Sunday, May 10, 2009

Body parts to the highest bidder

Bizarre story I came across in the Times Online, about Spanish people, struggling in the recession, offering their kidneys for sale to make ends meet.

Completely illegal of course, but the seller, and buyer (usually from another European country) meet and do the deal, and er, extraction, in 3rd independent country where they can get a doctor to do the deed.

It is of course a sorry state of affairs, and it is the extreme stories that catch the eye

But despite stories of Government help and negotiating with the banks in Spain, my experience for people that are struggling with their mortgage payments, is that the banks are in a state of panic and are coming down on the heavy side of unreasonable

Thanks for reading

Friday, May 8, 2009

Why choose interest only for your Spanish mortgage

I wrote an article today to post on some article directories. Was rather pleased with myself so thought I would blog it here as well;

If you have a property in Spain with a Spanish repayment mortgage, ask yourself if you have recently been worried about any of the following :-

The credit crunch
Interest rates and mortgage rates
Currency Exchange rates
Property price crash
Banks going bust

If none of the above has concerned you recently, congratulations - you can continue moving through life with your head in the clouds and are probably beyond saving. Just kidding - if you are unconcerned about these things, good luck to you.
In reality, almost everyone has been touched by the financial meltdown, but we aren't completely helpless. If you have a repayment mortgage in Spain, you can take reasonable steps to protect yourself from the economic uncertainty.

The credit crunch
This phrase has become so ingrained in our lives in the last few months, that it seems to now cover a whole range of problems and disasters that have been occurring. In basic terms, the credit crunch is affecting your Spanish bank in some regard, and is probably worse than they have admitted. This is affecting their ability and willingness to lend money on decent terms. Go ask them if you can modify your mortgage and the manager will stop crying into his con-leche and laugh you out of the (empty) branch.

Switching to an interest-only mortgage will ensure that your monthly commitment is as low as possible. Whatever financial disasters occur, you only have to pay the interest amount each month. Keep the savings aside for a rainy day.

Interest rates and mortgage rates
Base interest rates in the eurozone are on the floor. Down to 1% in May 2009. Great news for my Spanish mortgage you say. Not so fast. It isn't quite that simple.
Your mortgage is probably based on the annual Euribor, which is 1.7%, because the banks are still uncertain about lending to one another over a 12 month period. Then you have the bank margin of at least 1%, so you are paying 2.7% as a best case. But very few people are. If your annual rate changed in November 2008, then you are likely to be paying about 6% until November 2009. If you are on the IRPH rate, an average of bank rates, then you will be paying a rate that is much higher than the Euribor and is falling much more slowly.

Switching to an interest-only mortgage could get you on the much lower monthly or quarterly Euribor rates. Take advantage of the low Euribor now, until the inevitable increase in rates as the financial systems settle down and inflation starts to reappear in the economy.

Currency Exchange rates
You bought the property when 1 of your British pounds bought nearly 1.5 of those new fangled Euro thingies. The mortgage rate was low and the payments were easy when the pound was strong. Now it's almost one-for-one and each pound only buys a bit more than one euro. That hurts.

Get onto interest-only. It's the only way to minimise the amount of pounds you are converting to euros. Save some sterling elsewhere and pay off a lump in the future when the pound is stronger. But don't keep sending pounds to pay back your capital amount when the euros are so damned expensive to buy.

Property price crash
It's a disaster, Spain is full of empty properties and they are all worth less than a used Ford Cortina (remember those - a Ford curtain. Very odd)
Actually, it isn't going to be so bad, as these things always go in cycles. But it might be a bit sticky for a few years. You didn't buy the property in Spain to make a fast buck though, did you? So lets assume you are going to hold it for 5-10 years.

Why switch to interest only though? Well, if you have negative equity at the moment, then you are paying back capital owed that is more than your asset. That just seems wrong. Ok you are effectively paying back money and saving, but there are so many reasons against that at the moment. Pay only the interest. You have a property to use or rent out. No redemption penalties mean you can repay a chunk when you are feeling flush and it feels right again.

Banks going bust.
Some other bank is always going to pick up the loan book, so you can't get away with it if your bank goes bust. Imagine that, wouldn't it be cool if your mortgage liability dies with the bank. Sadly it's not going to happen. What might happen though is that there is a big disruption in the Spanish system, that hasn't happened yet. There is going to be blood, and there will be a level of consolidation never before seen in Spain. What won't accompany this turmoil is decent products and service. Already the banks are so unhelpful to existing clients. Remember how they fell over themselves to lend to you in 2004. Those days are gone my friend.

How about some UK banks that have already been through the pain of the credit crunch and forced mergers, and are starting to come out the other side. You can have more innovative products, and customer service that you can shout at in English. Pay interest-only and you can sit pretty watching the Spanish banks collapsing.

Not nice when it happens, and you probably won't see it coming. If you are made unemployed, and it is on the rise, then how do you pay your repayment mortgage ?
Unemployment affecting others can also impact you. The uneployment rate in Spain is heading rapidly for 20%. This will hurt the whole economy in Spain, and the strain will be felt by the Spanish banks, who will have to get more money in from their remaining solvent clients.

If you are only paying the interest on your mortgage, then you are more likely to get through an unemployed period yourself, and your exposure to the problems of general unemployment will be minimal.

So, lots of problems that can affect your Spanish mortgage, and one simple solution available that allows you to take as much control as possible in the current situation.

Wednesday, May 6, 2009

House prices still falling in UK

UK house prices are continuing to fall sharply, according to the latest survey from the Halifax.
The lender, now part of the mega enlarged and taxpayer owned Lloyds Banking Group, says prices fell by another 1.7% in April, pushing the annual decline from 17.5% to 17.7%.

This means that the average UK property is now worth £154k, £33k less than a year ago.

This is clearly going to be a major worry for anybody with a mortgage of 80% or more

The Halifax warned that house prices would probably continue falling in the coming months. "Rising unemployment, low consumer confidence and the reduced availability of credit are all expected to exert downward pressure on the housing market over the next few months," said Martin Ellis, the Halifax's chief economist.
Vendors, in recent months, have become considerably more realistic about what they can achieve for their properties
However, the Halifax said there were tentative signs that the slump in sales was now stabilising.
The number of new mortgages approved, but not yet lent, have risen in the past couple of months, while estate agents have been reporting a revival of interest from potential buyers.
"Vendors, in recent months, have become considerably more realistic about what they can achieve for their properties in the current climate, which is no bad thing," said David Smith, of Carter Jonas estate agents.
"It's realism like this that will bring the genuine recovery in the property market forward rather than put it off."
Regional difference
The Halifax's figures come shortly after the Nationwide reported that UK house prices fell by 0.4% in April.

Unlike the Halifax, the Nationwide said that the pace of decline in house prices slowed, but the typical home still cost 15% less than a year ago.
Recent figures from the Bank of England showed that the number of mortgage approvals made in March rose by 4% from the previous month, signalling the potential for more activity in the housing market in the coming weeks. However, approvals remain at a very low level compared with a year ago.
The Halifax data uses a measure to calculate the annual house price change which compares the past three months with the same quarter a year earlier, a method which it says irons out any short-term price fluctuations.
When comparing Halifax's average price in April to the value in the same month a year ago - as with other surveys - the figure is the same - a drop of 17.7%.
Prices in the three months to April compared with the previous quarter dropped by 3.3%.
The data showed that the cost to homeowners of making their mortgage repayments had fallen sharply alongside the Bank rate.
A borrower with an average outstanding mortgage of £107,000 has seen their monthly repayments fall by £111 since October 2008. Falling costs for individual borrowers are obviously dependant on the type of mortgage they have.
Although the Halifax data does not offer a regional breakdown in prices, the group said that areas outside the south-east of England had benefitted more from Chancellor Alistair Darling's decision to extend the stamp duty holiday for properties under £175,000 until the end of the year.
Some 18% of total sales were below £175,000 in London in September 2008 to January 2009, compared with 79% in the North of England.
From Forbes - a story about what the ECB may or may not do at their meeting tomorrow.

Expectations are that the base rate will have another cut to 1%. For mortgages in the eurozone this should mean continuing falls in the various Euribor rates. The monthly Euribor rate is now 0.9% reflecting the expected reduction. This means that mortgages in Spain based on the monthly Euribor can currently be arranged at around 2.4%.

The UK base rate is expected to hold steady. This has meant that the gap between UK and Eurozone rates will narrow. This has led to a strengthening in the pound, which is also good news for Brits with mortgages in the Eurozone, as they will have a reduction in their payments, and an increase in the amount of euros that their pound buys.

The market wants it to bring in quantitative easing on Thursday, but it could be disappointed.
LONDON--European investors are trying to figure out what the ECB will do to shore up the euro zone economy at its policy meeting on Thursday. Ever since the governor of the bank hinted that "non conventional" methods could be introduced at the May meeting, there has been frenzied speculation about whether or not it will join the Federal Reserve in introducing a form of quantitative easing, most likely by buying government bonds or corporate debt to get money flowing through the economy.
Europe's leading 50 shares were trading 0.4% higher at midday on Wednesday, led by the banking and insurance sectors. According to Ken Wattrett, a euro zone economist at BNP Paribas , the central bank will probably extend the maturity of its refinancing operations to 12 months, from six months and cut its repurchasing rate to 1.00% from 1.25%, a record low for the bank. The ECB will also probably keep its deposit rate stable at 0.25%. The big unknown is whether or not it will introduce a form of quantitative easing. Recent remarks by members of the ECB's governing council have suggested it is deeply split on the issue.
Britain's central bank, which also meets on Thursday, is expected to keep rates on hold. The Bank of England cut its benchmark borrowing rate to 0.5% last March and announced a quantitative easing program to buy 75.0 billion pounds ($100.0 billion) of gilts and corporate debt.
Recent data has presented a mixed picture of how far along the cycle the European economy is. While the closely-watched PMI index of services business activity for April saw its biggest gain in seven years, the European Commission has warned that the situation will continue to deteriorate and earlier this week said it expected the region's gross domestic product to shrink by 4.0% this year, and for unemployment to rise by 8.5 million, to 26.0 million. Similarly in Britain, the purchasing managers' index for April--which measures business activity--jumped unexpectedly to 48.7 from 45.5 the month before, but house pricess have continued to fall, sliding 17.7% in April on a year ago, according to the latest data from Nationwide.
Market sentiment about the banking sector was at least boosted by BNP Paribas on Wednesday. The bank reported profits of 1.6 billion euros ($2.1 billion), a smaller drop than the market had been expecting, due to strong investment-banking revenues at its fixed-income division. Shares of the bank rose 6.2%, or 2.62 euros ($3.5 billion), to 44.83 euros ($59.62), in Paris.

Friday, May 1, 2009

Bankruptcies on the rise

News about the massive increases in the numbers of people being declared bankrupt, and also about the insolvency courts in London, that are dealing with so many cases in a day that it can take only 90 seconds for a ruling to wind-up a company.

The way things are at the moment, if people have little equity in their properties, and a load of other unsecured debts, then the prospect of bankruptcie must be almost appealing.

I mean, you can go through some crap, but you've then got a clean slate. You can rent a place and all of a sudden you don't have any credit payments to make, you can still work, and have more money in your pocket each month
It might take a few years to be able to get credit again, but if people have little chance of clearing their credit in six years, why not dump the lot and wait for it all to drop off the credit score anyway?

I think that this is going to be an attractive option for many people over the next couple of years

Thanks for reading

Astonishing mess

The Treasury Committee have been putting the boot in on the banks in the wake of the credit crunch. Seems a bit rich to me really, considering that the Treasury Committee has ultimate responsibilty for the regulation of the financial systems.

From the Parliament website :-

The remit of the Treasury Committee, as determined by the House of Commons, is to examine the expenditure, administration and policy of HM Treasury, HM Revenue & Customs, and associated public bodies, including the Bank of England and the Financial Services Authority.

I'm not saying that it isn't the banks fault, but it just seems funny that it seems like a good subject for MP's to get themselves on the news about. Gordon Brown is getting his fair share of stick as the previous Chancellor, but the finger wagging from other MP's is a bit of the pot calling the kettle black

It's not as if the MP's have exactly covered themselves in glory recently. You could argue that bankers have been abusing the system for personal gain and without due care for the impact on the taxpayer

Hang on - doesn't that sound a bit like the MP's expenses debacle recently. Surely not.......