Mortgage | Property Investment | Finance Guide

Highlights

• London has not proved immune from the crisis in the residential development industry. New build starts have fallen to unprecedented lows, further widening the gap between the number of new homes being constructed in the capital and the number of new households forming. Supply is particularly constrained
in the super-prime sector.

• Demand from City employees will weaken with bonuses in 2009 predicted to be around a third of peak levels – but increasing interest from abroad, triggered by the weak pound, will provide some counterbalance. With prices falling by as much as 40% for new build stock in some secondary locations, gross yields are
reaching double figures and investors are becoming more active.

• In this review, we set out the key issues impacting on the London development sector and Alan Benson, Head of Housing and Homelessness at the Greater London Authority (GLA) expands on the thinking behind the Mayor of London’s new housing strategy.

From – knight frank

The Bank of England has cut interest rates to 0.5% – a fresh all-time low – and says it will now boost the money supply to help revive the economy.

Interest rates have now been reduced six times since October, and the latest half a percentage point cut from January’s 1% had been expected.

The Bank said it would expand the amount of money in the system by £75bn in an attempt to boost bank lending.

This policy, so far untried in the UK, is called quantitative easing.

Mortgage fraud rose to a 13-year high of £36 million last year, approximately 10 times higher than the recorded £3.7 million in 2007.

According to KPMG’s forensic fraud barometer, more than £1.1 billion worth of cases were heard at UK courts last year recording the second highest level of fraud in the survey’s 21 year history.

However KPMG warned that most fraud committed since the credit crunch has not yet come to court and the trend of increasing mortgage fraud is likely to get worse with the global economic downturn.

The forensic investigation unit of KPMG stated that crime by professional gangs remained at the “extremely high” levels seen in previous years, while fraud by company managers, employees and customers trebled to £300 million last year.

Additionally a fivefold increase in company fraud from £24 million in 2007 to £125 million last year was visible.

The Bank of England has reduced interest rates to a record low of 1% from 1.5% in an attempt to boost the shrinking economy.Lowest price ever

This marks the fifth interest rate cut since October, as the Bank seeks to encourage more lending.

However, there are concerns that savers will be hurt by lower interest rates.

And business groups argue that this rate cut will not be enough to ease the economic crisis, and will not encourage banks to lend.

The decision comes after official data showed the UK had entered a recession in December, after two successive quarters of economic contraction.

The Bank Rate has now been reduced from 5% in October last year.

In a statement, the Bank of England said that the rate cuts, along with government measures to boost the economy, “would provide a considerable stimulus to activity as the year progressed.”

You need to check thoroughly about the lender’s reputation as well as about their handling of mortgages. Be well assured whether their customers are happy with them.

Although a low interest rate is good, you need to be assured this is guaranteed for you and the time period over which they will hold the rate, which you need to get in writing, or else they may try to switch interest rates at closing. Mistakes Made When Choosing a Lender

Repayment mortgage is a type of mortgage in which the monthly repayments consist of repaying the capital amount borrowed as well as the accrued interest. In your statement of mortgage which you receive annually indicates the amount borrowed decreases throughout the term.

The main advantage of a repayment mortgage is that at the end of the term, you can be sure that the total amount of the debt has been repaid. Secondly, it also removes the risk of having an investment, the performance of which is dependent on the stock market. Therefore, you are less likely to suffer from negative equity as your mortgage balance will be reducing month on month.

As time moves on, the equity percentage in the property increases. However, in the early years the bulk of the mortgage repayments consist of the interest component, so not much of the capital is actually paid off for some time. Consequently, when you re-mortgage or move home you may find it easier to obtain a mortgage and you may be able to avoid paying a Mortgage Indemnity Guarantee.
There are some disadvantages in repayment mortgage method, ie. you would be unable to benefit from the stock market if it has performed well over the period of the mortgage. Therefore, there is no possibility of being able to pay off your mortgage early with such an investment windfall or receiving an additional lump sum at the end of the repayment period.

If you think of moving house after a few years, then you may have to repay your existing loan and take out a new one, as most of the repayments in the early years consist of interest on the existing balance and not a huge amount of capital will have to be repaid from the original debt.

Many people end up taking out another twenty-five year loan, especially if they are trading up to a higher value property. This will once again put them at the start of the repayment schedule, meaning that the bulk of the repayments are once again being taken up with servicing the interest bill on the mortgage debt.

HSBC maintains that only 1% of the bank’s mortgage customers are on SVRs.

Their new rate will fall from 6.25%to 5.44%.

Of HSBC customers with variable rate mortgages, over 95% have mortgages linked to the Bank of England base rate.

Earlier this month HSBC announced it was passing on the cut in full to all its tracker rate customers.

HSBC is also offering its existing SVR and discounted rate borrowers the option of moving onto the bank’s current ‘best buy’ lifetime tracker mortgage free of charge.

This makes for a £799 discount on the deal.

This lifetime tracker (currently 3.99%) charges 0.99% over Base rate for up to 60% LTV.