Money Magic

Alliance and Leicester Mortgage reports that professional landlords in the buy-to-let market are set to reap the rewards of the current real estate market.

London will continue to be the most popular region for property investors, while Scotland and the north of England will show the fastest growth. 

The firm’s research revealed that professional landlords with strong portfolios demonstrated the most financial security, and some were able to save a portion of the income they earned from letting. Not so the traditional home buyer. 

Nearly half of those owning 20 or more properties earned enough to add to their savings.  An additional 40 earned enough through their property dealings that their portfolios provided their entire incomes. More than 70 percent of those surveyed were optimistic about their prospects for the New Year. 

Landlords who owned properties in London saw the highest level of earnings.  The survey of landlords revealed that rents on properties in the central city can be more than four times those of buy-to-let properties in the south-east of England. 

During 2008, rental yields on properties in Scotland should increase nearly five percent. Properties in the north of England should yield an additional four percent, according to the survey. 

Jeremy Claridge, the head of specialty mortgages at Alliance and Leicester, is encouraged that buy-to-let landlords are optimistic about the outlook for 2008. He believes that the property market remains healthy for landlords with a history of success, especially for those in the south-east of the country in spite of the difficult financial situation.

The downturn in the housing market is stimulating the demand for rental properties, according to the Royal Institution of Chartered Surveyors (RICS). Fewer renters are looking for flats, however. 

Incentives used to attract potential buyers have dried up, leading to an increase in tenant lettings.  Landlords are seeing benefits from current economic uncertainty. 

RICS reports that family houses are attracting more tenants than flats.  The most recent data shows that over 25 percent of surveyors report an increase rather than a drop in the demand for houses.  In contrast, only 19 percent report an increase in the demand for flats, down from nearly 40 percent in the last quarter. 

Tighter lending standards and increases in interest rates are having an impact on the buy-to-let market, according to RICS spokesman Jeremy Leaf, leading to some uncertainty for landlords. 

Nonetheless, Leaf believes that economic uncertainty and rising rents will benefit landlords.  At the same time, increasing rents will make it more difficult for potential home buyers to raise the necessary capital.  They will find it increasingly difficult to get into the housing market.

Two lenders have announced a reduction in mortgage rates in response to recent cuts by the Bank of England. 

Standard Life Bank will drop its Freestyle standard variable rate (SVR) to 7.21 percent, a cut of .25 percent, beginning January 1, 2008. 

HSBC announced that, beginning December 24, 2007, it will lower its variable mortgage rate from 7 percent to 6.75 percent. 

HSBC cut the rate on its tracker mortgage almost immediately following the Bank of England’s decision on December 6 to cut the rate. The bank claims its variable mortgage rate is at least .24 percent lower than many other high street lenders as a result of its latest reduction. 

According to Moneyfacts, the online financial comparison website, 31 lenders have announced changes to their SRVs following the interest rate cut.  Six providers reduced their rates by less than .25 percent. 

The most recent rate reduction compares unfavorably to cuts made in August 2005, the last time the Bank of England lowered rates, according to Lisa Taylor, an analyst for Moneyfacts. 

At that time, 46 lenders announced rate cuts, so the present rate of change seems slow in comparison, says Taylor.

Online mortgage brokerage firm John Charcol believes borrowers will find more value in tracker mortgages than in fixed-rate mortgages.

The firm has expressed its confidence in tracker mortgages because they do not “leave borrowers at the mercy of the lender.” Very few lenders reduced their rates in line with the most recent cut in interest rates by the Bank of England. 

Trackers are becoming more attractive for people who want a variable rate, according to Ray Boulger, senior technical manager for John Charcol. 

He explained that many banks do not change their rates in response to the Bank’s rate. The interest on a tracker mortgage, however, will usually be one-quarter of one percent above a fixed-rate, given a good starting point. 

The credit crunch is forcing many lenders to reduce the mortgages in their portfolios to reduce exposure. 

Boulger expects tracker mortgages will continue to be available in the new year. He says lenders probably will not limit them in light of falling base rates. 

Boulger does not expect an increased number of borrowers to change mortgages in 2008. He expects people to make decisions about their mortgage depending on which is cheaper, a discount mortgage or a tracker mortgage.

Despite more rigid enforcement against the practice by industry monitors, some mortgage providers are still assessing an exit fee against borrowers who change lenders. 

Online search engine mform.co.uk, a mortgage website which provides information to help borrowers make better decisions has done research which shows that, despite efforts in August by the Financial Services Authority to make the process clearer, borrowers still pay an average fee of £150 when they change lenders. 

Some major lenders, including the Royal Bank of Scotland Group companies, Standard Life Bank, Cheltenham & Gloucester, and Lloyds TSB have dropped the fee, but most firms continue to charge in excess of £100. 

The FSA has ruled that customers who are charged a higher fee than what is set out in the terms of their loan documents can reclaim the fee. The agency has urged lenders to make borrowers more aware of the terms of their loan agreements. 

The report by mform suggests that some lenders are not including information about the fees in their online information.

The FSA’s actions seem to be curbing rising redemption charges. Some lenders are putting an end to the fees altogether, according to Francis Ghiloni of mform. 

He believes that borrowers are beginning to understand the fees do not cover administrative costs involved in completing a loan; rather, they are part of the price of doing business with the mortgage bank. For that reason, the fees should be imposed at the front end of the loan, rather than at the end. 

Ghiloni warns borrowers to consider the impact of going from lender to lender, as application fees, exit fees and other costs add to the cost of the loan.

A report released yesterday by online banking giant Egg suggests that again this year, million of Britons will leave their holiday shopping until the last minute.  Their delay will cause them to overspend by an estimated £594 million. 

Nearly 4 million consumers will fritter away cash and credit needlessly, waiting until the week before Christmas to make gifting decisions.  The toughest 800,000 among them will shop on Christmas Eve. 

The research indicates that these procrastinating shoppers have set themselves up to go over budget by an average of 39 percent, or approximately £150 each. 

Egg’s Chief Marketing Officer, Alison Wright, recommends that shoppers consider ways to reduce the cost of the holidays.  In particular, she warns that anxious last-minute treks, coupled with the lack of purchasing options in the final days before the holiday, drive up spending levels. She reminds us that, “Each year we get 12 months advance warning that Christmas is coming.” 

 The study also revealed that women are just as likely as men to put off their holiday shopping, contrary to popular stereotypes.

It appears that fewer consumers are using credit cards to pay for their Christmas purchases this year, relying instead on cash. 

According to figures released yesterday by LINK, operator of the cash machine network in the UK, daily ATM withdrawals increased 7.1 percent for the first ten days of December over the same period in November.  Over the past four years, the rate of increase has hovered around 5 percent. 

In a report released last month, APACS, the trade association which represents the UK payments industry, speculated that cash spending during the holiday buying season would decline from £19.8 billion in 2006 to £18.9 billion this year, a drop of 5 percent.

APACS forecast an increase in seasonal spending of 4 percent over last year’s figures, to £53 billion.  The agency expected the additional spending to be supported by credit card expenditures. 

In response to concerns surrounding the current credit crunch, however, consumers appear to be putting their credit cards away and making their purchases with cash.

Yesterday’s overall retail spending figures add substance to this premise.  The annual retail sales growth sales slowed from 4 percent to 4.5 percent, fueled in part by weak sales in shops in November, according to credit card giant MasterCard.

A survey conducted by Your Money Matters Show reveals that twenty percent of Britons will still be paying for their Christmas purchases next June. Ten percent will continue to pay in September, and nearly four percent will be paying bill for this Christmas next December. 

Cesarina Holm-Kander of Channel 4’s “Your Money or Your Wife” spoke at the Your Money Matters Show, expressing amazement that people are not better prepared financially for the Christmas spending season, apparently letting it sneak up on them. 

Holm-Kander urges Christmas shoppers to consider the bigger picture when making their credit card purchases: that a hefty credit card bill will follow them into the new year.

The Money Matters Show survey indicates that Christmas shoppers in East Anglia will show the most restraint, accumulating debt of about £500, while shoppers in London expect to spend nearly £1000. 

About half of those surveyed reported that they anticipate the high cost of Christmas and save accordingly. 

Although shoppers in the north-east of England are the most likely to save, they are also the most likely to go into debt spending. 

The results of the Your Money Matters Show survey supports findings by MoneyExpert.com which indicates that 4.4 million Brits are still paying off credit card debt they accumulated shopping for last Christmas. 

Brits will probably spend £53 billion during the upcoming Christmas season, adding £11.7 billion their credit card debt.

Travelers planning to celebrate the holidays abroad could find an unpleasant surprise awaiting them when they open next month’s bill-a hidden credit card charge. 

Most consumers are unaware that many credit card providers charge a 2.75 percent fee for overseas transactions, according to the Post Office.

Many of the 2.4 million Britons traveling abroad this season will remain blissfully unaware of the surcharge until they see it on their credit card bills. 

According to Gary Litton, Post Office Director of Lending, many people who left the country to relax and escape the rigors of entertaining during the holidays may return from their festivities with much more than “memories and mementos.”  They may in fact return with significant hidden card charges. 

Litton urged holiday revelers traveling out of country to take precautions to avoid unnecessary card charges so that “the only baggage they return with is the luggage they are traveling with.” 

The majority of holiday travelers will visit Spain, the US or France (17 percent, 8 percent, and 6 percent respectively).  The Post Office estimates that nearly half of them will use their credit cards to pay for purchases and services.

Older Britons seeking credit from banks often encounter problems as banks weigh whether they will live long enough to repay the debt.  The BBC reports that the right of banks to consider age in offering loans has been upheld. 

Earlier this year, Mike Young, a banking consultant and former executive with the Bank of England, reviewed possible revisions to the Banking Code and recommended putting a stop to age discrimination. 

He suggested that guidelines should be rewritten to reject discrimination against borrowers simply on the basis of age. 

A representative of the British Banking Association disagreed, saying that this provision in the code should remain as it is. 

According to Eric Leenders, Director of Retail Banking at the BBA, bankers want to be able to consider any factor that might make a difference, including the age of the borrower.

Consumer groups criticized Mr. Young’s review of the Code, which was published last month, urging a tougher stance on measures such as bank charges.  Mr. Young recommended greater clarity on loans and savings accounts and greater accountability on the part of banks for customers who represent a credit risk.