Your questions
Your frequently asked questions

What is the Government doing to kick-start mortgage lending?

What is the Government doing to kick-start mortgage lending?

The Credit crunch is so called because banks stopped, or greatly reduced, lending to each other for fear of a bank they lent to going bust. It’s lending between banks that oils the wheels of economies throughout the world – so when it dramatically slowed, lending at all levels slowed dramatically, including mortgage lending. The money just wasn’t flowing around the system. To help stimulate lending again, in October the UK government announced a major support package for UK financial institutions through a scheme that increased the capital they had available to lend. The scheme involved buying shares in banks and also loans and guarantees for loans. The government stated that it wants mortgage lenders to maintain lending this year at 2008 levels.

Also, although the Bank of England is independent of the government, the reductions in the Base rate are certainly designed to stimulate lending of all kinds, including mortgage lending.

What is the best current mortgage deal?

What is the best mortgage deal for me in the current rate environment?

That all depends on your personal circumstances and plans for the future.

Re-mortgage and fixed mortgages

I’m due to Remortgage this year and am concerned I won’t get a good deal – what is the best type of mortgage in the current climate? Should I be fixing?

With fixed and variable mortgage rates both at historically low levels, if your finances and credit history are in good shape, there’s no reason why you shouldn’t get a good deal. But whether to fix or not is always going to be a personal call. The big thing with a fixed rate is the financial security it offers. If you fixed at, say, 4% when you could have got 3% variable, then yes, you will be paying a little more than you would have if you'd chosen the variable rate. But you’ll be in a better position if variable rates go up to 5% – and noone knows if or when that might happen. You could even look for a mortgage that might give you the best of both worlds. For example, a variable rate tracker, with an option to switch onto one a fixed rate during the tracker period. So you start variable but can jump off onto a fixed rate if you think rates are likely to go up.

Concerns about meeting mortgage payments

I’m concerned about meeting my mortgage repayments. What can I do to prepare myself in case I can’t afford them?

If you are already facing financial difficulties, or think you are likely to, get in touch with your mortgage lender now. Delay will not help your situation and may make it more difficult for you to obtain help.

If everything’s fine right now, but because of the way the economic situation is affecting your position, you’re just thinking ‘what if’, there are options. You could look at your household budget now and see whether spending could be reduced if to pay for your mortgage. It might help you rest easier to know that there are things you could do if the worst happened. Next, if you can afford it, you could start to save or increase your savings. This could give you a safety net if something happened to your income in the future. Or, depending on the mortgage you’ve got, you could pay extra towards it now (see question 9). Paying extra will reduce the overall debt and should reduce your payments are lower in the future – so a later reduction in income might be less of a problem. The other thing you can do is take out insurance against losing your income. There are a number of different insurance policies which could help protect your income and/or pay your mortgage (subject to the individual circumstances and terms of your policy) and which can cover various circumstances including unemployment and/or illness.

Should I overpay on my mortgage if I can afford to?

Is it a good idea to be focussing on chipping away (overpaying) my mortgage debt during the current Recession?

This could be a good idea whatever the economic situation - if you can afford to do it. It can sometimes be better for your finances than putting money into a savings account, depending on your individual circumstances. Here’s why: the mortgage and savings market is very straightforward in essence. Lenders get money in by paying interest to savers, and they then lend that money on to homebuyers, charging them interest to pay the savers. To make this worthwhile, the lenders tend to charge the borrowers a little more than they pay the savers – so mortgage rates are generally higher than savings rates. So, for example, paying £100 of a mortgage where the rate is 4% gives a better return than putting £100 into a savings account where the rate is 3%. Over a year you’ll save £4 in mortgage interest, but you’d only earn £3 in savings. There are lots of caveats of course. For example, saving is still a good idea so you’ve got money behind you if you need it. Also, if you’re on a mortgage deal, such as a fixed rate, there may be early repayment charges if you pay off lump sums. Your individual circumstances will dictate the longer and/or shorter-term benefits of doing this (if any).

When will be the best time to buy?

I’m a first time buyer and have heard that house prices are expected to fall even further this year. When will be the best time to buy?

There is no definitive answer to this. The Nationwide Building Society says that prices fell 15.9% in 2008, but refused to predict what will happen this year, saying only that the outlook will be subdued. The Royal Institution of Chartered Surveyors, however, predicted in December that house prices will fall by a further 10% in the next 12 months, meaning house prices will have fallen by 25% from peak to trough. So prices are already considerably lower than they have been – Halifax says they’re back to 2004 levels – and most commentators think the decline will continue this year. But do remember, while your home needs to be affordable, buying a home of your own is not just about maximising monetary value!

I’m a first time buyer. Just how much harder is it to get a mortgage these days?

I’m a first time buyer. Just how much harder is it to get a mortgage these days?

In recent years, to help first-time buyers get on the ladder in a market where house prices were rising rapidly, some mortgage companies were prepared to lend 100% of the property value – so you didn’t always need a deposit. Prior to this, up until a couple of years ago, you would have needed to put in at least 5% of the property’s value yourself – and now, with house prices falling and a world-wide Credit crunch, we’re back to that situation again. You will almost certainly need at least 5% of the property value and, with some lenders, it will be 10% or more. But while that may seem to be a disadvantage compared to needing no deposit, because house prices are falling, the amount you need for a deposit in cash terms is less than it might have been and, overall, housing is becoming more affordable against average income.

With some banks going bust recently, how safe are my savings?

With some banks going bust recently, how safe are my savings?

Banks getting into difficulty is a serious concern for many people. However, they are one of the safest and most consistent types of company in existence - which is why when a bank does get into trouble it is a rarity, and often headline news. In reality the money you save in any bank is safe. Should the worst happen there are various schemes in place to protect your money that are backed by the government.

How does tax and inflation affect my savings?

How does tax and Inflation affect my savings?

When interest is paid on money you save it is subject to tax. The only exception to this is a tax-free savings account such as a cash ISA. If you have savings and have not used your ISA allowance then this is something to consider. Inflation affects the value of money over time. Basically this means that a pound was worth more in terms of its spending power ten years ago, than it is today. If you saved a set amount and earned no interest on it over a period of time its value in real terms would reduce.

Is it worth saving in this current climate?

Is it worth me saving at all in the current rate environment?

Yes, saving during the leaner times will stand you in good stead for the future. If you have a particular goal such as buying a car or an overseas trip, then there is a real incentive to put a little aside when you can. Having a little saved up to fall back on is always a good thing..