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February News 2018

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Thu 01 Feb 2018

February News 2018

FCA Say Urgent Interest Only Action Needed



Nearly one in five mortgage customers have an interest-only mortgage, which means they're not actually reducing their loan, but are simply paying off the interest every month. A review by the Financial Conduct Authority (FCA) shows that many of these borrowers have not yet talked to their lender to figure out a repayment plan, leaving them at risk of losing their homes.


There are currently 1.67 million full interest-only and part capital repayment mortgages outstanding in the UK, representing 17.6% of all outstanding mortgages. Over the next few years, a lot of these accounts will come to the end of their mortgage terms, which means those mortgages will need to be repaid.


Unfortunately, if borrowers don't have a plan to repay the capital, they may have no way of paying off that debt when the mortgage matures - and if they can't pay it back, they could lose their home. That's why the FCA is calling for action to help interest-only customers engage with their lenders and figure out which repayment option works best for them, as while lenders are contacting those customers whose mortgages are maturing, engagement rates with firms are low.


"Since 2013 good progress has been made in reducing the number of people with interest-only mortgages," said Jonathan Davidson of the FCA.

"However, we are very concerned that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage and be at risk of losing their homes.

"We know that many customers remain reluctant to contact their lender to discuss their interest-only mortgage for a variety of reasons. We are very clear that people should talk to their lender as early as possible as this will give them more options when it comes to the next steps they can take."


The FCA found that customers were more likely to engage when lenders tailored their communications, especially with those considered high risk. "We are encouraged to see that lenders have taken positive steps to engage with and help their interest-only customers," Jonathan said. "However, as the number of maturities start to increase towards 2032, it is important that lenders take time to review and, where possible, improve, their own strategies."


This includes streamlining processes for customers, as while the FCA found that many lenders were recommending appropriate repayment options - which in turn reduced repossessions - a lot of customers found the processes they had to follow challenging. Some faced delays in getting to speak to advisers, or had to make multiple phone calls and repeat information previously provided, so reducing such issues are critical.


Interest only mortgages are still available for the right client in the right situation. If your interest only mortgage ends in the foreseeable future, it may be worth speaking to one of our advisers. 





Stamp Duty Cut Boosts First Time Buyers


The cut to stamp duty for first-time buyers was announced by Chancellor Philip Hammond in his Autumn Budget, and it seems to have had the desired effect among would-be buyers - research shows that millennials are now far more confident in their ability to buy a home, and the Prime Minister has even boasted about the success of the policy.


The research shows that 58% of millennials who are saving for a deposit are now 'more confident' in their ability to buy, with 17% of this age group being 'much more confident'. This perhaps highlights the success of the policy, and follows hot on the heels of comments by Theresa May, who only yesterday said that 16,000 first-time buyers have already benefited from the stamp duty cut.


Given that the cut could result in savings of up to £5,000, it's little wonder that so many would-be borrowers are confident. After all, it means that they'll have to save a little less and could even result in them being able to get on the ladder sooner, and for those who have already factored the stamp duty cost into their savings goal, it could mean more to put towards a deposit and that all-important first-time buyer mortgage.


Happily, interest rates are still low - despite the recent base rate rise - so many will be able to benefit from affordable first-time buyer mortgage rates as well, only adding to the potential bonus. Yet despite this improved outlook, few savers appear to be taking advantage of additional Government measures to help them reach their goals - specifically, the Lifetime ISA (LISA), an account designed with the needs of younger savers in mind. 



Stay At Home Parents' Unpaid Work


New research has found that stay-at-home parents do an average of £29,812 of unpaid work per year, and yet almost two-thirds of them don't have any life insurance, creating a potentially dangerous situation if something were to happen to them.


When people think of life insurance, they often think of the effect that losing income can have on a family. But the loss of the main child-carer can be just as financially devastating. When you consider what stay-at-home parents, and the main caregiver in general, add to a household, this can add up to quite a lot.


The total figure of unpaid work has been made up of the 56 hours and 36 minutes on average spent being a chef, cleaner, nurse, taxi-driver, teacher, and doing laundry as well as performing general childcare duties. These are all jobs that someone would have to take on or get paid for should something happen to the main caregiver.

Even mums or dads that work part-time bring in an additional £26,241 worth of unpaid work per year, totalling up to 48 hours and 24 minutes. These figures come from SunLife Protection, whose director, Mark Jones, commented: "If you work part time or you're a stay-at-home parent and don't earn a salary, it's easy to think you don't need life insurance. But the fact is, if something happened to you, your partner may have to reduce their working hours to look after your children, or pay someone else to do all the roles you do - and that's not cheap."

With more than two in five mums not having life insurance, this is an important conversation to have with your partner, and you shouldn't put it off. Most parents choose term life insurance, which means you would be covered during the time that your little ones rely on you the most, for example for a 20-year term that covers their entire childhood.


Those that do have life insurance have a policy worth £120,437 on average, dropping to £106,152 for stay-at-home mums. While this would cover the average outstanding mortgage of £85,000 and average household debt of £8,000, it doesn't take into account the average household spending of £531 a week and does not consider university fees or a funeral (£3,897). And of course it does not factor in the average 'caregiver value' of £26,241






78% May Never Be Homeowners

A survey of Brits aged 18 to 30 years old has revealed that 78% of this age group do not believe they will ever be in a position to own their own home. The main stumbling blocks that were uncovered are the deposit, earnings and credit history.


According to their research, British adults have an average of £6,700 saved up for their deposit. Considering the average house price stood at £225,021 in December, according to the latest Halifax house price index, this average savings amount is less than 5% - the minimum deposit percentage for most first-time buyer mortgages - of what could be required.

It's therefore understandable that 78% of those who don't believe they'll ever own their own home said it was because they could never save enough for a deposit. A further 71% thought the main problem was that they don't earn enough to be able to get a mortgage, while 52% cited their credit history as the main roadblock to their homeownership dreams.

The 37% living with their parents have the best chance of getting a deposit together and owning their own house, as they only pay an average of £220 per month in rent, compared to the average £625 paid by those who rent elsewhere. And yet of the 22% who do believe they'll own their own house one day, only 52% have actually begun saving.