CRISIS CREDIT SCORING

TODAY’S BLOG

CRISIS CREDIT SCORING

There is good news for those taking a payment holiday on their mortgages – yesterday (31 March 2020) the three main credit scoring companies (Experian, Equifax and TransUnion) have agreed to effectively freeze your credit score. This is good news for those that have decided to help personal cashflow by suspending payments to lenders and anticipating refinancing in the not too distant future.

[EXPERIAN ANNOUNCEMENT HERE].

That said you do need to make sure that whatever your situation now, that when “normality returns” that you have not bitten off rather more than you can manage normally. Most of us, perhaps all of us are likely to be required to adjust our lifestyle demands. We all know that at some point the Government (which really means the UK) needs repaying at some point, which really means higher or more (or both) taxes.

FROZEN

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 Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

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

WHAT WE’RE ALL ABOUT

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

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

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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CRISIS CREDIT SCORING2020-04-01T14:23:32+01:00

Avoidance is not in your Interest

Avoidance is not in your Interest

We have had a sustained and long-lasting (by comparison) level of very low interest rates. This has been bad news for those with cash savings, but good for those with mortgages or loans, at least regular “mainstream” ones. However a lot of borrowers have mortgages that are interest-only mortgages. This means that they are only paying the servicing interest each month, not actually repaying any of the loan. As rates have fallen, many have failed to use this as an opportunity to make some progress clearing the debt.

The credit crunch had lots of far-reaching effects on most of us, we are still living with the official Government response to it, which is one of austerity. An attempt to keep expenditure lower than income, which for you and I make a lot of sense, as a nation it ought to, but of course the Government has lots of ways of “making money”.

Anyhow, there are a whopping 1.67m mortgages that are either entirely or partly interest-only. The regulator is rightly concerned that borrowers are not engaging with the problem and without any plan to clear the loan will utlimately be subject to discovering the joys of Court and perhaps repossession of their homes.

70% Ignore the Lender

The research conducted, reveals that a staggering 70% of borrowers that fall into the category of an interest-only mortgage never respond to requests from their lenders suggesting a proper review. This is collective denial on a massive scale. Everyone is presumably hoping for one of several possible outcomes.

  • That they have a plan in place that will clear the debt, they simply haven’t told anyone
  • That they intend to sell their property and downsize once clearing the mortgage
  • That they have every intention of doing something, just never got around to it.
  • That the lure of gambling or lottery, cryptocurrency winnings will be the answer
  • That they expect the world to end, so who is really bothered…..

As you may have gathered, I’m probably offering thoughts that aren’t written down in the report, though I suspect I’m not far off the truth. Denial is a very powerful force and many people are, frankly taking their future all too lightly.

I will sell up and then rent, what’s the big deal?

Of course selling the property, hopefully for a figure larger than the loan, may work for some, but for others there is unlikely to be much left over to buy a house. So perhaps renting is a consideration, after all, interest-only mortgages are a bit like renting, except the borrower also has all the upkeep and insurance. However, renting is not as easy as you may think. Most agents apply a multiple of secure income (pensions) to determine if the rent is affordable. As a guide, expect to prove that your income is 30x the monthly rent…. most will not be able to do so. If you are over 70, then add in the lack of suitable property and landlords willing to rent to people more likely to fall and hurt themselves… well, let’s just say that renting becomes harder.

As is probably obvious, the regulator is concerned about the lack of engagement. I suspect that this might lead to some new initiatives to “encourage” borrowers to take action. You have been warned.

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

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Avoidance is not in your Interest2018-01-30T17:18:35+00:00

Money Box – Interest Only Mortgages

Money Box- Interest only mortgages

If you follow me on twitter you may be aware that I was raising some concerns about the reporting of an item on BBC Radio 4 Money Box and BBC1 Breakfast about interest-only mortgages. Let me be clear I do not provide mortgage advice – we refer this to someone that does – should anyone require it, we encourage clients to clear off debt and mortgages as quickly as possible.

Paul Lewis relates the story of Christine, a woman now 70 years old, bought her flat in Liverpool in August 2004 at the age (I assume) of 58 with a ten-year mortgage of £151,774. It was an interest only mortgage, meaning that she was only paying interest, not the loan which would need repaying at the end of 10 years. Having had 2 years extra time to repay the money, her lender (Santander) has now given her until 24th November 2016 to do so or face legal proceedings.

There is not enough information (as ever) in the story presented to be able to provide any solid advice. We are told that there is no equity in the property (the value of the flat less the mortgage). This could be because the flat has not increased in value at all since 2004 (which whilst possible seems a little unlikely) or it could be that she has amassed other debt which has wiped out any equity that built up over the last 12 years. The reality is we don’t know and in any event, this is the situation she is now in.

We are told that Christine now (in 2016) has an income from pensions of £1,100 a month and her mortgage costs her £600 a month. It is unclear if she has any other savings. The story is clearly upsetting to Christine, but I am suspicious of what is being reported.

What is missing?

If the angle for Money Box is the possible miss-selling of the mortgage then some better factual information is really required. As I have said I don’t arrange mortgages, but it would be unusual for someone to borrow £151,744 without an income to justify this (typically 3.25x income, which would mean requiring an income of about £46,700. Being 58 at the time she was only 2 years away from receiving her State pension. So what income did she declare? And was the lender really offering a 58-year old a 100% mortgage within 2 years of retirement? Now that would have some grounds for complaint about bad advice. She cannot “recall” being offered a repayment mortgage or anyone asking her how it would be repaid.

But there was a foreign property…

Christine is certainly very unclear about what an interest-only mortgage is, thinking (for a some reason that it would continue) when she knows it wouldn’t (not outstanding until she dies) and of course would be clearly stated on the annual statements and original mortgage offer. Christine provides what appears to be conflicting information, recalling when asked how she expected the mortgage to be repaid, she mentions an intention to sell a foreign property to help do so. Sadly this “crashed” but again merely demonstrates that rather more (and better) questions need to be asked. More information is needed, but is woefully lacking.

Clarity or Charity?

When Christine was asked a direct question “Did you not understand what interest only meant?” she replies “Yes, you were just paying off interest that they were charging on the house itself and not off the property. That is how it was sold to me”. The reporter does not challenge her statement which makes no sense at all unless by “house” and “property” she really means mortgage/loan or capital (read it back to yourself).

The Coming Mortgage Apocalypse….

The only clear thing is that she appears confused, not fully understanding how mortgages work and is certainly distressed. Money Box seem concerned that lots of people are in a similar position, reporting that over 160,000 interest-only mortgages are due for repayment within the next 2 years. Money Box report that about 2million people have interest-only mortgages and that 1 in 8 (12.5%) of them appear to be like Christine, not realising that the money needs to be repaid (though presumably having been asked the question they do now know). Importantly 40% claim that they will struggle to repay the mortgage in full.

This of course is probably the real scare story or anxiety that Money Box wishes to convey and the implication being that this is the fault of unsafe products and a bad industry of bad lenders and bad mortgage advisers…. which will lead to are creating more homelessness. Well as with all things, there are likely to be some, (bad ones) but such generalisations and calling for yet more regulation is a far stretch, when in practice this has more to do with some people not understanding the commitment that they are making or claiming not to understand.

There are more options than you think

Christine is very worried, understandably, she has my sympathy, yet it seems that the only options she has discussed (remember there is a financial adviser “on hand”) is going into an old peoples home or a hostel. It sounds to me as though her adviser is pretty useless if this is the case. A quick search of properties to rent in Liverpool for £600 or less reveals over 2,000 listed as available.

The Power of Denial

It’s a terrible thing that’s happened, that I never thought it would come to this”. Well it is certainly hard, but Christine has £1100 a month of income and can chose how to use it. Renting is a viable option. So I am left feeling that this is more a report on the power of denial – denial of reality. Something has clearly gone very wrong, with poor budgeting and planning. This does not make Christine innumerate, frankly successive Governments fail far more spectacularly and one wouldn’t really accuse them of innumeracy or financial illiteracy, as tempting as it may be.

I’m left with the impression that this is a story of not wanting to understand, rather than not being able to understand, which is perhaps true of Money Box as well. Accusing lenders or advisers of mis-selling is a very lazy approach, when actually Santander has been providing information and already extended the deadline by 2 years.

Paul Lewis ends the piece with a nod to the debt-counselling charity Step Change, which implies an awareness that there is rather more here than simply clearing the mortgage by selling the flat and what is actually missing is a fundamental grasp of a budget and the reality of consequences. Getting out of depth financially is not a sin, it can easily happen to anyone, (and I do mean anyone… even billionaires!) the key is facing the truth and exploring options carefully.

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

Money Box – Interest Only Mortgages2017-01-06T14:39:13+00:00

Help to Buy ISA… well, not that much help..

Help to Buy ISA…well not that much help

You may have heard of the Help to Buy ISAs. When this was announced by the then master of goalpost manoeuvers, Mr George Osborne, you would be forgiven for thinking that this was an innovative scheme to help savers get a bigger deposit for a house purchase. The Government will add 25% to whatever you save…. Well maybe not.. as ever, rarely do Governments make life easy, indeed one is often left to wonder if Government agenda is not precisely the opposite. So, let’s spell out a few of the issues. For the sake of simplicity, I will call the right to buy ISA “the plan” which will not help my search engine optimization, but will hopefully read a little better.

Maximum and Minimum

You can only save £200 a month into “the plan” with an initial deposit of £1000.The maximum that can be in the plan (from you is £12,000 – the minimum is £1,600). So the maximum £12,000 would get £3,000 (25%) from the Government, yes its better than nothing, but actually not that much help for a deposit. You have to be 16 or over for an account.

So then there is that mortgage…

Whilst it is possible to get a mortgage with a very small deposit (5%) the prevailing requirement is generally 15%-25% deposit. Of course this means being able to justify and afford the mortgage for the balance. So if the plan is 5% of the purchase price, that suggests a property valued at £300,000 and mortgage of £285,000… which in turn probably means an income of over £80,000. We don’t arrange mortgages, but generally borrowers can borrow up to about 3.5x their income. If you have found a property for £100,000 then of course this will be more useful, but one can only assume that the property is at least 100 miles from London.

The Hard Graft of Saving

As the plan is really a monthly saving scheme, that’s a total of 55 months or 4 and a half years of solid saving…. In the meantime, property prices are probably rising, at least in-line with inflation. Oh… just remind me how long is the typical Government lifetime? How time flies.. and policies change.

The Housing Problem

Another clause being that Government hand out only applies if the purchase price is up to £250,000 or £450,000 in London…. In which case for Londoners, clearly this would be just over a 3% deposit, so you will need other resources. The property must be in the UK (do not ask me what that would mean should either Scotland or Wales leave the UK). Naturally the plan cannot be used to purchase a second property, so if Mum and Dad have put your name of the deeds somewhere else… well, it’s not for you.

Meanwhile, as the Help to Buy ISA is really a Cash ISA, the savings earn interest, which today is about nothing. OK you can get some better deals, but not much better.

Snakes and Property Ladders

The Plan cannot be used for anything other than a deposit, not stamp duty, fees etc. It cannot form part of the deposit provided at Exchange of Contracts either…. which is quite daft! It must also be closed before you buy, which means obtaining a statement from the Bank to confirm that the account is closed (which may be easy in theory but hard in the stressful throws of purchasing a first home.. whilst the pressures mount from those higher in the chain.. It’s actually the conveyancing solicitor that claims the Government hand out for you between the Exchange and Completion… (I’m guessing a fee would apply to claim it)… what could possibly go wrong? (property falling through perhaps?).

Still, there’s no place like home….

So is it worth it? Launched nearly a year ago (December 2015) over 22,000 people have used the proceeds to buy a property, which presumably means that they had at the very most 10 months of £200 and £1000 initial deposit (£2000 in all) so a £500 help to buy. OK, ok… better than nothing, but is this really solving the housing crisis or simply providing a bit more cash to meet the inflated property prices? I think you can probably guess what I think.

However, this is money for nothing (well, there are some strings). In practice, perhaps try to use the account, fill it up to the maximum then forget about it in the hope that the offer remains valid for years to come. It does form part of your annual ISA allowance, but in practice only £2400 for most people, meaning that there is still a lot of ISA allowance left. If you move abroad or never end up buying a home, then you can easily get your money back, it simply will not be worth much more than you put in, due to poor rates of interest. Much like the Wizard of Oz, there are no magical solutions to resolve the housing crisis but if you make the effort and reflect on your own resourcefulness, its amazing what can be achieved… and you will have a bit more cash to play around with.

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

Help to Buy ISA… well, not that much help..2017-01-06T14:39:14+00:00

Barclays Buy ING

Barclays Buy ING

Barclays Bank have agreed to buy ING Direct UK. This is a good result for Barclays but not a terribly good one for savers. ING often have very competitive savings rates and the acquisition by Barclays will increase market share but do little for a competitive market. You may have seen the ING adverts which are a little odd, but attempt to create the sense of a no nonsense bank.

A Great Deal for Barclays

ING UK was launched in 2003 and has over 1.5m customers. It is entirely owned by the ING Group who had over €1.279bn of assets at the end of 2011. The deal will see £10.9bn in customer deposits pass over to Barclays and around £5.6bn of mortgage borrowing. ING have a high quality mortgage book, with 50% loan-to-value, which is very strong for any Bank. It is estimated that the deal, assuming approved, will take place in Q2 of 2013. ING Direct expect that 750 of their staff will transfer to Barclays. Whilst a relative newcomer to the UK, the roots of ING can be traced back to 1845 with the merger of Levensverzekering Bank and De Nederlandenvan 1845. ING was formed in 1991.

Barclays Buy ING2015-06-29T13:01:52+01:00
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