Charities warn of rising debt

Article 2008-03-18, 09:11:00

Consumer Credit Counselling Service and Citizens Advice Bureau see surge in requests for help regarding debt

The number of people seeking advice because they were struggling with mortgage repayments and other household bills surged in the first two months of this year, and the rising cost of living could force many more people into insolvency, charities warned today.

Citizens Advice said its bureaux in England and Wales had seen a 35% increase in the number of cases involving mortgage arrears, compared with the same period last year.

A survey of 73% of its offices found debt counsellors had dealt with 215,000 new debt cases in January and February alone, many of them involving people struggling to keep up with rising living costs.

As well mortgage arrears, an increasing number of homeowners contacted the charity about problems involving day-to-day costs such as energy, water, telephone and council tax payments.

Meanwhile, the Consumer Credit Counselling Service (CCCS) said it had set up a bankruptcy centre in Birmingham to help the growing number of people finding themselves with too little money to go onto a debt management plan.

The charity said "super-inflationary" rises in basic living costs were making it tougher for people who were in debt, particularly the least well off.

The news comes as the latest inflation figures show a rise in consumer price inflation from 2.2% in January to 2.5% http://www.guardian.co.uk/business/2008/mar/18/economics.interestrates, with rising energy and food costs pushing up the cost of living.

It follows warnings from the Council of Mortgage Lenders that repossessions could rise by 50% this year, as the credit crunch forces lenders to raise interest rates and tighten lending criteria.

Teresa Perchard, director of policy for Citizens Advice, said the sharp increase in the number of mortgage arrears problems was "worrying".

"These latest figures paint a worrying picture, suggesting a significant number of households are struggling to meet their most basic living costs," she said.

"The combination of big increases in household bills, especially fuel, and rising housing costs is putting additional pressure on people's finances when they are already stretched to the limit."

Despite the rise in mortgage-related enquiries, credit and store cards still account for the largest proportion of debt problem, Citizens Advice said, although the number of cases was down 9% on the first two months of last year, reflecting a fall in outstanding balances across the industry.

However, problems relating to overdrafts were up 7% and debt is now the number one issue dealt with by the charity's counsellors.

It said in the 2006/07 financial year it had dealt with 5.7 million new cases, more than 1.7 million of which concerned debt, and advisers are now dealing with more than 6,600 debt problems every working day.

"If people have debt problems they should get help straight away," said Perchard.

"We cannot stress enough the importance of telling your creditors as soon as you have difficulties in paying - they should treat you sympathetically."

As well as giving advice on repaying a debt, a charity like Citizens Advice could also help someone ensure they were claiming the benefits they were entitled to, she added.

Separate research published today by credit reference agency Experian suggested consumers and lenders had already begun to tighten their belts before the credit crunch started to bite late last year.

Figures show the total outstanding balances on UK borrowing rose by 9.24% over the last 12 months, slowing from a 14% rise over the previous year.

The total outstanding debt now stands at £1.1 trillion, up from £1tn this time last year.

However, Experian said the "negligible growth" in credit card balances suggested consumers had taken a "more responsible approach to borrowing".

"The debt data shows that, in the last 12 months, growth in lending has slowed markedly across all key credit products (mortgages, hire purchase, loans, credit cards and overdrafts) compared with the previous 12-month period," Experian said.

"Credit tightening on cards, loans and mortgages was already well established in advance of the credit crunch.

"This cautious and responsible approach has prevented an explosion in credit card usage."

The research suggested that people in Richmond-upon-Thames were the most indebted, with £53,533.16 per head, while the least indebted area was Dumfries, with £12,458.07 per head.

Northern Ireland showed the biggest change in total debt, up 23% in the last 12 months, to £17,921.63 a head.

This was followed by Kensington, Chelsea, Wandsworth, Hammersmith and Wolverhampton.

Don't panic over new loans, mortgage holders told

Article 2008-03-04, 04:22:00

1 in 5 Homeowners concerned about meeting mortgage payments

The Financial Services Authority is today urging 1.4 million mortgage customers looking for new home loans not to panic, amid signs that homeowners are worried about making repayments this year.

Launching a £2m advertising campaign aimed at mortgage customers whose fixed rate or discounted deals are coming to an end, the FSA is trying to help homeowners "stay in control" of their finances.

It has conducted a survey of homeowners' attitudes towards their mortgages and found that one in five mortgage holders are concerned about meeting their repayments in the next 12 months. When the concerned customers were asked how they would meet the costs, a quarter said they had made no plans to address the potential problem.

The advertising campaign - to be run in newspapers, posters and on the radio - follows the FSA's alert in January that more than 1 million homeowners could be at risk of serious financial difficulty and at risk of losing their home in an economic slowdown.

Chris Pond, director of financial capability at the FSA, said: "Economic conditions are getting tougher, putting pressure on family finances."

The campaign outlines a three-point plan for mortgage customers:

• check your budget;

• start planning now;

• get help from your mortgage lender.

Pond said the checklist aimed to set out simple steps in "difficult times".

"And for those who are really struggling, don't panic. Talk to your lender or get free confidential advice," he added.

Some 1.4 million mortgage customers are on two- and three-year deals which are coming up for renewal. They face paying higher rates as mortgage lenders are tightening their criteria and some are stepping back from the market because of difficulties raising finance in the money markets.

In its financial risk outlook in January the FSA admitted to being concerned that borrowers were badly prepared for any worsening in economic conditions.

At the time, it said homeowners may have become too reliant on cheap credit and rising house prices to sustain their levels of spending.

The FSA has warned that a "significant minority" - some 1.04 million people - with large mortgages who had borrowed three and a half times their salaries could be at risk.

The FSA's new campaign is particularly targeting customers whose fixed-rate and other mortgage deals are coming to an end this year, as well as householders looking to move home or remortgage, and customers who think they may struggle to meet mortgage repayments if their circumstances change.

Repossessions rise dramatically

Article 2008-02-08, 09:10:00

Bank rate cuts may be “Too little, too late”.

Properties being repossessed by mortgage lenders leapt by 21% in 2007 to their highest figure since 1999, the Council of Mortgage Lenders (CML) said today.

A total of 27,100 homes were repossessed over the year, up from 22,400 in 2006 and more than three times 2004's figure of 8,200.

Worryingly, the number of borrowers at least three months in arrears on mortgage repayments was also up by 8.6% to 129,800. This follows a 2.8% fall in arrears cases in 2006.

The rise in the number of homeowners struggling with mortgage debts followed three base rate rises in the first half of last year and a tightening in lending criteria caused by the recession in the US and the credit crunch that followed.

Although the repossessions figures are the worst for eight years, and have risen sharply for the third year running, they are better than had been expected by the industry.

The CML said the figures was 10% down on its forecast for the year, and represented fewer than one in 400 of the 11.8m mortgages in the UK.

Arrears figures were also relatively low, it said, with fewer than 0.5% of all mortgages accumulating more than six months of missed payments - around one-seventh of the number in the early 1990s when the level of struggling homeowners reached a record high.

Late last year the CML predicted a 50% jump in repossessions in 2008, but today it said conflicting factors had made it difficult to see what would happen in the year ahead.

Two interest rate cuts since December and expectations of more to come meant the payment shock faced by 1.4m borrowers coming off fixed-rate mortgages this year may not be as bad as previously anticipated.

However, the ongoing credit crunch and slowing economy meant there was "no room for complacency".

The CML's director general, Michael Coogan, said: "Lenders take their responsibilities to borrowers facing repayment difficulties very seriously, and many go to exceptional lengths to provide debt counselling, reschedule payments, extend loan terms, or in some circumstances even allow payment breaks.

"They abandon repossession action right up to the last moment if they can reach a payment solution consistent with both the borrower's and the lender's interests.

"Despite this, the number of repossessions is likely to be higher in 2008 as a result of wider issues in the economy and the mortgage funding markets."

Howard Archer, chief UK economist at Global Insight, said it seemed certain that repossessions would rise "significantly" during 2008.

"The full effect of the marked overall increase in interest rates between August 2006 and July 2007 is still feeding through," he said.

"While the December and February interest rate cuts by the Bank of England will help matters, there is a danger it could be too little for many people.

"This is particularly true if inflationary pressures prevent the Bank cutting interest rates markedly further over the coming months."

Sue Edwards, head of consumer policy at Citizens Advice, said the CML's figures reflected what the charity was seeing around the country.

"Last year, we dealt with over 57,000 problems about mortgage and secured loan arrears - an 11% increase on the previous year," she said.

"The growth we have seen of so called 'mortgage rescue' or 'sale and rent back' schemes targeting people at risk of repossession may also mean the actual figures tend to understate the true scale of the problems faced by borrowers at the margins of affordability."

Edwards said the current safety nets for homeowners on low incomes were "completely inadequate" and the repossession figures showed the system of state support needed to be overhauled.

She added that evidence from visitors to Citizens Advice bureaux was that lenders were increasing problems for struggling borrowers by piling on charges and refusing to negotiate on affordable repayments.

"We want to see all lenders being reasonable when dealing with customers who do get into trouble, and taking court action for possession only as a last resort," she said.

Interest rates cut to 5.25%

Article 2008-02-07, 08:27:00

Light relief for Homeowners

The Bank of England's monetary policy committee has today cut interest rates by a quarter point to 5.25% as it moved to jump start a flagging economy.

The reduction in borrowing costs was the second in three months and came in spite of the MPC's ongoing concerns of inflationary pressure. Leading Economists expect more cuts in the months ahead.

In a statement accompanying its decision, the rate-setting committee said prospects for output growth had deteriorated, credit conditions were worsening and consumer spending growth had eased, all of which justified cutting rates. But it said there were still "upside risks" to inflation, which will be taken as a sign the Bank is reluctant to cut rates rapidly.

The housing market, consumer spending and the dominant services sector have also shown signs of slowing down and business and consumer confidence have tumbled.

Business welcomed the rate cut. David Kern, economic adviser to the BCC, said:

"The MPC's decision today to cut interest rates to 5.25% was necessary for the economy. In the face of worsening global and domestic conditions, a refusal to act would have entailed unacceptable risks.

"Today's move, though vital to sustain confidence, is no longer adequate on its own. The recent dramatic rate cuts in the US highlight the importance of early action. Threats to growth are much more acute now than risks of higher inflation, and we would have welcomed a bold UK move to 5% today."

FSA Threatens Mortgage Brokers

Article 2007-11-27, 08:33:00

The Financial Services Authority (FSA) has threatened to take strong action against dishonest mortgage brokers.

The FSA said there were ‘many serious failings’ among brokers who self-certify mortgages. They also said good brokers were being undermined by the ‘negligence or wilful non-compliance’ of others.

The FSA carried out four reviews of mortgage brokers this year. During these checks they have referred seven more firms for investigation and told 65 more they need to check their work.

Steven Bland from the FSA said the following: “There are still an unacceptable number of firms unwilling to change and they are damaging the rest of the industry.”

“We found some firms willing to offer mortgages they know to be unaffordable and to accept self-cert business even where they had concerns that the financial information provided by the customer was implausible.

“These practices are completely inconsistent with treating customers fairly – hence the large number of enforcement referrals and other regulatory actions,” he said.

The FSA has regulated the sale of mortgages since 2004 and has since found it is an area of the financial services industry with considerable problems. The main problem is ‘self certification’ mortgages, where customers have to produce their own paperwork to show that they can afford to repay the loan they wish to borrow.

Failing to ask for evidence of income, even when figures were doubtful, exposed lenders to the possibility of fraud, warned the FSA. The supervisory body blamed senior management of some broking firms for the problems, accusing them in some cases of failing to run their firms or control their staff properly.

The Council of Mortgage Lenders endorsed the FSA’s warnings and also pointed out the views were related to brokers not lenders.

CML Director General Michael Coogan had the following to say on the matter: “The CML supports action against brokers which fail to address compliance weaknesses when drawn to their attention by the FSA.”

“These findings are a wake up call to those brokers who are behind the pace,” he said.

Several brokers have been closed down by the FSA so far this year. A further seven are now been investigated, which could lead to them being censured, fined or even closed down.

65 companies have been told to go through their books and papers to make sure they are selling mortgages properly. They are also suffering a punishment as this process will be costly and time consuming.

Kensington Pulls Sub Prime Range

Article 2007-11-23, 08:24:00

Kensington Mortgages pulled out of the sub prime mortgage market today due to current market conditions.

The lender is withdrawing its entire ‘adverse’ range at the close of play today. Sub-prime or adverse loans are provided for homebuyers who have a poor credit history or unpredictable incomes.

Kensington, one of the pioneers of the sub-prime sector, restricted its sub-prime lending in September to just 75% of the properties value.

They announced they were also re-pricing their range of prime mortgages and removing some of its products such as self-certified buy-to-let mortgages for first time buyers.

It said they problem was a lack of appetite among investors for portfolios of adverse debt.

Kensington became part of the South African investment bank Investec bank earlier this year.

Brokers warn of tougher times ahead as lenders raise rates

Article 2007-11-22, 09:03:00

2008 set to see 5% fall in housing market valuations

A further round of belt-tightening by mortgage lenders could leave many borrowers facing a harsh 2008, brokers warned yesterday. While some lenders have cut their short-term fixed rate mortgages in recent weeks, the general message was that the fallout from Northern Rock and the global credit crunch would lead to a rise in rates.

The financial pain would be felt by tens of thousands of borrowers coming to the end of historically cheap deals, especially those on 5 year fixed rates.

James Cotton, at broker London & Country mortgages, said: "It doesn't look like the current situation will correct itself soon." He said expectations that the lenders would return to cut-throat competition was unlikely, and borrowers would end up paying a higher price.

Ray Boulger, of broker Charcol, said property prices would fall in the first half of 2008, especially if the Bank of England refused to cut interest rates early. "The most pain will be felt in cities where there is an oversupply of two-bed flats. They could decline by a further 10%. But prices will also fall across the board by as much as 5%."

Boulger said he expected a lack of supply in the market to put a floor under any house price falls. "With transactions down 25% on last year, and no signs of them picking up, you have a shortage of supply out there."

However, the actions of the Bank of England would play a crucial role. "I think there is a danger the Bank will play hardball, and in such an aggressive way that it severely knocks people's confidence in the property market.

Julia Harris, mortgage expert at Moneyfacts.co.uk, an independent comparison site, commented: "It is very rare to see a lender increase its SVR outside a base rate change. It could very well be the first sign that the mainstream 'prime' mortgage is feeling the pinch of the credit crisis."

Most lenders have spent the past couple of years clawing back the costs of marketing and commissions by increasing application fees for their mortgage products. Fees have commonly been increased to £1,000 for two-year products. Brokers said there was now a steady trend for further increases in fees which can top £2,000 for large mortgages with heavy initial discounts.

Discounted variable rate mortgages have seen cost increases in recent weeks at Abbey, Bristol & West, and Norwich & Peterborough. So far the rises are only minimal, between 0.1% and 0.3%, but that will leave many homeowners currently on low fixed rates dating back to 2005 paying much higher mortgage costs.

Cotton said that there were still lenders prepared to offer mortgages to people with poor credit records, but they were being forced to pay a higher price. Birmingham Midshires will consider customers with county court judgment bills up to £10,000 and six months' arrears in the last year on other loans. "There are also plenty of 100% mortgages around with Scottish Widows, Abbey, Bristol & West all offering loans without a deposit," he said.

Northern Rock, the beleaguered north-east based bank, was forced to raise rates following its near-collapse, and has been unable to cut them due to the ongoing credit crunch.

Property market 'to grind to a halt' in 2008

Article 2007-11-16, 07:14:00

House prices could even fall in certain areas

The house price boom has finally ended, the Nationwide said today. Price growth will collapse next year from the current annual rate of nearly 10% to zero.

That will make next year the worst year for house prices in more than a decade.

The dire warning from the biggest building society comes amid fears of a severe economic downturn, with the turmoil of the global credit crunch biting the British consumer.

House prices in London and the South-East are forecast by the Nationwide to rise by just 1% against the roaring double digit inflation of recent years. The values of many homes across large parts of England - mainly in the North but also in the West Country - are even likely to fall.

'A number of factors suggest that house price inflation will drop from its current rate of 9.7% to nothing by this time next year,' said Fionnuala Earley, Nationwide's chief economist.

Ms Earley said a number of factors are piling up to bring a severe frost into the housing market. 'There is a subdued outlook on the demand side of the market, including lower buy-to-let demand, a slowing economy, tighter credit conditions, stretched affordability for first-time buyers and lower house price expectations.

'A global economic boom allowed London to benefit from being an international financial centre. But economic tailwinds are being replaced by headwinds.'
The Nationwide is calling on the Bank of England to cut interest rates by three quarters of a per cent.

Ms Earley added that there would still be widespread housing shortages, despite Government targets to increase the number of new homes that were built, and this would provide some support to prices, particularly in the south of the country.

The group expects Scotland to be the best-performing region during 2008 as it remains the most affordable region of the UK with the average first-time buyer property there costing just over four times earnings.

But it is forecasting price falls of 5% in Northern Ireland after soaring price rises, which were running at an annual rate of 40% during the third quarter of the year, made it the least affordable place in the UK to buy a house, with the price of a first property averaging eight times local earnings.

Prices are also set to fall by 2% in the North and North West, while they will slide by 1% in the South West, Wales and Yorkshire and Humberside.

Former Abbey boss launches Rock bid

Article 2007-11-12, 06:47:00

Subprime losses set to shock the markets

Ex Abbey chief executive Luqman Arnold has today launched a plan to rescue Northern Rock as shares in rival UK banks remained under pressure on fears that they are set to announce huge credit crunch losses.

HSBC became the latest target of speculation today after analysts at Lehman Brothers said it could have to boost its reserves against subprime loans in the US by as much as $2.4bn (£1.15bn). Its US business HSBC Finance is due to report third-quarter numbers on Wednesday.

Royal Bank of Scotland and Barclays which shed 3% and 2.4% respectively on Friday, stabilised today, with RBS up 12p at 414¾p and Barclays 13½p better at 488p.

Barclays was forced to deny strong rumours about its potential writedowns and the future of its chief executive John Varley and President Bob Diamond after its shares were briefly suspended in hectic trading on Friday.

Barclays has sought to reassure investors by saying its trading update in a fortnight's time is likely to include far more detailed financial information than usual.

It would not confirm that it is working with auditor PricewaterhouseCoopers to give a fully-updated balance sheet for Barclays Capital, which is where any subprime-related writedowns are likely to appear.

Northern Rock needs to be rescued quickly before its liabilities become any greater, sources close to Arnold's investment group Olivant said today.

It said it had the backing of 'a dozen blue-chip' UK institutional investors and wealthy families.

Arnold wants to create a super team of seven professionals led by himself to stabilise the former building society which he does not believe can survive the three months or more it would take for a full-scale takeover to go through.

Chancellor delivers credit crunch warning

Article 2007-11-05, 07:45:00

Worlds largest bank fires Chief after £5bn loss

Alistair Darling warned this morning that the UK has entered "an unparalleled period of financial uncertainty" following the departure of Charles Prince from Citigroup.
The chancellor asked the banking community to be candid about the damage caused by this summer's credit crunch and the crisis in America's sub-prime mortgage market.

"We need to get to a far better situation where there is a great deal more transparency, more openness, so people understand the risks to which these banks have become exposed and they can avoid being so exposed in future," Mr Darling told the BBC's Today programme.

The chancellor added that while the UK and US economies still had good prospects for future growth, other banks could join Citigroup in recording a drop in profits.
"Without doubt some of these big banks will see a reduction in their profits as you've seen today," he said.

Mr Prince resigned last night following four years at the helm of the world's biggest bank. Announcing his departure, Citigroup also admitted that it is writing off between $8bn and $11bn (£5bn) in sub-prime related losses.

Last month it revealed a 57% fall in third-quarter profits to $2.38bn. At the time, Mr Prince said the difficulties were little more than a hiccup.

"We expect to return to a more normal operating environment in the fourth quarter," he said.

The financial sector has been savaged for months by the sub-prime crisis, in which mortgages were pushed out to people who were often unable to repay them. Banks became very unwilling to lend to each other because of uncertainty over how exposed they were to the crisis, as sub-prime loans had been bundled together with other debts and sold on.

"There's no doubt that some banks do have considerable exposure, and you've seen that with CitiBank today, however these banks do have strong balance sheets," said Mr Darling.

Homeowners troubled as house prices fall

Article 2007-10-29, 09:14:00

Hard times ahead for homeowners?

House prices fell by 0.1% during October as higher interest rates and falling confidence continued to impact on the market, figures have shown.

Property information group Hometrack said it was the first time house prices in England and Wales had fallen for two years.

It added that the drop followed two months of stifled growth, while the annual rate of house price inflation had also fallen to 4.4%.

Richard Donnell, Hometrack's director of research, said: "The fall in prices over October is not unexpected. After several months of weaker buyer confidence, falling levels of demand and declining sales volumes, prices were bound to be affected.

"We expect further small price falls in the months ahead but these are likely to remain limited as there remains no evidence of any increase in the supply of homes for sale.

"If anything the current uncertainty appears to be resulting in a decline in the numbers of homes coming to the market which is likely to support underlying prices in the coming months."

The group said house prices fell by between 0.1% and 0.2% across all regions of England and Wales except the West Midlands, where values remained unchanged.

Overall just 1.3% of postcode areas saw price rises, down from 8.6% in September.

The biggest house price falls were seen in areas of London and the South East with the most expensive properties, with prices dropping by 0.5% in central London and the City and by 0.4% in south west London and Hampshire - all areas that have registered strong price gains during the past two years.

Hometrack said a combination of rising interest rates and weaker confidence had hit key market dynamics causing potential buyers to re-think their timings.

North-south house price gap 'widens over summer'

Article 2007-10-19, 07:31:00

Housing market collapse "unlikely"

The house price divide between the north and the south of England widened over the summer as strong demand boosted values in and around the capital, figures revealed today.

A report by the UK's biggest mortgage lender, Halifax, showed that the average asking price in the third quarter of the year in the south of England had reached £265,921 - 68% higher than the average price in the north, which was just £158,636.

The gap narrowed to a low of 56% in the first three months of last year, but annual price inflation of 18.6% in Greater London, 13.7% in the south-east and 11.1% in East Anglia had contributed to a widening gap, Halifax said.

The figures show that, in the three months to the end of September, average house prices in the north of England fell by 2.1%, while in Yorkshire and the Humber and the north-west they had stagnated, edging up by 0.4% and 0.1% respectively.

However, Halifax said the slowdown followed a five-year period of strong growth in the north, which had seen house prices almost double since the third quarter of 2002.

In the south, prices rose by an average of 53% over the same period. As a result, the margin between prices in the north and south had fallen from 115%.

The Halifax said price rises in Greater London had outstripped those in the rest of the UK over the summer months, rising by 2.3% over the third quarter.

However, the bank said this was a lower rise than in the previous few quarters, suggesting the market in the capital was starting to cool.

Meanwhile in Northern Ireland, house price inflation recorded a summer fall, but the 3.2% dip in prices did not offset the 8.2% growth of the previous quarter and did little to dent annual house price growth in the region.

That still stands at 47%, and of the 10 UK towns seeing the biggest year-on-year increases in prices, eight can be found in Northern Ireland, Halifax said.

The bank's chief economist, Martin Ellis, said: "Nationally, house prices in quarter three were 0.9% higher than in the previous quarter. This compares with increases of 2.3% in quarter two and 3.0% in quarter one, marking a continuing steady downward trend in the rate of house price growth since the end of 2006."

But Mr Ellis suggested the market was unlikely to collapse in the near future.

"The UK economy is in a strong position. Sound market fundamentals, including high levels of employment and a shortage in the number of properties available for sale, will continue to support house prices," he said.

House prices bounce back

Article 2007-10-16, 06:25:00

Long term picture still showing signs of slowdown

Despite the recent financial turmoil house prices in England and Wales rose by 2.7% in the month to October 6, reversing the 2.6% fall of the previous month, figures from property website Rightmove showed today.

However, despite a rebound in asking prices the overall picture is of a slowing market, with price growth over the past three months falling from 1.5% to 0.5% during the last quarter, the figures showed.

Government Continues to Promote Fixed Rate Mortgages

Article 2007-10-10, 11:14:00

The Government is continuing to promote long term fixed rate mortgages, which have never been popular in the UK but are common place in the US and across much of Europe.

The Chancellor of the Exchequer, Alistair Darling, believes that greater take up among UK home owners is the key to housing market stability and he plans to encourage lenders in offering this type of loan.

Approximately 30 lenders currently offer loan with fixed rate terms of 10 years or more, however, borrowers are wary of the large exit fees that are attached to most such arrangements. The government will introduce reforms in 2008 which will make it easier for lenders to finance long term fixed rate loans through covered bonds.

According to Ray Boulger, senior technical manager at John Charcol, the mortgage broker, covered bonds would be more attractive to investors such as pension funds, if they were issued in sterling.
However Mr Bulger believes that lenders will find it difficult to attract customers to long term deals unless the interest rate is lower than the shorter term deals, which is difficult to achieve.

FSA reveal payment protection insurance facts

Article 2007-10-04, 12:48:00

The Financial Services Authority (FSA) is to introduce comparative tables for Payment Protection Insurance (PPI) from March next year.

After thousands of complaints the PPI scheme - an insurance policy designed to cover monthly repayments on mortgages, secured and unsecured loans, store cards and credit cards should the debtor be unable to work due to accident, sickness or unemployment - is under investigation by the Competition Commission.

It is looking into the methods of PPI sales as well as its numerous pitfalls and exclusions.

"Our research has found that many people are still taking PPI straight from the lender," says Robin Gordon-Walker, a spokesperson at the FSA. "They don't want to go to a broker as they think it is time consuming and there is little opportunity to shop around - in fact there is a big gap in the market if they try to do so."

The comparative tables - which have been available from the FSA for other products such as annuities, mortgages and savings for the past five years - will ask consumers a series of questions about their needs and requirements for PPI and will return a table of relevant good value products. These can then be compared with any PPI product offered by the credit provider.

The PPI tables will feature a range of products such as those that can be linked to secured and unsecured lending and those offered from standalone PPI providers. They will also list the monthly cost of PPI premiums, details of exclusions in policies, information about how pre-existing conditions are handled and details on whether or not any additional cover is available within the policy.

Mortgage prices rise as lenders cash in on rival's turmoil

Article 2007-10-03, 06:36:00

HBOS Chief predicts sustained increases in mortgage lending costs

Andy Hornby, the top man at Britain's biggest mortgage lender HBOS, predicted yesterday a "fundamental shift" in the lending markets that will leave homeowners paying considerably more for new loans than they have in recent years.
"Looking forward, we can already see that mortgage pricing is starting to adjust to reflect increased wholesale funding costs," he told a banking conference in London. "Increased mortgage costs to consumers will inevitably lead to a slowdown in the mortgage market."

Recent weeks have shown price increases in some types of mortgages, particularly tracker products, offered by Abbey, Alliance & Leicester and Nationwide as well as HBOS's Halifax business. These loans are closely linked to the short-term money markets, where lending rates have soared above the Bank of England's base rate.

Several senior banking figures have argued that this rise in the price of short-term money will pass within months. But Mr Hornby said the readjustment in mortgages would be more enduring: "I suspect that the mortgage market is about to undergo a fundamental shift. Over the past three years we've seen a major decline in mortgage margins ... Now is the time for the clear leader in the mortgage market to deliver the right balance between volume, margin and credit risk."

The other banks will not miss the opportunity to make more profits from new mortgages and have been helped by the funding turmoil at HBOS's competitor Northern Rock. The Newcastle bank aggressively won share of net lending from HBOS and others this year before being caught out in the short-term credit crisis. Meanwhile, another aggressive rival, Portman, was acquired this summer by a more conservative lender, Nationwide, further reducing competition.

Mr Hornby said: "In recent times we've seen such a ready supply of credit and such benign economic conditions that risk had become mispriced. These trends are already starting to reverse and it is likely to continue ... I believe 'readjustment' of pricing will present HBOS with real opportunities for value creation going forward."

Elsewhere, Northern Rock shares had another troubled day, hitting a record low of 112p in morning trading before recovering to close up 3.5p at 135.6p. Market speculation continues to focus on the likelihood of a takeover offer from the private equity groups Cerberus or JC Flowers.

Fearing an offer that would not cover their investment, a group of bondholders reportedly held a conference call yesterday to review their options. The cost of insuring Northern Rock debt rose steeply yesterday in the derivative markets, reflecting deepening fears.

Moneysupermarket goes hunting for game agency to launch ‘major’ online brand

Article 2007-10-03, 07:08:00

Competitors jumping on the bandwagon

Moneysupermarket Financial Group is in negotiations with a number of undisclosed agencies over advertising for a “major” product launch. It is understood the launch is scheduled for January 2008.

The review is in early stages, but agencies have been approached about the new brand by the company, which owns price-comparison site moneysupermarket.com. It is thought the launch will lead to a significant increase in the group’s advertising spend, which was £6.5m for the 12 months to March 31, according to Nielsen figures.

Details of the launch have yet to be revealed. Money-supermarket has confirmed it will be an online brand, but will be different from its existing propositions.

Moneysupermarket.com was launched in December 1999 and the site allows consumers to compare the cost of personal finance products across 28 product types including mortgages, loans, credit cards and savings accounts.
The group also operates sister site Travelsupermarket and Mortgage 3000, a specialist site for mortgage brokers and intermediaries.

The brands success now faces increasing competition, with rivals such as Confused.com ploughing millions of pounds into marketing.

Tesco Personal Finance, the financial services brand owned by the supermarket and Royal Bank of Scotland, has also launched a site comparing insurance from a number of different providers, including RBS Insurance’s Churchill.

OFT getting ready to sting rogue PPI traders

Article 2007-09-27, 07:28:00

5 firms already stung

Customers are still being charged for things they don't want or understand when they take out loans, a government watchdog has discovered.

The Financial Services Authority said yesterday many firms are still "failing to treat their customers fairly" when selling loan payment protection insurance (PPI).

"The right PPI can provide valuable protection for consumers, but they are entitled to expect that they will be treated fairly by firms when they buy it. They must be told how this product works, what it covers, and how much it costs," said Clive Briault, FSA managing director of retail markets.

"At the moment, too many firms are not meeting these requirements."
And the FSA is promising to hit banks with hefty fines if they don't fall into line.

"We will now strengthen our action against firms who fail to treat customers fairly when selling PPI," Briault warned.

The FSA has to date fined five firms as much as £610,000 for not following the rules when selling loan insurance.

Two-thirds of the firms visited and nearly all of those mystery shopped did not comply with rules on selling insurance. One-third of firms visited and fewer than half of firms mystery shopped also did not give customers even the basic information needed to make an informed decision about whether to buy PPI.

Borrowers Told to Exaggerate Wages

Article 2007-09-26, 06:57:00

A BBC investigation has exposed evidence of serious miss-selling in Britain’s sub-prime mortgage market.

Industry insiders have told how people are advised to lie about their incomes to take out loans far bigger than they can afford. Half of all sub-prime mortgages in the UK are self-certification mortgages. Self certification is when borrowers declare their income, but lenders don’t always check this.

The FSA said it would ‘crack down on the abuse.’ They also released a statement confirming they have banned a number of brokers who are known to overstate the income of mortgage applicants.

A broker who formerly worked in the industry said that some advisors in the industry tell clients with a low income to inflate their earnings on application forms to get oversized loans, which often they cannot afford.

Exaggerating a clients’ income is seen as an easy way for brokers to get the deal passed.

One borrower, whose income was £25,000 was told to double his income on the application form, and was offered a loan more than eight times his actually salary. His monthly payments account for a vast majority of the family income and he is on the verge of been repossessed.

Northern Rock crisis set to increase mortgage rates

Article 2007-09-20, 04:51:00

The best tracker rates have already been withdrawn

The problems that forced the Bank of England to provide a rescue loan package for Northern Rock are already pushing up mortgage rates. But there's a small ray of hope for borrowers.

Rising money market interest rates were already putting pressure on mortgage lenders. The Northern Rock rescue package has aggravated their problems. Interbank rates at which they can borrow money have risen sharply.

That means lenders are now losing money on many of the recent base rate tracker deals they have been offering. So in the past week, almost all the really good-value tracker deals have been withdrawn and replaced by offers at higher rates. The average rise in rates is 0.2%.

Money market rates remain at over 6% as against base rate at 5.75%. So any base rate tracker priced at less than base plus .25% is costing the lender money right now. Some may grin and bear it, but far more will be thinking about changes along the following lines:

"Northern Rock took 14% of all mortgage business last year and it is now excluded from the new lending market by its financing problems. There is no need to be so competitive any more, so why don't we quietly ratchet up our lending rates?"

Expect to see further rises in rates for all forms of variable-rate lending over the next few weeks. Anyone in the process of remortgaging should get hold of the best tracker rate they can.

The good news “Yes there is some.” is that the crisis means that the Bank of England is unlikely to raise base rate any further. That means fixed rate mortgage could get cheaper again- already there are signs that 5-year fixed rates are coming down. So the next few weeks could see variable rate mortgages getting more expensive while five year fixed rates get cheaper in comparison.

Inflation drops further

Article 2007-09-18, 08:33:00

Mortgage rate cut before Xmas a real possiblity

The Bank of England previously forecasted that inflation may be around its target of 2.0% for a few months because of energy price inflation dropping out of the figures. But the latest data would make it easier for the monetary policy committee to cut interest rates if it fears that the problems in the banking sector, led by Northern Rock, threaten to damage the wider UK economy.

Until recently the City expected interest rates to rise to 6% or more by the end of this year but a growing number are pencilling in a cut before Christmas.

Howard Archer at Global Insight described the figures as "pretty encouraging", making it even more likely that interest rates have peaked at 5.75%.

However, he still expects the Bank of England to remain "very wary" about any early reduction of rates, given the current record oil price and possible rises in food prices, which could exert upward pressure on inflation in coming months.

He added: "The Bank of England will closely monitor how the credit crunch and Northern Rock crisis is impacting on the real economy and affecting the outlook for growth and inflation.

"If it becomes increasingly clear that growth is being significantly hit, thereby diluting underling inflationary pressures, the Bank of England will become more inclined to trim interest rates."

Abbey increases mortgage rates

Article 2007-09-12, 10:31:00

Despite the Bank of England opting to keep base rate on hold last week at 5.75%, Abbey has become the first High Street bank to raise its mortgage rates.

The increase - of between 0.1% and 0.2% - applies to the lender's tracker mortgages, and to new customers only. The bank cites the recent turmoil in global credit markets as the principal reason for making its move sooner rather than later.

The credit crunch, which started in the US sub-prime mortgage market but has since spread, makes it more costly for banks to borrow to money. And when that happens banks invariably pass the cost on to customers.
Abbey may well be the first major High Street lender to up its rates; but it probably won't be the last.

Can you escape the sub-prime market while there's time?

Article 2007-09-06, 05:29:00

Big interest rate rises are expected in parts of the troubled 'adverse' credit market, so borrowers need to get in shape for a mainstream mortgage.

Borrowers with poor credit histories who are coming to the end of cheap, fixed-rate 'sub-prime' mortgages should look to remortgage to a mainstream deal if they can to avoid paying onerous interest rates.

Fixed rates on sub-prime mortgages have shot up over the last few weeks due to the knock-on effects of a rise in mortgage defaults in the American sub-prime market. The potential crisis has rocked stock exchanges around the world and the fallout is likely to continue to be felt for some months. Predictably, this has been bad news for new borrowers in the sub-prime market - last week one of the biggest such lenders in the British market, Northern Rock, put up the rates on its sub-prime fixed rate deals by up to 1.25 per cent, following similar moves by a raft of other lenders. It also withdrew all its sub-prime tracker products.

However, it's not just new sub-prime borrowers who face problems. Reversion rates - the variable interest rates that short-term deals such as two-year fixes move to when they come to an end (similar to the standard variable rates on a mainstream mortgage) have also gone up with some lenders. For example, the reversion rate on lender GMAC's 'light' adverse deal - for borrowers with relatively small credit problems - was 7.85 per cent but has now risen to 8.35 per cent.

And even where reversion rates have stayed the same, they are much higher when compared with the standard mortgage market. Sub-prime specialist Kensington charges the highest at 9.5 per cent.
'The first thing any borrower coming to the end of a sub-prime deal should do is to see whether they could get a mainstream deal,' says Melanie Bien, director at mortgage brokers Savills. 'If you have been consistent in paying your mortgage off each month over a couple of years then you should be able to.'

Someone who took out a two-year fixed-rate sub-prime mortgage two years ago is likely to be paying an interest rate of about 6 per cent on that loan. Remortgaging to a mainstream deal, even after the recent interest rate rises, should still be slightly cheaper.

'A lot of people are saying fixes [in the mainstream mortgage market] are expensive at the moment and borrowers would be better off on a tracker,' says James Cotton of mortgage brokers London & Country. 'But this doesn't matter if you want the certainty of fixed mortgage repayments each month - which many borrowers trying to get back on track after a sub-prime mortgage will.'
Examples of some good fixed-rate deals in the mainstream market include a two-year mortgage from Britannia at 5.49 per cent with a £999 fee, a three-year fix with Stroud & Swindon at 5.7 per cent with a £799 fee as well as free legal work and valuation, and a five-year fix with the Newcastle building society at 5.82 per cent with a £499 fee.

For borrowers who have to remortgage to a sub-prime deal - perhaps because they are still having credit problems - it is not all doom and gloom, says Cotton. 'There are some lenders that haven't put up their rates or haven't put them up by as much as some of the bigger names,' he says. 'All of these are building societies or parts of building societies.' For example Amber, part of Skipton Building Society, is one of the few providers that has not increased the rates on its sub-prime loans. Others remain competitive too: for someone looking for a 'near-prime' mortgage - typically someone who has had slight credit issues some time ago - a two-year fix is available from Chelsea building society at 6.54 per cent with a £995 fee.

Similarly, West Bromwich building society has a two-year fix for this category of borrower at 5.69 per cent with a £749 fee and free legal work for remortgages, while Godiva, the specialist arm of Coventry building society, has a two-year fix at 6.55 per cent with a £999 fee. It, too, offers free legal work as well as a free valuation for remortgages.

These rates compare favourably with some of those from the bigger lenders in this market that have hit the headlines in the last few weeks. For example, a two-year fixed rate from Kensington is now 7.59 per cent for a near-prime borrower.

Lloyds TSB admin fee “unfair”

Article 2007-08-28, 07:13:00

Our advice is to shop around

Lloyds TSB has introduced a new mortgage fee which will hit people even if they decide against taking the loan.

A £99 "application fee" was introduced yesterday by Lloyds and Cheltenham & Gloucester.

The fee will be charged even if the application is rejected or the borrower decides to go elsewhere prompting this response from Melanie Bien, a mortgage adviser with Savills. "It does seem unfair that they should make you pay a fee for a product you might never take out."

Lloyds TSB claims its mortgages are still competitive, but anyone applying for C&G's two-year fixed rate at 6.08 per cent would pay a £999 product fee, plus the £99 admin charge. However, for the same product charge plus a £125 exit fee, you can get a much cheaper two-year fixed rate with Britannia at 5.49 per cent.

Our advice is to shop around and make sure you obtain at least three quotes before making any major decisions.

Consumers Debt Overtakes GDP

Article 2007-08-23, 09:54:00

Experts today revealed the amount of debt owed by consumers has exceeded the annual output of the economy for the first time. Consultancy firm Grant Thornton revealed that debts on mortgages, credit cards and overdrafts have risen to £1.3 trillion, higher than the UK’s expected gross domestic product.

The company said it would take the UK until January 5 next year to generate enough goods and services to cover what consumers owe. Fortunately most consumer debt is secured and can be paid off over several years; otherwise the country would be technically bankrupt. Britons buy now pay later culture is well established and we can no longer generate enough GDP to cover the amount we owe.

Another recent survey has shown 7% of adults, 2.5 million, are ‘very concerned’ about their ability to keep on top of their debts. Research from Moneyexpert.com has found that 25% of customers have added to their debts over the last three months. 7% of them said their debt had increased by 20% over this period.

When the current government came into power in 1997, personal debt stood at £503bn and GDP was £786bn. In the following 10 years personal debt has nearly trebled. The date when the UK generates enough GDP to cover its debts has moved from August 23 to January 5 in this time.

Almost 85% of debt is secured against property, a figure which hasn’t changed much since 1997.

Mark Allen, a partner of Grant Thornton’s personal insolvency practice, said “It's not uncommon these days to see some individuals with unsecured debt upwards of £50,000 spread across four or five credit cards and a mortgage on top of that.

These are the sort of people walking a perilous financial tightrope. All it takes is an increase in costs or, as is the present case, a rise in mortgage premiums to force people to default."

Caught between a rock and a hard place

Article 2007-08-16, 11:18:00

Northern Rock feeling the pressure as brokers downgrade

Mortgage specialist Northern Rocks stock fell sharply again today, amid growing concern that it will be badly damaged by the global credit squeeze.
The mortgage lender was one of the biggest fallers in the city as it’s shares plummeted in morning trading by 34.5p, or 5% down, to 653p, its lowest level since 2003.

Their value has virtually halved since the beginning of February, making Northern Rock one of the heaviest losers in the troubled lending sector.
Today's bad news came as two more broking houses downgraded the company's shares.

JP Morgan slashed its price target to 690p from 830p, and repeated its warning that investors should remain underweight in the stock. Merrill Lynch followed suit and cut its target to 913p from £11.30.
One city analyst warned that the recent trouble in the credit market could force Northern Rock to issue a profits warning.

The company relies heavily on the wholesale credit market to finance its loans, rather than using savers' deposits, as it only operates a small branch network based in north-east England. The impact of this means that it is more vulnerable than rival banks as it becomes harder and more expensive to borrow money.

Yesterday Northern Rock stated that difficult funding conditions were easing.

Potential buyers scared off housing market

Article 2007-08-14, 07:22:00

First signs that higher interest rates have hit demand

Potential buyers are now shying away from the housing market, with demand in July declining at the fastest pace for three years. This is yet another sign that five interest rate rises in a year are hurting borrowers' pockets.
A monthly survey by the Royal Institution of Chartered Surveyors showed that new buyer inquiries - a measure of the future health of the housing market - declined at the sharpest rate since August 2004.
RICS said. "The combination of softening demand and supply is causing market conditions to weaken further," said Jeremy Leaf, spokesman for RICS. "Buyer activity has pulled back a little over fears that we may have seen the top of the market. With interest rates perched at 5.75% and a jump to 6% a strong possibility, aspiring first-time buyers are continuing to rent until the market trend becomes clearer."
John Andrews, a surveyor at Doolittle & Dalley in Bridgnorth, Shropshire, said: "Over the last month the market in this area has been swamped with property for sale. Interest rate rises are now starting to affect sales with nervous buyers reluctant to increase initial offers. It is a more difficult market than earlier this year. Weather and the start of the holiday season has also affected the level of inquiry."
House price growth rose again last month, the survey showed, moving just above the moderate increase recorded in June this year. Regionally, Scotland saw its price growth nearly halve. Sales expectations were forecasted as negative for the first time since March 2003 while price expectations tumbled to their weakest for two years. The largest falls in confidence took place in London, East Anglia and the west Midlands.
As we reported earlier, the City is still predicting interest rates will rise to 6% by the end of the year, after the Bank signalled in its inflation report last week that one more quarter-point increase may well be needed to bring consumer price inflation back to its 2.0% target. However, figures from the Office for National Statistics yesterday showed manufacturers' costs fell unexpectedly last month, which may make an interest rate rise next month less certain.

House of Lords Want Changes

Article 2007-08-06, 08:47:00

Law 'must force banks to pay for losses'

High Street Banks should be legally required to compensate customers for millions of pounds being lost from online fraud a House of Lords committee will inform the government this week.

The recommendation comes as part of a report on 'personal internet security' by the science and technology committee. The Lords are also expected to raise concerns over the security of internet shopping, as well as potential dangers from identity theft and unauthorised access to information regarding children.

The High Street banks have been providing full reimbursement for internet fraud losses as a matter of good practice and customer relations. Looking long-term the committee was reportedly concerned that the lack of a legal requirement meant that, with the fraud growing, some might decide to stop.

Loan Insurance Mis-Sellers Living on Borrowed Time

Article 2007-08-06, 09:08:00

Have you taken a loan, only to find you were mis-sold loan protection cover?

Well, borrowers who think they have been mis-sold loan protection insurance may be well advised to pursue complaints as far as the Ombudsman. The Financial Ombudsman Service is currently upholding two-thirds of them.
Many people are helped in winning their cases because banks are missing key pieces of documentation - such as application forms, proposal documents or notes of meetings with clients. It is proving extremely difficult for a bank to defend its position if it lacks such basic evidence to defend it’s case.
Some problems are quite common - such as self-employed people who are sold a policy on which they cannot claim because the cover was designed for company employees.

At the present time it is still unclear whether consumers will complain in large numbers in the way they have over bank charges and endowment policies. Currently the banks do not accept the problem is a big one.
However, the Financial Services Authority has introduced three separate initiatives over the last three years to check on sales practices. One of the main concerns is that consumers should know that, in nearly all cases, buying such policies is optional and cannot be made a requirement of getting a loan.

Going to the ombudsman is free, and can be a fairly straightforward procedure which you can handle without the help of so-called 'claims management' firms. You must first complain to the business that sold you the policy. If they turn you down, you then have six months to lodge a claim with the ombudsman. See www.financial-ombudsman.org.uk or call the helpline (0845 080 1800).

25 Year Fixed Mortgages

Article 2007-08-06, 09:45:00

Fixing your mortgage rate for 25 years could become more popular today when Manchester Building Society launches the first 25 year fixed mortgage with no redemption penalties today. The government believes it will be beneficial for homeowners as it will help to stabilize the housing market.

They have never been popular though, as the rates tend to be higher than on shorter term deals and penalties usually apply, making them expensive to get out of.

In a recent survey only 4% of people said they would consider a fixed rate mortgage, as most borrowers don’t want to be tied in for that long.

There are currently several lenders who offer 25 year mortgages but only tie customers in for 10 years. Halifax and Nationwide both offer 25 year fixed mortgages at 6.39% along with an early repayment charge of 3% which only applies if you redeem within the first 10 years.

Manchester’s product is offered on loans up to 85% of the property value and overcomes the trade off between rate and flexibility. The deal charges 5.99% and borrowers can get out penalty free at anytime.

The rates on fixed mortgages are usually about 1% higher than short term products. However, there is little difference in the rates on long and short term fixes at the moment as the money markets believe the Bank base rate of 5.75% is close to a peak and will stay at current levels, or fall over the long term.

Number of Insolvencies Decreases

Article 2007-08-06, 10:53:00

The number of people becoming insolvent has decreased through the second quarter of the year, official figures show.

26,956 people became insolvent between April and June, a drop of just over 8% compared to the first three months of the year. However, it is a rise of 4.2% compared to the same period of last year.

The fall is likely to be due to lenders becoming less keen to accept IVA’s. The number of people entering IVA’s in the second quarter fell by 15% compared to the first quarter of the year.

16,258 people became bankrupt between April and June, down 2.9% on the previous 3 months and 10,698 people entered an IVA.

The number of people entering IVA’s has increased rapidly over the last year, but this trend seems to be turning around as lenders become more reluctant to accept them.

IVA’s ensure lenders get back approximately 25 pence for every pound compared to just a couple of pence in the pound for bankruptcies.

Although the number of insolvencies is decreasing, they are still historically high. Five interest rate increases over the last year has put added pressure on peoples finances.

The Council of Mortgage Lenders announced last Friday that repossessions had risen by 18% in the first half of the year. However, this is still no where near the highs of the early 1990’s.

Making The Most Of Your Home Improvement Loan

Article 2007-07-31, 10:43:00

If you are thinking of improving your home, you want to know that the new cupboard space or the stripped-down floorboards you’re working on will help to add value to your home.
However, although everybody starts out with good intentions, in many cases home ‘improvements’ can actually reduce the value of a property.

“How is this so” I hear you ask, well, according to new research from Direct Line Home Insurance, we have spent more than £154 billion on DIY jobs which have actually lowered the value of our homes.
Almost half (49%) of homeowners have either carried out or plan to undertake DIY jobs which property experts believe will have a negative or nil impact on the sale price of their homes.

Laying cheap wooden flooring is the most commonly committed DIY crime, with 33% of bungling DIY enthusiasts finding to their cost that budget parquet is no longer a hit with prospective buyers.
Installing PVC windows (32%), removing fireplaces (20%) and even digging a fishpond in the back garden are also highly likely to lower values.

In order to avoid these DIY disasters, here are a few tips about what will add value – and what will not.

The five best improvements:

• Redecorating: on a pound-per-pound basis, this is probably the cheapest item of home improvement you can pay for. Yet a good paint job can add up to 10% to the final value of your home

• An extra bathroom can add around 5% to the value of your home, as long as it is not built at the expense of a bedroom. For example, if the property is fairly large and has upwards of five bedrooms with one bathroom, you stand to gain. However, if it means moving from three bedrooms to two, don’t do it

• Garages are much sought-after features. Built correctly, they can actually add up to 5% to the value of a home. At the very least, they usually recoup an investment

• Loft conversions, especially those which add an extra room and maybe even a separate bath or shower room, can add upwards of 10% to the value of a home. This is only as long as it they are in keeping with the rest of the home and built by specialists within all appropriate planning rules. The aim is to make them a virtually indistinguishable part of the rest of the property

• Central heating system replacement: they may be expensive and will not necessarily add to the value of your home, but they are vital to holding up the sale price of your property. And in the meantime, they will recoup their cost through more efficient heating whilst also being beneficial for the environment

The five worst improvements:

• Plastic double glazing. On all but the most modern homes, this will not only cost thousands – but almost certainly knock thousands off the value of your home, especially if all other properties in the area don’t have it. Secondary glazing on the inside of existing windows may be preferable for a period home with original features

• Creating off-road parking for a car directly outside your home or extending your driveway. Yes, it’s probably safer, but you have destroyed a chunk of your front garden and made the front of your house look like a car park. This can take up to £5,000 off the best asking price. If you need to do it, try to do it at the side of the property

• A new kitchen is a popular home improvement but homeowners are unlikely to get back more than their original investment. In some cases, you will actually lose money. But a quality fitted kitchen may help underpin the right asking price

• Adding a third bathroom to a two-bath house is a no-no, unless you don’t care about ever recouping your considerable investment. In effect, you have just waved goodbye to between £5,000 and £10,000

• New carpets. Surprisingly, new carpets add nothing to the value of a home. In other words, you spend £3,000 carpeting your home from top to bottom and it is worth no more at the end of the day than it was before. However, if the previous carpet was in a terrible state, a new one will allow you to justify the asking price. In which case, go for the cheapest –neutral – carpet you can find. Remember not everyone will share your personal tastes

©2007 Discovery Re Mortgages UK