We always try to avoid using mortgage industry jargon wherever we can, as we think it is pretty pointless, and unless you’re talking to someone else in the same industry, it just looks like you trying to be clever. However from time to time it is worthwhile bringing one up, even if only to explain it quickly and then explain what it means for us all.

So what is this phrase?Well, it is “protection gap” and as you might have guessed it refers to the gap between what you owe, especially (but not exclusively) on your mortgage, and the amount of insurance protection you have in place in the event that something goes wrong, and you’re unable to keep up payments on the debt.

According to a variety of official sources, this “protection gap” is widening.This means we owe more and more, and we are insuring less and less.

In 2009, the Association of British Insurers (ABI) recorded 636,973 new mortgage related life assurance policies taken out, whilst the Council of Mortgage Lenders recorded 925,000 new mortgage advances. (Source: Defaqto Insight Report, author Ben Heffer)

It is worth remembering that there are circumstances where what counts statistically as a “mortgage advance” may not need a new protection policy, perhaps individual or personal reasons.

However the figures still suggest that there are people taking on debts which their nearest and dearest would struggle to pay off, if the worst did happen. The issue is even more acute when it comes to income protection and income replacement cover, where very little new protection is being sold.With rising unemployment, now is a very important time for customers to be looking at this type of cover, however very few are.It seems to have slipped to the bottom of virtually every customers shopping list.

One of the main reasons for this is cost of premiums, and particularly cost in relation to what you seem to be getting for the money.You will almost certainly have heard someone say (and maybe even thought this yourself) “what am I actually getting for the money?”.Certainly some people do regard insurance as a waste of money. In fact we might even know people who actively seek to claim against a domestic or travel policy for a different item each year, just to make sure they’ve “got their moneys worth”

So what’s the answer?Well, the answer as with most things is not just to get information on the subject, the answer is to get the right information.Find an expert and talk through what you see as your priorities and with their help, match insurance cover that you can afford to meet your most important needs.There is no point in insuring everything to the eyeballs to the tune of £200 per month in premiums when your budget for insurance is £50.All that will happen is that you will have to cancel the cover and then you’re back where you started.

(This is an edited version of this article, specially adapted for the blog. You can read the full article by subscribing to our newsletter at either www.southendremortgage.com or www.abcmortgageservices.co.uk.We look forward to welcoming you to our sites!)

This week the new Chancellor of The Exchequer, George Osborne announced in his annual speech at Mansion House that the Government will follow through on the previous Conservative pledge to abolish the Financial Services Authority, which was set up by the Labour Government in the 1990s to regulate the entire financial services industry, from banking to insurance, home loans and all kinds of financial products (with the exception of unsecured loans under £25,000).

The FSA were responsible for regulating Northern Rock and were widely criticised for not seeing flaws in Northern Rock’s business model (and that of several other lenders which operated the same model but weren’t such high profile) and also not doing more in relation to the onset of the credit crunch, curbing irresponsible trading activities of some banks and finally the collapse of merchant bank Lehman Brothers in late 2008, the fall out from which effectively pushed the economy deeper into the jaws of the credit crunch.

Mr Osborne’s speech was revealing, both for what he said and also what he didn’t say. He was very clear that the responsibility for regulating banks and banking activities will go to the Bank of England (as Bank Governor Mervyn King put it “…I will be there to turn the music down if the dancing gets too wild”) however what he didn’t say was anything about the Bank of England limiting percentages of loans that can be offered.

Previously there was a rumour that when the Bank assumed responsibility for mortgages, they would consider limiting the maximum loan that banks could offer would be 75% of the value of the property.

However George Osborne left this out of his speech, which leads me to believe that whilst this might be something that is discussed, it is unlikely to happen anytime soon.

And there is a very good reason for that.

The country is massively in debt and cuts to services and increases in taxes are on the way. The Government makes massive income from the property market, in stamp duty and VAT, as well as capital gains taxes from the sales of buy to let properties.

The housing market has survived fairly well, and prices are close to their pre credit crunch peaks now.  This is due mainly to a shortage of property for sale and the lowest interest rates ever.

The Government needs all the income it can get at this point, and the last thing that they will want to do is kill the goose that laid the golden egg.  Whilst they want to be seen to be tough on the excess that led to credit crunch, equally they want to support the property market and keep first time buyers and movers alike queuing to pay their taxes.

Keep coming back for the inside track on this and I promise will keep doing my best to explain what these mean to you and I and our bank balances ! 

There has been a huge amount of media comment recently concerning the Government’s annual Comprehensive Spending Review.I thought we’d add to the noise with our spin on it!

This has assumed much greater significance this year due to the fact that it is the first review that the coalition Government has undertaken since being elected earlier this year.It is also of note that the coalition made it clear early on that it would be imposing swingeing cuts on virtually very aspect of the budget in an attempt to reduce Britain enormous budget deficit (which is currently running at a whopping £160bn a year – yes £160 Billion!).

UK Government debt currently stands at £823bn and is expected to peak at around £1.2tr before reducing – the coalition claim this is lower than the peak expected had the Labour Government been re-elected and carried out their proposed spending plans.

Just like when we spend too much on credit cards or get too far into debt, eventually the music has to stop and we have to cut back.The Government is no different, just the numbers are far bigger!

The CSR on Wednesday revealed cuts over the next four years of £83bn, which will affect virtually every aspect of the budget, from the armed services, to benefits and social services, education and the dramatic cutting back of so called quangos, committees set up under the Labour Government to discuss different ideas, often with little tangible results, other than a lot of expense. Here for ease are the key points of the review:

• About 490,000 public sector jobs likely to be lost
• Average 19% four-year cut in departmental budgets
• Structural deficit to be eliminated by 2015
• £7bn in additional welfare budget cuts
• Police funding cut by 4% a year
• Retirement age to rise from 65 to 66 by 2020
• English schools budget protected; £2bn extra for social care
• NHS budget in England to rise every year until 2015
• Regulated rail fares to rise 3% above inflation
• Bank levy to be made permanent

(Source – BBC News website – 20.10.10)

So we’ll work longer and if you are a public sector worker, you’ll be pretty concerned about what the future holds for you.

The impact on the mortgage market will take some time to shake out – there has been a lot of comment about what happens next.What is becoming apparent is that the fallout from the crisis of 2008 and 2009 is going to take some time to be sorted out.

As far as property and mortgages are concerned the best thing to do is to talk to an expert – whether you are thinking of moving (there are definitely bargains to be had out there) or remortgaging.We’ve been saying for a while that anyone on their lenders standard variable rate ought to be thinking about what is available for them – if you can fix at a good rate for a period of time now, it is seriously worth thinking about.A major lender this week launched a re-mortgage product that enables you to start with a tracker and drop into a fixed rate if you want in the future, so there are good products out there!

Whichever way you look at it, we’re in for a tough time as we work our way out of the doldrums – but that doesn’t mean there aren’t good things out there for you.

The next blog post will be more cheerful, I promise!

The annual budget was presented recently George Osborne, Chancellor Of The Exchequer.

As usual you saw George outside Number 11 brandishing the famous red briefcase, and you might have also read some stuff in the papers about what was covered in the budget.

There was still a heavy emphasis on recovery from the recession, which was inevitable seeing as we’re paying back the debt that was run up during the previous Governments attempts to avoid financial meltdown in 2009.

So What Was In The Budget For Housing?

In actual fact, not a huge amount really!

There was lots about tax, inflation, oil prices, you name it.

There was even reference to the fact that our tax rules are now the longest in the world, having recently overtaken India.

First Buy For First Timers…

For housing, there was a scheme which will help only 10,000 first time buyers in the entire country.

The basic facts on this “First Buy” scheme are that 10,000 first time buyers will be given help from the Government, in cooperation with the construction industry.

The other side to this is that it is intended to kickstart the construction industry and provide more jobs here too.

How Does It Breakdown?

The borrowers put in a 5% deposit, with the Government providing a maximum of a further 15%, leaving the borrowers themselves to fund the rest through a mortgage for the balance.

The unfortunate fact is that this is limited to only 10,000 buyers and will also only apply to new build properties, hence the involvement of the construction industry in the scheme.

It is a shared equity scheme, where the government will retain a share in the property.Although details are still to be confirmed, so watch this space!

How Is It Going To Be Funded?

Basically £250m is coming from the bank levy, an additional tax made again the banks, so perhaps they’re not all bad then!

As always, drop us a line here or call us and we can explain not only the First Start scheme, but all of the other ways a broker can really help you!

I read an article in the past week in the mortgage trade press (usually a lot of mortgage brokers complaining to each other about how bad the market has been in the last couple of years!) which has what I think is a good message for both brokers and also the general public, specifically those currently renting their home.

The message to brokers was that in these times where typical mortgage business is difficult to come by, brokers need to be able to diversify beyond straightforward re-mortgage and purchase mortgages. The tag “straightforward” might be a bit of a misnomer these days with the lenders criteria becoming tighter and tighter week by week, but it is still a logical way to describe a mortgage brokers’ standard fare.

The cry to diversify for brokers almost always is based around the capacity to offer more insurance products, or offer those products in a more effective and widespread manner.

The term used by John Malone of PMS (one of the large mortgage “clubs”) was that there will be a “seismic shift” in the mortgage market in the coming years as more buyers come to estate agents and mortgage advisers seeking mortgages and are refused by the lenders.

Whilst this might seem a bit dramatic, it does point to the fact that the private rented sector may grow in the coming years, and that growth could be sped up if an increasing number are declined for finance and therefore are forced to rent.

Which leads me to the point here – what happens to those people in rented accommodation when it comes to insurance?I am talking here about insurance above and beyond just contents insurance to protect possessions, and referring more to life assurance, critical illness and payment or income protection.

Although around 60% of people taking out a mortgage go to a broker, who can also assist with insurance in many cases, very few people looking to rent seek the advice of an independent insurance broker when it comes to protection needs.The trick is how brokers can reach out to those people clearly needing advice and who may not even really realise it.

If you are planning to rent longer term, i.e., if you don’t know for sure when you’ll be buying, then income protection is an essential consideration – otherwise how are you going to manage to pay the rent if you lose your job?Also anyone with a family absolutely must have life insurance to protect their family in the event of their death. Although there is no mortgage to pay off, a lump sum or regular income provided in the event of death during the policy will mean the rent can continue to be paid and a roof kept over your family’s head.

With benefits being cut back and the Government urging everyone to roll up their sleeves and help work the economy back into shape, there will be less and less help from the state, meaning it is up to you to look after your family and not leave it to chance.

Contact us now via the site or on 01702 468009 – we offer a great range of well priced insurances to cover every eventuality.