UK house prices have been on the rise. In 2021 they grew by more than 10%, according to Halifax, which is the fastest rate of growth in 15 years. 

Will this high growth continue into 2022? Unlikely if you read UK Finance’s latest quarterly report into the state of the UK households’ personal finances. They say it is “inevitable” activity will be weaker this year. What are the warning signs for the housing market in 2022?

Consumer spending is increased

People are increasingly getting back to old spending habits, and with inflation rising they are using unsecured debt to fund this spending. There are still significant weaknesses in certain sections of the economy: while some are close to “pre-pandemic levels”, there are others that continue to struggle. This means household incomes remain vulnerable to shocks in the labour market.

Personal loans also on the increase

Although not back to pre-pandemic levels, personal loans have also been on the increase. UK Finance reckon that’s a sign that borrowers aren’t “yet sufficiency confident in the wider economic outlook or their own position to take on additional debt to fund bigger ticket purchases”. In this context, it’s unlikely that house prices will continue to grow at the levels we’ve seen previously since if consumers aren’t confident enough to take a personal loan then it’s unlikely they will be confident enough to commit to a bigger mortgage, which will limit demand and therefore house price growth.

Heavier mortgage arrears increasing and risk of repossessions looms

At the moment most people are coping with their monthly mortgage repayments, but the signs are that those who are struggling are continuing to sink deeper. The furlough scheme has protected people from unemployment but now that has come to the end, the big question mark is what will happen in the labour market in the early part of 2022. If unemployment rises, then it’s inevitable that the big rises in mortgage arrears will become a big rise in repossessions. That will increase the supply of houses available on the market, which will result in downward pressure, as banks look to recoup their losses.

These three factors show that there is a real vulnerability in the UK economy from a household perspective. There is a lack of resiliency to people’s finances, which means that increases in either inflation or interest rates could set off a tailspin.

There’s still a lot of money in overdrafts

To underline this reality, take a look at overdraft balances. Although the market has restructured over time, and overdraft balances feel at the start of the first lockdown, lots of people are still entrenched in their overdraft, with well over £4bn being lent to UK consumers via this facility. UK Finance observe that this is likely a sign that there is no “increasing household financial stress”, recognising there is an inbuilt level of vulnerability within household finances.

Inflation will bite in 2022

There are growing concerns that higher inflation will be around for longer and it will eat into income growth. Interest rates were increased in November, and although the official line from the Bank of England was ‘wait and see’, if the inflationary pressures that are expected flow through into prices early next year, we will see more interest rate rises. This means that not only will day-to-day expenditures be more costly for consumers, but mortgages will become more expensive. 

The reality is that higher interest rates affect affordability and increase risk to mortgage lenders. Therefore, the amount they’re willing to offer you on a mortgage is reduced. This means there’s less money available in the market for buying houses and therefore demand is reduced, which softens prices.

Homeowners have been leveraging equity to fund purchases

The evidence says more and more people have been using the equity built up in their homes to finance the purchase of larger properties. This is likely to have contributed to the boom in 2021, as people took advantage of the Stamp Duty holiday to buy bigger properties than they otherwise would have been able to afford.

House purchases fell sharply after the Stamp Duty holiday

The three-month rolling average of applications and completions collapsed following the end of the Stamp Duty holiday in June. The chances are people brought forward purchases into the first half of 2021 so it’s likely activity will end up being even weaker in 2022, further reducing the upward pressure on house prices.

What does it all mean?

It’s likely that the increases we’ve seen in 2021 were a one-off and will not continue into 2022. We know that inflation will materialise and therefore stretch household incomes that are already vulnerable. The real threat is the labour market, as there are a lot of people out there with high levels of mortgage arrears. All in all, 2022 could be a tough year for the UK housing market.

The post What are the warning signs for house prices in UK Finance’s latest quarterly report? appeared first on The Motley Fool UK.

More reading

• Meet the 9.6%-yielding income share that could keep growing its payout!
• When will Barclays shares hit £10?
• easyJet shares have bounced back before. On a P/E ratio of 6, could they do it again?
• Could National Grid shares offer me a dividend that won’t be hurt by inflation?
• Here’s what happened to £1,000 invested in the past 2 stock market crashes

If you’ve got a TSB bank account, you may wish to explore your options in the new year. That’s because the bank has announced another round of branch closures. Little over a year ago, customers could choose from 475 branches: that number is going down to 220 in 2022.

Where are the affected branches?

TSB’s latest plans are to close 70 branches in the new year, 18 of which are planned for April, with 26 in May and a further 26 in June.

Which branches close in April?

Aylesbury, Cambridge, Dundee, Elton, Forfar, Forres, Fort William, Kirkintilloch, Lanark, London Bermondsey, London Greenwich, London Harlesden, Rushden, Stranraer, Taunton, Thurso, Wimborne and Yeovil.

Which branches close in May?

Bishop’s Stortford, Bromley, Bury St Edmunds, Camberley, Colchester, Ealing, Eastbourne, Gateshead, Horsham, London West End, Louth, Maidstone, Manchester Denton, Maryport, Morden, Nelson, Newton Aycliffe, Northallerton, Ossett, Redcar, Retford, Romford, St Helens Sutton, Swaffham, Tunbridge Wells and Uxbridge.

Which branches close in June?

Barnsley, Bath, Birmingham Longbridge, Cleveleys, Cirencester, Exeter, Gillingham, Liverpool Garston, Melton Mowbray, Morecambe, Newbury, Norwich, Nottingham Sherwood, Oxford, Redditch, Ross-On-Wye, Sheffield Woodseats, Shrewsbury, Solihull, Southend-on-Sea, Thornbury, Warrington Frodsham, Weston-super-Mare, Wilmslow, Winsford, Worcester.

Why is the bank doing this?

Essentially, the normal reasons cited by banks: restructuring their branch network; customers using digital platforms and alternative ways of accessing services, including cash machines and Post Offices. However, its own figures suggest that it has up to 2.8 million customers who don’t use online or mobile banking.

It’s also announced the expansion of its Mobile Money Confidence Experts services to 50 pop-up locations, up from 40 currently established. There are very limited services you can access, as these are typically based out of local community centres, so while a pop-up might cover some of your needs, it isn’t a fully banking service.

I don’t see my local branch on the list, does that mean it’s safe?

For now these are the only plans announced, but given we’ve seen closures in 2020, 2021 and now 2022 you’d have to be pretty foolish to think TSB were done. It had 588 branches in 2017 after all, and these changes will leave it with 220.

Who are the best alternatives?

That depends how you look at it. The big 3 players in the UK market are Lloyds, Barclays and NatWest. Between them they’ve got 3,131 branches across the UK. So the chances are relatively good they’d have a branch local to you. They aren’t averse to getting the axe out either, as that number is a big reduction compared to the 4,884 branches they collectively had in 2017. Another way of looking at that is Lloyds, Barclays and NatWest have closed the equivalent of three TSBs in as many years. Unfortunately, the trend is that smaller communities are the usual suspects when it comes to closures.

Most major high street banks have undertaken significant branch closure programmes over the last few years. The exception to the rule is Nationwide Building Society, which has gone from 691 branches in 2017 to 646 branches today. So if recent history is anything to go by, Nationwide has the most stable branch network.

Is there another way to look at it?

If you’re not a frequent visitor to a branch but value the customer service they provide, you might want to take the opportunity to broaden your horizons. In the most recent FCA-mandated independent survey, the best banks for overall service quality were Monzo (83%), First Direct (81%), Starling Bank (81%), Metro Bank (74%) and Nationwide (68%).

For context, TSB were rated a lowly 14^th in the survey, coming out with a score of 52%.

Of the top 5, only Metro Bank and Nationwide have a branch network. Metro Bank’s 77 branches are predominantly located in the South East and around major population hubs. So if you were thinking about making the switch, it’s worth keeping in mind.   

Looking for more bank switching help? See our article outlining eight questions to ask before opening a current account.

The post Got a TSB bank account? Here’s why you may want to switch appeared first on The Motley Fool UK.

More reading

• Meet the 9.6%-yielding income share that could keep growing its payout!
• When will Barclays shares hit £10?
• easyJet shares have bounced back before. On a P/E ratio of 6, could they do it again?
• Could National Grid shares offer me a dividend that won’t be hurt by inflation?
• Here’s what happened to £1,000 invested in the past 2 stock market crashes

Christmas is a time of goodwill, and it’s become a tradition for employers to throw away the ‘bah humbug’ and dip into their pockets to reward their workers for a job well done throughout the year. So if your boss is more a Christmas Carole and less of a Charles Dickens, then what exactly should you do with it?

One of the toughest things to know is where to start. So first things first, as a broad principle you could start with the 80-20 rule. Or in other words, £8 in any £10 received should be put towards your financial future. Which means if you receive the average year-end bonus of £1,600 then you’d be looking at £1,280 to be sensible with.

Cover the Ghost of Christmas Present

So now that you know how much we’re talking about, what’s the first thing you should do? Well, if you don’t have an “emergency fund” then I suggest you start there. At an absolute minimum you should be looking to have 3 months of living expenses held in a short-term deposit account that you could get your hands on quickly if life throws something unexpected at you. Ideally, that would be 6 months. So if your monthly outgoings were £1,000 then you’d be looking at between £3,000 and £6,000 in your emergency fund.

Don’t forget about Ghosts of Christmas Past

If you’ve already got that one covered, then the next thing you should be looking at is paying down any debts you have. If you’ve got any credit card debt, then it’s a very smart idea to look at that as money you’ve already spent your bonus on and to pay that off. That’s especially true if you’re only paying the minimum amount on your credit card every month. While we’re on the subject of credit cards, you could look at using part of your bonus to pay for a “balance transfer”, where your credit card debt is moved to another card provider. Depending on your circumstances, you could even transfer to a 0% interest card, which would mean every £1 you paid off would go to reducing your debt rather than paying the bank interest.

Paying down debt doesn’t just mean credit cards. If you’ve got a mortgage, you could overpay on that too and potentially get a benefit. If you’re thinking about this, it’s worth speaking to your mortgage provider as not all mortgages are created equal and there may be penalties associated.

Look to the Ghosts of Christmas Yet to Come

The other option is to look to invest your money to hopefully bag an even bigger windfall in the future. One of the least considered ways to do this is to put that into your pension. This is especially effective if you’re a higher rate taxpayer. Chances are the tax relief you’d receive will make the ‘bonus’ even bigger, and the further away from retirement you are the bigger difference that would make to you. Think of it as giving yourself a much, much larger bonus when you retire.

The alternative is to think about investing in an Index Tracker. If you’re not used your ISA for this year, it’s a great way to invest and avoid paying any tax on the gains. If you’ve never bought stocks and shares before, it’s one of the better ways of dipping your toe into the market.

And as for what’s left after you’ve done all of the above? Well, go and do something Foolish, you’ve earned it!

The post What you should spend your Christmas bonus on appeared first on The Motley Fool UK.

More reading

• Meet the 9.6%-yielding income share that could keep growing its payout!
• When will Barclays shares hit £10?
• easyJet shares have bounced back before. On a P/E ratio of 6, could they do it again?
• Could National Grid shares offer me a dividend that won’t be hurt by inflation?
• Here’s what happened to £1,000 invested in the past 2 stock market crashes

Sometimes, getting a fixed-rate or any kind of mortgage might feel like walking into a casino. There’s lots of sounds and flashing lights, and let’s be honest, we don’t really have a clue what we’re doing. You might find yourself at the roulette table putting it all on red and the fun is over very quickly. But at least when you walk into a casino, you understand that you’re taking a risk. You might not really have much of a clue about the optimal betting strategies for Blackjack or what on earth the difference is between Texas Hold ‘Em and Omaha, but at least you understand you make your bets, and you win or lose. Even with the expectation that usually the house wins.

But when it comes to buying a house, the biggest purchase you’ll typically make in your life, do you really understand what the risks are? The Motley Fool has told you the main differences between the typical mortgages, and you might have a vague idea that the Bank of England interest rate they bleat on about in the news every couple of months might have some correlation to the mortgage rate you pay. You might even have a decent feeling that the interest rate environment is pretty low right now. But what are the downsides to committing to a long-term fixed interest rate?

Yes, fixed-rate mortgages tend to be slightly more expensive than their variable counterparts, and you lose out if the prevailing interest rate goes down. But the real sting in the tail of a fixed-rate mortgage can be the early repayment charge (ERC). Sounds very transactional, doesn’t it? But it could cost you thousands of pounds, even tens of thousands if you’re not careful.

Many people think about buying life insurance or critical illness cover to protect their financial interests. In fact, this is a multi-million pound industry in its own right. At the heart of this is an acceptance that sometimes things in life don’t turn out the way you’d expect. Why, then, do so many buyers of a fixed-rate mortgage product ignore the ERC?

Even worse, not all exit plans are created equal. Do you know whether you can “port” your fixed mortgage product if you were to move home? A port isn’t just a place where a ship goes to visit, it’s a mechanism of transferring your mortgage to a new home you purchase. Not all mortgages allow you to do this, so you may well enter into a 5 or 10-year fix knowing full well you are likely to want to sell your home in that period, but not understanding the potential costs of doing so.

Even if your mortgage does in theory allow you to “port” the product, you may find your personal circumstances have changed. For example, your partner had a job but then life changed, as it does, and decided to look after the kids because the cost of childcare is so prohibitively expensive. It might make no financial difference to you, or bizarrely you might even be in a better financial position, but your mortgage provider might not like your household only having one income now. Computer can — and regularly does — say no.

And don’t even get me started on the dreaded housing chain and what if you decide to sell before you buy. Some fixed-rate mortgages provide some scope for this, but not all, and it’s often very limited. Even if you have the luxury of a port and can make it work, you might find yourself feeling forced into making a decision that’s not right for you because of the potential cost of the ERC.

The trend for financial products is to make them all seem equal so we focus on the headline rate, but with fixed mortgages the devil is very often in the detail and not all fixes are made equal. The next time you consider a long-term fixed mortgage product, make sure you fully understand the product you’re buying. Otherwise you might find yourself on the roulette table with an unpleasant surprise when the spinning stops.

The post Has your fixed-rate mortgage got a sting in its tail? appeared first on The Motley Fool UK.

More reading

• Meet the 9.6%-yielding income share that could keep growing its payout!
• When will Barclays shares hit £10?
• easyJet shares have bounced back before. On a P/E ratio of 6, could they do it again?
• Could National Grid shares offer me a dividend that won’t be hurt by inflation?
• Here’s what happened to £1,000 invested in the past 2 stock market crashes