| Bad Advice
Once a farmer told his neighbor that his best had the colic. His neighbor volunteered that when his mule had colic, he gave him a quart of whiskey. "Really?" the farmer asked. "Yep." A few days later the farmer saw his neighbor again and said in a huff, "I gave my mule a quart of whiskey like you said and he keeled over and died on the spot." "Hmm…" his neighbor mused, "mine too." Bad advice comes easy. And it's obvious looking at the current home mortgage crisis that plenty of it's been going around. Just like the neighbor/large animal vet, I routinely hear would-be experts offering lousy financial advice. Over the past decade, millions of Americans have used historically low interest rates to get over their heads in debt buying houses, cars, and toys they couldn't afford. Rather than looking at overall costs or value, a generation of consumers grew up focusing only on whether they can make the monthly payment.
Minutes from the Federal Reserve meeting
In the housing market, new home sales were below their third-quarter pace, and sales of existing homes were flat in October following sharp declines in August and September. These declines likely were exacerbated by the deterioration in nonprime mortgage markets and by the higher interest rates and tighter lending conditions for jumbo loans. Single-family housing starts stepped down again in October after substantial declines in the June-September period. Yet, because of sagging sales, builders made only limited progress in paring down their substantial inventories. Single-family permit issuance continued along the steep downward trajectory that had begun two years earlier, which pointed toward further slowing in homebuilding over the near term. Multifamily starts rebounded in October from an unusually low reading in September, and the level of multifamily starts was near the midpoint of the range in which this series had fluctuated over the past ten years.
What is happening to mortgages?
Some banks have also been nudging up their variable tracker rates, pushing them well above the official Bank Rate. Another influential website, Moneyfacts.co.uk, says a string of banks have slashed the amount they will lend against the value of the property - the percentage, known as loan-to-value (LTV), is being reduced to only 90%, or in some cases 75%, of the property. So is it getting harder to get a good mortgage deal? The short answer is yes, but it depends on who you are. Banks have increased their margins generally, by hiking their interest rates and the cost of arrangement fees during the past six months. For example, Moneyfacts says the cost of the average arrangement fee has jumed from £634 in November 2006 to £827. Lenders are cunning, of course.
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