Uncommon Advice

To top off the Government's day of "interesting" policy announcements, the Secretary of State for Communities and Local Government has announced that £300 million of tax payer's money will be used to help people facing repossession. This feature runs alongside the measure that the Stamp Duty levels are to be raised by £50,000 for one year, and First Time Buyers may be eligible for an Interest Free loan from the Government to use as a deposit on a new property.

I've never been so angry in my life. The way I see it, there are three main reasons why people get repossessed. The first reason is that they get ill and can no longer work. The second is they get "rate shock" when they come to the end of their mortgage deal. The third is that they get overcome by a mountain of debt that means that the mortgage goes into arrears alongside all the other debts.

Each of these three is avoidable. People who get ill have my greatest sympathies, and I think it is only right that the government help them BUT critical illness cover is available when people make their mortgage application. Now it isn't cheap, for the very reason that a payout is a high likelihood nevertheless I always support the idea of always taking out at least a "buffer" cover of 3 years worth of mortgage payments. In most cases this would cost somewhere around £15 to £25 per month. It would probably be cheaper for the government to buy every mortgage homeowner a CIC policy than enact this rescue package!

Secondly, "rate shock" is avoidable if people make their mortgage payments and pa down their mortgage quickly in the early years. In the majority of cases rate shock is caused when the value of the property falls to near the mortgage level making banks unsure about taking the borrower. Thereby the borrower must remain with their current lender on their Standard Variable Rate. This rate is usually much higher than the rate the borrower was used to, meaning much larger monthly payments. By paying down the mortgage quickly any effect of house price falls are offset by the reduced debt levels.

Finally, it is sad to say, but almost every repossessed house I have been into (I have entered hundreds through my job) has more than it's fair share of garbage purchases littered throughout the home. Magazines, toys, electrical gadgets, fancy lampshades, new wall paper and furnishings, new kitchens usually half completed. I'm pretty sure that three quarters of all repossessions could be avoided if the owners had paid their mortgage down with cash that eventually went on wasteful "latte factor" purchases. This may sound harsh but I have seen it with my own eyes.
Essentially then the government today have rewarded those who didn't take the time to plan their future, take their mortgage seriously and waste their wages. What's next? A £10,000 payout to every drug dealer to say thanks for the great work they are doing? A Free Car for every Drunk Driver in case they wrecked their old one?

Without sounding too much like Maggie Thatcher, it's up to you to look after your situation. Don't rely on this Government or even the next one as they are only concerned with taking measures which will draw in the swing voters.

Make sure you cover yourself against eventualities sensibly, pay down your mortgage quickly and watch your spending. It doesn't matter what party is in power this advice will always stand strong.

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Ross Taylor is the author of "Mortgages, Money and Magic" and "The No B.S. Credit Crunch Ready Guide to Buy to Let in 2008". Ross is a successful Financial Adviser specialising in First Time Buyers and Buy to Let. He owns over £2million worth of property in the UK and regularly gives lectures on Financial Planning.

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