Money news, advice and predictions for savers and spenders.
By Jeremy Gates
When house prices were hurtling towards their August 2007 peak, only generous helpings of parental cash got many young people into a home of their own.
Today house prices may be wobbling and look like they may fall, but the Bank of Mum and Dad is still open for business and is about to extend its operations to help its hard-up offspring.
For Lloyds TSB is extending its Lend a Hand mortgage - originally for first-time buyers only when it started in May 2009. Now it will help existing owners, many of whom would be stuck without family support, trade up the housing ladder.
The special mortgage costs 4.79% (plus £895 fee) for Lloyds TSB current account holders - and 4.99% for others. But the attraction is that buyers need a deposit of only 5% - when it is virtually impossible to get a loan elsewhere with an LTV (loan to value) ratio above 90%.
The Lend a Hand mortgage skirts this problem by asking parents, grandparents or other family members to make available savings which must equal 20% of the purchase price - so the buyer and the buyer's family put down 25% of the price.
On a £150,000 home, Lloyds TSB will lend £142,500 to buyers who put down just £7,500. But £30,000 is provided by parents, grandparents and friends to earn a fixed rate 3.75% gross for 42 months.
The bank holds a legal charge on this money and, if the house is resold at a whopping loss within three years, it can take part of those savings to cover losses.
After three years - it is assumed - buyers will have 10% of the equity in their home. If they do, the parents are released from their obligations and the charge lifted from their savings.
If the buyers do not yet hold a 10% stake, all three sides to the agreement decide on a new way forward.
The parents might hand cash to their children to give them a 10% stake. Or Lloyds TSB might want the family savings to stay in its coffers for longer - until rising prices enable the owners to satisfy the 10% requirement.
The scheme means parents can use spare money to help the next generation onto the housing ladder - without the embarrassment of having to ask for it back!
What's the catch?
"There isn't one", says Andrew Hagger of financial website Moneynet.co.uk, "provided at least 10% equity (is) in the hands of the owner occupiers at the end of the three-year term.
"Although the mortgage rate, at 4.79%, might look expensive alongside a three-year fixed-rate loan from Principality BS at 3.49%, the cheaper deal has a maximum LTV limit of 75%.
"Besides, the interest which Lloyds TSB pays on the parents' savings is respectable - and above the current market average of 3.50% for a three-year term.
"Pricing of the Lend a Hand scheme is not out of line considering that it opens new doors to people who might otherwise be stranded in a home no longer suitable for them."
Plainly, lenders need all the new ideas they can find to kick-start a moribund mortgage market.
Some plan to help existing borrowers - given that the average outstanding mortgage is reckoned to be around £110,000 - and rate rises seem certain by Christmas.
Broker John Charcol has launched an Interest Rate Protector - which allows borrowers to pay a lump sum to ensure the mortgage rate cannot exceed a specified level.
Charcol's Ray Boulger says Interest Rate Protectors (IRP), can make sense for borrowers on low lifetime trackers or cheap Standard Variable Rate (SVR) loans linked to the Bank Rate. For example, the 2.5% rate of Nationwide BS, Cheltenham & Gloucester, Lloyds TSB and Intelligent Finance.
That might also be a smart move for borrowers unable to remortgage to a good fixed rate because they don't have enough equity in the property. And IRPs might also help borrowers with buy-to-let properties who also can't remortgage because they don't have enough equity.
Under the Charcol scheme, it costs approximately £16,500 to cap a total £500,000 mortgage at 3% for five years, and £28,000 to cover a £1 million mortgage at the same level. If rates were to rise sharply, the borrower paying this lump sum up front on an IRP could save a substantial sum.
Plainly, the Charcol scheme is for high rollers. However, Mr Boulger says plenty of people have total borrowings on their home and buy-to-let portfolios of more than £500,000.
By contrast, Nationwide BS's Protector Mortgage is aimed to protect more modest souls: a two-year fixed-rate product up to 90% LTV includes free mortgage payment protection insurance (MPPI) for the two-year period to cover monthly repayments in the event of accident, sickness or unemployment.
The fix costs 5.98%, reflecting the high LTV limit. Applicants must have a monthly wage paid into a Nationwide FlexAccount to qualify.
From Yorkshire BS, the new Rollover Mortgage is for a group of borrowers often ignored - people nearing the end of their mortgage and needing to borrow less than 35% of the value of their home.
It offers an initial fixed rate of 2.69% for a year, with a low product fee of £495, free legal assistance, free valuation, and even free home insurance for buildings and contents provided by Yorkshire BS.
I'm intrigued. As the retirement age melts away in the direction of 70 - on Government orders - what is there to stop couples in their 50s using this new package to take equity from their home at cheaper rate than they would have to pay to specialist equity release lenders?
Some might even plan to repay a Rollover Mortgage with the 25% cash lump sum taken tax-free at the start of a pension.
:: Information: Lloyds TSB's Lend a Hand mortgage details in branches; Nationwide BS (call 0800 302010 and visit www.nationwide.co.uk); Yorkshire BS (call 0845 1200 100 and visit www.ybs.co.uk); John Charcol (call 0800 718 191 and visit www.charcol.co.uk).
Poundnotes
:: The new Halifax Clarity credit card promises no fees on cash withdrawals, no foreign exchange fees and no balance transfer fees, plus a low flat rate of 12.9% APR across all transactions.
In addition, existing Halifax current account customers earn £5 a month for using the card - which means that customers who pay £1,000 a month into their current account will be rewarded with up to £120 a year.
The experts love it. Kevin Mountford, head of banking and credit cards at finance website Moneysupermarket.com, says: "This is an attractive offering from Halifax and is further evidence of the increased innovation, and subsequent customer choice, in the credit card market of late.
"It's interesting to see another credit card that is a great choice for spending abroad. With no foreign exchange fees on all transactions and no cash withdrawal fees when using a cash machine overseas, it is a worthwhile deal for those who need a card for holiday spending.
"With no balance transfer fee and a flat rate of 12.9% APR for both balance transfers and purchases, this is a transparent offering in a market shrouded in complexity.
"The Halifax card also has a generous reward structure - cardholders who spend £300 per month and regularly pay off their balance in full will enjoy an added bonus of £60 annual cashback.
"Those who also bank with Halifax could pocket a total of £120 with the £5 reward on the current account. For a limited period customers can also take advantage of an extra £50 cashback by applying for their current account through moneysupermarket.com."
Andrew Hagger, at Moneynet.co.uk, says: "It's a refreshing change to see the launch of such a good value no-nonsense product. This back-to-basics product could prove a big hit with holidaymakers in the coming months.
For more information, visit www.halifax.co.uk
:: Savers desperate to get a decent rate on their cash might be interested by the AA's new instant-access cash ISA, offering 2.70% AER (variable), with a 1% bonus for the first 12 months.
The AA Access ISA requires a minimum deposit of £500 and a maximum of £5,100 in any tax year. With unlimited access to funds and no notice of withdrawal (subject to tax limits), investors can choose annual or monthly interest payments.
Mark Huggins, director of AA Financial Services, says: "Most people regard ISAs as long-term savings, but they should be everyone's first port of call.
"It is vital to make the most of the tax-free interest they provide, especially as the ISA limit in any one tax year has risen from £3,600 to £5,100.
"The AA ISA is ideal for savers keen to access their money easily, as well as those who want to grow savings over time. Customers can use the AA Access ISA much like a standard instant access account as withdrawals can be made at any time."
For more information, call 0845 603 6302 and visit www.theAA.com
:: Savers are paying for the slide in mortgage rates, says Michelle Slade at Moneyfacts.co.uk, who points out that the current average rate of 2.62% (before tax) on a one-year bond stands at an all time low.
She says: "With a change in Bank (of England) base rate probably still some way off, the savers' situation could get worse before it gets better.
"Savers should review portfolios regularly to ensure they are receiving competitive rates on all accounts."
:: Tourists waste more than £28 million a year by buying euros at UK airports before family holidays, says Post Office Travel Money.
The Post Office found each transaction at an airport costs an average £16.60, because customers get a poorer exchange rate and also risk paying unnecessary commission on lower value transactions.
Euros are available over the counter at more than 8,700 Post Office branches, while more than 70 currencies can be pre-ordered for next day branch collection at all 11,500 Post Office outlets or online at www.postoffice.co.uk.
:: High five savers
Phone No Rate Account Period Deposit Interest paid
ICICI Bank www.hisave.co.uk 4.75%% (F) HiSAVE Fixed Rate Five Year Bond £1,000 Yly
Yorkshire BS via branch 4.60% (F) Fixed Rate Bond 31/08/15 £100 Yly
Aldermore 0845 604 2678 4.56% (F) Fixed Rate Account Five Year Bond £1,000 Yly
Close Savings 0207 392 1772 3.15% Premium Gold 180 Day 180 days (B) £10,000 Qly
Stroud & Swindon BS 08457 252423 2.90% 90 Day Notice 90 Days £1,000 Yly
:: Top five borrowers
Phone No Rate Period Max% Adv Fee Incentive
First Direct 0845 610 0100 2.29% variable for term 65% £99 Yes
ING Direct (UK) 0845 603 8888 2.55% disc to 31/08/12 70% None Yes
Yorkshire BS 0845 120 0874 2.89% to 31/07/12 75% £995 Yes
Furness BS 0800 220568 3.29% for three years 70% None Yes
Hinckley & Rugby BS 0800 774 499 3.39% for term 75% £795 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
