Is a 10 year fixed rate mortgage a good idea and should you get one?

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.

If you have an interest only mortgage now could be the time to consider switching product before the window closes.

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

Buying a Property at Auction & Need a Mortgage? – Read our Do’s & Dont’s for Auction Finance

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

Shorter Mortgage Term vs Making Overpayments – The Smart Way to Reduce Costs

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.

How offset mortgages work: The basics of offsetting explained Rightmortgageadvice.co.uk

An offset mortgage has a linked savings or current account and rather than receiving interest on money paid into that account you don’t pay interest on the same balance of your mortgage.

You can normally set an offset facility to work in two ways. It can act as an over payment reducing your mortgage term or you can opt to make it reduce your monthly payment instead.

The main benefit of using an offset account against over paying your mortgage is the fact that you can readily access the funds in the future without having to refinance although this would affect your payments or term.

You can also use it to borrow money in advance but only pay for it when you take the money out of the offset account although again you need to consider how borrowing extra money will effect interest rates, loan to value and arrangement fees too.

Offset isn’t really a type of product so you can still get all the normal types of rates with an offset facility such as fixed, discount and tracker deals for example.

The main thing with any mortgage is to make sure any additional cost you have to pay in order to get this option will be justified by the benefits you receive and that is something we can consider for you in the advice process. You can get more information or to get expert advice on offset here

Broker Q&A: Mortgages with older and elderly or retired applicants over the age of 70

Can someone over the age of 75 go on a mortgage?

We are often asked if we can arrange mortgages for elderly or retired people of 70, 75, 80 or even 90 years of age.

This will depend on the circumstances – whether the mortgage is for a Buy to Let or Residential property, if it is a joint application and if the income of the older applicant is being used in the affordability assessment.

For BTL mortgages, most lenders do have a maximum age up to 80 but there are a few who have no maximum age.

For Residential mortgages, where the income of the elderly applicant is being used in the affordability assessment, most lenders will not go beyond the age of 75-80.

If it is a joint application with a younger applicant who can afford the mortgage without the elderly applicant’s income being used in the affordability calculation, then there are lenders who will ignore the age of the elder applicant entirely.

There are of course other mortgage products available to more senior applicants, such as Lifetime mortgages and Home Reversion Plans which work in very different ways to a normal mortgage and require specialist advice.

It is important to remember that all applicants of a joint mortgage would be responsible for the payments regardless as to whether their income was used in assessing the case. Therefore, as part of the advice process we would consider arranging protection in case of death, illness or injury to either party.

To get expert advice just call or fill in our short enquiry form here

Mortgage Advisor Q&A: Securing a mortgage whilst on maternity leave

Is it possible to get a mortgage whilst on maternity leave?

As many couples think about moving to larger homes when their family starts to grow, it is not surprising that we are often asked if it is possible to get a mortgage when on maternity leave.

The simple answer is yes for almost all circumstances. However, there are lots of considerations and lenders do vary in the way they calculate affordability during this time.

Some lenders will use only the income during maternity leave in their affordability calculation which will often leave the maximum loan available too low.

However, other lenders will use the ‘usual’ salary or the ‘return to work’ salary in the calculation if return to work is within the next few months. If return to work is not anticipated for a longer period of time there are still one or two lenders who will consider the application under these terms.

In order to evidence this, lenders are likely to request a letter from the client confirming the ‘usual’ salary and the current income. They will also request a letter from employers to confirm the return to work date, the terms of the contract – hours and ‘return to work’ salary.

It will be important that mortgage payments can still be afforded during the maternity leave so evidence of savings to substitute the difference in income and mortgage payments will often be required for the remainder of the maternity leave.

Consideration as to future child care costs when calculating affordability should be made as well to ensure that the mortgage will be affordable long term.

To request a call back or further advice just fill in our brief enquiry form here

How the potential collapse of the Euro could affect your mortgage costs

Whilst it remains to be seen how close we really are to a collapse of the Euro one thing is for certain, predicting how the fallout would affect financial markets is not an easy task even for seasoned financial experts.

In pure mortgage terms one set of products appear to be particularly risky in the current climate – any product which tracks a variable rate as opposed to the Bank of England base rate. These include discounted rates, variable rates and Libor linked or Libor rate deals.

All of these products could be subject to large rises in this potential scenario even if the monetary policy committee of the Bank of England decides to keep interest rates low. As we saw when the BOE base rate was reduced heavily in 2008 many lenders did not pass these cuts into their variable rates for some time as doing so would have seriously jeopardised their ability to remain afloat.

Similarly in the scenario of the collapse of the Euro and or the default of a nation such as Greece, Spain or Italy this would undoubtedly cause a similar crisis in the banks leading to a drying up of money markets and an upward pressure on banks variable rates.

Most discount rate mortgages are offered by smaller building societies who in general have a much lower risk exposure and would be better insulated against having to raise their variables rates significantly if this happened and this was mirrored by the rate reductions in 2008. However they are not immune to this risk, rates which are more concerning though are Libor linked deals as these are effectively priced against the going rate of lending between UK banks and as such could rise a lot if we saw more market turmoil.

Even so tracker deals could still be a risk, who knows how the different repercussions of this kind of event could ultimately play out? So when looking at current products comparing the difference between fixed and variable rates in general is well worth doing and I would take a pragmatic approach where the difference is minimal as it seems likely that the last string of bailouts may yet prove to be the tip of the iceberg.

Get your fix quick. The downgrading of UK banks likely to increase fixed mortgage rates

If you have been thinking about fixing your mortgage by remortgaging to a new deal then now really might be the prime time to do it.

Fixed rate mortgages have been dropping steadily for several months with the expectation that interest rates in the UK are now likely to remain low in the long term. However the downgrading of several major banking groups in the UK by the rating agency Moody’s last week is likely to put pressure on the big UK mortgage lenders to increase the cost of these deals.

It could be a flash in the pan though, rates were beginning to rise early this year when the economic outlook was less gloomy but the effects of the Tsunami in Japan and the subsequent concerns over the Eurozone were enough to revert the trend.

What is certain though is that there are fixed rate mortgages available which are several percent lower than the average mortgage interest rate paid by borrowers over the last 25 years so if you are concerned by the possibility of higher rates and don’t have too much to lose by switching to a fixed rate deal there have definitely been far worse times to take a fixed rate.

New Mortgage Calculators Launched by Rightmortgageadvice.co.uk

We have recently launched the first of several new mortgage calculators which aim to bring much more sophisticated systems for borrowers to assess their lending ability online.

The most important of these new calculators is the maximum loan calculator which actually models some of the more complex systems for affordability lenders are using to assess customers borrowing potential.

Lenders are increasingly stepping away from using pure income multiples and the large high street banks and building societies now take into account many factors including credit scoring, number of financial dependents and overall debt to income ratio to decide on an appropriate borrowing figure.

The calculator is as far as we are aware the only one currently available which actually illustrates how different types of lenders calculations vary and takes into account dependents, existing credit commitments and credit scoring.

There are several more new tools in development which will soon be added so keep an eye out for more to come.