Author: timdurman

Homeowners, along with those trying to get on the property ladder, will already be tuned into the debate over whether house prices will continue to rise or that we are likely to have a fall or a gentler readjustment. It’s thought that some first-time buyers could hold off as they wait to see what happens to the market.¹

The difficulties faced by first time buyers are already well known with prices having continued to track higher while incomes and deposits have failed to keep pace¹. But are we now getting near a tipping point where a house price fall could become a reality?

On the one hand, we have reports from leading economists that tell us that UK house prices will fall by up to 10pc as interest rate rises will cause a global property crash².

However, a report from Ernst & Young in June predicts that UK house prices will rise 8% over the course of 2022, followed by growth of 1.8% and 1.2% in 2023 and 2024³.

That prediction strongly contradicts the kind of contraction outlined by Capital Economics above despite the evidence of inflationary pressures and a cost of living squeeze. So, who is right?

Ernst & Young points out that while growth in house prices will be slowed down over the next three years by stretched affordability, rising mortgage rates and falling household incomes, the perennial issue of the shortage of housing stock, low unemployment and the unequal effects of cost of living pressures will stop prices from falling³.

Estate agencies are also reporting a drop in new instructions. A recent survey by the estate agency Savills found that nine in 10 current house hunters have had their search affected by a lack of available properties⁴. In addition, the trade body Propertymark reported its members had an average of 22 properties for sale per branch in May, compared to 50 in a normal year⁵.

With two contradictory views from professional researchers above, at this time, provided there is an imbalance between supply and demand, property prices will continue to be stable in the short term. Making longer term predictions however, with the economic situation so volatile, could be very much a gambler’s punt.

Sources

1. Smith, H (2022) When will house prices fall?. Available at:  https://www.thetimes.co.uk/money-mentor/article/will-house-prices-drop/#:~:text=This%20could%20in%20turn%20push,falling%20by%205%25%20in%202023 (Accessed 26^th Jul 2022)
2. Canocchi, C. (2022) Boom to Bust? House prices in Britain could fall up to 10% ‘soon’ Economists warn. Available at: https://www.thisismoney.co.uk/money/mortgageshome/article-11002381/House-prices-fall-10-soon-rates-rise-economists-warn.html (Accessed 26th Jul 2022)
3. Ernst & Young (2022) UK house prices set for continued growth despite economic slowdown, says EY. Available at: https://www.ey.com/en_uk/news/2022/06/uk-house-prices-set-for-continued-growth-despite-economic-slowdown-says-ey-item-club (Accessed 26th Jul 2022)
4. Shaw, V (2022) Nine in 10 house-hunters say lack of stock is negatively affecting search. Available at: https://www.independent.co.uk/money/nine-in-10-househunters-say-lack-of-stock-is-negatively-affecting-search-b2019546.html (Accessed 26th Jul 2022)
5. PropertyMark (2022) Housing Report May 2022. Available at: https://www.propertymark.co.uk/asset/0E44995C-CE61-4474-8111311A757495C2/ (Accessed 26^th Jul 2022)

There is an old saying about not throwing the baby out with the bathwater  – unknowingly getting rid of something valuable while disposing of items of no value. It holds particularly true in the current situation where families are adjusting to the cost of living rises and looking to reduce household costs in order to cope with demands on the family purse.

The financial regulator, the Financial Conduct Authority (FCA), is concerned that families and those most affected by the current economic climate might look at cutting insurance policies which could put them at risk, should the worst happen¹.

Already, we are seeing the effect of families and individuals cutting back on items such as petrol and diesel where sales fell by 4.3% in June as prices at the pumps hit new records, according to monthly retail data². Clothing sales also dropped by 4.7%, with reports from retailers to the Office for National Statistics indicating that people are cutting back on retail spending due to concerns over what they could afford³.

The FCA’s concern is that the rise in the cost of living will make the vulnerable more likely to cancel or cut back on personal insurances for homes and cars, as well as for life assurance. However, it is worth knowing that insurers do already offer support schemes for vulnerable customers, which were put in place during the pandemic¹.

Graeme Trudgill, executive director at the British Insurance Brokers Association (BIBA) said customers that cut back on their insurance cover as a result of cost of living pressures “may miss out on vital insurance cover when they need it most.” This can then create other problems, too, given that motor insurance is a legal requirement and buildings insurance is often a condition of homeowners’ mortgage contracts¹.

Customers who move to a lower priced insurance contract might also be left short if the worst happens. Underinsurance, where customers reduce the financial cover and leave themselves unable to meet the full cost of repair or replacement after an accident, is already evident in 40-45 per cent of claims, according to BIBA’s figures¹.

If you’re seeking to prioritise your monthly expenditure and have concerns or queries about your existing insurance payments, we encourage you to book an appointment with us to review your circumstances. We’ll take the time to give bespoke advice to help ensure that the policies you hold will continue to fit your individual needs and can provide sufficient cover for when you may rely on them the most.

Sources

1. Smith, I. & Walker, O. (2022) Cost of living crisis could force consumers to cut back on insurance, FCA warns. Available via Google search or direct FT subscriber link at: https://www.ft.com/content/b4246b26-cef3-4522-8236-b00a633b62a2  (Accessed 26^th Jul 2022)

• Reuters (2022) UK Retail sales slip in June as consumers struggle with inflation. Available at https://www.reuters.com/business/retail-consumer/uk-retail-sales-fall-by-01-june-2022-07-22/ (Accessed 26^th Jul 2022)
• Nanji, N. (2022) Cost of living: Fuel and clothing at top of family spending cuts. Available at: https://www.bbc.co.uk/news/business-62262138 (Accessed 26^th Jul 2022)

With UK interest rates rising in recent months, the impact on mortgage rates is already being felt across the country as short term and fixed rates increase.¹ According to Moneyfacts, the average cost of two-year fixed rate mortgage has risen for the past eight months to 3.25%².

However, research from UK Finance reports that 74 per cent of homeowner mortgages are already on a fixed rate contract, with 96 per cent of new borrowers choosing this option since 2019. Therefore, a sizeable majority of borrowers will see no immediate increase in their monthly repayments³.

Fixed rate mortgages will remain at the same interest rate until the term ends, however if you have a variable or tracker rate then it is likely you will have already seen an increase in your monthly repayments.

Approximately 850,000 mortgage borrowers have a tracker rate mortgage currently according to UK Finance. The recently announced 0.25% increase to 1.25% in Bank Base Rate means that on a tracker currently at 2.25%, the interest rate would rise to 2.5%, adding £18 a month to a £150,000 mortgage arranged over 20 years².

We urge you to make an appointment to review your mortgage with us to ensure that your current deal fits your exact circumstances at this moment in time. Regardless of what type of mortgage you have, there has never been a better time to make sure you are in the best position to weather the current economic uncertainty.

Sources

1. Romei, V. (2022) UK Mortgage rates rise at highest rate in a decade. Available at: https://www.ft.com/content/c41094b4-050d-4522-88ad-fc9a9829bd80 (Accessed 26th Jul 2022)

• Osbourne, H. (2022) What the Bank of England base rate rise to 1.25% means for you. Available at: https://www.theguardian.com/business/2022/jun/16/bank-of-england-base-interest-rate-rise-mortgages-savings-annuities-house-prices-rents-effects (Accessed 27^th Jul 2022)
• UK Finance (2022) How The Bank Rate Affects Mortgage Rates. Available at: https://www.ukfinance.org.uk/news-and-insight/blogs/how-the-bank-rate-affects-mortgage-rates (Accessed 26th Jul 2022)

In a perfect world, should aspiring homeowners or next time buyers buy an existing property, or opt for a new build?

Much depends on location, access to amenities and of course personal taste, but here are some pros and cons which might help.

New build property comes with a 10-year NHBC warranty to cover structural problems ^[1] and developers may provide their own additional warranties to provide additional peace of mind, for a set time period^[2].

Although developers have been slow to respond to ‘green’ issues³, new builds are now more likely to have higher energy efficiency to comply with the latest building regulations. This means that they are more energy efficient than older properties and therefore may result in lower energy bills. Data from Energy Performance Certificates shows that 85% of new homes have the highest A or B ratings. That compares to just 2.2% of existing properties^[4][5].

New builds, depending on the developer, can be customised if you are buying off plan where the property is still at an early stage in the build. This means that you can choose fixtures and fittings to suit your taste.

With a new build property there is no upward chain to worry about that might hold up the purchase.^[4] Some developers may run schemes to buy a buyer’s existing house/flat at market value to speed up the sale. They may also offer incentives such as paying stamp duty costs or conveyancing fees.

On the other side of the coin, new build homes may bring a list of snags that need correction. Even the best new build home may still feature doors getting stuck on new carpets or a loose tile, so it’s worth having a snagging survey undertaken as soon as your developer lets you on site^[4].

According to a report from insurer LV, more than 5,000 new homes in flood-risk areas of England have been granted planning permission so far this year^[6], and could be seen as a way for local authorities to tackle the housing shortage.

So much depends on choosing the right developer if new build is what buyers want, and doing some homework by looking at their previous developments, checking their track record on complaints and the speed with which they deal with snags and faults can lead to better choices.

Time and money may not be wasted by doing proper due diligence before committing to a new build purchase, because the advantages could far outweigh the potential issues.

Sources

1. NHBC (2022) Providing Protection for Homeowners. Available at: https://www.nhbc.co.uk/homeowners (Accessed 26^th Jul 2022)

• HomeOwners Alliance (2022) New Build Warranties – what they do and don’t cover. Available at: https://hoa.org.uk/advice/guides-for-homeowners/i-am-buying/new-home-warranties-cover/ (Accessed 27^th Jul 2022)
• The Climate Change Commission (2019) UK homes unfit for the challenges of climate change, CCC says. Available at: https://www.theccc.org.uk/2019/02/21/uk-homes-unfit-for-the-challenges-of-climate-change-ccc-says/ (Accessed 26^th Jul 2022)
• HomeOwners Alliance (2022) Pros and cons of new build. Available at: https://hoa.org.uk/advice/guides-for-homeowners/i-am-buying/new-build-vs-existing-home/ (Accessed 27^th Jul 2022)
• Gov.uk (2021) Latest figures show increase in new energy efficient homes. Available at: https://www.gov.uk/government/news/latest-figures-show-increase-in-new-energy-efficient-homes (Accessed 26th Jul 2022)
• LV= (2022) Plans to build over 5000 new homes in areas with high flood risk approved. Available at: https://www.lv.com/home-insurance/new-homes-in-flooding-areas (Accessed 26th Jul 2022)

As the cost of living rises and incomes remain obstinately flat¹, it is increasingly tempting to spread the cost of goods over a period of months and pay no interest for a fixed period. On the face of it, it may seem the perfect answer to borrow at no cost and be able to pay off the loan in easy to manage chunks.

The benefits are very clear provided you can keep up payments, however the downsides are not so immediately evident, but can become a major problem.

• Missed payments – these can mean paying a fee and then having interest charges imposed on any balance outstanding. Some companies may pass unpaid debts on to debt collection agencies.
• Credit score – Buy Now Pay Later (BNPL) services can refer missed payments to credit agencies. So, if payments are made late or missed altogether, a person’s credit score can be affected, especially if debt collection agencies become involved. In turn, this can lead to difficulties in obtaining mortgages or other forms of credit.²

According to a BBC report for Panorama, an estimated 15 million adults of all ages in the UK are actively using this form of credit, an increase of more than two million since the start of the year. Also, research quoted in a report by Equifax suggests about 30% of those are 20- to 30-year-olds.³

A sign of the potential problems comes from a Citizens Advice survey of 2,288 people who had used buy now pay later during the past 12 months. It found that while 52% made repayments from their current account, 26% were using a credit card, 9% a bank overdraft and 7% were borrowing from friends and family.⁴

It has been reported that Apple, will soon be adding a BNPL facility to its Apple Wallet for payments through Apple Pay⁵, and there is growing pressure on BNPL providers to become more transparent with regards to borrowers’ activity, ahead of likely action by the financial regulator to formally regulate the sector. Swedish financial company Klarna, the leading BNPL provider in the UK, started sharing customer data with two credit agencies, Equifax and TransUnion from 1 June, meaning credit card companies will be able to see transactions and debts when conducting formal checks on potential borrowers for mortgages and other finance.⁶

If you have any outstanding BNPL arrangements and are concerned as to how this may affect you or a mortgage application, we would encourage you to get in touch with us so that we can review your individual needs and circumstances, and help to provide you guidance on what it means for your future plans.

Sources

1 – BBC Business News (2022) What is the UK’s inflation rate and why is the cost of living going up? Available at: https://www.bbc.co.uk/news/business-12196322 (Accessed 28th June 2022)

2 – Experian (2022) How does buy now pay later work?. Available at: https://www.experian.co.uk/consumer/help-discover/discover/guides/buy-now-pay-later.html (Accessed 28th June 2022)

3 – BBC Panorama (2021) Buy Now Pay Later: The New Debt Crisis?. Available at https://www.bbc.co.uk/programmes/m0012jqk (Accessed 28th June 2022)

4 – Citizens Advice (2022) Two Fifths Borrowed to Pay Off Buy Now Pay Later. Available at: https://www.citizensadvice.org.uk/about-us/about-us1/media/press-releases/two-fifths-borrowed-to-pay-off-buy-now-pay-later/ (Accessed 28^th June 2022)

5 – Montebello, L. City AM (2022) Hot on Klarna’s Heels: Apple Enters Buy Now Pay Later Space With ‘Apple Pay Later’. Available at: https://www.cityam.com/hot-on-klarnas-heels-apple-enters-buy-now-pay-later-space-with-apple-pay-later/ (Accessed 28^th June 2022)

6 – Makortoff, K. (2022) Klarna to start reporting UK customer debts to credit agencies. Available at: https://www.theguardian.com/business/2022/may/04/klarna-to-start-reporting-uk-customer-debts-to-credit-agencies (Accessed 29^th June 2022)

Interest rates have not been a real topic of conversation for over twelve years. A generation has grown up not having to think that the cost of their mortgages or loans might rise. Since 2008/9 Bank Base Rate (BBR) set by the Bank of England has been less than 1% (as low as 0.1% 2020/21 over the pandemic), which may explain why household borrowing has been so attractive for so long.¹

Yet interest rates have been raised from 0.5% to 1% and now to 1.25% – their highest level for 13 years¹. By doing so, the Bank of England is hoping to slow the rate at which prices are increasing. Price inflation, which is the measure by which the cost of goods and services is increasing, is estimated to reach 11% later this year.²

We have all noticed how prices are going up with the cost of fuel, gas and electricity rising rapidly. One of the reasons is that while the world recovers from COVID, demand for goods and services has increased while the ability to supply has struggled to keep up. More buyers chasing too few goods means that prices have risen. The sharp rise in oil and gas costs has been made worse by Russia’s invasion of Ukraine.³

One of the few measures available to central banks to try and control rising prices is to raise interest rates. However, that has a negative effect on the cost of borrowing and also encourages people to borrow and spend less.

Mortgages and interest rates

Even though there is less to worry about in the short term if you are one of the c.74% of mortgage holders who are currently on a fixed rate deal, eventually everyone with a long mortgage end date is likely to be affected once their current fixed rate deal ends. Already, approximately 850,000 people on tracker or variable rate mortgages have started to see their monthly repayments rise.⁴

Credit cards and loans?

Even if you don’t have a mortgage, changes in Bank of England interest rates could still affect you if you have credit card balances or loans.

According to data from the Bank of England, the average credit card interest rate in the UK was 21.46% at the beginning of 2022⁵ and the average arranged overdraft rate has risen from 12.34 per cent to almost 27 per cent according to the data firm Moneyfacts.⁶

If you are looking for ways to manage your monthly outgoings, we recommend that you get in touch with us. We could help to review your existing mortgage arrangements and advise you on suitable options based on your individual needs and circumstances.

Sources

1 – Bank of England (2022) Bank of England base rate. Available at: https://www.bankrate.com/uk/mortgages/bank-of-england-base-rate/ (Accessed on 28^th June 2022)

2 – Weardon, G. (2022) Bank of England says Inflation will hit 11%. Available at: https://www.theguardian.com/business/live/2022/jun/16/bank-of-england-interest-rate-decision-markets-pound-ftse-business-live (Accessed 28th June 2022)

3 – UK Parliament House of Commons Library (2022) Rising Cost of Living UK. Available at: https://commonslibrary.parliament.uk/research-briefings/cbp-9428/ (Accessed 28^th June 2022)

4 – UK Finance (2022) How the Bank Rates Affect Mortgages. Available at: https://www.ukfinance.org.uk/news-and-insight/blogs/how-the-bank-rate-affects-mortgage-rates (Accessed 28th June 2022)

5 – Thomas, J & Stoneman, J (2022) 21% and Rising: Fury grows as Credit Card rates hit new high. Available at: https://www.theguardian.com/money/2021/dec/05/21-and-rising-fury-grows-as-credit-card-rates-hit-new-high (Accessed 28th June 2022)

6 – Clark, D. (2020) Overdraft rates rise but borrowing becomes cheaper. Available at: https://moneyfacts.co.uk/news/banking/overdraft-rates-rise-but-borrowing-becomes-cheaper/ (Accessed 28^th June 2022)

If you were looking for a property to purchase today, would you be more interested in something you could do up or a dwelling that had already been modernised and did not need anything spent on it?

Although unmodernised properties are typically 4.5% cheaper to buy than similar modernised examples in the same area recent research by a leading estate agent suggests that on balance it is cheaper to buy a house that has already been renovated. The main reason given was that buyers looking to modernise tend to underestimate the cost of renovation and then find that the true costs are much higher.¹

For the purposes of comparison, typically an unmodernised property could be defined as one that has dated decorative schemes and whose kitchens and bathrooms have not been updated for decades.

There are variables of course, keen DIY enthusiasts may welcome the challenge of renovating a property, whilst many other homebuyers may not be in a position to consider doing it themselves if they feel they lack the skills, time and confidence required to tackle the often-complex challenges arising in modernising a property. 

The cost of hiring tradespeople has increased by approximately 34% over the past yearand cost of living rises and shortages have also seen rises in the cost of building materials according to Checkatrade.²

According to the research, the estimated average cost of modernisation of a typical unmodernised home would be equal to 15.8% of the property’s original value before starting work.¹

When buying a home to renovate, the buyer needs to be confident that the cost of renovation would be absorbed by an increase in value once the work had been completed. That being said, the value of having a home which reflects the new owners’ tastes and fulfils the dream of having it meet their precise requirements is not something that can be expressed in simple monetary terms.

So, if the lure of renovation is too great here are a few tips to help reduce the cost –

• Make sure you have a structural survey, so you know the property is basically sound
  
• Get at least three quotes. This can help make sure you’re not overpaying – but be wary of any cost which seems particularly low.
  
• Order materials early. Price rises are showing no sign of abating³, so purchasing materials early could work in your favour. 
  
• Managing your resources and time. If you’re planning a big project, pay careful attention to how trades are phased to avoid multiple callout charges.
  
• Reuse materials. Consider whether you could salvage timber, pipes or other materials which may otherwise have gone into a skip.

Finally, always try to factor in extra funds for any unexpected expense. There will inevitably be something needing attention that had not been factored in.

Sources

1 – Magnus, E. (2022) Think Twice Before Buying That Fixer-Upper. Available at: https://www.thisismoney.co.uk/money/mortgageshome/article-10809715/Why-buying-fixer-upper-cost-modern-home.html (Accessed 28th June 2022).

2 – Checkatrade (2022) Drilling into the Detail: What’s happened with job prices?. Available at: https://www.checkatrade.com/blog/news/job-prices/ (Accessed 28^th June 2022)

3 – Checkatrade (2022) Materials price rise across the UK in 2022. Available at: https://www.checkatrade.com/blog/news/materials-price-rise/ (Accessed 28^th June 2022)

With all the disruption at UK airports that has taken place in recent weeks¹, with cancelled flights and ruined holidays and the main holiday period still ahead of us, it seems to be the right time to talk about the importance of travel insurance.

Do you take the risk of hoping that everything will go well or, like the scenario above, recognise that unforeseen events can ruin your break before you even take off, requiring appropriate action to cover yourself and your family?

According to the Consumer Council², a good insurance policy should cover you for:

• Missed flight departures / connections

• Cancellation or restriction of your holiday caused by an unexpected event, e.g. illness

• Illness, injury or death while you are away

• Repatriation – getting you back home

• Loss, theft or damage to your belongings or luggage

• Liability for accidents to others

• If the airline goes out of business

• Natural disasters, natural events e.g. volcanic ash clouds and severe weather

• Political instability

• Security risks.

Of course, you can pick and choose what features are important to you as not every policy will be as comprehensive and it is just as important that you know what your policy does not cover as what it does.

Common exclusions²

• Travel disruption caused by natural disaster, volcanic ash, civil unrest or
terrorism may not be included

• Claims for a pre-existing medical condition or illness at the time of taking
out your policy that has not been declared

• Alcohol and drug related incidents

• Missing valuables from check-in luggage

Global Health Insurance Card (GHIC) and travel insurance²

If you are travelling to Europe, since Brexit, the European Health Insurance Card (EHIC) is no longer valid, although it will still be valid in the EU until it expires. We recommend that you apply for a Global Health Insurance Card (GHIC), free of charge, in addition to taking out travel insurance. The GHIC allows travellers to access healthcare in most European countries at a reduced cost or sometimes free of charge.

However, it is not an alternative to travel insurance, and it does not cover:

• getting you back to the UK (repatriation)

• private medical treatment

• dental treatment in some countries

How do I get a GHIC?

You can apply online at https://www.nhs.uk/using-the-nhs/healthcare-abroad/apply-for-a-free-uk-global-health-insurance-card-ghic/ It is advisable to allow at least two weeks before travelling to make sure the card arrives on time.³

Sources

1 – BBC News (2022) Will my summer holiday flights be cancelled? Available at: https://www.bbc.co.uk/news/61660238 (Accessed 28th June 2022).

2 – Consumer Council (2022) Travel Insurance Fact Sheet. Available at: https://www.consumercouncil.org.uk/sites/default/files/2022-04/Travel_Insurance_Factsheet_04_22.pdf (Accessed 28th June 2022).

3 – NHS (2022) Applying for healthcare cover abroad (GHIC or EHIC). Available at https://www.nhs.uk/using-the-nhs/healthcare-abroad/apply-for-a-free-uk-global-health-insurance-card-ghic/ (Accessed 28^th June 2022)

The Bank of England has raised the base interest rate to 1.25%. In general, the current cost of living crisis has added some uncertainty to the economic environment, and we cannot rule out further rate increases. Although those currently on a fixed-rate mortgage will feel relieved, the simple truth is that as inflation rises and continues to go up, everyone with a mortgage could eventually be affected.

Although there is no certainty about how much interest rates will rise, the Bank of England will inevitably continue to raise interest rates to help address the increasing cost of living, which would increase your mortgage repayments1. With increases in fuel costs and the price of a weekly food shop2, we’re sure you won’t want to be paying more for your mortgage than you need to be.

What measures can you take?

We’d suggest putting yourself in the best possible position and ensuring that you are prepared for future rate rises by acting now, which could potentially help soften the impact. Every person has different circumstances, so we strongly recommend you look at the terms of your mortgage and contact your mortgage adviser to discuss your individual needs and circumstances before taking any further action, to see what would be the right option for you.

Depending on your circumstances, there can be measures you can take. It could be that the most apparent course of action is to switch to a fixed-rate mortgage, or if the term of your fixed rate is due to end shortly, you could consider fixing your mortgage rate for a longer period of time.

If you fix your mortgage for a longer time period, for example, 5, 10 years or more, then this could give protection for potential interest rate rises over a longer period of time.

Whether this is right for you will depend on your circumstances, bear in mind that other deals may come on to the market in the next couple of years and you may not be able to switch to them without incurring hefty charges.

If you’re looking to remortgage within the next six months, it’s a good idea to start looking now. Lots of lenders’ offers are valid for six months. So, if you lock one in now, you’re protecting yourself in case the most suitable deals disappear.

If you are on your lender’s standard variable rate (SVR), don’t hesitate to get in touch with us as soon as possible, as it means that you could be paying much more than you need to be.

Arrange a review

As your mortgage adviser, the key message is to act now to help avoid an unwelcome surprise. You will likely be contacted by your current lender offering advice or other intermediaries too. We would recommend speaking to us first. We will assess your current circumstances and search across thousands of products for the most suitable deals that are most applicable to your individual mortgage and protection needs.

Source

Adams, G. (2022) Sunak expects interest rate to hit 2.5%. Available at: https://www.mortgagestrategy.co.uk/news/sunak-expects-interest-rate-to-hit-2-5/ (Accessed on 16th Jun 2022)

Inman, P. (2022) As food and fuel costs rise, there is no doubt the poorest are hardest hit. Available at: https://www.theguardian.com/business/nils-pratley-on-finance/2022/may/30/as-food-and-fuel-costs-rise-there-is-no-doubt-the-poorest-are-hardest-hit (Accessed 16th Jun 2022)

Do you know how to access your credit score or the ways it can affect your access to finance of all kinds?

Whenever applying for a mortgage, credit card or loan, the provider will check your credit record. Along with basic information to confirm your name, date of birth and address, it provides detail on how you have conducted any financial dealings, any overdrafts, existing credit arrangements and whether they are up to date. County Court Judgements (CCJ’s), home repossessions, bankruptcies, debt relief orders and individual voluntary arrangements are also recorded¹.

In essence, it is a snapshot of your financial past and present, but also acts to identify that you exist and where you live and is a crucial part of the assessment of your ability to qualify for personal finance of any kind.

Why might you need to be concerned?

When it comes to borrowing money, a poor credit score can mean an out-and-out rejection or having to pay a higher price than others because you may be considered a poor risk to the lender or product provider offering finance, according to Experian. In the past 10 years, the credit landscape has almost completely shifted towards ‘rate for risk’. This means almost every credit provider on the market uses your credit file to not only dictate whether they’ll provide you with credit but also what interest rate you’ll get².

According to MoneySavingExpert, when it comes to loans, only a minimum of 51% of accepted customers get the rate advertised. A lender might be advertising a 6% rate (known as the representative APR), however, you could be accepted and offered a 40% interest rate instead, because of a poor credit score³.

So, if you are applying for a loan, mortgage, credit card or other types of credit, it makes sense to check your credit report first, particularly if you haven’t looked at it for some time.

Below are the main credit agencies’ websites from where you can get an up to date report on your credit status.

https://www.equifax.co.uk/Products/credit/statutory-report.html

https://www.experian.co.uk/consumer/statutory-report.html

https://www.transunionstatreport.co.uk/

Most importantly, it makes sense to check your credit report from time to time to make sure there are no mistakes or to make sure you haven’t missed any payments without realising it.

If in doubt, talk to an accredited financial adviser who can advise you and help you obtain what you need.

Sources

1 – Experian (2022) What is a credit score?. Available at https://www.experian.co.uk/consumer/experian-credit-score.html (Accessed 24th May 2022)

2 – Experian (2020) Why do people with higher credit scores get lower interest rates?. Available at: https://www.experian.com/blogs/ask-experian/why-do-people-with-higher-credit-scores-get-lower-interest-rates/ (Accessed 24^th May 2022)

3 – Lewis, M. (2021) MoneySavingExpert: How to Borrow at 0%. Available at: https://www.moneysavingexpert.com/news/2021/11/how-to-borrow-at-0–i-e-no-cost–or-as-close-to-it-as-possible-/  (Accessed 24^th May 2022)