The Sunday Times - UK (2022-06-05)

14 The Sunday Times June 5, 2022

MONEY

CREDIT CARDS INTRODUCTORY RATES Provider Card type Introductory purchase APR^1 Reward Contact Barclaycard Platinum All-rounder V 0% for 24 months 21.9% No 0800 151 0900 Sainsbury’s Bank Dual Offer MC 0% for 24 months 21.9% Yes 08085 40 50 60 M&S Bank Shopping Offer Plus MC 0% for 24 months 21.9% Yes 0800 997 996

BALANCE TRANSFERS Provider Card type Introductory purchase Transfer fee^2 APR^1 Contact Virgin Money Balance Transfer MC 0% for 34 months 2.7% (no min) 21.9% 0800 389 2875 Halifax Longest 0% BT MC 0% for 34 months 2.89% (no min) 21.9% 0345 944 4555 Tesco Bank Clubcard BT MC 0% for 33 months 2.59% (no min) 21.9% 0345 300 4278

CASHBACK CARDS Provider Card type APR^1 Cashback Contact American Express Platinum Cashback 30% 0.75%-1.25%. Intro 5% for 3 months 0800 917 8047 American Express Platinum Cashback Everyday 24.7% 0.5%-1%. Intro 5% for 3 months 0800 917 8047 Halifax Cashback MC 19.9% 0.25-0.5% 0345 944 4555 1 APR = annual percentage rate, dependent on credit rating.^2 Fee charged on the amount of each balance transfer during the introductory period. Source: moneyfacts.co.uk

ENERGY DEALS Supplier Average annual bill Rate Contact Ovo Energy £2,731 Fixed 0330 303 5063 British Gas £2,754 Fixed 0330 100 0056 EDF Energy £2,799 Fixed 0333 200 5100 *Phone numbers provided will call through to theenergyshop.com switch support team. Source: theenergyshop.com — 0800 448 0205

FIVE THINGS YOU NEED TO KNOW ABOUT... SMOOTHED INVESTMENT FUNDS

THE

FIVER

5

1

Smooth might not be a word you associate with markets at this time, but there is a type of fund that aims to smooth out returns long-term and protect your cash from market volatility.

2

The way each investment company “smooths” the returns from a fund is slightly different, but they all give similar results. For instance, if you invested in LV’s smoothed fund, your investment value would be a rolling 26-week average of the fund price — that’s what you would get if you were to sell, regardless of what the markets were doing that specific day.

3

It is worth thinking about smoothed funds if you are averse to volatility (they strip out the drastic ups and downs of the market) and also if you are drawing an income from your pot and cannot afford big market falls. They are a long-term investment, so are more suitable if you plan to leave your money for five or more years.

4

A smoothed investment is not risk-free. Your money is still invested in the market and if markets crash and do not recover over time, your investments will still fall and you could get back less than you put in.

5

If markets are rising, it is likely that a smoothed fund will perform worse than an unsmoothed version of the same fund, and vice versa. Over time, it should offer similar returns — just a smoother ride to getting them.

Imogen Tew

Best Buys

FOREIGN CURRENCY Interbank rates at 5pm on Friday, which show where the market is trading. They are not indicative of the rate you could get.

EURO GBP>EUR

1.18

CASH ISAS INSTANT ACCESS Provider Account name Min deposit Interest Transfers in Contact Paragon Bank Triple Access Cash Isa Issue 8£1 1.2% Yes marcus.co.uk Marcus Cash Isa £1 1.15% No marcus.co.uk FIXED RATE Provider Account name Term Min deposit Rate Transfers inContact United Bank UK 1 Year Fixed Rate Cash Isa1 year £2,000 1.76% Yes ubluk.com Charter Savings Bank2 Year Fixed Rate Cash Isa2 years £5,000 2.2% Yes chartersavingsbank.co.uk

Source: savingschampion.co.uk — 0808 178 5354

USA GBP>USD

1.26

SWITZERLAND GBP>CHF

1.21

AUSTRALIA GBP>AUD

1.76

SAVINGS ACCOUNTS INSTANT ACCESS Provider Account name Min deposit Interest rate Contact Chase Chase Saver Account* No minimum 1.5% chase.co.uk Yorkshire BS Internet Saver Plus Issue 11 £10,000 1.33% ybs.co.uk Cynergy Bank Online Easy Access Account Issue 51 £1 1.32% cynergybank.co.uk

NOTICE ACCOUNTS Provider Account name Notice period Min deposit Interest rate Contact DF Capital 120 Day Notice Account Issue 1 120 days £1,000 1.7% dfcapital.co.uk Oxbury 180 Day Notice Account Issue 1 180 days £1,000 1.65% oxbury.com United Trust Bank 200 Day Notice Account Issue 2 200 days £5,000 1.7% utbank.co.uk

FIXED-RATE BONDS Provider Account name Term Min deposit Interest rate Contact Investec Fixed Rate Saver 1 year £5,000 2.4% savings.investec.com Hodge 2 Year Fixed Rate Bond (online only) 2 years £1,000 2.78% hodgebank.co.uk Hodge 3 Year Fixed Rate Bond (online only) 3 years £1,000 2.82% hodgebank.co.uk

DEALS ARE LISTED ONLY IF THEY ARE COVERED BY THE UK FINANCIAL SERVICES COMPENSATION SCHEME (FSCS) OR A EUROPEAN EQUIVALENT *MUST HOLD A CURRENT ACCOUNT WITH THE PROVIDER Source: savingschampion.co.uk — 0808 178 5354

CHILDREN’S ACCOUNTS Provider Account name Account type Min deposit Interest rate Contact Saffron BS Children’s Regular Saver Issue 2Regular Saver No minimum 3.02% saffronbs.co.uk Santander^1 123 Mini Current Account Current Account £1,500 2.96% santander.co.uk HSBC MySavings Regular Saver £10 3% hsbc.co.uk

(^1) Interest paid on balances between £1,500 and £2,000
JUNIOR ISAS
Provider Account name Min deposit Interest rate Rate Contact
Coventry BS Junior Cash Isa (2) £1 2.45% Variable coventrybuildingsociety.co.uk
Family BS Cash Junior Isa (1) £3,000 2.4% Variable familybuildingsociety.co.uk
Tesco Bank Junior Cash Isa £1 2.25% Variable tescobank.com
Source: savingschampion.co.uk — 0808 178 5354
MORTGAGES
2-YEAR FIXED RATES
Lender Rate Scheme Deposit Fee Notes Contact
Allied irish 2.1% Fixed to 31.05.24 15% £0 L 02890 479 221
Santander 2.69% Fixed to 02.09.24 10% £999 OPV 0800 068 6064
Nationwide 2.94% Fixed for 2 years 5% £999 PV 0800 302 010
3-YEAR FIXED RATES
HSBC 2.64% Fixed to 31.07.25 40% £999 RSO 0345 166 9510
HSBC 2.64% Fixed to 31.07.25 15% £999 RSO 0345 166 9510
Nationwide 2.79% Fixed for 3 years 10% £999 PV 0800 302 010
LONG-TERM FIXED RATES
First Direct 2.54% Fixed for 5 years 40% £490 LV 0800 482 448
Lloyds 2.54% Fixed to 31.08.27 20% £999 RS 0800 738 3534
First Direct 2.79% Fixed for 5 years 10% £490 LV 0800 482 448
Lloyds 2.31% Fixed to 31.08.32 40% £999 RS 0800 783 3534
TRACKERS / DISCOUNTS
Barclays 1.75% Tracker + 0.75% for 2 years 40% £999 ELV 0333 202 7580
Yorkshire BS 2.24% Tracker + 1.24% to 31.07.24 10% £995 EV 0345 166 9510
Newbury BS 1.84% 2.26% discount for 5 years 25% £850 LV 01633 555 5777
First Direct 2.94% Tracker+1.94% for term 25% £490 ELV 0800 482 448
FIRST-TIME BUYER / LOW DEPOSIT
Coventry BS 3.19% Fixed to 31.10.24 5% £0 FV 0800 121 8899
HSBC 3.24% Fixed to 31.07.27 5% £0 PV 0800 494 999
Skipton 2.68% Fixed for 31.10.27 25% £995 HP 0345 850 1755
BUY TO LET
Skipton BS 1.86% Tracker +0.86% for 2 years 40% £995 ELV 0345 850 1755
HSBC 2.19% Fixed to 31.07.24 40% £1,999 RS 0800 494 999
Lloyds 2.72% Fixed to 31.07.27 25% £1,495 RS 0800 783 3534
Early repayment charge applies unless otherwise stated. Most deals track Bank of England base rate.
C = £500 cashback for purchases; E = No early repayment charge; F = £500 cashback for first-time buyers; H = Help to Buy;
L = Free legal work for remortgages; M = £300 cashback for purchases; N = £250 cash back for purchases; O = £250 cash back;
P = Purchases only; R - Free legal work and valuation for remortgages; S = Remortgage only; V = Free valuation
Source: landc.co.uk — 0800 373 300
CURRENT ACCOUNTS
CREDIT INTEREST
Provider Account name Account fee Reward Balance (for reward) Contact
Halifax Reward Current Account None £5 a month – 0345 720 3040
TSB Spend & Save None £5 a month – 0345 975 8758
Virgin Money M Plus Account None 2.02% AER Up to £1,000 0800 678 3654
OVERDRAFTS *
Provider Account name Account fee Interest rate^1 0% overdraft limit Contact
Starling Bank Current Account None 15% £0 starlingbank.com
First Direct 1st Account None 39.9% £250 0345 600 2424
Virgin Money M Plus Account None 19.9% £0 0800 678 3654
(^1) Equivalent annual rate.

Based on overdraft of £500 for 7 days a month.
Some accounts require minimum funding/direct debits to open or receive rates shown.
Source: moneyfacts.co.uk
Table shows the cheapest fixed tariff now available
from the cheapest suppliers. Excludes tariffs of less
than 12 months’ duration, tariffs that do not have
national coverage and tariffs where payments are
taken in advance of supply. Variable rate tariffs are
set by Ofgem’s price cap and may be lower.
C
harlotte Fraser has resigned
herself to the fact that just
after her daughter does her
GCSEs she’s going to have to
sell their family home.
In 2005 Fraser, 49, and her
partner, Nick Oakley, moved
from Edinburgh to a three-
bedroom house in Guildford,
Surrey. They took out a
£180,000 interest-only mortgage and
paid a £100,000 deposit from the sale of
their home in Edinburgh. He was a soft-
ware engineer, while Fraser, who works
for a small charity, didn’t have a job at the
time. “It’s mad to think about. You
couldn’t get a mortgage like that now,”
she said. “We were vaguely advised to get
some kind of repayment vehicle.”
They didn’t, and economic events
have since changed the mortgage market
completely. The 2008 financial crisis
pushed their lender, Northern Rock, to
the wall. They kept up their interest pay-
ments and their loan was handed over to
the government, then sold to Landmark,
an arm of the American private equity
firm Cerberus Capital Management.
Sadly, in 2010 Oakley died suddenly.
Fraser has been paying a joint mortgage
on a single salary ever since, and
although she hasn’t missed a payment,
the interest is now rising as the Bank of
England raises its base rate to try to tackle
inflation. She is paying 4.64 per cent —
£694 a month. The average two-year
fixed rate is 3.25 per cent. “Each month is
getting harder and harder. It’s back to the
drawing board having to find more
money,” she said.
Fraser is a mortgage prisoner — she
can’t get a better deal from the company
that holds her mortgage because it is not
an actual lender, just a firm that bought
her debt. And she can’t get a cheaper loan
‘My mortgage
was never a
problem until
my partner died’
Interest-only loans used
to be common, but many
borrowers are now stuck
without a repayment
plan, writes George Nixon
daughter is 15 and doing her GCSEs. I
can’t even think about moving just yet.
I’m putting off the inevitable.”
Defusing a time bomb
The Financial Conduct Authority (FCA)
fears that there could be a lot more Char-
lotte Frasers as rising rates force thou-
sands of interest-only mortgage holders
to sell their homes.
The FCA expects the number of matur-
ing interest-only mortgages to peak in

Of the 754,000 loans still outstand-
ing at the end of last year, 334,000
(44 per cent) will end by 2027, according
to the banking trade body UK Finance.
Borrowers collectively owe £46 billion.
Interest-only loans largely disap-
peared after the financial crisis. Simon
Gammon from the mortgage broker
Knight Frank Finance said: “They were
popular because they were cheaper
monthly, and you could borrow lots
of money. Some lenders asked for evi-
dence of a repayment vehicle, some
just required a box to be ticked on the
application form, and some didn’t ask
at all.”
Research by the FCA in 2013 found that
10 per cent of interest-only borrowers
had no repayment plans at all and 20 per
cent weren’t confident they would be
able to repay. Five years later, the FCA
warned that many had still not talked to
lenders about repayment. “The FCA is
concerned that shortfalls could lead to
people losing their homes,” is said.
The majority of interest-only loans
from the early 1990s were endowment
mortgages, sold alongside an investment
policy to pay off the capital. Many poli-
cies did not pay enough to cover the loans
and the compensation bill for mis-sold
policies stretched to £2.7 billion.
Today’s interest-only mortgage hold-
ers are not in that boat, but the FCA fears
that many will find it even harder to clear
their loans. Many are older borrowers
who have more debt and less equity in
their homes. The cost of living crisis may
mean that they have to eat into savings
and their investments, which they need
to pay off their loans, could lose value.
Fraser said: “Hindsight is a brilliant
thing, but if I was able to pay into a repay-
ment vehicle ten years ago it would have
made everything a lot easier. It all comes
back to bite you.”

Who still has interest-only loans? lLandlords who want to keep profits, wealthy borrowers with irregular incomes or bonuses, or those who want to free up money to buy a second home or invest the money in property or their business are still fond of these loans. They have been much harder to get since 2008 and you have to prove you have a plan for repaying them

What if yours is about to end? lSwitch to a repayment mortgage to start paying off the loan or extend your interest-only term. Beware that if you have to take out a long loan it will eat into your retirement income. lIn 2017, 70 per cent of all interest-only mortgage holders were over 45 and the average age was 63. Banks are now happier to issue loans that last into retirement, but you will have to pass affordability checks. lIf you cannot get a “normal” mortgage, equity release allows you to take out a loan against the value in your home. There are no affordability checks because you do not have to pay interest — it is added to the repayment when you sell your home. lRetirement interest-only mortgages are another option. They are less popular and are a halfway house between equity release and standard interest-only mortgages. You do pay interest, but not the balance of the loan until the home is sold, and you can borrow a larger chunk of your home’s value.

elsewhere because she fails affordability rules that have become a lot stricter since the financial crisis. She also no longer has a partner. And despite paying above-average interest on her mortgage for more than ten years, she hasn’t repaid a penny of the £180,000 balance and the term ends next June. “I think I’m just going to have to sell up,” she said. “I should have done that years ago, but you get quite settled, my

Charlotte Fraser has never missed a payment but not cleared any of her debt

Quentin Holland, 59, took out a £500,000 interest-only mortgage at 1.99 per cent on a £600,000 property in Kensington in 2016. He extended the term before he retired in March to end when he is

about 75. He said he will pay it off before then and already has enough to do so, but said keeping the money allows him to invest it instead. “I don’t believe rates are going up that far, so that’s why I’m not

paying it off,” he said. “I know the cost of my mortgage for the next five years and I’m hoping to make more than that from investing. As long as your debt is serviceable then there’s no problem.”

The Sunday Times - UK (2022-06-05)

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