Posts filed under ‘Advice’

Second steppers need £60K extra to buy next home

People taking their second step on the housing ladder need to find an extra £60,000 to fund their move, research showed today.

First time buyer

Soaring property values have left many so-called second steppers struggling to trade up to a bigger home, according to Lloyds Bank.

The group estimates that these buyers need to find an additional £58,400 to fund the purchase of their next home, around double the average deposit put down by first time buyers.

The gap between the typical sale price of second steppers’ current property and the home they would like to buy is now around £15,000 bigger than it was in 2013 and £18,000 more than in 2012.

Just over half of people who are currently living in their first home said they had wanted to trade up the property ladder in the past 12 months but been unable to do so.

Although the plight of first time buyers gets a lot of attention, second steppers are equally important to the health of the housing ladder, as they are currently living in the homes that first time buyers need to purchase.

But despite the growing financial burden of buying their next home, confidence among second steppers is improving.

Around 43 per cent of people said rising house prices had had a positive impact on their situation, and 40 per cent think it will be easier to sell their property now than it was last year.

Only a quarter of people who would like to buy their next home see economic uncertainty as a challenge, down 10 percentage points from 2013, while just 14 per cent say negative equity is a problem, down 11 percentage points from a year ago.

But the fees and charges associated with buying a new home are still seen as the biggest barrier to trading up the ladder, with these cited as a challenge by 46 per cent of second steppers.

On average, people think the value of their first home has increased by 20 per cent since they bought it, typically around four years ago.

As a result, the number of people worried about the size of the deposit they will need to find has fallen from 50 per cent in 2013 to 37 per cent now.

Marc Page, mortgages director at Lloyds Bank, said: “The jump to the next step is growing quickly for second steppers, with the gap to the second home now being almost £60,000 nationally.

“However, as house prices are rising and barriers to the next step are reducing, confidence about selling the first home and being able to move up is increasing.

“For most regions of the country this is helping people make that jump across the gap to the next rung on the ladder.”

There are significant regional variations in the amount people buying their second home need to raise.

Trading up the property ladder is easiest in the West Midlands, where the price difference between a first and second home is only £21,000.

But at the other end of the scale, people in East Anglia need to find an additional £80,800 to make the jump.

October 17, 2014 at 10:27 AM Leave a comment

A third of tenants say they’ll never own a home

More than a third of people living in rented accommodation think they may never be able to buy their own home, research showed today.

Around 35 per cent of renters aged between 35 and 44, think homeownership may be beyond them, rising to 50 per cent among those in the 45 and 50 age bracket, according to insurer Aviva.

The group found that although 15 per cent of renters were saving for a deposit in the hope of getting on to the housing ladder in the future, 41 per cent of these people had already lived in a rented home for more than five years.

The number of households who rent a property through the private sector has increased by 889,000 since 2008/2009, including an additional 434,000 households in the 25 to 34 age range.

There has also been a 64 per cent increase in the number of families with children living in a rented property during the same period.

The main reason people gave for renting was that they could not afford to buy their own place, cited by 56 per cent of those questioned.

But 22 per cent said they were still renting because the property they were in had become their home and 8 per cent said the house was in a good area in which to raise a family.

The study also found that people in rented accommodation were less likely than homeowners to have certain financial products, such as life insurance, savings and pensions, making themselves financially vulnerable.

Only 23 per cent of renters had life insurance, compared with 51 per cent of homeowners, while just 3 per cent of renters had critical illness cover, compared with 19 per cent of owner-occupiers.

At the same time, 12 per cent of people who rented their home had a private pensions and only 28 per cent had an employer pension, compared with 27 per cent and 59 per cent respectively of homeowners.

People who had bought a property were also more likely to have a savings account at 70 per cent and an ISA at 52 per cent than their renting counterparts, only 53 per cent of whom had a savings account, while just 29 per cent had an ISA.

Louise Colley, protection director for Aviva, said: “Renting offers many benefits such as affordability and flexibility, but there’s a concern that many renters are being left financially exposed.

“When someone takes out a mortgage they are often asked to consider how they might pay it if they were seriously ill or if sadly an income-earner was to die. This can often prompt people to take out protection products like life insurance and critical illness cover.

“If a family rents, these conversations may not happen, so there’s a risk that if a renting family loses an income, they may not have the protection that could help to pay the rent and cover the bills.”

October 15, 2014 at 9:07 AM Leave a comment

Homeowners urged to plan for interest rate rises

Homeowners were today urged to plan ahead for when interest rates start to rise.

Mortgage rate 2

Just over half of people admitted they did not have a financial plan for when the cost of their mortgage increased, with 69 per cent saying their finances were already stretched.

The study by the Money Advice Service found that 84 per cent of mortgage holders thought an increase in interest rates would impact their finances.

But 56 per cent were confident they would be able to find the extra money they needed simply by cutting back on everyday spending.

Just over a third of homeowners said they would use money from their savings to ensure they could meet their mortgage repayments, while 15 per cent said they would get an extra job.

But more seriously, 13 per cent of homeowners admitted they were currently living beyond their means and 19 per cent said they would really struggle to cover any increase in their monthly repayments.

The Bank of England has held interest rates at a record low of 0.5 per cent since 2009.

But the official cost of borrowing is widely expected to start increasing next year, with Bank Governor Mark Carney recently warning that the point at which the Bank Rate would start to rise was “getting closer”.

A 0.25 per cent increase in the Bank Rate would add around £20 a month to repayments on a £150,000 mortgage taken out over 25 years.

The research found that 47 per cent of homeowners thought they would find it difficult to meet an increase of up to £150 a month in their repayments, and 19 per cent admitted they would struggle to meet any rise.

Younger homeowners appeared to be particularly vulnerable to future interest rate rises, with 77 per cent of those aged under 35 saying their finances were already stretched, while 16 per cent were not aware that an interest rate rise was on the cards.

A significant proportion of homeowners also appeared to have little understanding of how a change in interest rates would affect them.

Around 28 per cent of mortgage holders said they did not know what their current rate was, and more than half had not calculated what impact a 1 per cent rise would have on their repayments.

A further 3 per cent admitted they did not even know what their monthly repayments were.

Sue Anderson, head of external affairs at the Council of Mortgage Lenders, said: “Although we don’t know when rates will rise, the monetary authorities have previously flagged that rises will be finely calibrated, so large sudden shocks are unlikely.

“By planning ahead now, mortgage holders can get a clear picture of what a rate rise would mean for their own repayments.

“Taking steps in advance to work out what the effect on your payments might be, and planning ahead, will mean that most borrowers will be able to cope by careful budgeting.”

Homeowners who are worried about interest rate rises could consider taking out a fixed rate mortgage to offer them the security of knowing what their monthly repayments will be.

A number of lenders are currently offering five-year fixed rate loans for less than 3 per cent.

Chelsea Building Society currently has the most competitive deal of 2.85 per cent for people borrowing up to 65 per cent of their property’s value, while Virgin Money has a rate of 2.99 per cent for people with only a 25 per cent equity stake.

The Chelsea deal has a £1,545 arrangement fee, while the Tesco loan has a £1,495 one.

Meanwhile, the Bank’s Financial Policy Committee today said the Government’s controversial Help to Buy scheme had not stoked house price growth, as it accounted for only 5 per cent of mortgages and had been used most in regions where house prices had risen least.

The FPC also asked for new powers to cap the size of mortgages that lenders advanced relative to a borrower’s income and the value of their property.

 

October 2, 2014 at 11:29 AM Leave a comment

Misunderstanding financial jargon costs Britain £21bn

Money Advice Service

Abbreviations and complex financial terms aren’t just bemusing – they could be costing you £428 a year, writes the Money Advice Service.

Research by the service shows 84 per cent of British adults don’t read the terms and conditions when they buy a financial product. Add in a layer of confusion about what various bits of jargon and abbreviations mean, and it’s costing the average British adult £428 a year. That adds up to a staggering £21bn.

Those surveyed had difficulty with common financial terms such as ‘interest’ and ‘budget’. Abbreviations also confused. They might be industry standards, but many Brits struggled to provide the correct definition.

Commonly misunderstood terms and acronyms included EAR (misunderstood by 61 per cent), compound interest (46 per cent), annuity (44 per cent), interest (32 per cent), budget (32 per cent), APR (30 per cent) and ISA (22 per cent).

Those who had taken out a payday loan struggled the most to choose the correct definition. More than half gave the wrong meaning for ‘loan’, while nearly one in five believed you didn’t have to pay a loan back. For these people, the average cost of misunderstanding increased to a massive £1,405.

Of everyone surveyed, there was more than just a financial loss associated with not reading the T&Cs or understanding the jargon. Repercussions included 6 per cent missing out on a holiday, 4 per cent having to move home to their parents, 4 per cent having to take on an extra job and 10 per cent of those who had taken a payday loan having to turn to loan sharks to pay off debts.

Jane SymondsJane Symonds, money expert at the Money Advice Service, said: “Reading and understanding the terms and conditions of a financial product can seem long and unnecessary, but if you don’t, you may end up incurring unexpected penalties and possibly even impact your credit score.

“There are many ways in which you can lose money by not properly understanding terms and conditions. Early repayment charges on loans and mortgages are a common financial headache, and many people fall foul of penalties for taking savings money out early from long term saving accounts, or incur late repayment charges on credit cards.

“Our financial decisions can be life-changing, and if you misunderstand what you’re signing up to, it could haunt you for many years to come. So take time out to fully understand what you’re agreeing to, and visit the Money Advice Service website where we have plenty of tips to help you get to grips with various terms and conditions.”

September 25, 2014 at 1:36 PM Leave a comment

UPDATED: Highest amount of mortgage cash issued in six years

Mortgage lending jumped to a six-year high in July as the market remained resilient in the face of regulatory change, figures showed today.

Mortgage 4

A total of £19.1bn was advanced during the month, 7 per cent more than in June and the highest figure since August 2008, according to the Council of Mortgage Lenders.

The group said mortgage activity appeared to have remained robust, despite the tough new affordability criteria introduced under the Mortgage Market Review earlier this year.

But it cautioned that the eventual impact of the regulatory change remained uncertain.

July was the third consecutive month during which lending levels have increased, following a slight dip in March ahead of the introduction of the MMR.

Caroline Offord, CML market and data analyst, said: “Property transactions in the first half of the year showed a 25 per cent increase compared to the same period a year ago, but we expect that intensifying affordability pressures could start to dampen this upwards trend.”

The figures came as minutes from the Bank of England’s Monetary Policy Committee suggested a hike in interest rates could be closer than previously expected.

The minutes showed that two members of the committee vote to raise the Bank Rate from its current record low of 0.5 per cent to 0.75 per cent in August.

It was the first time that the MPC has been split on what the official cost of borrowing should be since July 2011.

External MPC members Martin Weale and Ian McCafferty argued that although wage growth remained weak, it was a lagging indicator of the amount of slack there was in the economy, and rates should begin rising before that slack had been used up.

News of the vote prompted speculation that interest rates could start rising before the end of the year.

But Samuel Tombs, senior UK economist at Capital Economics, pointed out that data released since the MPC’s meeting showing a fall in inflation to 1.6 per cent in July and slower growth in employment, eased the pressure on the Committee to raise rates quickly.

He said: “We still expect the first hike to come in February 2015.

“But, even if the Committee decides to get on the front foot and raise interest rates before the end of the year, low inflation should ensure that the pace at which they rise is extremely gradual by historical standards.”

A 0.25 per cent increase in interest rates would add just over £20 a month to repayments on a £150,000 variable rate mortgage, which moves up and down in line with changes to the Bank Rate.

Meanwhile, the Bank of England’s Agent’s Summary of Business Conditions, also released today, built on previous indications that the housing market is beginning to slow down.

The report said housing transactions had eased in recent months due to a shortage of homes on the market and the introduction of the MMR, which had lengthened the mortgage application process.

It added that there were also signs of an easing in house price inflation, concentrated in the South, with some prices lower than they had been a year earlier, while there were also fewer cases of sealed bids and offers being made over the asking price.

Strong house price gains have left the typical British property costing £263,705, according to Zoopla.

But recent survey data has pointed to a slowdown in growth as more homes have been put on the market and buyers have started to bulk at high asking prices.

Nationwide Building Society said property values inched ahead by just 0.1 per cent in July, while surveyors questioned by the Royal Institution of Chartered Surveyors predicted prices in London, which has been the driving force of the market recovery, would rise by just 1.9 per cent during the coming 12 months.

 

August 20, 2014 at 10:37 AM Leave a comment

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