Andy Frankish, a Director at Rotherham-based Mortgage Talk, the North's
largest mortgage broker in the Legal & General network, is advising
consumers in general, and homeowners in particular, to exercise caution over
their spending this Christmas. And Frankish believes that some homeowners
are encouraged to borrow and spend by a credit industry that should know
better.
'In the run up to Christmas, I have seen a number of comments from mortgage
brokers that are clearly trying to persuade homeowners to remortgage, simply
so they can borrow money that will be spent over the festive period. While
I'm certainly in favour of everyone having an enjoyable and worry-free
Christmas, I'm concerned that people should think very carefully about the
implications before remortgaging or taking out a secured loan to fund their
seasonal spending,' says Frankish.
'Some brokers have rightly pointed out that, with mortgage interest rates at
their lowest for thirty years, it is far cheaper to borrow money against
your property than to take out an unsecured loan or buy on a credit card.
However, while this might seem like common sense on the face of it,
consumers should be more aware of the total cost of the interest repayable,'
he warns.
Frankish believes that homeowners should resist the temptation to remortgage
to fund spending. Instead, he argues that borrowers are better advised to
switch home loans purely to save on their monthly repayments. 'There are
some excellent fixed rate and discounted deals available at the moment, and
homeowners should consider carefully the merits of changing their lender in
order to reduce their monthly outgoings. But, anyone that increases the
amount of their home loan without ploughing the money back into their
property is potentially eroding the equity available in their home. And this
is a dangerous route, especially if interest rates increase in the future,'
he argues.
'Borrowers have to realise that a period of low interest rates isn't an
excuse to borrow up to their monthly limit, and that they must budget for
the possibility of an increase in repayments at some time in the future. My
recommendation to everyone is to look closely at the monthly interest rate
charged on their credit cards, and to seriously consider swapping providers
if there is a cheaper deal available elsewhere. But, borrowers should
remember, at all costs, not to overstretch themselves financially -
otherwise Christmas cheer could be replaced by January gloom,' Frankish
concludes.
