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The Bank of England has raised interest rates to 4.75% from 4.5%. BBC News explains how this latest rate rise will affect your personal finances.
I'm a saver. Should I jump for joy?
It all depends on how much of the interest rate rise banks and building societies decide to pass on to savers.
In the past some banks and building societies have been accused of dragging their feet and not passing on the rate rise quickly enough.
In general, though, rate rises are good news for savers.
Pensioners and those buying an annuity - an income for life - may also be cheered. In the past they have had to make do with low rates of return.
But before savers start popping the champagne corks, they should remember that interest rates are still relatively low.
In addition, far too many investors keep their savings in accounts paying poor rates of interest, which actually lose them money once tax and inflation is factored in.
Financial experts are urging savers to be active and switch accounts to ensure they get the benefit of recent interest rate rises.
I have a big mortgage, is it time to hit the panic button?
The quarter percentage point rise alone is unlikely to push your finances over the edge.
Interest rates are still low by the standards of the past 20 years.
In addition, in recent years, more Britons have chosen mortgages where the interest rate is fixed for several years instead of variable rate deals, which are very susceptible to Bank of England base rates moves.
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As a result, the large numbers of people with a fixed-rate deal will be unaffected by the Bank's rate rise.
However, people with other types of mortgages - or whose fixed-rate period is coming to an end - are likely to face higher payments.
According to the Halifax, each quarter of a percentage point rise adds £15 to the monthly repayment on a £100,000 variable rate repayment mortgage - quite a substantial hit.
Is this the last rate rise? How much financial pain is in store for mortgage holders?
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No one can say for certain whether or not there are further rate rises on the way.
However, many economists expect that UK rates are now on a upward path.
The Bank of England's main objective in raising rates is the control of inflation.
There is a pattern emerging in the world economy of rates rising as countries try to curtail inflation, which has been stoked in part by high oil and energy prices.
I have several credit cards - all near their spending limit. Will the rate rise hit me?
Credit card rates are often high but are less sensitive to Bank of England base rate movements than mortgages.
The rate rise may not feed through to credit card borrowers at all, particularly as the market place is competitive.
However, as interest rates rise, lenders tend to get twitchy about whether borrowers can afford to repay debts in the future.
In the early 1990s, the banks were accused of making an economic recession and a house price crash far worse by pulling the rug from under borrowers.
Many people found their credit card debt was called in at short notice and, as a result, got into financial hot water.
I have taken out a loan secured against my property, so am I going to regret it?
Many homeowners - seeing the value of their property rocket in recent years - have been tempted to remortgage to capitalise on rising house prices.
In addition, some people have consolidated debts such as credit cards and personal loans into a loan which is secured against their homes.
If they are unable to keep up payments they could risk losing their homes.
Any interest rate rise will hit homeowners who have remortgaged with a double whammy - first on their main mortgage, then again on the second one.
What can I do to protect myself?
First, don't panic.
No major UK economists are predicting that a recession is around the corner.
In addition, even with the quarter point rise, interest rates are roughly half the average of the past 20 years.
But some debt experts hope that the interest rate rise will act as a wake-up call to UK borrowers to get their finances under control.
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Thursday, August 03, 2006
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Sub-prime mortgages are sold to people with a poor credit rating - and as lenders get more cautious, an increasing number of people will be forced to resort to them. Samantha Downes did so - and is paying the price
Millions of Britons are being left with little choice but to take out expensive and complicated home loans known as sub-prime mortgages.
Samantha Downes: was forced to take out a sub-prime home loan after missing a loan repayment
These loans, also called credit repair mortgages, are sold to people who have a poor credit record and charge a higher rate of interest because the borrower is considered a more risky bet.
With lenders tightening up their credit policies, simply missing a loan repayment may mean that a borrower is forced to take out a sub-prime mortgage. People who are divorced are often also left with no option but to opt for a sub-prime loan.
The latest figures from Datamonitor estimate that 9.1m people were refused credit by mainstream lenders in 2005 and have been forced to look elsewhere. But Moneyfacts, the comparison service, says it is a minefield for people ineligible for standard mortgages - there are more than 4,000 different sub-prime mortgage products and a variety of fixed, variable and discounted rates are available.
"These mortgages are complex and fees tend be higher, while loan-to-values [LTVs] are lower and interest rates are generally higher than those in the mainstream mortgage market," says Julia Harris, a mortgage analyst at Moneyfacts. "The products are not that difficult to understand, but knowing how to find the most suitable product can be a real challenge."
There are different levels of sub-prime mortgage. Someone who has a very bad credit rating - they may be a discharged bankrupt or have a lot of county court judgements against them - will be sold a "heavier" version.
Someone who has missed a couple of mortgage or loan payments in the past will often be sold a "near-prime" or "light" version of the mortgage.
Sub-prime mortgages can charge as much as three percentage points more than an average standard variable rate mortgage - but again it will depend on your credit rating. According to Moneyfacts, there are huge differences between sub-prime and near-prime, with Amber Home Loans charging 5.15 per cent for a two-year fixed rate for a near-prime, while Freedom Lending charges 6.73 per cent and Birmingham Midshires 7 per cent for their sub-prime loans.
The heavier the mortgage, the bigger the fee. Search on Google and you can see that some sub-prime advisers charge 2 per cent to 2.5 per cent of the loan. That could easily work out at a £3,000 - a sum that someone with debts may not be able to pay.
Experts recommend that rather than looking for the "best rate", it is important to determine first how impaired your credit rating is - whether you will qualify for a near-prime loan or face a fully fledged sub-prime mortgage. So when beginning your mortgage search, your usual searching criteria are reversed. First you need to find lender(s) that will accept your particular financial position; then you can start to look for the best deal.
let your friends about our site www.factsonloans.com
If you have a CCJ or arrears do not automatically assume you cannot get a mainstream mortgage, as some lenders will accept some "minor debt". For example, The One account will look at cases where borrowers have a CCJ of up to £1,000 and Manchester Building Society will accept two CCJs in the past year of up to £1,000 and one payment in arrears in the past year on their whole range of home loans.
Sub-prime mortgages are not to be confused with self-certification mortgages, which are aimed at the self-employed.
Self-cert mortgages, introduced around 15 years ago, have eased the burden of proof - to qualify for a home loan borrowers just need to sign a statement of earnings, not provide actual proof. The difference between traditional mortgages and self-certs is narrower than it has ever been. However, there can be some catches.
For instance, first-time buyers and new business owners may be turned away. Unless a self-employed person has been trading for at least one, usually two, years, they generally cannot just sign a statement of earnings. Typically, an accountant must confirm the turnover, profit and salary. In addition, two years' full accounts plus two years' full tax liability may be requested.
There is also a credit check, on which first-time buyers may score too low to qualify. Ironically, buyers with no credit cards stand less chance than someone with several cards because they do not have a history of being able to repay debt.
The majority of self-certified mortgage lenders demand a 25 per cent deposit; a small minority will accept a 15 per cent deposit, and an even smaller minority 10 per cent.
free newsletter for at www.factsonloans.com
here at www.factsonloans.com we help you keep your payments on track
Sub-prime mortgages are sold to people with a poor credit rating - and as lenders get more cautious, an increasing number of people will be forced to resort to them. Samantha Downes did so - and is paying the price
Millions of Britons are being left with little choice but to take out expensive and complicated home loans known as sub-prime mortgages.
Samantha Downes: was forced to take out a sub-prime home loan after missing a loan repayment
These loans, also called credit repair mortgages, are sold to people who have a poor credit record and charge a higher rate of interest because the borrower is considered a more risky bet.
With lenders tightening up their credit policies, simply missing a loan repayment may mean that a borrower is forced to take out a sub-prime mortgage. People who are divorced are often also left with no option but to opt for a sub-prime loan.
The latest figures from Datamonitor estimate that 9.1m people were refused credit by mainstream lenders in 2005 and have been forced to look elsewhere. But Moneyfacts, the comparison service, says it is a minefield for people ineligible for standard mortgages - there are more than 4,000 different sub-prime mortgage products and a variety of fixed, variable and discounted rates are available.
"These mortgages are complex and fees tend be higher, while loan-to-values [LTVs] are lower and interest rates are generally higher than those in the mainstream mortgage market," says Julia Harris, a mortgage analyst at Moneyfacts. "The products are not that difficult to understand, but knowing how to find the most suitable product can be a real challenge."
There are different levels of sub-prime mortgage. Someone who has a very bad credit rating - they may be a discharged bankrupt or have a lot of county court judgements against them - will be sold a "heavier" version.
Someone who has missed a couple of mortgage or loan payments in the past will often be sold a "near-prime" or "light" version of the mortgage.
Sub-prime mortgages can charge as much as three percentage points more than an average standard variable rate mortgage - but again it will depend on your credit rating. According to Moneyfacts, there are huge differences between sub-prime and near-prime, with Amber Home Loans charging 5.15 per cent for a two-year fixed rate for a near-prime, while Freedom Lending charges 6.73 per cent and Birmingham Midshires 7 per cent for their sub-prime loans.
The heavier the mortgage, the bigger the fee. Search on Google and you can see that some sub-prime advisers charge 2 per cent to 2.5 per cent of the loan. That could easily work out at a £3,000 - a sum that someone with debts may not be able to pay.
Experts recommend that rather than looking for the "best rate", it is important to determine first how impaired your credit rating is - whether you will qualify for a near-prime loan or face a fully fledged sub-prime mortgage. So when beginning your mortgage search, your usual searching criteria are reversed. First you need to find lender(s) that will accept your particular financial position; then you can start to look for the best deal.
let your friends about our site www.factsonloans.com
If you have a CCJ or arrears do not automatically assume you cannot get a mainstream mortgage, as some lenders will accept some "minor debt". For example, The One account will look at cases where borrowers have a CCJ of up to £1,000 and Manchester Building Society will accept two CCJs in the past year of up to £1,000 and one payment in arrears in the past year on their whole range of home loans.
Sub-prime mortgages are not to be confused with self-certification mortgages, which are aimed at the self-employed.
Self-cert mortgages, introduced around 15 years ago, have eased the burden of proof - to qualify for a home loan borrowers just need to sign a statement of earnings, not provide actual proof. The difference between traditional mortgages and self-certs is narrower than it has ever been. However, there can be some catches.
For instance, first-time buyers and new business owners may be turned away. Unless a self-employed person has been trading for at least one, usually two, years, they generally cannot just sign a statement of earnings. Typically, an accountant must confirm the turnover, profit and salary. In addition, two years' full accounts plus two years' full tax liability may be requested.
There is also a credit check, on which first-time buyers may score too low to qualify. Ironically, buyers with no credit cards stand less chance than someone with several cards because they do not have a history of being able to repay debt.
The majority of self-certified mortgage lenders demand a 25 per cent deposit; a small minority will accept a 15 per cent deposit, and an even smaller minority 10 per cent.
free newsletter for at www.factsonloans.com
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