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The time is right to reduce your mortgage borrowing

Many people lay the blame for the credit crunch firmly at the feet of the sub-prime mortgage sector, others have pointed the finger at merchant banks and hedge funds, whilst some have even suggested that China is directly at fault for the current state of western finances.

To a certain extent all of these accusations carry some merit (most particularly the one regarding the sub-prime mortgage sector) but there is another factor that comes into play regarding those mortgages which is perhaps more fundamental, and likely to cause more long-lasting damage.

Over the last decade and a half the value of the average home has sky-rocketed. Some houses increased by as much as 100% in value over a decade. The rise in prices was largely sustained by a ready supply of credit, this increased demand massively, and as there is relatively fixed supply when it comes to housing, the only place that the price was going to go was up.

This resulted in large numbers of people borrowing on houses that were far beyond their means, it seemed that everyone could get a large enough mortgage to pay for a house regardless of what their particular financial circumstances were like.

For those people who have stretched their income now is the perfect time to reduce your levels of borrowing and save money in the long term on your mortgage repayments. The new government and the recent emergency budget indicate we are likely to see relatively low interest rates for some time to come although bank base cannot remain this low forever.

It’s therefore a good time to look at remortgaging and trackers in particular can look like good value for money in the short term. There are several ways you can reduce your mortgage in this period of low interest rates. You can remortgage and reduce your mortgage term, although you should pay attention to how this will affect your repayments when rates do rise. Another option is to look at offset mortgage products which allow you to pay no interest on the equivalent amount of savings held in the offset account however offset rates continue to be a little uncompetitive.

For many the best of way of reducing your mortgage may be to use a savings account and then make use of the typical 10% overpayment facility offered by most mortgage lenders. It’s worth checking whether you have the right to make overpayments and to what extent but the majority of products do allow this. Interest rates aren’t particularly attractive at the moment but banks like Santander are offering some excellent deals on savings accounts that are definitely worth a look.

If you’ve survived the bubble bursting, whatever state your finances are in, it’s important that you pay down any debts you do have whilst interest rates are low, and save what you can in order to give yourself a bit of a cushion should the situation deteriorate further, or if interest rates rise and your mortgage costs a little more in the future.

Hope for the Housing Market

A recent report by the Council of Mortgage lenders has revealed that the number of homes repossessed in the UK fell by 7.5% in the first three months of 2010. Home repossession is one of the ultimate fears for any homeowner, and the fact that the figure is falling is perhaps proof that the finances of the nation have recovered a little.

In terms of the actual number of repossessions that figure fell from 10,600 homes in the final three months of 2009 to 9,800 in the first three months of 2010. Most encouragingly that number was 26% lower than the same period in 2009 when an enormous 13,200 people lost their homes.

The CML said that the biggest factor in the drop of repossessions was the drop in the interest rate. In March 2009, partially in response to the rising number of people losing their homes, the Bank of England dropped its base interest rate to 0.5% and has kept it there ever since. This meant that many people who were looking at the precipice, even those who found themselves unemployed, were able to claw back some of the arrears on their mortgages.

On the back of these positive figures that CML has said that it may revise it’s original forecast of 53,000 repossessions for the year should there be no further problems with the economy.

The news did, however, come with a warning from the CML. If interest rates were to increase, it warned, many hundreds of thousands of people could find themselves struggling to meet higher repayment costs and therefore find themselves facing the prospect of repossession. It warned that it was imperative for the BoE to keep the rates low for as long as possible, even in the face of rising inflation.

Mortgage Interest rates have however fallen to record lows for those customers with a sizeable deposit and good credit history. The personal loans market is also improving steadily with Santander’s flagship product for existing customers having a typical of 8.9%, and secured loan rates also falling to levels more in line with previous years.

At the end of the day the news from the CML is positive, though there is the warning that things could deteriorate at any moment and we should not forget that even though the numbers are dropping, nearly 10,000 people lost their homes in the first three months of this year, the economic crisis, whatever the figures may say, is very much still with us.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. YOU DO NOT HAVE TO PAY A FEE FOR OUR SERVICES AS WE RECEIVE COMMISSION FROM LENDERS. IF YOU PREFER YOU CAN PAY 1% FEE ON COMPLETION AND WE WILL PAY ANY COMMISSION WE RECEIVE TO YOU. SOME BUY TO LET AND COMMERCIAL LOANS ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY
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