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The mortgage nightmare scenario

Right now, most lenders have pulled out of new lending. They are ‘waiting to see’
Peter McGahan

FOR the record, I’m still looking for a decent wall to bop my head off when I think of the UK’s financial policy now.

On the one hand, it’s repeated carefully everywhere that ‘Russia’s invasion of Ukraine is causing the crisis’ (when it isn’t and didn’t), yet they want to increase your mortgage rates to slow down your spending, but 24 hours later offer massive tax cuts to those who don’t actually need it - wait for it - to boost the economy and growth. I’m just not bright enough to work it out it seems!

Please tell me how someone’s mortgage rate will increase supply chains; release blockages caused by zero Covid policies in manufacturing countries; take care of the manufacturing issues caused by small parts not being available to create the big parts; slow down institutions buying commodities driving up their prices; excess charging structures of energy companies.

The real issues are right there and interest rates are not the answer.

Furthermore, if you want to slow down spending by reducing money supply (interest rates), why offer the crazy excess money supply the next day with tax cuts?

Add to this a simple point. It is now that the UK’s society is broken in terms of its imbalances. It’s the seventh ‘richest’ country in the world, but 20 per cent of its people are in poverty, yet 66 per cent of the tax cuts given out last week went to the TOP 20 per cent The lowest income thresholds will save a massive £22.12 under the tax cuts but the richest will gain an extra £9,187.

There are plenty of people brighter than me who can explain how that will work, I’m sure? The lowest have no disposable income. None. They just get by. Introducing money to them will simply ensure they have the very basics. Scrapping the cap on bankers’ bonuses or the additional 45p additional rate on earnings above £150,000 will only add to the already beefy disposable incomes at the top.

They will simply save that, as they already have enough. The European Banking Authority states there are more than 3,500 bankers working in the UK with earnings more than €1m per year.

Simply put, raising rates to curb inflation sustainably does not make sense, and if it doesn’t make sense there, it makes sense somewhere else. The key is to find out where.

The current scenario is such that the Bank of England may have to increase rates much faster than expected to cope with the government’s stimulus.

So, if you have a mortgage, it’s time to take speedy action.

Here are some tips.

Right now, most lenders have pulled out of new lending. Few are lending at all. They are ‘waiting to see’. They are faced with the risk of plummeting house prices coupled with rate uncertainty and cannot see where the margins will be. Poor supply of products and high demand, equals, prices will rise.

Before you fall into any difficulty, take advice from a mortgage broker or independent financial adviser. Falling into arrears will go against you, as it will reduce your credit rating, and, in turn, increase the cost of future borrowing.

To avoid that, consider moving onto a temporary interest only arrangement. This way, you are contracted to pay just the interest and not the capital. If you have spare money at the end of the year, you can use that capital as cashflow, or make a repayment off the mortgage (normally up to 10 per cent of it without a charge).

If your rate is due for renewal in the next six months, have your mortgage broker approach lenders to see what deals are available and the application will secure that rate for a set amount of time. When the time comes to remortgage, you can select between the better of the two – your existing mortgage lender, or the new offer.

Extend your mortgage terms to a longer period. This will drop your payments. You can still make overpayments if cashflow allows it, so as to pay off the loan earlier. Cashflow is king.

If you see a rate you like and is correct, grab it. One bank dropped six mortgage products a day after they launched them.

Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a mortgage query, ask our independent mortgage director Pat Greene. Email Pat directly on pgreene@wwfp.net or call 028 6863 2692

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