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Does a fixed rate mortgage make sense in the current market?

Thursday, February 3rd, 2011

This is probably the biggest mortgage related question on everyone’s lips at the moment and it is certainly very difficult to tell what is going to happen with interest rates. I can remember a conversation with a client almost 18 months ago where media coverage suggested interest rates were going to shoot up and they were worried the tracker product I had recommended might end up being very expensive.

In my opinion the question of whether to fix your interest rate comes in two parts. Firstly your attitude to risk should be taken into account and the severity of the risk assessed too. If you have ample income to afford higher interest rates then it comes down to your preference as to whether to gamble on variable type products, but if you simply couldn’t afford for your mortgage payments to go above current figures then not only should you be considering a fixed rate but also trying to reduce your borrowing levels asap.

The second part of the answer comes down to the difference between fixed rates and variable products, if the difference between a suitable variable product and a fixed is relatively low then even if you are a little risk averse it may be worth opting for a fixed rate. However when the difference is greater it becomes harder to say.

Let’s compare for example a 5 year deal currently on offer with one lender of 6.49% with a 25% deposit, compared to their 2 year fixed and 18month tracker product this is 3-4% higher and this means the chances of it being good value for money long term are much lower as it would require average interest rates over the next five years to be over 5% or so which is a big increase from current rates, hence I would only really recommend this scenario to someone who was really on the borderline of what they can afford and needed absolute long term security.

Many lenders are touting products with an option to switch to a fixed deal at a later date without early repayment charges, but for those who would be at serious risk of being unable to afford their mortgage if rates went up this is probably a poor option, as the reality is that fixed deals available at the time are likely to be higher than now as well.

It remains quite likely that while interest rates must increase at some point, that overall market competition will do too and to some extent increases in bank base rate are likely to be met with at least some reduction in lenders margins. Current two year fixed deals come with an average margin of about 3% over the bank base rate which would have been unthinkable three years ago, so at some point slowly but surely these differences must be eroded by competition as the market improves too.

Tags: Bank of England base rate, Fixed Rate Mortgage, fixed rate mortgages, fixed rates, Interest Rates
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Mortgage Broker Q&A – Do credit searches affect my credit score and how many is too many?

Friday, September 17th, 2010

Question: I have been told that credit searches affect my credit score, is this true?

Answer: Yes – but it depends on how many have been done and by whom.

When you apply for credit most lenders will use a credit reference agency to get a credit report of your borrowing history. This credit search will leave an imprint on your report, usually just saying the lenders name, date and the type of credit application.

It is typical for borrowers to shop around when applying for credit so having three of four credit searches in quick succession is not likely to cause you a problem, however if you have lots of credit searches within a 3 month period (I would say between 7-10 or more) then your credit score may start to be temporarily affected.

This is because of an assumption that if you are trying so many different lenders perhaps it is because you are being declined by them and are franticly trying to find a deal. For this reason you should always approach arranging credit in a systematic fashion.

Find out who has the best deals first, then establish whether or not your circumstances in terms of income, employment history and property type etc fits the lenders criteria before having a decision in principle. As brokers we always assess whether you are eligible to borrow with a lender based on all other information before approaching a lender for a decision in principle.

However if you do have a lot of credit searches and your credit history is reduced this does not mean that you will permanently affected. It is simply a risk assessment measure and as such most lenders will look at the number of searches in the last 3 months. I personally fell foul of this when I was about 21 simply by changing my mobile phone contract too much at the same time as shopping around for a personal loan, but after waiting a couple of months things returned to normal.

One thing that does not apply is searching your own credit report, this either wont show up or shouldn’t be taken into account as it is not a measure of risk. People of all financial backgrounds now check their own credit reports for a variety of reasons many of which have nothing to do with struggling to raise credit and for this reason this should not affect you credit score.

If you need help working out what might be affecting your credit score contact one of our mortgage advisors to discuss your circumstances on 08454594490.

Tags: credit, credit checks, credit score, Credit Scoring, credit search, search imprints
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Traditional Buy to Let mortgages not the only option for larger landlords

Friday, April 23rd, 2010

A recurring theme when speaking with buy to let investors across the country at the moment is the difficulty being caused by the dire lack of realistic products for remortgaging or making new purchases.

With current requirements for a minimum deposit of at least 25% and interest rates beginning around the 4% mark for variable rates with deposits of 40% and over its easy to see how many think the current markets offerings are nothing more than a cynical attempt to recoup wider losses by the big banks. And with arrangements fee’s going at anything up to 3.5% I have to agree with them.

There is however another option for Landlords who hold several properties or who have a sizeable income aside from their rental. The private banking sector is increasingly taking up a larger share of this market and with potential interest rates starting from 2.5% or so above base rate and fees typically between 1-2% of the loan balance they make a very attractive proposition to the right clientele.

These lenders not only have the experience in dealing with larger loan sizes and non standard properties, but the human underwriting to look at individual cases which would not meet the standard criteria of high street buy to let mortgage lenders.

The downside is that they typically require assets of around £250,000+ without taking your main residential property into account and or an income of over £100,000 per annum. So while they could prove invaluable for those landlords with a decent portfolio gearing with 25% or more in equity or for the first time investor with a good main income they won’t provide any refuge for the many landlords who worked at maximum leverage and left themselves with less than 25% equity in the their overall portfolio.

If you have several buy to let properties on or about to come onto their standard variable or indeed of you have a significant income instead and would like to find out whether a private banking arrangement could be suitable contact speak to one of our mortgage advisors on 0845 4594490 for independent mortgage advice.

Posted in Finance News, General, Money Tips, Product News, Question & Answer, The Mortgage Market | No Comments »

Accident sickness and unemployment cover explained

Wednesday, May 20th, 2009

With rising unemployment and the continued economic downturn it’s unsurprising that mortgage brokers and insurers alike have noted big increases in the number of enquiries about mortgage payment protection insurance or ASU as it is otherwise known so I thought now would be a good time to discuss how the cover works and what type of cover is available.

Few homeowners are aware that income support for mortgage interest is now only available 39 weeks after a redundancy or injury etc leave you out of work, and certainly very few would continue to receive pay at full level for this length of time or even have sufficient savings to cover their mortgage and lifestyle for this duration, and this is where the need for ASU cover comes in.

These products are designed to provide cover where you are unable to work due to an accident, sickness or in certain circumstances unemployment and to help support the payment of important bills such as a mortgage, insurance, utilities & food etc. They typically will provide a benefit for between 12 and 24 months.

ASU is usually arranged with a deferment period option which may be 4, 8, 12 or 24 weeks for example which is the amount of time from being unable to work prior to being able to make a claim on the policy, in general the longer the deferment period the cheaper the cover. You can also decide whether it will then pay back to day one (i.e from the date of being out of work) or from the end of the deferment period which again will usually reduce the premium.

It may give you the option whether or not to include unemployment and this will certainly only cover you for involuntary unemployment (i.e if you are dismissed or resign there will be no cover). For the self employed care will need to be taken as many policies will not cover this type of employment or supplementary income from freelance work. Another important point is they will generally require you to have been in permanent employment for a minimum of a year, and for the policy to have run for at least 3-6 months prior to a claim for redundancy. And they may exclude redundancy where you could reasonably have expected it prior to arranging the cover so if your firm has announced job cuts in the future you need to take care that the cover will not be invalid.

Cover can normally be arranged to cover the cost of your mortgage and insurances, with the option to add extra cover up to a maximum percentage of your income or percentage above your mortgage so that you can’t be better off receiving the benefit than if back at work, and there may be the option to waive the premiums from the point of being out of work (i.e you won’t be able to claim until the deferment period is complete but you can stop paying the monthly premium when initially out of work) again though this will usually make the cover more expensive.

As usual if you are interested in this type of protection it makes sense to speak to an independent mortgage or financial advisor prior to making a purchase and make sure it suits your needs fully as many wont charge a fee for arranging the cover.

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A good time to brush up your credit score

Monday, April 6th, 2009

With many borrowers now falling fowl of credit scoring it’s as good a time as any to take simple steps to improve you’re credit score: here’s some tips on how to do it.

Improve payment history – Simple budgeting steps can greatly improve your credit score, make sure you always make your minimum payments by setting up direct debits.

Work to a budget – It can be a lot easier to stay on budget if you work out your fixed monthly bills (mortgage, car insurance, gas etc) and transfer your spending money by standing order to another account. It makes it much simpler to know where you are when you come to the cash machine, just make sure you always leave a little extra in the bill account in case they are higher than expected.

Update your information – Make sure all your important information is up to date, human underwriters still make a lot of decisions so it’s always good to make sure everything ties together such as driving license, bank details and electoral roll etc are at your current address.

Limit credit applications – Every time you apply for credit a search imprint is left on your credit file. If these start appearing in quick succession a lender may think you’re in difficulty so if you’re looking at a new phone and a store card it may be best left till after the mortgage application.

Check your credit report – It’s now possible to check your own credit report so make sure that the information they have is correct, particularly with regards to public record information about CCj’s, Repossessions and bankruptcies and the financial connections section.

If there’s anything on a credit report you dont understand or particularly if you are regularly refused credit for no apparent reason it may be worth speaking to a mortgage broker or advisor to find out more.

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