Bridging

According to Mark Gettinby, of Help the Aged subsidiary intune group, people are increasingly using equity release plans. Equity release plans allow retirees to boost their finances by releasing tax-free cash from their homes. The two most common options are lifetime mortgages and reverse mortgages.

Mr. Gettinby adds that more and more retirees are using equity releases to repay mortgages and other outstanding debts. He advises anyone considering an equity release plan to “seek independent advice from a specialist before proceeding.”

Dean Mirfin, business development director of Key Retirement Solutions, expands on Mr. Gettinby’s advice by stating that without a specialist’s counsel, people can easily pay too much for the plan, as salespeople eager to make a sale cannot be trusted to assist with consumer in finding the best deal.

David Kuo, head of personal finance at the Motley Fool, took time to explain that the link between the interest rate set at the Bank of England and the interest rate set by mortgage companies is not iron-clad. He explained that while many consumers eagerly awaited the expected interest rate cut by the Bank of England, these consumers may not necessarily feel the reprieve in their own mortgage payments, as mortgage lenders can decide whether or not to pass on the lower rate to their customers.

Unfortunately for many customers, he explained, mortgage companies are currently focusing on “rebuilding their battered businesses,” (referring to the negative impact the mortgage crisis had on many lenders).

Although many experts expect the Bank of England to continue cutting the interest rate in an attempt to kindle the British economy, most experts still expect the rate of personal insolvencies to greatly increase for the 2008 year.

With the Bank of England’s recent interest rate cut, many investors with money in a savings account have unfortunately seen their savings rate cut as well, by more than the .25% interest rate cut. Some of these lenders include Alliance & Leicester, HSBC, Halifax, NatWest, and the Royal Bank of Scotland, among others.

Lisa Taylor, from Moneyfacts.co.uk, said that many savings rates have been cut by more than double the base rate cut. “And with many of the accounts already offering uncompetitive rates, the proportion of the rate shaved off is much higher,” she explained. We only need look to Halifax Liquid Gold for an example, who cut their 1.36% rate by .36%, resulting in depletion of an entire quarter of the rate.

In addition to the recent rate cuts resulting from the Bank of England’s base rate cut, many savers’ introductory rate on a savings account expire without them knowing. Many of these introductory rates are high for a certain length of time, most commonly a year, but then drop to a rate even below the Bank of England’s set rate. When savers are not vigilant about monitoring their accounts, they end up with a poor performing savings account.

Some vigilant savers, however, jump around to different savings accounts, benefiting from their introductory rates and moving on when it’s over. Ms. Taylor, however, explains that this requires a lot of time and effort, and can be avoided by choosing a good, long-term rate. She goes on to explain, “With such a fast changing market, unless you are prepared to move your savings on a very regular basis, a consistently good performing account will offer a good return, without all of the time and effort of constantly searching the market.”

Some however, are calling for more action on behalf of the banks. Nationwide believes banks are taking advantage of their clients’ lack of alertness and are suggesting banks call consumers to inform them that their interest rates have dropped, in the same way that banks contact consumers to inform them that their mortgage payments are due. According to Nationwide, this two-way street is only fair.

Nationwide savings director, Matthew Carter, explained, “The savings market is a highly competitive one and providers are vying to take market share. Some providers seem more interested in boosting profit and achieving best buy status than actually offering long-term good value to their customers.”

What is a saver to do? Besides monitoring your savings account, Ms. Taylor says this is no time for loyalty. According to her company, Moneyfacts.co.uk, the average savings rate is 3.77%, lower than the rate of inflation. Long term, the saver who thinks he is doing well is actually losing money. Ms. Taylor summarizes, “Many of the worst hit accounts are no longer heavily marketed and are probably held by long standing customers who have held the account for many years. It’s just another example of when loyalty does not pay.”

With the recent news hype regarding mortgage disasters, many people may be wondering if they will have a problem receiving a mortgage. Andy Pratt, spokesperson for Alexander Hall, reassures the public that the crisis has been relatively concentrated to the sub prime sector, leaving the mainstream lenders unaffected for the most part. Mr. Pratt asserted that people with good credit history should not worry about being rejected from a mortgage application. 

“Self-cert mortgage,” for those not in the know, refers to receiving a mortgage based on your own confirmation of income, without the need for independent verification. Many self-employed people decide to go with a self-cert mortgage, as do those who have multiple income sources or an irregular income. In fact, according to the Economic and Social Research Council, 13% of all employed Britons are self-employed.

When asked about the affect the mortgage crisis has had on this sector, Mr. Pratt responded that it too is essentially unchanged, and that those who have sought a self-cert mortgage have been able to receive them.

With Credit Action estimating that the total UK debt is £1,400 billion, many UK residents are urged to make a twelve-month budget to assist in sorting out their financial situation.

The Consumer Credit Counselling Service (CCCS), recommends determining one’s budget by looking at quarterly bills, car insurance payments, and other monetary outgoings, setting an annual budget, and then dividing that by twelve.

CCCS spokesperson, Frances Walker, explained that setting a budget and looking into income maximization can assist many individuals and families. She warns, however, that if 20% of your income is going towards monthly repayments, you are stretching yourself too thin. If this is the case, one beneficial option may be debt consolidation.

Contrary to what one may think, consumers can potentially save money by taking out a bigger loan than a smaller one. Mr. Defaqto, principal consultant of banking David Black explained this is because banks categorize loans into tiers, with highest interest rates on the lower tiers. As a result, consumers can pay more for a smaller sum of money.

For this reason, Mr. Defaqto highly recommends researching interest rates for various size loans, as it can be extremely beneficial. He explains, “Researching the interest rates charged on different tier levels could save [consumers] a considerable amount of money.” In fact, taking a larger loan may require longer payments, but can save consumers as much as £1,000.

In addition to researching interest rates for loans, it is advised for consumers to research credit card rates, as switching between credit card companies can be beneficial in some situations.

As a result of poor financial planning, over 50% of UK residents overspend during Christmas, the Department for Work and Pensions (DWP) stated. This excess in spending results in financial difficulties for individuals and families, frequently causes an inability or struggle to pay bills on time or at all.

The DWP suggests people make efforts to gain control of their finances if they find themselves in this situation, as it can ease anxiety. One such control mechanism that the DWP suggests is to consolidate debt.

In related news, the DWP recently publicly stated plans to create a new child poverty division. According to their studies, the UK government has assisted 600,000 poverty-stricken children in the past ten years alone.

Rising gas and electricity prices, in addition to the current credit crises are a few of the factors blamed in new reports showing the vast amount of UK residents who have gone without paying bills.

According to a new survey by YouGov, for MoneyExpert.com, over six billion bills went unpaid since 2007. Some of the statistics included:

• 2.3 million either failed to pay their council tax bill or paid it late
• 1.3 million failed to pay energy bills
• Nearly 3 million failed to pay credit card bills

MoneyExpert.com chief executive, Sean Gardner reflected, “Paying one bill late is not something to panic about. But if you find this is becoming something of a habit then you need to take action. Missing bills can have serious consequences, whether it’s losing a service altogether or even ending up in court.”

With many reports clamouring about the expected increase in personal insolvency cases in 2008, and KPMG forecasting the number to increase by 30%, one expert chimes in on the matter. James Falla, director of Thomas Charles, a prominent advice service, confirms his corroboration with the research.

However, Mr. Falla points out that expected increase in personal insolvency includes bankruptcies, Individual Voluntary Arrangements, and informal debt management plans. He notes, in addition, that it is impossible to accurately measure debt management plans.

The current trend towards “going green” and marketing more environmentally friendly products and services has filtered into the housing market as well. In addition to the government’s “Building a Greener Future” policy, which offers stamp duty exemptions for carbon-neutral homes, an Energy Performance Certificate may soon be introduced.

The Energy Performance Certificate (EPC) will focus on energy efficiency, insulation, and other environmentally sound practices for homes. John Slaughter, director of external affairs as the Home Builder’s Federation, expressed his opinion that the new EPC will most likely influence many buyers’ decisions when searching for homes. He explained that the benefit to the EPC is that it will “raise awareness of the benefits of good levels of energy efficiency and insulation…not just running costs but [for the] comfort of the house and so forth.”