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Mortages post Northern Rock 
Unfortunately Northern Rock’s search for market share led to it having to seek money in the capital markets, rather than from savers, as do many other lenders. But while it may not have an exceptionally high default rate, there was general concern regarding its ability to continue meeting its obligations over the longer term. This was primarily caused by a tightening in UK money markets that saw the rate at which banks lend money to each other – on which Northern Rock and others rely – soaring, as capital markets started to feel the pain of defaults in the US.
Whatever the reason, it is highly unlikely that the underlying problems are yet resolved and there are predictions that a further set of defaults will hit the US early next year when borrowers come to the end of low interest rates offered under "teaser" loans at the height of the property bubble in 2005 and 2006. Combine this with the difficulty that UK banks and building societies are already experiencing in raising money on capital markets to finance further lending and it is not difficult to predict that lending will soon become tighter. This is likely to result in lower loan-to-value lending multiples and a tightening of salary multiple criteria, although expectation is growing that there will be an interest rate cut sooner rather than later, which should ease matters considerably. There is likely to be some impact on the housing market – already reeling from a fall in new instructions partly because of the new Home Information Packs – with more buyers chasing fewer properties with less money to spend. How you can save tax on your mortgage repayments Whatever happens to interest rates, for many people there are several ways of saving money. One of these is to use the “pension mortgage” route, whereby interest only is repaid to the lender with the capital ultimately being settled through the tax free cash currently available under pension schemes. Thanks to changes introduced in April 2006, even additional voluntary contribution schemes must, like personal and executive pension, offer a tax free lump sum of up to 25% of their value (subject to scheme rules changes).Another option is to consider using an “offset mortgage” whereby the interest due each month is balanced against the money held in one or more savings accounts. In this way, there is a “surplus” repayment each month, representing the difference between the interest paid and that actually due on the difference, which is used to repay part of the principal. This sort of arrangement can be used in association with an endowment or pension mortgage and, provided you have a reasonable level of savings in an account linked to the arrangement, you can end up clearing your mortgage much earlier than originally planned. If you require any further information about the services that we provide or would like to review your financial planning position, please contact us |