Mortgages rates fall to record low

Banks are now offering some of the cheapest mortgage deals ever – but many home owners still can't get at them.

The cost of both fixed-rate mortgages and tracker deals has tumbled in recent weeks, as fears of an imminent rise in interest rates recedes.

With the economy still struggling, most people do not now expect the Bank of England to raise rates until 2012 at the earliest, with some commentators suggesting the Bank Rate could stay at 0.5 per cent until 2013.

Against this background banks have been gradually reducing the cost of their home loans. According to Moneyfacts, the average two-year fixed rate mortgage is just 4.32 per cent, the average five-year fixed rate deal is 5.29 per cent, while those opting for a two-year tracker deal – where monthly mortgage repayments will move in line with the Bank Rate – will pay an average of just 3.37 per cent. Moneyfacts says these are the lowest rates it has seen since 1988.

But banks and building societies are still extremely wary about whom they will lend money to, and lending restrictions remain tight. As a result it is only those who have significant equity in their home who can access the cheapest rates. And with house prices sliding in many parts of the country, more home owners will find their equity squeezed, potentially making it harder for them to get an affordable deal.

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Whether you are looking to buy, move or simply remortgage we look at the best mortgage options available.

First-time buyers

The cheapest fixed-rate deals now charge interest at less than 4 per cent, but first-time buyers will pay substantially more even if they can scrape together the necessary deposit. Typically these buyers will be paying more than 6 per cent interest if they want the security of a longer-term fixed-rate deal.

Prior to the credit crunch, 100 per cent mortgages were commonplace. These have all but disappeared, with most lenders providing mortgages only if buyers can put down at least a 10 per cent deposit. David Hollingworth, of brokers London & Country, says: "We've started to see lenders offering deals which just need a 5 per cent deposit. But the rates are very uncompetitive.

"You will have more choice, and a better rate, if you can save a 10 per cent deposit. But even here you will pay a premium"

Melanie Bien, of the independent brokers Private Finance, says: "For first-time buyers a fixed-rate deal can help with budgeting, as they know their monthly mortgage payments won't increase when interest rates rise."

She says shorter two-year fixes may be cheaper, but could leave borrowers remortgaging again just as rates rise. "A longer five-year fix should provide more peace of mind for cash-strapped first-time buyers. But there is a risk that if interest rates don't rise then you have been paying over the odds for this protection," she says.

The Co-operative Bank currently offers one of the cheaper five-year fixes for those borrowing 90 per cent of their property's value. It charges 5.89 per cent with a £999 fee, or 6.19 per cent interest with no fee.

For those gambling on interest rates staying low, HSBC offers a lifetime tracker which charges 4.19 per cent above the Bank Rate (giving a current pay rate of 4.68 per cent).

Remortgaging

It used to be commonplace to remortgage every two to three years. Why stick with your lender's uncompetitive standard variable rate (SVR) when you could take advantage of low-cost fixed and discounted deals? But thanks to the low Bank Rate, many lenders now have very competitive SVR deals. C&G and Nationwide building societies, for example, have an SVR of just 2.5 per cent. Not surprisingly, four in 10 home owners are simply sitting on these SVR rates.

Ms Bien says: "If you are one of the lucky ones paying 3 per cent or less it will be tempting to enjoy the low interest rates for a while longer. The sensible borrower will be overpaying on their mortgage each month, both to reduce the outstanding capital and to make it easier to cope with any payment shock when interest rates do start to rise."

But not all lenders have such competitive SVRs. Some building societies are charging rates closer to 6 per cent. "If you are on one of these rates, then you should be able to remortgage onto a cheaper deal, provided you have sufficient equity in your home," she says.

Again, the key question is whether to opt for a fixed or tracker rate. "There is a lot of nervousness about future interest rate rises," says David Hollingworth. One option, he says, is a "drop lock" or "switch to fix" deal. With these, borrowers get a cheaper tracker deal now, but retain the right to switch into a fixed-rate one at a later stage without paying a penalty.

Similarly, look at the lifetime trackers offered by ING Direct, First Direct and HSBC, which offer competitive rates, but no early redemption charges should you need to remortgage at a later date. First Direct, for example, charges just 2.89 per cent at present – although this will increase when interest rates rise.

Last-time buyers

Those who have been on the property ladder for 20 years or more probably aren't particularly troubled by the latest dip in house prices. Most of these home owners will have substantial equity in their home and are in a prime position to take advantage of some of the cheapest rates around.

Nationwide, for example, is offering a two-year fixed-rate deal at just 2.99 per cent (plus a £400 fixed fee). However, this deal is only available to those borrowing half of their property's current value.

For those wanting a longer-term fix, Chelsea Building Society is offering a five-year deal at 3.89 per cent (with a £1,995 fee). Again, home owners need a substantial chunk of equity in their home to take advantage of this offer, as it's only available to those borrowing up to 60 per cent of their property's value.

"Although you are still paying a premium to fix your rate, this is an extremely attractive offer," says David Hollingworth. "It will be cheaper than many lenders' SVRs, but offers protection against future rate hikes." £box light

Stop hiding your credit card charges, OFT tells airlines

Travel companies have been ordered by the Office of Fair Trading (OFT) to stop the use of hidden charges for customers who pay by debit or credit card.

Airlines, ferry and rail companies are among the worst offenders and typically force customers to complete between four to five steps of the sales process before the charge is added to the price

The OFT has today announced that it will uphold the super complaint submitted in March by Which?, the consumer group, on unfair credit and debit card surcharges.

The watchdog has confirmed that it will introduce enforcement measures under the Consumer Protection Regulations to take action against companies who are not transparent about their surcharges for paying by card in the headline price.

The move will mean that holidaymakers will no longer have additional card fees added at the end of their transaction, which according to research by Which?, could be as much as £40 for a family of four booking a return flight.

Cavendish Elithorn, senior director of the OFT's Goods and Consumer Group, said: "People are frustrated about being asked to pay for paying and consumers find it harder to shop around and find the best deal if they have to invest time and effort in discovering surcharges. This also weakens competition between retailers which is bad news for the UK economy."

The OFT has suggested that HM Treasury amend the Payment Services Regulations, to force companies to be upfront and honest about their pricing, or face legal action.

Peter Vicary-Smith, chief executive of Which?, said this was a victory for consumers.

He said: "We want to see the measures recommended by the OFT put in place as quickly as possible and finally put an end to the practice of card surcharging. While we understand that some of the regulatory changes will take some time, we urge the OFT to take steps immediately to ensure that consumers know the true cost of their purchases upfront.

"Businesses can start to be upfront and fair over card charges today – there's no point waiting until the OFT forces action. Industry shouldn't drag its feet over this."

A super-complaint can me made to the OFT by a designated consumer group if an issue is "significantly harming the interests of consumers". The OFT then has 90 days to respond by stating what action, if any, it plans to take on the issue and the reasons behind its decision.

By Kara Gammell@telegrapgh 

Cheque guarantee cards to be abolished on June 30

The cheque may have been given a stay of execution last week - but its slow demise looks set to be hastened by the abolition of the cheque guarantee card.

From next week (June 30th) banks will no longer offer this scheme.

Previously businesses accepting cheques - often for relatively small amounts - knew that if it was backed by a guarantee card the bank would not bounce the cheque and they would be paid in full.

Campaigners said they feared that this would cause some smaller businesses to stop accepting cheques - causing further difficulties for many consumers, particularly the elderly who tend to rely more on this payment method.

Last week ministers were highly critical of plans by banks to abolish the cheque clearing system by October 2018.

Mark Hoban, the Financial Secretary to the Treasury, said that cheques could not be scrapped until “a suitable alternative is found”.

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He added that ministers would “intervene… if there is any threat that cheques may be withdrawn without suitable alternatives being put in place at all”, he said.

However, cheque usage has fallen dramatically over the past decade.

Last year 1.1bn cheques were written, compared to 4bn 20 years ago. Of those cheques written last year only 7pc (82m cheques) were supported by a guarantee card according to the Payments Council.

Most major retailers - including all supermarkets and most petrol stations – now no longer accept cheques. However, they are still widely used by small businesses and charities who may not pay for expensive card processing equipment. They are also still used for personal payments.

But the Payments Council said the average value of a personal cheque is £392. However, the maximum guarantee limit on a card was £250, and the vast majority of cards (88pc) only had a guaranteed limit of £100 or under.

Sandra Quinn, Director of Communications for the Payments Council, commented: “The only thing that’s changing is that from 1 July you will no longer be able to guarantee a cheque using a cheque guarantee card, but it doesn't mean that you can no longer pay by cheque! The use of cheque guarantee cards has been in a steady decline, and many of them were written in situations where the guarantee was void [for example if a cheque was sent through the post].

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Bank of England: No need to raise interest rate as low wages are slowing down inflation

Interest rates do not need to rise despite surging inflation, the Bank of England says.

A study by the Bank published today suggests that rates can be safely held at 0.5 per cent in order to prevent growth from stalling.

It shows that while energy and food costs are soaring, there is little evidence that short-term price rises are feeding through to wages or long-term price setting by big companies.

This eases fears that consumer price inflation will continue to run at more than twice the Treasury’s 2 per cent target. There is widespread concern that Britain is heading for a period of ‘stagflation’ – when prices rise as the economy stagnates.

But the Bank says today in its influential Quarterly Bulletin that ‘long term inflationary expectations remain anchored by the monetary framework’, which is sure to be a relief to Chancellor George Osborne. 

There has been widespread concern in Whitehall that rising inflation, as a result of the boom in commodity and oil prices, could throw Mr Osborne’s austere economic policy off course.

Sir Mervyn King, the Bank’s newly-knighted governor, has repeatedly promised to keep rates low to allow public spending to be cut without destroying the recovery. If the Bank were to start raising interest rates at this stage in the recovery it could put a further brake on lacklustre consumer spending and investment by industry. 

Individual and corporate spending are seen as key to keeping the economy expanding at a time when the cuts – taking £80billion out of the public sector over the next four years – are just taking hold.

Figures released by the National Institute for Social and Economic Research last week suggest that the economy grew 0.4 per cent in the three months to the end of May. 

In today’s report, the Bank says ‘there are few signs that inflationary expectations have affected price or wage setting behaviour’ because the firms, individuals and markets that it examined all seemed sure that inflation will start to return to the 2 per cent target level, from the current 4.5 per cent, by early in 2012.

Over the past three years inflation, as measured by the consumer prices index (CPI), has frequently been one percentage point above the 2 per cent target. 

Despite this longer term interest rates – the market cost of borrowing for British mortgage lenders, banks and corporations – have actually been falling. 

This is in sharp contrast to what has been happening in troubled Euro-zone countries.

‘In the UK this largely reflected a decline in inflation towards the end of the period,’ the Bank’s experts say.

The Bank has found little evidence that recent rises in the CPI have any impact on wage settlements. 

It reports that ‘current wage growth remains around 2 per cent, some way below its pre-recession average rate’. 

With wages frozen in the public sector and unemployment stubborn in the private sector, the Bank argues that ‘there are few signs that households are pushing for higher pay

Home owners offered 5 yr fixed rate mortgages below 4pc

Home owners are being offering five year fixed rate mortgages below 4 per cent – levels last seen before the credit crisis.

It comes amid growing expectations that the Bank of England will not raise interest rates until next year, much later than anticipated.

At the beginning of this year, interest rates were expected to rise from their current level of just 0.5 per cent in May. But this has been pushed back to earlier next year amid concerns about the fragile economy.

Yorkshire building society has announced a five year fixed rate mortgage at 3.99 per cent for those with a 25 per cent deposit.

Chelsea building society, owned by the Yorkshire, is also offering a five year fixed rate deal at 3.99 per cent, but it has a £1,995 arrangement fee.

Melanie Bien, of mortgage brokers Private Finance, said: “With interest rates looking increasingly unlikely to rise before next year, lenders are offering cut-price fixed rates to drum up business.

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"At Heart Finance  we search the entire market in order to help you find the best deal you possibly can.

We are committed to offering our customers the highest possible 

standards of service

We recognise that both we and our customers have everything to gain if we look after your best interests and treat you fairly in all aspects of our dealings with you

Only recommend a mortgage or financial services product that we consider suitable for you and that you can afford – Our lenders charge the lowest fees of all - and always the most suitable from the available options. " 

“With five-year fixes now starting with a '3', pricing has breached an important psychological barrier which will make such deals attractive to borrowers looking for security.

“However, trackers remain cheaper still so those borrowers who do think it will be a while before interest rates start rising may be tempted to go for a variable option, which will be cheaper at least initially

Up to 20 million Britons cutting back on spending as confidence slumps

The full extent of the squeeze on living standards in Britain has been revealed in a new report estimating that 20 million Britons tightened their belts in the first few months of 2011.

Registering a sharp drop in consumer confidence over the past year across eight different demographic groups, a survey by the financial firm Axa found people cutting back on going out, car usage, food shopping and holidays.

A poll of almost 2,000 people conducted by YouGov found a sharp drop in financial confidence over the 12 months to March, a period that coincided with a slowdown in the economy, rising taxes, higher inflation and the announcement of the coalition government's austerity plan.

Spending restraint was particularly evident among those the survey calls "the stretched" – people in their 20s and 30s on low incomes with few financial assets – and among young professionals of a similar age with no children hoping to move out of rented accommodation into their own homes.

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"A striking 40% of consumers (up to 20 million people) chose to go out less between January and March this year, a five percentage point increase on the previous quarter," Axa said. "Half (48%) of those in the most pessimistic group, young professionals, cut back on going out. The proportion among the stretched was even higher at 56%."

The survey found that while millions of consumers were making economies in order to pay off their credit card debts, one in four of those quizzed said they were dipping into their savings to fund everyday expenditure.

A fifth of the population said they now regretted some of the financial decisions they had taken before the deep recession of 2008-09. Axa said that "nest builders" – people in their 30s and 40s with young families and large mortgages – and the stretched tended to be the most regretful.

Axa UK's chief investment officer, Eric Lhomond, said: "These figures reveal a concerted effort by British consumers to claw back some financial security in the face of a significant drop in optimism that we found across all demographic groups. The result is that we are busy paying off debts, reining in unnecessary spending and clinging on to financial products to protect or grow our assets."

More than half of those polled said they expected to have to pay for treatments on the NHS within the next three years, with only one in five consumers confident that the coalition's original health plans would make the NHS better. More than half said they wanted the 50% income tax bracket – introduced as an emergency measure by Alistair Darling during the last parliament – to become permanent.

Hidden green tax in fuel bills: How £200 stealth charge is slipped on to your gas and electricity bill

Hidden green taxes now make up a fifth of every household’s gas and electricity bills, energy campaigners warned last night.

Cash strapped families pay an average of £200 a year in stealth levies to subsidise Britain's massive expansion of wind farms, solar panels and 'environmentally friendly' heating schemes.

Yesterday outraged campaigners called for an end to the secret subsidies and demanded power companies reveal how much their customers are paying for climate change policies .

Hidden green taxes make up a fifth of households' gas and electricity bills, energy campaigners warned

The call came as the former head of the civil service, Lord Turnbull, demanded that politicians ‘stop frightening us and our children’ about the threat of global warming.

He demanded that Whitehall and ministers consider the damaging economic impact of blindly following the ‘climate change agenda’.

The attack on green taxes also came as one of Britain’s biggest power companies unveiled a round of price rises that will add nearly £200 to the average family bill. 

Scottish Power blamed soaring wholesale prices for the 19 per cent increase in gas prices, and a 10 per cent rise in the cost of electricity.

But Dr Benny Peiser, director of the Global Warming Policy Foundation, said the soaring price of fuel was also the result of Britain’s ‘stubborn but wrong headed commitment to renewable energy’.

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The typical UK household spends £608 a year on gas and another £424 on electricity. Dr Peiser says green stealth taxes make up between £154 and £206 of that bill. For couples with large families - and large fuel demands - the figure is far higher.

He said: ‘So called green stealth taxes are already adding 15 to 20 per cent to the average domestic power bill and even more to business users’.

‘And yet, despite the growing cost of these taxes, you won’t find any mention of them at all on your gas and electricity bills,’ he said.

‘That, of course, suits the Government down to the ground. If it raised the huge sums required to encourage renewable energy and limit carbon emission through general taxation it would make the Government itself very unpopular.

‘But by doing it through electricity and gas bills, the Government has cleverly ensure that it’s the power companies that take the blame.’

Under the Climate Change Act, the Government is legally bound to cut Britain’s C02 emissions by 34 per cent by 2020 and 50 per cent by 2025.

To meet its targets – the toughest in the world – the Government is encouraging the building of 10,000 wind turbines. It also wants power companies to install £7billion worth of smart meters in homes.

The meters record precisely how much gas and electricity a household is using and show how much it is costing, hopefully encouraging households to use less energy.

The meters send this information back to the utility firm, making estimated bills unnecessary.

The drive for wind turbines is being subsidised by the Renewable Obligation – a scheme that forces power companies to buy a proportion of their energy from renewable sources such as wind.

The scheme artificially inflates the cost of coal, oil and gas power, and subsidises green power, making investment in costly wind farms profitable. The cost is passed on in fuel bills.

A second scheme, the European Emission Trading Scheme, forces energy companies and heavy industry to offset greenhouse gas emissions with ‘carbon credits’ – permits that allow them to generate a certain amount of carbon dioxide.

The scheme has been hit by scandals including tax fraud, the re-sale of used carbon credits and the theft of millions of emission permits.

Once industries have used up their free allocation of credits, they must buy them on the open market – inflating the cost of energy even more.

Bills are pushed up further by the Carbon Emissions Reduction Target – which forces suppliers to subsidise home insulation and new boilers.

Bills are also inflated by the Feed In Tariffs – a scheme that encourages homes and small businesses to install wind turbines and solar panels by guaranteeing a fixed, high price for electricity they sell to the National Grid.

Dr Peiser said: ‘The Government has to come clean and force the power companies to make their bills fully transparent.

‘Only then will it be possible to see if a power company has been raising its prices unfairly and change supplier. And only then will the true cost of the Government’s mad rush towards renewable energy become clear.’

Fixed mortgage rates fall to six-month low

The average cost of a two-year fixed rate loan has fallen to 4.41pc, down from 4.5pc in May and the lowest level since the beginning of the year, while the interest charged on a five-year deal has dropped to 5.41pc from 5.6pc, according to financial information group Moneyfacts.

The group said the reduction in mortgage rates was being driven by a fall in swap rates, upon which the deals are partially based, as the Bank of England's Monetary Policy Committee is expected to put off raising the base rate until the final quarter of this year.

But despite the imminent threat of an interest rate hike receding, many homeowners are still keen to fix their borrowing costs, and rising demand for fixed rate deals has helped to increase competition in the sector.

A flurry of lenders have slashed interest on their fixed rate mortgages during the past few days, including big names, such as Halifax, Nationwide, Lloyds TSB and NatWest.

There has also been a further improvement in the number of mortgages available to people with only small deposits, with 31 different loans now available for people with 5pc to put down, up from 24 at the start of the year and the highest level since December 2008.

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"At Heart Finance  we search the entire market in order to help you find the best deal you possibly can.

We are committed to offering our customers the highest possible 

standards of service

We recognise that both we and our customers have everything to gain if we look after your best interests and treat you fairly in all aspects of our dealings with you

Only recommend a mortgage or financial services product that we consider suitable for you and that you can afford – Our lenders charge the lowest fees of all - and always the most suitable from the available options. "  

                                                      

Choice for people with deposits of 10pc has also risen to 244 from 199 during the same period, while there are now 545 mortgages available for those borrowing 85pc of their home's value, compared with 480 at the start of the year.

Half of UK not saving enough for retirement,

Nearly half the working population are not saving enough for retirement, and one fifth are failing to save anything at all, according to a major study on pensions.

People want, on average, an annual retirement income of £24,300 to live comfortably, down from the pre-recession figure of £27,900. Although three-quarters of those questioned understand the need to take personal responsibility for their future, only 51% save adequately for their old age. This drops to around 25% when those with a final salary pension are excluded.

The seventh annual Scottish Widows UK pension report, based on interviews with 5,200 adults, shows there is "widespread and ingrained inertia" across the country, with savings levels remaining broadly consistent during the past five years, regardless of the economic downturn.

The Scottish Widows average savings ratio – which tracks the percentage of income being saved for retirement by UK workers not expecting to get their main retirement income from a final salary pension – remains at just over 9%. This is a 3% shortfall on the 12% the insurer believes people should be saving to achieve a comfortable retirement.

Despite recent moves to abolish the default retirement age (the minimum age at which employers could force staff to retire) and raise the state pension age, the average age people would like to retire at remains the same as last year at 61 years and eight months. Only one in five said they would be happy to carry on working until the age of 70.

Ian Naismith of Scottish Widows said: "Put simply, people need to save an extra £58 per month on average to prepare adequately for retirement and make up the shortfall we are seeing currently. That is roughly the cost of a cup of coffee every day.

                                                                                           

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"Even though for many this is realistic, and is in under the average £97.10 per month people say they can afford, we appreciate the difficulty in setting aside extra money. It's about breaking through that inertia. And for some the amount that needs to be saved will be higher but it's about taking small steps, getting on to the savings ladder and, more importantly, staying on it. Much higher saving levels are needed to get towards the average £24,300 a year people aspire to. The message is that everyone should be putting aside as much as they can afford for their retirement."

Tom McPhail, pension expert with independent financial adviserHargreaves Lansdown said that according to Office for National Statistics figures, the average pension savings of people retiring between the ages of 50 to 64 last year was £91,900, enough to produce an annual income of about £3,500 to £4,000 depending on your sex and the type of annuity you buy.

"To produce an income of about £24,000, you would need a pension pot of about £400,000 once the state pension has been taken into account," he said. "People today face a very simple choice: to save more, retire later, or live on less in retirement."