Mixed messages of mortgage market

Dominic Thomas
March 2024  •  6 min read

Mixed message of mortgage market

I wonder if I’m exaggerating if I suggest that property is such a UK obsession that it is the political dividing point between the ‘haves’ and the ‘have nots’. Think about it – what policies are designed to protect and inflate the value of property and which are there to house people (irrespective of your political beliefs or persuasion)? The value of mortgage borrowing in the UK is now £1,657.6bn 1.1% lower than last year.

Anyway, the current Government is keen to reassure us that the UK is not really in a recession and talking about one merely leads us into one through negative talk. We know that the Chancellor considered offering guarantees to banks if they issued 99% mortgages, but this never made it into the final list of ideas, probably because most of us thought it was daft.

Meanwhile the UKs largest Building Society Nationwide (who have recently bought Virgin Money for £2.9bn) report that property prices have been rising, up 0.7% in February 2024. The average house price is now £260,420 up 1.2% over 12 months. This is in contrast to the figure that the Land Registry produce of £284,691 for December 2023.

As our office is currently based in SW20, the average price of all property in the area was £555,262 but for a detached house £1,604,983, or a semi at £884,485, a terraced house at £611,401 and a flat or maisonette at £390,792. You can search your location using the UK House Price Index here

On the other hand, reports from the Bank of England also show that mortgages in arrears (missed payments) now stands at around 13.2% of mortgages.

Comparing the last two quarters of 2023 (Q3 and Q4) isn’t really ‘fair’ as we all know that most house buying and selling is done in the summer months (Q3) not over the Michaelmas term. So in that context, the Bank reports that new mortgage commitments is down 21.2% comparing Q4 in 2023 with 2022. The value of advances is down 33.8%. In Q4 2022 £81.6bn of loans were agreed, a year later it is £54bn.

The number of First Time Buyers continues to decline, from 351,000 in 2019 to 287,000 in 2023. Affordability is the key phrase in lending these days and rising rates have evidently placed pressure on borrowers, stretching their mortgage over greater lengths to make the monthly repayments more ‘affordable’. I imagine most of us are familiar with a 25-year mortgage, but 1 in 5 (20%) first time buyers takes on a 35 year mortgage, double the number a year earlier.

“It was the same in our day”… no it was not.

You will likely have heard or thought that everyone struggles at first with a mortgage and their finances. That’s true, but it’s worse for young people these days, much worse. Admittedly everyone is different, there are enormous regional variances, but if we go with averages for the UK, here are some facts that may convince you that buying a coffee and avocado on toast really isn’t the issue. The system is broken and it is deliberately set up to favour property owners here in the UK. Most law is based around the notion of property ownership.

As is evident from the above, clearly it is not possible for someone wanting the average mortgage with the average income to afford the monthly repayments on a 25 year loan, so lenders have responded by offering longer durations. This does not address the problem, it merely keeps the system going and keeps young people in debt until they are definitely not young! Of course better mortgage rates can be found (true in both periods) and of course property prices differ as noted in my local example of an average flat in Merton being more expensive than the average UK home.

If you factor in other costs that young people have which you and I did not have in 1993, it would include student loans and auto-enrolment pensions. The latter being a very good thing, the former being a State-wide fleecing (my opinion).

Yet, I suspect that you and I are likely to presume that these same young people will be happy to do all those jobs that keep civilized life ticking along, from emptying the bins, caring for the elderly and unwell to policing our streets and running the country. I imagine that they may not be quite so enthusiastic to keep doing the work and the paying of taxes to support it.

Remortgages, which you would think should be increasing as people shop around for better rates are actually in decline from 849,000 in 2021 to 538,000 in 2023. The table below makes me wonder why on earth people are not remortgaging. I do hope that it isn’t a sense of fear. To provide a reminder let’s consider mortgages and houses in December 1993. The average property price was £54,026 (Land Registry) and the standard variable mortgage rate was about 7.9%. The average salary in 1993 was £17,784  in December 2023 it was £32,240.

Perhaps your energy costs are starting to subside, if you have a mortgage or pay rent, I am sure you will have been aware of the increases in your monthly costs, at least if you have had to renegotiate terms. Variable rates are considerably higher than they were a few years ago. There is a fair chance your mortgage is with Lloyds, Nationwide, NatWest, Santander or Barclays who account for 64% of the entire mortgage market. The top nine lenders in 2022 (out of 79) affirm Pareto’s law of having 80% of the market from 20% of the players (or less).

Anyway, in terms of your financial planning, we don’t arrange mortgages, but advise you speak to Martin and his team at London Money (see our professional contacts page). You may be concerned about your children or grandchildren getting onto the property ladder or perhaps downsizing to release equity at some point. Please ensure that you keep us up to date with any changes in your thinking about how you intend to use property in relation to your planning.

Reference: Bank of England: Mortgage and Lender Administrators Statistics 2023 Q4 (LINK HERE)

Reference: UK Finance: Household Finance Review, latest data Q4 2023 (LINK HERE)

Reference: UK Land Registry: UK House Price Index (LINK HERE)

Mixed messages of mortgage market2024-03-22T15:53:27+00:00

MORTGAGE PAYMENTS UP

TODAY’S BLOG

MORTGAGE PAYMENTS UP

As you know, the Bank of England raised the base rate recently and some lenders took the opportunity to increase the rate of borrowing on mortgages and loans – but with a bigger increase in the rate than the Bank of England.

For those who have a mortgage, it is worth checking that you are happy with your interest rate. Admittedly, changing lenders can be a bit of a pain, but we are likely to have rates increase further over the next two years (perhaps longer) as the ‘battle against inflation’ rages on; though in reality I doubt very much that the Bank will raise rates enough for fear of causing recession.

Remember that these days most mortgage lenders will permit you to overpay a loan by around 10% of the balance each year. A fixed rate mortgage will invariably have a penalty if you change the terms (by exiting the mortgage). The penalty, known as an early redemption charge, can often be a significant amount, based on the amount of the remaining balance.

A fixed rate provides a degree of certainty about how much you will pay each month for the set duration of the rate. Thereafter, you will be on the lender’s standard variable rate (which is much higher than most normal rates at present). A variable rate simply means that as rates alter (up or down) your mortgage payments follow suit.

Anyway, if you require help with your mortgage, we can put you in touch with some whole of market independent mortgage brokers. Just ask us.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

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The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

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Are we a good fit for you?

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Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

MORTGAGE PAYMENTS UP2023-12-01T12:12:48+00:00

INFLATION, INTEREST – THE NUMBERS ARE STARTING TO HURT

TODAY’S BLOG

THE NUMBERS ARE STARTING TO HURT…

If you are a car driver as I know most of you are, the current price of petrol will almost certainly have caused a gulp of disbelief as you fill up your “pride and joy”. The rate of inflation may be a testing 9% or 10% (next release from the ONS is next week) but the price of fuel is rising much faster than that. Indeed, I have noticed the price at a station change within the space of a return trip to a local garden centre.

Today, 16th June 2022 unleaded petrol is around £1.87 a litre or £1.93 for diesel. In June 2020 it was £1.07 and £1.11 respectively. That’s an increase of 74% in a year. If only I could tell you that investments had fared as well, they haven’t. Markets have been very difficult lately, largely since November. Global equities are down 1.48% over 12 months and global bonds are down 12.01%. When the numbers go in opposite directions to our daily reality of the cost of living it becomes alarming.

I am not going to pretend to you that this is easy or that inflation will quickly disappear as the Bank of England appears to believe (returning to around 2.4% in 2024). We could be in for inflation that lasts rather longer than that. Sadly, we are in short supply of good politicians around the world, those that we have seem intent on destroying any sense of self-respect. The “unexpected” war in Ukraine is certainly lasting longer than most expected… which does leave me wondering, who on earth is doing this “expecting”? most of the hard-nosed realists I know do not have much faith in politicians to resolve much at all, other than their own salaries and second jobs.

THE JUBILEE, 1977 AND A 67% MARKET DECLINE

If the Jubilee parties didn’t remind you of 1977, the impending rail strikes and some of the economic data may soon help you to do so. Still, we have learned lessons from the past haven’t we! I imagine that you appreciate that I am being a little sarcastic. Sadly, you and I cannot control very much of what is going on. We can control how we respond. All the lessons of history are that successful investing means riding out the peaks and troughs of the global market cycles. Some of these are very deep and “hurt”. For some context, the average bear market since 1926 fell by -35% and lasted 18 months. Some were worse, some better (hence average). The worst fall was in June 1972, markets collapsed -67% and the bear market lasted 2 years 7 months. £100,000 in 1972 would have fallen to around £33,000 however for those that held their nerve that same £100,000 became £1,207,159 when considered over 154 months (12 years 10 months). That is amazing isn’t it… but so few investors had the patience, confidence or perhaps ability to stay the course. This is not easy, hindsight is easy, the present and an unknown future are “difficult” yet that is the reality of our daily lives. Complex, unknown and full of conflicting messages and competing media.

Today the Bank of England raised its base rate to 1.25%. Let me get ahead of the “news services” and spin this in different ways. Interest rates have increased 25% overnight. The highest for over a decade. This is true, but in the context of interest rates they are half as much as they were in November 2008 (3%). When I started the firm in 1999, rates were 5% (some 333% higher). When I started in this game, they were 10.88% and I have a very real experience of them at 14.88%.

Life changes, your plans may need updating, but your main priorities and principles are unlikely to alter at all. Do get in touch with me if you are concerned. As I may have said, investing is a long-term, a lifelong process. Remember your money should serve you, not the other way around.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

INFLATION, INTEREST – THE NUMBERS ARE STARTING TO HURT2023-12-01T12:12:49+00:00

CASH IN HAND?

TODAY’S BLOG

CASH IN HAND?

At this stage, I am hopeful that the pandemic is drawing to a close, but aware that there are still potential problems and concerning infection rates. As many of us have been tucked away out of harm’s way, you may have had little use for your cash, making most of your purchases online or using contactless payments.

As we all gradually find our winter coats, perhaps there is a crumpled £20 note in a pocket, or better still £50. Well, take this winter as your last reminder that the old £20 and £50 notes are due to be “worthless” from 30 September… next year!

You really have the usual options of spending or depositing them, but leaving the old £20 or £50 in a wallet will soon be an expensive receipt.

New Polymer £20
New Polymer £50

MONEY GOES AROUND

There are approximately £9 billion worth of paper £20 and £15 billion worth of paper £50 notes still in circulation. As they are returned to the Bank of England, these are being replaced with the new polymer £20 notes featuring J.M.W. Turner, and polymer £50 notes featuring Alan Turing. After 30 September 2022, the new polymer notes will be the only ones with legal tender status.

After 30 September 2022 people with a UK bank account will still be able to deposit withdrawn notes into their account. Some Post Offices may also accept withdrawn notes as payment for goods and services or as a deposit to an account accessed via them.

The Bank of England will continue to exchange all withdrawn notes. For more information on this please see their Exchanging Old Banknotes page.

Speaking ahead of the date, the Bank of England’s Chief Cashier Sarah John said “In recent years we have been changing our banknotes from paper to polymer because this makes them more difficult to counterfeit, and means they are more durable. The polymer £20 featuring the artist J.M.W. Turner, and the polymer £50 featuring the scientist Alan Turing are now in wide circulation, and we are in the process of withdrawing their paper equivalents. So we want to remind the public that they have one year from today to spend their paper banknotes.”

The new polymer £20 was first issued on 20 February 2020, and the polymer £50 note was first issued on 23 June 2021. You may not have even seen one yet! These notes complete the Bank of England’s first polymer series. The introduction of polymer banknotes allows for a new generation of security features which make them even harder to counterfeit. The notes are also resistant to dirt and moisture and so remain in better condition for longer. These notes also have tactile features that allow the blind and partially sighted to use them.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

CASH IN HAND?2023-12-01T12:13:03+00:00

SURPRISED? BASE RATE NOW 0.75%

Surprised? Base Rate now 0.75%

The Bank of England have announced today that they have increased the base rate from 0.50% to 0.75%. This will be welcome to anyone peddingly news for the next 24 – 48 hours. It will not however mean that you get much more interest on any cash deposits that you hold. It also is not likely to have a huge impact on mortgages or loans (it will have no impact immediately if you are on a fixed rate loan of any type). The decision to raise the rate was unaminous and part of the attempt to keep inflation at 2%.

The next Monetary Policy Committee (MPC) meeting will be after the summer break, on 13 September 2018. If you wish to know more, simply click this link to the Bank’s website.

SURPRISED? BASE RATE NOW 0.75%2023-12-01T12:17:54+00:00

A Certain Future

A Certain Future

Our culture is full of clamour for certainty… tell us the future? Why was your forecast wrong? (as a Radio4 presenter seem to berate The Bank of England this morning). Why didn’t you foresee such and such? It seems that we all want certainty – perhaps to affirm our own beliefs about life and people, or perhaps because deep down we know that life is anything but certain.

It appears this quest for certainty is intense at present, I say “seems” because I doubt that’s true, but we are bombarded with messages that would leave most rational folk with a deep sense of anxiety due to climate change, Brexit, technology, feckless politicians and a sense that perhaps, perhaps… the bullies are winning.

If only…

Investors are unsurprisingly startled by the normal behaviour of investment markets, when the “corrections” come. There is always anxiety over when is the best time to invest and when is a bad time to invest. None of us wishes to appear foolish.

Yet the basic law of investing (not speculating) is that markets are volatile, short term investing is unwise, long-term investing in a globally diverse portfolio is the best, most logical way to grow the value of money over time. In exchange you must live with seeing the “value” rise and fall rapidly and daily. If only we knew the future and had some certainty…

The Phlebotomist

I’m here to tell you that there is none. Yet we will search and research for it, developing theories to help us navigate the condition of life. This in mind, I was intrigued by a brief review of a new play “The Phlebotomist” by a young playwriter (Ella Road) which considers a not too distant dystopian future, where a blood test can reveal what illnesses you will suffer from, all rather like a credit score, but a health score.

I understand that this is explored in the context of a dating app, when people are forced to consider their choice of partner, given this pre-warning information. Sadly, I am not able to see the play at Hampstead Theatre which is sold out and runs until Saturday 19th May 2018. I hope that its success will lead to a wider, longer run. If you are going, please let me know your thoughts.

Life would be very dull if we knew what would happen. A sense of “Groundhog Day” is deeply unsatisfying. This fragile life, for all its faults is delightful (or potentially) precisely because of the lack of certainty.

Anyway, here’s a video from the cast of “The Phlebotomist” by Ella Road and directed by Sam Yates.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

A Certain Future2023-12-01T12:18:10+00:00

The Base Rate

The Base Rate

After much media speculation, we can now expect the world to end as today the Bank of England has announced an increase to base rates (voting 7-2 to do so). The rate is now 0.50% instead of 0.25%. This is the first rate rise since July 2007. Seriously – over 10 years ago! One would hope that this would benefit everyone with some cash in a savings account at the bank, but we all know better than that don’t we? What is far more likely to happen is that lending rates for mortgages will gradually begin to increase. The nations largest Building Society currently has a standard variable rate of 3.99% and their base rate tracker rate is 2.50%, both considerably above the actual base rate at the time. Banks are generally a bit worse. So lenders may be inclined to sit on their hands and do nothing (for fear of being berated by minnows like me) though I suspect they are more likely to gradually increase their standard variable rate. But we now live in a world of image preservation, so perhaps they won’t all rush to increase rates.

People with Cash Savings

Frankly, I wouldn’t hold out too much hope of an immediate improvement to your savings rate. Inflation is currently 3% and nobody is offering anything near that on an instant access basis. You could shop around, but its a bit of a pain for the equivalent of a round of drinks for the year – and don’t forget the “safety” of the FSCS limits. Alternatively if you have £100,000 or more we can put you in touch with a service that will do this for you (and likely improve your FSCS cover).

Borrowers

There has been much talk about the impact of rate increases on borrowers, who are generally people that are working and repaying debt (hopefully). It is certainly the case that the low interest rate environment may well have lulled some into believing it was always this way, anyone older than about 25 frankly should know otherwise.

There is a tendency to chastise people for “borrowing too much” when this subject is reported in the media. However consider for a moment a couple of facts. Wages have not increased very much over recent years, house prices have largely continued to rise, unchallenged, except perhaps to apply some nervous brakes due to Brexit. However as Kirsty and Phil would suggest, prices are reflective of location, location, location. People have had to borrow significantly to buy homes. Those without mortgages looking to move or simply sell are stuck in the same “market” one that is dominated by sentiment. Anyone that has bought property in the last few years will be aware of the pain created by a huge tax bill – Stamp Duty Land Tax (SDLT). This was used to attempt to control property prices from spiralling ever upwards, has it worked where you live?

The increase, if passed on, will create additional outgoings, just when inflation numbers appear to reflect what we all know – prices are rising. The stockmarket tends to do well whilst there is ample inflation, not always, but often. Inflation helps reduce the “real” value of debt, so Government may say they don’t like it, but it kind of does their job for them without even trying. Some will find life a bit harder, as of today or indeed most of the last 10 years, few people expect rates to increase dramatically and nobody is predicting interest rates that are high.

As I have said previously, clearing debt, however good the maths works for having some, has an emotional value that cannot be overstated. Ask anyone without a mortgage.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

The Base Rate2023-12-01T12:18:20+00:00

HBOS scam, stranger than fiction

Dominic Thomas
Feb 2017  •  4 min read

HBOS scam, stranger than fiction

Yesterday I wrote about Venture Capital Trusts and explained that any business is reliant upon its management. You might recall my use of the new Trainspotting film T2 as an illustration of poorly suited characters for management of any business. If T2 is 20 years on then this must surely be Trainspotting 40 years on…

As is often the case, reality can be stranger than fiction. On 2nd February 2016 there was finally a successful conviction of fraudsters Lynden Scourfield and David Mills. They are guilty of a £245m loans scam. Scourfield was a manager at HBOS, supposedly tasked with helping struggling businesses. He was bribed by David Mills to pressure HBOS business clients to use a business services company called Quayside Corporate Services. Quayside was owned and run by Mills and his wife Alison. Together they set about extracting huge sums in fees from HBOS business clients who were being told that they would lose HBOS support and sources credit finance if they didn’t comply. Many ended up going bankrupt.

Like Characters from Trainspotting…

These three and three others (Mark Dobson, Michael Bancroft and John Cartwright) have finally been sentenced to prison, having spent huge sums on all the typical cliché trappings, all evident in both Trainspotting films. They ruined various businesses, who were trapped within the Bank, who issued fairly standard penalties which evolved into eviction notices with employees of the bank deceiving their own internal systems which then kicked in to the normal processes for how to handle a failing business (which you can imagine). Under pressure people do strange things, and a number of the business owners that were scammed, gave away control and or ownership of their own businesses. However this appears to be largely due to the complexity of the scam and a classic confidence trick, regularly reassuring the HBOS customers that the Bank was agreeing their finance.

Ripped off Businesses that were ruined

This is a deeply disturbing case of a major bank failing to understand that its own staff were scamming its customers. According to reports, the scam may have amounted to around £1bn, although official reports suggest £245m, all over a 4-year period between 2003-2007 (just before the credit crunch). Thankfully the six involved, have been rewarded with a collective 47 years and 9 months in prison. You may recall that HBOS was rescued by Lloyds TSB having notched up £45bn of bad debt and at one point it was reliant on a £25bn lifeline from the Bank of England. Well done Thames Valley Police.

HBOS scam, stranger than fiction2024-03-13T10:40:19+00:00

When is £50 worthless?

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When is £50 worthless?

£50

How closely do you observe the cash you hold in your wallet or purse? The Bank of England has announced that the £50 banknote carrying the portrait of Sir John Houblon, the first Governor of the Bank of England, will be withdrawn from circulation on 30th April. From that time, only the £50 note featuring Matthew Boulton and James Watt, which was introduced in November 2011, will hold legal tender status.

Don’t confuse your Boulton with your Houblon

If you have any Houblon £50 notes can continue to use them up to and including 30 April, but technically they will not be legal tender. After 30 April, general retailers are unlikely to accept the Houblon notes as payment. However, most banks and building societies will continue to accept them for deposit to customer accounts. Agreeing to exchange the notes after 30 April is at the discretion of individual institutions. Barclays, NatWest, RBS, Ulster Bank and the Post Office have all agreed to exchange Houblon £50 notes for members of the public – up to the value of £200 – until 30 October 2014.

The Bank of England will continue to exchange Houblon £50 notes after 30 April, as it would for any other Bank of England note which no longer has legal tender status.

Dominic Thomas: Solomons IFA

When is £50 worthless?2023-12-01T12:38:49+00:00

Banking on plastic money

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Banking on plastic money

You may have noticed the announcement by the Bank of England that they intend to print our local currency on a special paper or polymer. This should facilitate improved new security measures and increase the life of your typical banknote. This is because the paper is more durable, in particular it is better in the wet. The argument being that fewer banknotes will need to be reprinted and therefore there will be some environmental benefits. The truth is probably a little more complex, in that paper is about as environmentally friendly as it gets, anything plastic is precisely the opposite of environmentally friendly.

The first £5 Winston Churchill note in the new format will be released in 2016 and it is expected that this will be followed a year later by the £10 note featuring Jane Austen.

Dominic Thomas: Solomons IFA

Banking on plastic money2023-12-01T12:38:46+00:00
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