Covid-19 has had a massive impact on the mortgage marketplace, with some lenders withdrawing altogether and thousands of products being withdrawn, but the outlook is not as gloomy as you may imagine if you need to think about a remortgage.
If your current deal is about to end, ends later this year or if you want to
consider remortgaging to consolidate commitments and re-organise your finances what options are there and what should you do?
If your mortgage deal is ending soon
Firstly, if your current deal ends imminently, whilst there has been a reduction in the number of lenders and products, many of those withdrawn are for house purchase or higher risk lending.
Most lenders continue to offer product-transfer deals for existing customers, many still offer Remortgage deals for new customers and we can arrange these for you without any advice fees, so we can typically advise you on options from the whole of market and your current lender at the same time.
If your income has been impacted by the crisis this might affect your ability to change lender, but should not prevent you from transferring to a new deal with the current lender.
If your mortgage deal is ending within the next 6 months
For anyone whose existing deal comes to an end by late Autumn now is an ideal time to think about remortgaging.
Several lenders offer remortgage deals which are valid for 6 months so you can apply well in advance, taking advantage of the extremely low current rates and set everything up ready to switch over as soon as the current mortgage deal expires.
There are several reasons why doing this now could be wise. Firstly, although lenders have not passed on the full rate reductions made by the Bank of England into new fixed-rate-mortgage deals, there is a good chance that this never happens.
With losses being so great in every industry, it is difficult to imagine lenders being keen to cut into vital profit margins when rates are already at all-time lows.
Conversely, we could see a reduction in house prices or even lenders pulling out of the market entirely creating a situation where you were better off applying today than in several months.
No one has a crystal ball to be able to say for sure how the market will progress over the year but the likelihood of rates getting significantly better than today’s seems dim.
Consolidating credit commitments into your mortgage
This is the area where the remortgage market has already shrunk significantly. So if you want to trim down your outgoings and reduce your typical monthly commitments then it may be wise to act now rather than waiting.
Bear in mind though, that in many cases consolidating credit commitments into a mortgage does not represent the best value for money and may be more expensive than alternative options like balance-transfer deals or converting credit card debts into a personal loan for example.
It’s also important to note that you convert typically unsecured credit commitments into one secured against your home, meaning you stand to lose your most precious asset if you default, where previously there may have been no risk of this at all.
We can help you get a picture of whether a debt-consolidation remortgage is the correct solution in your circumstances.
Changing your mortgage term
You don’t necessarily have to wait to remortgage to alter your mortgage term, and therefore your monthly payments (for anyone on a repayment loan).
If this is something you want to look at you can speak to your lender about this and may be able to do this midway through an existing deal even if you have early repayment penalties.
Again though, this is something that can also be done as part of a remortgage or product transfer and if you want to reduce your outgoings in this way get in touch and we can discuss your options.
If you are in financial difficulty
If you are experiencing difficulty making payments, your first port of call should be your existing lender to discuss what options they have to prevent you from getting into arrears, including the government’s payment-holiday scheme.
If there is a serious risk of you defaulting on obligations like credit cards, loans or hire purchase and other non-secured credit commitments, then consolidating these into your mortgage is a potential solution but it increases the risk of losing your home, by converting unsecured commitments into a secured debt.
We can help you get an understanding of whether consolidating commitments is a solution that could be viable for you, but you should consider speaking to stepchange.org & the Citizens Advice Bureau about the implications of getting into arrears on either type of commitment and other options that may be available such as an IVA.
The Corona Virus has clearly caught governments, business and consumers off guard, so the situation is continuously changing but there is good news for most people.
Firstly, for those who are wanting to remortgage during the current lockdown, who want to consolidate commitments or whose current deal is due to come to an end soon mortgage lenders are still lending, and our advice service goes on as normal. We can work with you entirely over the phone and online.
We will follow this article shortly with a discussion of the Bank of England Base Rate reduction and how this affects borrowers looking at a new mortgage. But for those with existing mortgage offers there is further information below.
Due to the lockdown most lenders have ceased physical valuations temporarily, so lending will likely be based on an electronic valuation (i.e an estimate based on previous sale prices and local market trends, like estimates on sites like Zoopla).
This may mean you have difficulty if you have spent significant sums renovating a property and now want to consolidate commitments back into your mortgage.
Reports of lenders ceasing funding is based on a handful of very small specialist lenders who were new to the marketplace anyway ceasing new lending. Some larger lenders have limited their purchase lending loan to values etc but purchasing currently seems unlikely.
Managing mortgage payments, and difficulties in paying your mortgage
The most important thing for you as a consumer is that if you believe you will have difficulty in paying your mortgage, contact your lender as soon as possible to discuss with them the options they have for helping you manage payments.
On residential loans, i.e. properties occupied mainly by you or your family the lender is legally obliged to try and prevent you from going into arrears.
This means they must consider offering solutions such as a temporary switch to interest only if suitable or consider alternatives like increasing the term of the loan or offering a payment holiday.
You should engage with them early as going into arrears will incur costs that may be non-refundable, avoidable and any arrears recorded on credit reports are unlikely to be removed in future. And arrears will make very significant differences to costs and the options available when you remortgage.
Bear in mind that any solution proposed is likely to cost you more in the long term and so it is not a gift or freebie and so it may not make sense to use it if you have plenty of savings for the long term to carry a short term drop in income.
The situation is less clear for those with buy to let mortgages especially as many will be interest only and therefore payment holidays are really the only temporary solution available. It isn’t yet clear if the governments statement about payment holidays will apply to commercial lending.
You should still contact your lender early though and discuss what assistance they may be able to offer if you are facing difficulties or non-paying tenants. Lenders are unlikely to want to take punitive action against otherwise good borrowers for a problem that will be affecting them across their whole lending book and so are likely to be magnanimous.
Registers of Scotland Shutdown
We have been made aware of clients whose sales are pending within a few weeks who are experiencing difficulty due to the Government closing the Registers of Scotland (the Scottish Land Registry).
Discussions between the Law Society and the Scottish Government are ongoing, and an interim arrangement will likely be agreed in the next few days. Until this point Scottish sales will not be able to complete. But it seems likely that some solution to the current problem must be arranged.
Bank of England Base Rate Changes
If you are considering a new mortgage will be writing shortly to expand on how the changes to the Bank of England Base Rate affect choices on new mortgage products.
For those people who are about to complete on their mortgage soon they do a present a dilemma though.
Fixed rate mortgages are not directly linked to the BOE base rate, and so the reduction in BOE rate has not yet passed through to most fixed rate mortgages although one or two small reductions have popped up.
As lenders will be extremely hard hit by the lockdown, they might seek to increase their margin on lending and so these rate reductions might never be passed onto fixed rates fully.
This means for most borrowers either wait to see fixed rates come down (when they could even go up) or switch to some form of variable product such as tracker rates which have reduced significantly as they follow the BOE rate.
However, no one currently offers tracker or variable rate mortgages with any kind of cap or upper limit that I know of, and given that this is a time of unprecedented global turmoil and upheaval wild changes to interest rates are not outside of the realms of realistic possibility.
In this series we’re exploring the hidden value of mortgage advice.
Most of the time when people think about why to use an advisor the slightly cliched norms of being whole of market, inside knowledge and getting the best deals is what springs to mind.
We like to think about getting a little bit off the rate, some lower arrangement fees or being guided on the pitfalls of certain products. But what about the transaction itself as a whole?
The real value of advice could be much greater, like hundreds of thousands of pounds greater.
We can all be a bit rate obsessed and inclined to focus on the numbers that are most apparent, but the biggest risks to the consumer are often those they haven’t thought about.
Most customers might only have one transaction in a lifetime where they could make such a monumental bad decision, but would you know enough to see those pitfalls when they exist?
This week a client who had previously taken recommendations as an unmarried couple came back to me to refresh those recommendations, and this time had decided to apply in sole name only.
Like many customers, as his spouse had recently ceased working he thought it would be best to apply in sole name. Whether for simplicities sake or because he thought it had to be sole.
Many people think that without an income you cannot be an applicant, it would limit the maximum loan a little but for most people might not be detrimental and an adviser can always make a recommendation showing options both sole and joint.
But this decision could have far reaching consequences and I would immediately advise them to get tax/inheritance planning advice and legal advice about other implications.
So what difference would it have made applying in sole names, and how could it go monumentally wrong?
Now we are not tax specialists but my understanding of the tax position on this application would be as follows;
If you are not married or civil partners, you don’t benefit from the joint inheritance tax thresholds totalling £650k and you also do not benefit from joint main residence allowance totalling £1 million. You can’t have joint ownership without a joint mortgage, and there is no such thing as “common law” marriage outside of divorce settlements.
It’s fair to assume that tax allowances and property values will increase in future, but if we look at numbers based on the purchase price of £600k and todays tax allowances it gives a sort of analogue for how these might compare in future.
Whether or not they have a valid will, this means they will only be able to use the applicants IHT allowance to pass the property onto children in the future. As his partner never went onto the ownership of the property her £325k allowance would effectively go unused if she died first.
In todays money, that would mean paying £110k in inheritance tax when the property was left to children. However, if the applicant died first, and left the whole property to his partner in the will they could use both allowances in series, but as they don’t combine in the way a married-couples would this could lead to paying even more inheritance tax.
So, a £110k payment would still be required, and that could force his partner to raise a lifetime mortgage or similar finance to pay the bill. When she then left the property to her children the whole asset would be chargeable again. Potentially leading to a total of over £200k in inheritance tax plus any costs for financing the initial tax burden.
If they had arranged a suitable will, they could have avoided some of the tax by leaving something like half of the property value to the children and half to the partner, but ultimately would still be looking at paying the £110k.
That could also have its own pitfalls though if the applicant died whilst the children were still minors as raising any kind of loan to pay the tax burden with a property co owned by children is not likely to be easy if even possible at all.
If they had entered a joint mortgage they could have split ownership 50/50 and used both of their £325k allowances to pass the property onto children with no IHT at all in today’s money.
Similarly, a civil partnership for tax purposes would allow even larger benefits. This is relevant as it’s quite likely that this type of affluent customer ends up with larger savings sums that may be passed onto children as well and could bear even more tax.
If they had arranged the mortgage in a sole name and had not made a valid will (it’s estimated that something like 60% of people die without a valid will) then the consequences could be even more dire.
If the applicant died first without a valid will, the laws of intestacy would leave the property entirely to the children.
I am sure you can imagine that as the children would own the property, and if they were still minors it would need to go into a legal trust to be held for them until they were 18 that this scenario with a looming tax bill of £110k and a property you don’t technically own or could mortgage, would be about as much fun as DIY dentistry and something no one sane would even consider leaving as a possible pitfall.
There could be some benefits to keeping ownership in a sole name if the customers were likely to invest in other properties later, but this wasn’t the case at the time and either way they would benefit from having been advised by a tax specialist, so they could understand the options, and by a legal advisor so they would know the implications too.
One of those would also be that the partner was effectively gifting her deposit to the applicant and would likely need to sign various affidavits relinquishing her right to those funds and to reside in the property, something that could be very problematic in an acrimonious separation.
This all goes to show that arranging a mortgage can have wide reaching technical consequences that can have huge impacts financially and emotionally, and so if your working with a good adviser whose looking for these things you are much more likely to avoid them than you are self-advising.
Whilst we aren’t tax or legal specialists at least having someone with a moderate knowledge of the area is likely to catch those situations that have huge potential outcomes and guide you to take further advice on those decisions that might be questionable.
I’ve decided to write about the real costs of advice to consumers, to dispel some of the myths and preconceptions.
As a forward, I thought I’d explain my misconceptions prior to getting involved in financial services sometime back in 2005.
A few years earlier price comparison websites had appeared in the market launching with the message that they “cut out the middleman” and offered better value to the customer by removing their “margin” on the deal.
So before I started working in mortgages I believed that a broker was someone who took a product, added their percentage on top and sold it on.
Since working in the industry though, I have realised there is a myriad of similar misconceptions floating around.
Some people think the arrangement fees on a mortgage deal are to pay the broker.
Some are convinced the lender will offer a better rate direct.
But are any of those assumptions even remotely based on reality?
Let’s start with the idea that middlemen just add margin onto a products price.
I’m a keen photographer and if you share my interest you might well be familiar with the absolutely awesome Sony a7 range.
I won’t waste your time taking you on a photography lesson. But I will show you what you already know.
This picture above is from the Sony UK website for an A7 with kit lens showing a retail price of £1509.00 today on 08-06-2018.
Now we have the same camera and lens on sale with a “middleman” called Jessops and it is, after cashback 50% of the list price on the same day.
Sony’s own retail shops are selling the body only for the same price Jessops offer with the kit lens and the lens is upwards of £400 on its own.
In short buying direct from the manufacturer could cost you twice as much.
But you already know this. You already know that the idea of middlemen adding cost to everything is a fallacy.
Distributors in every industry will often have superior deals. We all see this every day.
Most of us have seen Trivago girl a million times telling us how they compare all the different prices for thousands of hotels daily, but does anyone really think you would get the best deal by phoning the hotel?
So how does pricing in the mortgage industry really work? And how much does our advice cost you?
Lenders whose products are the same through every channel.
Some lenders offer the same range of deals through every channel and have made promises to the market to never do what we call dual pricing.
This means whoever you go to be it direct to the lender, or any broker the deals available will always be the same.
Examples of this are Barclays and Coventry Building Society but there are many others.
For these lenders, if the broker offers you a fee-free service the lender is paying the cost of our commission.
You need to be aware though, that we might recommend a product based on best value for money, and another adviser might just recommend the lowest rate.
You need to discuss with both parties to work out why two different deals might have been recommended.
But if you have access to all the same deals through both, then you cannot be paying the cost of advice unless the advisor is charging an additional fee.
And this should not be confused with a product booking or arrangement fee.
Lenders will usually release multiple rates at the same loan to value.
Some with a lower rate, and an arrangement fee (often around £999) and other deals with no arrangement fees and slightly higher rates.
This is just offering deals to appeal to different customers with different sized loans and has nothing to do with the broker.
You can see in the example below Natwest offering various two-year fixes with different fees and cash backs.
And the best value product for each customer would depend on their loan amount, term, whether it was a repayment mortgage, and whether they would have to add the fee to the loan.
Lenders who do offer different prices and product ranges.
Other lenders like Natwest, for example, do offer different ranges direct at times to those they offer through brokers.
So, the assumption is that using us is going to be more expensive, right?
Think again.
For various reasons lenders might offer much cheaper products via a broker than they do direct. As counter-intuitive as this may seem.
Below are two more screenshots from February this year.
Disclaimer – These rates and products were available in Feb 2018 but are used for example purposes only and are no longer available.
The first is from our sourcing system showing deals available with NatWest at 90% loan to value.
The product highlighted in black with yellow text and the product in blue text are both exclusive rates offered through various mortgage clubs for brokers at the time.
And then below are all the deals NatWest were offering to customers via their website at the same time.
Notice that our exclusive 2-year fixed was 0.5% cheaper than their direct deal, despite the lender paying us a commission of around 0.32% (the total is actually more as some will go to the mortgage club too).
So why on earth would the lender offer deals through brokers that in total cost them more than 0.82% in profits against their direct business?
You have to think about what we actually do because the lender would have to do all the same work.
That’s a professional adviser spending several hours on the phone to each customer. Hours spent processing documents, completing application forms, preparing compliance files and suitability reports.
They need the staff to cover this in a seasonal industry, so they would then have little to do half of the year. Those staff members go onto their pension scheme and pay national insurance and tax on their incomes.
They need to cover professional indemnity risks, telecoms cost, office space, computers, training, and development, staff turnover, and recruitment.
And then there is the fact that the broker market is also an advertising channel and comparative to paid advertising.
Now, this doesn’t mean that we will always have better deals with every lender. Often there will be little or no difference at all.
On occasion, their direct deals might be better.
Sometimes we will offer something a lot cheaper with the same lender. Other times our deals might not be as good.
Basically, there is no way to guarantee you get the best deal.
So the question really becomes one of time, stress, convenience and quality of service.
Do we end up pursuing the “best deal” when the cost of doing so outweighs the benefits?
I think the answer here comes down to the differences between using a broker and going direct.
In my view, with a good broker, you are going to be every bit as likely to get the best possible deal as you would be searching the market yourself with the difference being you don’t have to go through the hassle of doing that.
You’re also more likely to be protected from significant pitfalls.
I am going to follow this article with some others, one which highlights a life insurance provider whose contractual terms are so poor in comparison to their rivals I cannot justify recommending them and another one about the possible pitfalls of not taking advice.
Each article highlights how self-advising without a professional level of knowledge about implications like taxation, and different contractual terms could see you buy a cheap deal that incurs huge additional costs amounting to tens or hundreds of thousands of pounds over a lifetime.
Now we don’t want to scaremonger or imply that these risks apply to every transaction, but the point is to highlight the real benefits of advice that extend far beyond simply getting a good deal or better service and that even if that occasionally costs you more, it’s probably a cost worth paying for.
So make sure to come back and check out those articles over the next few weeks.
The internet is awash with misleading nonsense, out of context facts and the well intentioned leaving a wake of misinformation.
In this series we’re out to debunk the myths and illustrate the value of a decent mortgage advisor, and to highlight why you should be very careful about making decisions based on information from someone that is not an industry professional however esteemed a source they are.
Today I took a look at the following;
Mortgages for the self-employed – The Guardian
From the article;
“In general, the longer you’ve been self-employed, the better. If you have two years of accounts, you’ll have more choice of lenders; three years is even better. Most lenders insist accounts are prepared by a chartered or certified accountant.
Lenders will also want to see the income you’ve reported to HMRC and the tax paid. SA302 forms show this information, as does a “tax year overview” – HMRC can provide both.”
This is a prime example of most of the statements floating around the internet being part truth, but in this example they have actually got some seriously crossed wires.
The initial statement is completely valid. Most lenders do like 2 or even 3 years trading for self-employed applicants and suitable evidence of the performance of trading. Note the word most.
The final statement however, is extremely misleading.
Technically, it’s probably true. Most lenders would require “accounts” to be made up by a chartered or certified accountant.
The problem is though, most lenders don’t insist on using “accounts” as your proof of income, and most company owners may not even be aware of the difference between their HMRC tax returns and formal accounts.
The article implies that you are not only going to need formalised accounts from a chartered accountant but also your self-assessment returns.
The reality is lenders will usually be taking one or the other, and the type of self-employment may affect what they expect.
But for all types of self-employment there are still plenty of mainstream lenders who can accept just using your self-assessment returns with no need for an accountant to be involved regardless of the legal type of business (i.e. sole trader, partnership or limited company etc).
For the majority of sole traders or applicants in a bare partnership then the usual proof of income accepted by the majority of lenders is called an SA302 (a statement from HMRC declaring what income has been recorded on your submitted tax returns).
Most will also want to see accompanying tax year overviews that confirm whether your tax account is up to date.
There are also plenty of lenders who will accept this as a proof of income for shareholders of limited companies and limited liability partnerships.
Some lenders might insist for shareholders in LTD companies and LLP’s that formally made up accounts are used as proof of income and not SA302’s etc.
For those lenders they would then expect a professional accountant to have completed these.
So this article basically reads like you are going to struggle massively to get a mortgage if you’re not using an accountant. The reality is this is total nonsense.
The advice that more than one years of accounts is needed by most lenders is fair, although notably they go onto say that specialist lenders may be able to help those who only have a single year’s accounts.
We can direct you to high street lenders with normal interest rates anyone else would be offered with a single year’s accounts, and for those contracting on a day rate there could be options available from the high street with several more lenders.
So, directing people onto much more expensive non-high street lenders simply because they only have one year’s trading is again hugely misleading and could cause many people to “self-advise” into taking a much more expensive mortgage than was needed.
This article then is a great example of how someone writing who is not an industry professional can (with I’m sure the best of intentions) actually end up writing something that is downright dangerous, and simply not correct and will mislead people into poor decisions on a wholesale basis.
A simple and (nearly) definitive guide to whether foreign nationals from outside the EU can get a mortgage.
One of our main areas of business is foreign nationals on visa’s, and it’s interesting to see how many people are asking on forums on other websites whether it’s possible for them to get a mortgage and how much misinformation is spread around.
So let’s dispel some myths first. Getting a mortgage on a visa isn’t difficult per se. The vast majority of lenders however will not lend at all on these cases.
So it’s very difficult for a member of the general public to try and find the right lenders and at the same time make sure that all other requirements are met too.
That’s why you see so many people on forums trying a lender recommended by someone else but then being told they cannot apply.
The benefit of an advisor like ourselves is knowing which lenders we can ignore altogether (and dealing with these applications frequently enough to know if they have recently changed their rules).
And at the same time knowing enough about all of the other eligibility rules to quickly and easily determine whether you will be able to get a loan.
It’s not something where the lender makes a case by case decision (in general), for most applicants if they meet the guidelines below then they will be accepted subject to credit scoring and all other rules.
We normally offer a fee free service, so there’s very little to gain in trying to DIY an application (whether you’re on a visa or not).
So the point of this post is to give you a simple answer as to whether we have lenders who can consider your application and visa status.
It’s also very difficult to be definite because this post basically compresses the true bulk of the different lenders eligibility rules to try and make things simple.
So if you don’t meet the rules below feel free to ask us about your situation and we will be happy to go into more detail.
So then, can we get you a mortgage?
Applicants who have lived in the UK for more than 2 years
If you have resided in the UK permanently for 2 years or more, and have a 10% deposit we have lenders available.
This is regardless of the type of visa (except refugees; see below).
It obviously still depends on how well you credit score, and other factors like having suitable income etc.
It’s possible to get a mortgage up to 95% if you have been employed/self-employed continuously for 3 years or more.
In this instance continuously employed could mean working part time whilst studying for example, as long as you have been working for someone without a break of more than a few weeks between any 2 roles.
Or if you have more than 30 months remaining on your visa then again it’s possible to go up to 95% and this is also generally straightforward.
If you have a tier 2 visa then a letter from your employer confirming their intention to renew your work permit is also suitable with less than 30 months remaining.
For joint applications only the applicant who has a sponsored work permit would need the employers letter.
Bear in mind though that the visa is only one element of the application. Meeting the criteria for an applicant on a visa doesn’t mean you meet the rest.
That’s why one of our roles as your advisor is to make sure that you meet all the criteria required before application.
Applicants who have lived in the UK for less than 2 years
If you have resided here for less than 6 months, it’s very unlikely that you will have sufficient credit score to get a mortgage (but there can be exceptions, especially if you have UK bank or credit accounts with longer term history).
So in most cases you will need to have been residing here for 12 months, it is technically possible in the first 12 months but will be very case by case dependent.
With less than 2 years UK residency, mortgages are still readily available up to 95% of the purchase price if you have more than 30 months on your visa.
For those on a tier 2 visa with less than 30 months remaining if your employer can confirm that they will look to extend your visa then again 95% is still possible.
Applicants on a tier one visa can apply up to 90% once they have resided in the UK and been employed for more than 6 months regardless of the remaining term on the visa.
If you have 25% or more deposit, then mortgages are available regardless of how long remains on your visa or how long you have actually resided here.
But for anyone with less than 12 month’s residency credit scoring will be a major factor so the shorter the UK residency history the less likely it is possible.
If you don’t have 25% deposit, have been here less than 2 years, and have less than 30 months remaining on your visa, and a visa such as an ancestry or spousal visa then it could be possible to buy a new build property under the help to buy shared equity scheme.
Very large deposits
If you have more than 30% deposit available, then describing a conclusive answer would be too complicated as there are far more potential lenders.
So if this applies to you but you don’t meet the criteria above give us a call to discuss it.
Self employed
We don’t see a lot of self-employed applicants on visa’s however this does not exclude you from application.
But being self-employed has its own criteria with each lender which is probably far more complicated so really you would need to get in touch with us to discuss this in more detail!
Refugees
Refugees are the main exception to the rules above. Most lenders won’t accept applications from refugees until permanent right to reside is granted.
If you have a deposit of 25% or more there may be options available though, once you have 12 month’s residency in the UK.
EU Nationals
EU Nationals still currently have full legal right to reside in the UK and so most lenders can accept your application.
However the length of residency is the main factor so if you have been in the UK for less than 3 years you may well still benefit from our assistance.
In summary
So then as you can see here, there are plenty of options available to meet most circumstances.
These are all standard products from high street banks. You won’t get a higher rate because of your nationality.
Every case is different which is why we cannot give you a completely definitive answer (it’s also ludicrously complex to detail in a blog post).
So always seek advice from a professional like ourselves.
We also don’t treat foreign nationals as high complexity cases. We won’t charge an advice fee purely because of being on a visa.
Most of our clients receive a fee free service including foreign nationals.
Those who we do charge fees are usually borrowing smaller amounts, or have other more complex issues (like multiple forms of self-employment).
For more information or to discuss your circumstances call 08454594490 or fill in our enquiry form here.
10 Year fixed rate mortgages have been reducing significantly in cost, and for the first time in the UK it’s now possible to get a pretty competitive rate fixed for 10 years but the big question is; should you get one?
Question 1- Is a fixed rate even appropriate for you?
Forget 10 years. Should you even have a fixed rate mortgage?
Lots of people are caught out by significant early repayment penalties due to not properly considering the question of their long term plans before buying.
Will you be moving home, repaying large balances early, hoping to raise significant additional finance from the property or could you be eligible for better deals in the short term if your own circumstances improve?
Before even considering a fixed rate mortgage you should take a look at our guide to fixed rate products and see how they work versus other types of rates, and pay real consideration to whether the points above could leave you paying redemption penalties of many thousands of pounds.
You should definitely speak to an independent mortgage broker like us as well.
Question 2 – Will fixing for 10 years be competitive long term?
If you had a crystal ball you could answer this question, but no one can see into the future.
When a lender prices a product it’s either based on the cost of loaning that money from another bank or investor and turning it into mortgages or on the expected rate of interest they will pay to their own depositors over that time.
So the simple fact is that a fixed rate mortgage will be priced based on the expectations of what will happen to interest rates over the term and the Bank will be expecting to profit.
That means the current glut of competitive long term fixed deals indicate that the banks expect a prolonged period of relatively low interest rates in the UK well into the future.
So like odds given by bookies, most banks won’t be expecting average interest rates over the fixed period to be higher than the rate they are offering you. So you are in effect betting against the bank, but they have to be known to be quite spectacularly wrong in the past.
The smaller your mortgage though, and the shorter the remaining term (for someone on a repayment or capital and interest mortgage) the less differences in rate will impact long term cost.
Because of this for each loan there will come a point as remaining term decreases when small differences in rates are outweighed by the repeated fees and charges involved in refinancing a mortgage, and changing product regularly becomes poor value for money.
This is very case specific, but once your mortgage reaches that point the potential downsides of long term fixes may become insignificant.
Question 3 – So who should take a 10 year fixed rate mortgage?
If you are very worried about increases in costs, have no circumstances that would indicate other rates like variables could be preferable, and very sure that the early repayment penalties won’t be likely to cause an issue then you just need to decide whether you feel it’s worthwhile gambling long term and risking paying more than you might need to or whether to take a short term product in the hope that you can secure another competitive rate again in a few years.
This decision is mainly going to come down to the margin between short term fixed rates and long term ones and the probability that changes to your own circumstances make better deals available to you in the short term (such as better income making more competitive lenders available, or works to a property decreasing your loan to value), and whether you feel the additional cost is good value for the extra security.
A mortgage advisor such as ourselves will discuss your circumstances with you and give guidance on whether a fixed product is really more appropriate for you. If a fixed rate is the best option for you, but it comes down purely to a decision between long and short term deals then this is very much a decision best made by the customer, but at least we can present to you the best options available over the different periods so you can make a more informed decision between them.
If you’d like to know what the best deals available to you both in the short and long term could be then complete out enquiry form and an advisor will contact you, to discuss your options and provide you with advice.
In the last two weeks both Natwest and Coventry Building Society ceased offering interest only mortgages for residential property following on from Nationwide’s decision to do the same some time ago.
Add to this the vast number of lenders who have restricted interest only borrowing to less than 75%, 66% or even 50% of the property value and the market for these mortgages is now stricter than ever.
Borrowers on interest only mortgages currently sitting on their lenders variable rate should consider changing their mortgage to a new product now before the market contracts further.
With the FSA’s announcement that interest only lending would become part of their mortgage market review following the credit crunch many lenders have reacted in a kneejerk fashion eliminating the option for customers with a suitable repayment strategy to refinance their loan regardless of the plausibility of their circumstances.
This is already creating a large number of mortgage “refugees” unable simply due to lenders criteria to arrange a new mortgage and who then become trapped on a variable rate without the option to move.
Whilst this may not be the end of the world whilst the Bank of England Base Rate is low it could result in thousands more repossessions in the event of the collapse of the Euro.
This scenario would almost certainly see wholesale increases in lenders standard variable rates which many borrowers might find too large to handle.
For those in the last years of an interest only mortgage or perhaps even half way through with a borrowing of more than 50% of their properties value waiting too long to consider a move to a new product could see them shut out of the market in the long term.
Of course for those borrowers without a suitable strategy for repaying an interest only loan then this should be the right time to think about switching either to a full repayment mortgage or if investment’s such as endowments are not performing and predicted to fall short of requirements whether a part repayment and part interest only loan could be suitable.
For more information contact one of our whole of market advisors on 0845 4594490
Do:
Your research…
Go to at least one property auction before you intend to purchase, just to see how they work.
Go and view the property you’d like to buy, at least once.
Compare the price and condition of the property to others that are similar that have recently sold or are currently on sale in the street/area. This will help you determine what you think the true market value of the property is and how much you are prepared to bid for it. Websites like Zoopla offer lots of information on previous purchase prices and average prices in the area.
Get a survey/valuation of the property in advance of the sale if this is possible.
Get hold of the Legal Pack and get a solicitor to check it prior to the auction. This pack contains all the information that your solicitor would normally check if you were buying a property in the more conventional way and usually includes key information such as special conditions of sale, title deeds, searches, leases and any legal issues.
Take advice from a mortgage broker or adviser on the suitability of the property for raising a mortgage.
If you can get a mortgage approved on the property prior to the auction or if not get a Mortgage Decision in Principle and an application near ready to submit, before you go into the auction room as you will usually need to complete within 28 days or forfeit your deposit.
Get initial quotes for remedial work if the property needs considerable work. You might be surprised at how much these jobs will cost – better to know up front than after you’ve made your purchase.
Ensure you have sufficient funds available for costs and remedial work if considerable as your mortgage lender will very likely retain part of the mortgage amount until these works are completed.
Have your deposit ready for payment on the day – usually 10% of the hammer price.
Don’t:
Bid on a property at auction that you haven’t seen and looks to be a real bargain in the auction room – there’s probably a reason why no-one else is bidding on it.
Get carried away in the auction room – know your maximum bid before you arrive and don’t get into a bidding war that pushes you beyond this maximum – be prepared to walk away.
Presume you’ll be able to get a mortgage after the event – you may need to shop around or get independent advice. If you can’t pay the balance within 28 days of the auction you will pay hefty interest and possibly forfeit your deposit.
For mortgage advice on short term finance for property auctions visit us here rightmortgageadvice.co.uk
Most of us would like to keep the term (length) of our mortgage as short as possible – no-one wants to think of paying a debt up until our old age. Financially it makes good sense to keep the mortgage term as short as possible – the sooner the mortgage is paid off the less interest payable.
However, there are several things to consider before formally committing to the limit of your budget for the sole purpose of keeping the term as short as possible.
The down side to putting everything you have into paying off your mortgage is that it can be difficult to access these funds once paid in and the exercise is often timely and costly as it may involve
re-mortgaging.
There are other ways to shorten the term allowing more flexibility that you may wish to consider…
Most mortgage products have overpayment facilities that allow you to make regular overpayments that will in effect reduce the term of the mortgage. There can be several benefits to this kind of arrangement.
Providing the chosen mortgage product has a regular overpayment facility then you can make overpayments that will in effect reduce the term of the mortgage and the amount you will pay in interest but if you find yourself short of money you aren’t obliged to make the higher payment.
If the product has the added benefit of a draw-down, you may also be able to draw from these overpaid funds if you find yourself in need of a cash injection. An offset facility could be a good alternative as well with the same kind of benefits.
Making regular overpayments is key to ensuring that the term is reduced. If you are not good at managing your money then perhaps this route is not the best for you.
Rather than committing all of your savings to reduce the term of your mortgage, it is good financial practice to keep a ‘rainy day’ fund that you can draw from if the worst happens, without affecting your mortgage payments and ultimately risking your home.
So in today’s unpredictable climate thinking outside the box can give you exactly the same effect as paying as much off your mortgage as possible without the risk of finding the barrel empty if the unexpected happens.
For more advice on mortgages or to speak to an adviser you can contact us on 0845 4594490.
