MORTGAGESWHAT'S THE DAMAGE?
Nearly three million homebuyers are facing a mortgage shock over the coming months as they come off fixed and discounted deals. Mortgage finance is disappearing fast, and those lucky enough to find
a new deal will have to pay more for it.
How much more will depend on the size of the loan, what equity is in the property and how good a risk you are. Most equivalent deals are now at least 1% more expensive than your existing deal. This might typically add between £58 and £73 monthly to a £100,000 loan or between £88 and £109 to a £150,000 debt. That's if you can get the same terms as last time. Many borrowers will not. Four hundred loans were pulled by lenders last week alone. Since last July, institutions have stopped selling two thirds of their loans. At that time we could choose between 15,599 deals. This has shrunk to 5,725.
It was, until recently, easy to borrow huge sums without any evidence of your salary or ability to pay. Lenders were happy to advance seven times your income.
WHAT CAN I DO?
Don't wait for your loan to come to an end, but at least three months ahead start planning your next mortgage deal. Otherwise you will be left on your lender's high standard rate, which could cost anything up to 3% more than you have been paying. Set aside time to research the market carefully and find the cheapest suitable deal.
Study the best-buy tables in Scotland on Sunday's Business section, and check out useful websites, such as www.moneyfacts.co.uk, www.charcolonline.co.uk, www.moneysupermarket.co.uk, www.fool.co.uk and www.uswitch.co.uk. If you are still confused, or your applications get binned, find yourself a good mortgage broker, who can sometimes pull rabbits out of hats. Otherwise do all you can to improve your credit rating. If you have savings, reduce the loan and increase your equity. This will give you access to cheaper deals requiring more by way of deposit. See if parents will guarantee your mortgage. Try institutions you have a relationship with, such as bank, building society or insurer.
If you still can't get a cheap deal and find yourself stuck with a mortgage you can't afford, switch to interest-only and consider taking in a lodger.
PANIC RATING:
9 out of 10PROPERTY MARKET WHAT'S THE DAMAGE?
The housing market in many parts of the UK has ground to a halt. Average prices have been falling for the past six months – after doubling over the past decade from £86,835 to £192,648. Although they are down by less than 2% on average, values in some areas have crashed. As mortgages become harder to come by, and forced sales and repossessions rise, prices are expected to tumble further.
There is a real prospect that Scotland might avoid the worst of the property meltdown. Average prices at £144,897 remain more affordable than elsewhere in the UK. A key indicator of house price health, the price earnings ratio, is way below our southern neighbours at 4.7 compared with 6 for the UK as a whole. Scottish house prices on average are still expected to increase by 4% this year. But there are risks. Some areas and developments share the same speculative characteristics as bubble-towns south of the Border. And the introduction of the compulsory seller's survey in Scotland later this year could further hold back prices.
WHAT CAN I DO?
Grit your teeth and learn the hard lesson that house prices can fall as well as rise. If you don't need to move, don't. First-time buyers, and others entering the market, should hang on until prices settle. There may be better bargains later in the year.
If you need to move because of work, talk to your employer about a relocation deal. If you need to sell privately, get your property in prime condition and put it on the market at a realistic price. There are still some buyers around, but they call the tune. The only alternative is to rent your house out until prices recover, and rent wherever you are moving. If you had planned to flit for family reasons, probably best not for the time being.
PANIC RATING:
5/10PENSIONSWHAT'S THE DAMAGE?
Tumbling share prices have slashed pensions by around a fifth, which will be a terrible blow for anyone due to retire shortly. The cost of pensions guaranteed by employers, already struggling under a potential £180bn black hole, has also taken a big hit. This will lead to demands for more money from staff, and further scheme closures.
But it is those with pensions directly linked to the stock market who will suffer the hardest knock. A £100,000 pension pot would last year have bought a 65-year-old an annual £7,480 pension on retirement or £4,900 if opting for index-linking. Following a 19% drop in share prices, those same lifetime savings will buy just £6,034 or £3,877 with inflation-proofing.
A timely reminder of the need to gradually move out of equities in the five or 10 years leading up to retirement, it also raises alarming question marks over the inherent dangers of the Government's proposed new compulsory pension.
Rollercoastering markets are also terrifying for those currently paying into a pension and wondering if they should stop and make other arrangements for their old age.
WHAT CAN I DO?
If you are due to retire and fully invested in equities this is a real disaster. Hopefully you won't take the full 20% hit because some of your money will have been moved into lower risk investments. Your options are limited. You must either accept a cut of a fifth in your retirement income, or carry on working and defer your pension while hoping that shares will climb before too long.
The alternative is to go into a draw-down arrangement, which allows you to take an income without crystallising your pension. However, charges are high and by taking an income when the fund is low, you could compound the problem. If markets bounce you might do well but it could be a long, rocky road to recovery. If 10 years away from giving up work, learn the lessons of staying fully invested in shares right up to retirement. Younger people though should carry on paying into their pensions.
PANIC RATING:
8/10JOB SECURITY WHAT'S THE DAMAGE?
Northern Rock announced 2,000 job losses last week, and 10,000 staff are expected to bite the bullet in the Square Mile. But redundancies won't stop there. Financial services, particularly banking and investments, are big employers in Edinburgh and Glasgow. If the economy slows, many others are likely to be hit too, particularly those connected with property, building and all areas of consumer spending. This year's graduates are likely to find it harder to find work than for a generation.
WHAT CAN I DO?
Cut back on all unnecessary spending, and save as hard as you can in case the worst happens. Consider taking out unemployment insurance to at least protect the mortgage.
PANIC RATING:
6/10SAVINGSWHAT'S THE DAMAGE?
There is no problem when it comes to deposit accounts. These are the rays of sunshine on this otherwise black horizon, with some fantastic returns available. And try not to worry too much about your bank going belly-up – the first £30,000 of your cash is covered by a compensation scheme. However, stock market savings have been badly hit with the FTSE index of leading shares down around 7% over one month, 14% over six months and 20% over the year.
WHAT CAN I DO?
Fill your boots with tax-free cash Isas before the April 5 deadline. You have 12 days left to act. Consult Scotland on Sunday's best-buy tables for the most appealing deals. There is not much you can do about your equity holdings. It is too late to sell so you have to sit and ride it out.
PANIC RATING:
4/10CREDIT CARDSWHAT'S THE DAMAGE?
Short of cash all round, banks have been withdrawing credit cards from customers, slashing spending limits by 10% and pushing up bills. Capital One and MBNA are said to be most aggressive, although I have to admit the eyewatering, not to say outrageous, credit extended by Capital One to the Hunter household remains intact, as do all our credit lines. But some customers are being badly hit. Egg withdrew plastic from 161,000 account holders and the Co-op admitted it had cut the credit offered to 50,000 customers. In all 500,000 applications for credit cards are being binned by the banks every month.
Customers are now on average paying interest of 17.67% compared with 16.98% a year ago, according to the Bank of England. Way above the attractive deals advertised on the television.
WHAT CAN I DO?
Shop around for a cheap deal. Keep your credit file clean. Stop spending unnecessarily and cut up your card.
PANIC RATING:
7/10
