for many months. Markets do seem to be reasonable value, not as was available a few months ago, but I feel that in a few year’s time, 2009 will be looked upon as a ‘bargain basement’ year for the share markets.

A quick few lines about the mortgage market: little by little, it seems that the Government actions of the last few months are starting to have some effect. There are signs of lenders increasing the number of schemes that are available and the percentage of purchase price that they will lend, and decreasing their profit margins. (Not that they are historically cheap though, some margins are more than five times what they were a few years ago, however, volumes are very low). But whilst there are no ‘green shoots’ wherever you look, there seem to be buds here and there, on the ‘brown sticks’. The mini heat-wave probably helped a bit, but roll-on the financial summer!

David Foot