YourMortgage November Features

This information is kindly provided by YourMortgage.co.uk.

Green light for controversial home income packs

The Government has given the go ahead to Home Information Packs (HIPs), as outlined in the Queen's speech last week. The controversial packs require homeowners selling their property to assemble information, such as local authority searches and a basic survey, to pass on to potential buyers. Originally called Sellers' Packs they were part of Labour's 1997 manifesto, but progress stalled because of the 2001 general election. The HIP is designed to make house sales go through faster and prevent gazumping. Jane Pridgeon, managing director of Halifax Estate Agents said:"The Government estimates that around 30% of all property sales fall through each year at a cost of ?350million to consumers. Without the HIP the house buying process will continue to be dragged down by the slowest link in the chain and money will continue to be wasted on sales that fall through."

However, HIP detractors point out that the information contained in HIPs could soon be out of date, and that the cost will be prohibitive for less well off home sellers. The packs are expected to cost ?600 to ?1,000. The National Association of Estate Agents said it had severe reservations about HIPS. Chief executive officer Peter Bolton King said HIPS would remove spontaneity in the market and increase the cost of moving house for sellers. There is also a worry that homebuyers will not trust surveys commissioned by the vendors, resulting in duplication of labour and cost as buyers have their own surveys carried out.

Property, pensions and protection pots

The British public prefers bricks and mortar to the prospects of a pension fund. But the Government wants to change our perception by protecting company pension pots, says Christina Jordan

More people would choose to invest in property over a company or personal pension in order to fund their retirement, according to a survey by Mintel.

The report showed that two in five adults would choose property as an alternative to a pension. But only one in four would choose a company pension and just one in six would go for a personal or stakeholder pension.

Senior finance analyst at Mintel, Paul Davies, said: "Low interest rates and the recent poor performance of the stock market, as well as a fall in pension scheme funds, have meant that property has never been so popular as a way to save for retirement."

Fix it for the long term?

Leed & Holbeck building society has re-entered the long-term fixed rate mortgage market with a range of mortgages over 15, 20 and 25 years.

The deals will be priced at about 5.99% and allow borrowers early redemption windows throughout the life of the loan. Tony Burdin from Leeds & Holbeck says: "Long term fixed rate mortgages offer customer stability when many commentators are predicting they will rise. The availability of this type of mortgage is great news for many people who want to be sure that they can afford their monthly repayments whatever happened to interest rates."

This is true, but the major problem with long-term fixed rates is that they are more expensive than short-term deals and borrowers, who may be stretching their finances, have neither the means nor the inclination to pay for the excess. However, there are plans to make long term fixed rates a much cheaper and more viable option.

The European Mortgage Finance Agency (EMFA) is a proposed institution that would allow banks to borrow money at lower interest. As a result, its member banks throughout the EU would be able to offer cheaper, long-term fixed rate mortgages to consumers who would be able to fix for up to 30 years and redeem without penalty.

Rob Thomas, general manager of the EMFA project team, says: "Theoretically, a bank could get the funding to offer a penalty-free long-term deal, but it would have to price it so highly that it wouldn't be economically attractive to anyone. With Government sponsorship, EMFA could create a market where it is cheaper to purchase loans. This is what happens in the US, and why long-term fixed rates are so popular over there."

Under-insurance dangers

Skimping on your contents insurance cover could cost you dearly, warns Andrew Stuart

In the run-up to Christmas - a boom time for burglars - the insurance industry is warning people of the dangers of under-insurance.

Sainsbury's Bank has warned that under-insurance could cost Britons a total of £33.9 billion a year, as 30,000 people will have claims turned down due to not having adequate cover for their belongings.

Paul Macready, insurance product manager for Sainsbury's Bank, says: "One of the main reasons for under-insurance is that people buy new furnishings or possessions for their home and simply don't increase their cover in line with the purchases. Only when is it too late do they find out that their sum insured does not cover those additional items."

Watch out
But there is a further potential and little-known danger facing some under-insured people. With some policies, when the insurance company looks at the claim, they will assess the real total value of the possessions - the level of cover that the claimant should have had for their insurance. This is then compared to the level of cover the person had bought under their insurance policy. The claim is then adjusted or pro-rated accordingly.

Say someone's total possessions are found to be worth £60,000, but the level of insurance cover purchased is £30,000, any payouts would be reduced proportionately.

"Fortunately, few policies pro-rata the claim in this way today," says Macready, "but people need to be aware of what they are buying, and understand the policy wording."

Sainsbury's Bank is one of a few home insurers that provide unlimited cover, which means customers never have to worry about being under-insured. And the bank claims its premiums are often cheaper than for those with a maximum cover level.

Macready concludes: "We are urging homeowners that don't have the benefit of unlimited cover to check they have accurately valued their property and possessions, and adjust their insurance policies accordingly."

Saving time

The rate rise gives savers something to smile about, says Alex Hammond

Troubled mortgage borrowers grabbed the headlines when the Bank of England increased the Base Rate by 0.25% but the rise is good news for savers with money stashed in a savings account.

However, just as mortgage lenders don't have to pass on the full rate rise to their borrowers, banks and building societies don't have to pass on the full benefit to their savers.

On the up
Nationwide was the first, announcing all its savings rates would increase by 0.25% on 1st December, while its e-savings and ISA customers would benefit from a 0.50% rise.

Philip Williamson, Nationwide's chief executive, says: "We are delighted to be able to give savers something to cheer about. In the recent low interest rate environment, UK savers had a challenging time. We are taking this opportunity to increase the rates on some of our saving accounts by double the change in the Base Rate."

Meanwhile, HSBC will increase its savings rates by between 0.10% and 0.25% from 2nd December, and claims that two thirds of its customers will receive the full increase in their savings.

Barclays bumped up the rate on its tracker savings account by 0.25% but is still only paying a top rate of 3%. That's 0.75% less than Egg, which also passed on the whole increase.

Elsewhere, Tesco Personal Finance will pass on the full 0.25% benefit, while Abbey has said that it will increase savings rates by an average of 0.21% and ING Direct will raise its savings rate by 0.20%.

Prices up, sales down

What's the latest on the UK housing market? asks Paula John

The Land Registry's latest quarterly residential property price report states that average house prices in England and Wales have grown 10.62% over the last 12 months, with the average house price standing at £161,665.

Average house prices in Greater London have passed the quarter of a million mark, coming in at £262,044. However, London saw the lowest increase in the country, with prices rising by 5.4%.

The highest inflation was in the North, where prices rose by 24% in some areas this year. The average house price in the region now is just under £100,000, compared to just over £80,000 a year ago. Wales and the east Midlands also saw increases of more than 20%.

Numbers down
The volume of property sales fell nationally in the third quarter of 2003, down 11.44% on the same period last year. In London the decrease was even greater, down 18% from 44,202 in 2002 to 36,353 in 2003. Many potential first-time buyers have been priced out of the housing market in recent months and this shows through particularly strongly in the London market where prices are highest.

The Land Registry's report is widely regarded as the most comprehensive and reliable of the eight property price reports published regularly. It bases its figures on all properties registered during a three-month period.

Self-cert mortgage scandal

A recent edition of The Money Programme on BBC1 revealed alarming evidence of lenders and borrowers encouraging borrowers to lie on their mortgage applications.

Undercover reporters filmed advisers suggesting borrowers should inflate their incomes in order to take larger loans. Borrowers who falsely state their income on mortgage applications are committing fraud and risk jail, as do the advisers who encourage the deceit.

Self-employed

Self-certified (or self-cert) mortgages were originally designed to help the self-employed and those on contracts - people not in normal employment with a regular payslip and an employer to confirm the details - purchase a home.

The self-cert borrower has to put down a large deposit (usually at least 20% of the property price) and then simply states how much they earn each year. The mortgage is calculated as a multiple (say three and half times) their declared income.

But with many self-cert mortgages, few or any further checks are made by the lender, which may tempt applicants to inflate their income in order to get a larger loan.

And the seemingly easy way to maximise borrowing through a false income declaration could tempt borrowers in normal employment to take a self-cert mortgage.

Some self-cert mortgage lenders simply ask borrowers to declare that they believe they can afford the payments, and don't require any income figure to be stated.