Many savers being fooled by Internet savings accounts

According to a recent report from This is Money, many savers across the UK are being tricked into parting with their hard earned cash by seemingly tempting high interest Internet savings accounts that look far better than they actually are.

A number of Internet savings accounts, some from big name banks such as Alliance and Leicester or the Abbey, are offering eye-catching interest rates that have got consumers flocking to open up an account. However, experts state that there is a massive sting in the tail.

What many consumers are failing to realize is that many of these accounts will only pay this rate of interest in the event that the money in the account remains untouched, and just one withdrawal from the account could seriously impact on the amount of interest that you receive. For those that do make withdrawals the interest rate is docked to the point where it falls behind many of the best buy savings accounts on offer at present.

The highest paying of these seemingly high interest savings accounts is Coventry Online, but industry officials state that even if you did open an account and did not make any withdrawals you would only receive 80 pence more for each £1000 of savings than you would with the ICICI Bank’s HiSave Account, which is currently Money Mail’s best buy savings account.

Consumers that are hunting around for a place to put their savings are urged to ensure that they read the small print with these Internet savings accounts, and do not jump in feet first based just on the eye-catching interest rates that are advertised, as the amount of interest that is received may not be close the interest rate advertised.

Tom Smith
5th December 2007

Tags: interest, attractive, savings, earn, high, rates, deposits

Debt advisers expecting flood of enquiries

According to a recent report debt advisers across the UK are gearing themselves up for a flood of debt related enquiries as thousands of fixed rate mortgage deals come to an end. Many consumers across the UK took out fixed rate deals in 2005 for a two year period, with a low fixed rate of under 4.5% in many cases.
However, since that time interest rates have rocketed, with a series of five interest rate hikes in the space of a year, taking the rate up to 5.75%.

The credit crunch that was sparked in the United States sub-prime sectors has also had global repercussions, and has resulted in some lenders hiking up their mortgage rates even further. This means that the thousands of people that will be coming out of their fixed rate deals will not only face a huge rise in their interest rates and mortgage repayments, but will also find it increasingly difficult to remortgage to a more competitive deal.

Even those that switch to another fixed rate will have to fix at a far higher rate than they did in 2005, which means a huge rise in their monthly repayments.

It is thought that in the coming months around twelve thousand homeowners will see their fixed rate periods come to an end, and will face repayment rises of 40%. This means that many will have to find hundreds of pounds extra each month in order to continue with repayments on their mortgages, and this could send many households into the red, tipping them over the financial edge and leaving them facing repossession.

All homeowners that are due to come out of their fixed rate deals will face these problems, with many lenders having hiked up their standard variable rates to 8% or more. However, sub-prime borrowers will face severe affordability problems, as many sub-prime lenders have increased their rates to beyond 10% according to some experts.

It is thought that both the level of debt enquiries and the level of repossession will increase over the coming months as a result of this situation. The Consumer Credit Counselling Service has announced that it is opening a specialist repossession advice centre to deal with the severity of the situation.

Tom Smith
25th October 2007

Tags: consumer, Mortgages, period, advisors, deals

Sainsbury’s increases interest free period on credit cards

The supermarket giant Sainsbury’s has been offering a range of financial products and services over the years, including some very competitive deals on credit cards.

According to recent reports the retail giant has now announced that its credit cards – which already offered an attractive ten months interest free credit on purchases – will now be offering an increased interest free period of twelve months, which is likely to attract increased custom as well as placing the cards amongst the top of the best buy tables.

Officials from Moneyfacts have stated that the cards are all the more attractive because they also offer a low rate life of balance transfer facility, so in addition to enjoy twelve months of interest free credit on purchases customers can also transfer costly existing credit card balances and enjoy a low rate of interest for the life of the transferred balance – the rate currently stands at 5.94%. The standard variable rate on the credit cards is 15.9%.

One official from Moneyfacts stated: “The standard and platinum deals were already competitive, but extending its offer to 12 months pushes its standard card to hold joint top position of the moneyfacts’ best buys, along with Halifax and HSBC, with all three offering a standard revert to rate of 15.9% APR. The Platinum card offer is market leading, with the next best interest free offer at 11 months. These cards also come with the added benefit of a lifetime balance transfer deal at 5.94% pa, which in today’s market is a pretty competitive. Combined with the 0% offer, these deals are a very attractive overall package.” 

She added that the Sainsbury’s credit cards were now looked upon as a five star deal, as they offered savings on both transferred balanced and purchases, making them great value and convenient.

Tom Smith
5th September 2007

Tags: transfers, platinum, increased, offer, purchases, introductory, card

Mortgage Reality About To Bite

The next three months will see many thousands of homeowners come face to face with reality as their cheap fixed rate deals come to an end.

The deals were taken out in August and September 2005 when the Bank’s base rate had fallen to 4.5%. At that time you could get a two-year fixed rate mortgage with an interest rate as low as 4.24%.

If borrowers do nothing and let their mortgage slip onto the lender’s standard variable rate (SVR) then if they’re on an average £130,000 mortgage they will see their repayments go up by up to £290 a month.

Looking for a new fixed rate deal is not going to make them feel any better as the lowest fixed rates are now at around 5.6% and come with huge arrangement fees attached. Even those, therefore, could add £110 to the repayments from a 4.24% rate.

When you switch providers you will have to pay an exit fee to your previous lender, together with valuation and legal fees concerning your new mortgage. These could easily get near to £1,000 on a £130,000 loan, but this will still work out much cheaper than sliding onto the SVR.

One of the most attractive products due to end soon is Halifax’s two-year fixed deal at 4.29%, which expires on 30 September. There are about 30,000 customers on this deal. If they don’t take any action they will end up on the bank’s SVR of 7.75%. On a £130,000 loan monthly payments will go up from £707 a month to £981 – an increase of £274. Another popular one is Alliance & Leicester’s 4.28%, ending on 31 October. A&L’s SVR is under review, but is likely to go up to 7.89% before then. Repayments will go up from £706 a month to £993 – up £287. A&L also has a rate of 4.24%, ending at the same time. In this case the repayment rise will be £290.

Experts suggest that anyone with a mortgage deal ending in the next few months should start looking around for a new deal now, but should steel themselves in the expectation of paying a lot more than they are now.

There are other good two-year old deals that are ending soon, such as Northern Rock’s 4.69% on 31 August, Cheltenham & Gloucester’s 4.39% on 30 September and Abbey’s 4.59% on 2 November.

Halifax is offering a range of remortgages only to existing customers. One is a two-year fix at 5.89%. Anyone moving onto it from 4.29% will see their repayments rise to £829 a month from £707 on a £130,000 loan, and will still have to pay the £849 arrangement fee.

Britannia has a good looking two-year deal at 5.69%, accompanied by a fee of £999. That’s £813 a month on a £130,000 loan and costs £20,511 over the two years. If an A&L borrower on 4.28% were to switch to the Britannia deal they would save £180 a month and £2,500 over two years rather than stay on the A&L SVR.

Tom Smith
25th September 2007

Tags: introductory, discounted, rates, variable, standard, offer, Mortgages, fixed

Mortgage Fees Go Through The Roof

Homebuyers are being neatly trapped into taking out what are on the face of it good value deals only to be knocked with sky-high fees. These have soared so much that some lenders have hiked arrangement fees by over 600% in the last two years.

By seeming to have low interest rates mortgage lenders can push themselves further up best-buy tables, but in fact they are making money by charging ever-higher arrangement fees.

Intelligent Finance, a subsidiary of biggest mortgage lender Halifax, now charges an arrangement fee of £2,999 in some cases – up by an incredible 601% on its maximum charge two years ago. The actual cost of arranging a mortgage can’t have gone up by £2,500 in the last two years! In fact, costs are likely to have gone down thanks to computerisation. The huge increase finds its way straight into the provider’s coffers.

Finance experts say that the practice tricks borrowers, in a period when interest rates have hit their highest level since March 2001. Lenders use the headline interest rate to attract customers, and then use arrangement fees to make their money.

Scottish Widows, part of Lloyds TSB, now has a maximum fee of £1,999, up from £295 two years ago and Abbey, Nationwide, Northern Rock and Woolwich, part of Barclays, have all increased their fees dramatically too.

Some lenders charge an arrangement fee as a percentage of the loan, so someone borrowing £300,000 would have to pay an arrangement fee three times higher than someone taking out a £100,000 loan. This is scarcely justifiable as the work involved is just the same.

Homebuyers are advised not be lured by the appealing low headline rates, but to verify all fees and include them in calculations to get the true cost of a loan. For first-time buyers houses are more unaffordable than the last housing market crash 16 years ago, and. Stamp duty is capturing more people than ever before, and it is obvious why so many people are having financial problems with the increasing cost of moving, or simply owning a home.

In May 60% of first-time buyers had to pay stamp duty, as the average price of a home reached £155,000, and the zero stamp duty threshold is well below that at £125,000. An average first-time buyer now has to spend four years eleven months saving for stamp duty, legal fees and a 5% deposit to come up with the £9,844 needed. In 2005 the time needed was eleven months less.

An interesting statistic in the current environment is that the number of mortgage approvals has risen again, according to the Bank of England’s data, with 114,000 loans approved in May compared with 109,000 in April. That will only make a further rise in interest rates highly likely.

On the other hand, house price growth did cool in May. The average home in the UK cost £211,056 in the year to the end of May, up 10.9%. This is down from a rate of increase of 11.3% for the same period to April.

Tom Smith
25th Septmeber 2007

Tags: fees, rates, Mortgages, Loans, charges, introductory

Mortgage bills set to soar for former fixed rate customers

Recent reports indicate that a million mortgage payers in the UK could soon see their mortgage repayments shoot up by over thirty percent in some cases, as their fixed rate deal comes to its end.

It is thought that consumers that took out a fixed rate deal several years ago for two or three years are going to have a shock, as their mortgage repayments soar to hundreds of pounds more per month as a result of the four interest rate rises enforced by the Bank of England over the past year.

Many consumers took out low rate fixed rate mortgages a few years ago, but these are now set to come to the end of their term, which means that those mortgage holders now have to face the financial pinch of all four interest rate rises in one fell swoop.

Although consumers could switch to another fixed rate deal once their previous one expires, it will be at a much higher rate than their previous one, which means that they will still have to pay out a small fortune each month in additional repayments.

Some industry professionals feel that the million or so people that are set to see their repayments soar over the next year may find it a real struggle to cope because of the amount by which their repayments will rise. It is likely that these customer took out a fixed rate at around 4.5 percent a couple of years ago, and the most favourable rates on fixed rate mortgages now are around 5.5 percent. And with interest rates set to rise again in the coming months this could rise yet again.

One banking analyst stated: ‘For some customers we see a 25-30% increase in interest payments.’

He also stated that those people that had to struggle with repayments in order to get onto the property ladder may now find that repayments are totally unmanageable because of the number of interest rate rises that have been applied since they took out their initial loan.

Tom Smith
19th June 2007

Tags: increase, incentive, Loans, end, standard, rate