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New rates announced by Cheltenham & Gloucester

Further to last week’s post Cheltenham & Gloucester have announced a new product at 90% Loan to Value and a reduction in their five year fixed rates at 85% loan to value.

The new 5 Year fixed rate at 7.19% doesn’t look particularly appetising on paper with a £995 arrangement fee, Early repayment charges staggered at 5% in the first two years and then 4,3 & 2% consecutively for the remaining years, a valuation fee of £300 based on a loan of £100K, with APR at 4.8% and a reversion rate currently at 2.5% but it does reflect the general easing of criteria and willingness to lend at higher loan to value.

Again the reduction of .1% on their existing five year fixed rate at 85% loan to value won’t have Mortgage Brokers dancing in the streets but is a very small step in the right direction. It now has a five year fixed rate of 6.89%, £995 arrangement fee, Early repayment charges staggered at 5% in the first two years and then 4,3 & 2% consecutively for the remaining years, a valuation fee of £300 based on a loan of £100K, with APR at 4.6% and a reversion rate currently at 2.5%.

As usual refer to the Key Facts Illustration before making a decision on a Mortgage and seek independent Mortgage Advice to ensure the product is suitable.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. We do not usually charge a fee for mortgage advice although you do have the option to pay up to 1.5% of the loan amount. Some buy to let and commercial loans are not regulated by the Financial Services Authority.

Bank base rate holds as mortgage rates begin to fall

The Bank of England announced yesterday that bank base rate will remain static at 0.5% for another month which is more good news for the housing market, prospective borrowers and mortgage brokers.

In conjunction with massive falls in the London Interbank Offered rate recently, and small falls in Swap rates the stage looks set for continued reduction in mortgage interest rates over the coming months.

HSBC’s and Lloyd’s Group announced large rate cuts in the lower loan to value range last week and over the past few days several lenders have announced small changes to rates and criteria higher up the loan to value range.

While there has been little change in higher loan to value rates in the 80% and upwards category there is a feeling among the mortgage advice community that things will now start to ease in this category too perhaps for remortgages in the first instance but potentially for new purchase as well.

Whilst it’s unlikely we will see any products at 95% for new purchase soon things definitely appear to be moving in the right direction which can only be good news for homeowners and the economy at large.

More on buying without deposit

I wrote a couple of weeks ago about the amount of enquiries mortgage brokers are facing around buying without deposit and I forgot to mention a couple of other important ways to buy without deposit in my previous post.

Firstly it is possible to arrange a gifted deposit from relatives or even possibly another interested party using a form of contract which entitles them to ownership of the relevant share of the property. This contract would allow you to buy the interested party out at your choice or entitle them to the share on sale.

This device gives the potential giftor a legal right to some of the proceeds of sale even if values continue to fall and much more certainty of receiving their gift back in the future.

Also those who are lucky enough to have the right to buy a council property may be able to buy without deposit as well because many lenders will accept the discounted value of the property as the deposit as long as their valuation reflects the councils figures.

However if you are  eligible for a Right to Buy but live in a council flat don’t get too excited straight away as many lenders are restricting their exposure on flats due to the flood of 1 bed properties during the boom so if your property isn’t a house its a good idea to speak to a mortgage advisor and see whether a deposit will or will not be required.

Hedging your bets? Switch and Fix.

I wrote recently about the tough decision some people are having to take about whether to fix their mortgage now or wait on their standard variable rate rises and with today’s announcement that base rate will stay unchanged at 0.5% the decision hasn’t got any easier.

There is however a nifty product currently being offered by Nationwide Building Society (one of the few lenders still touting for new business) which allows you to take one of their current tracker products now and switch it to a fixed rate whenever you choose without incurring early repayment charges.

Other providers have similar offerings however there is a difference which sets them apart. The Nationwide will allow you to switch to a fixed rate based on the Loan to Value of the valuation taken when you arrange your tracker, which means that if value’s continue to fall you will not be locked out of new deals.

You will have to pay a second arrangement fee however and you will be restricted to the fixed rates available when you decide to change which could be higher than those available now but if you aren’t sure which way to turn at least this offers a get out clause which normal tracker products will not.

Who needs Self Certification?

There have been muted announcement’s from the FSA recently that indicate they may be moving to stop fast track lending and self certification mortgages for people in full time employment but there still seems to be a lack of understanding in what self cert is for.

Self Certification is designed for those who cannot prove their income and for whom normal lending practice of considering income that is not guaranteed at a rate of 50% would cause unfair difficulty in borrowing.
There are many types of employment that are paid largely in commission income ranging from recruitment consultants, estate agents, business development managers to stock brokers, (even mortgage advisors my friend!). These are all forms of employment that may produce a need for self certification.

Other people that are owners of a business that may produce very irregular income streams such as businesses in tourism sectors or a firm that was paid on completion of large irregular contracts may also have a need to self certify particularly when self employed.

What it is not is a means to inflate income. Lenders will withhold the right to contact employers, ask for bank statements and other supporting information so if the figures are out of the ordinary they should be asking questions and hopefully if the FSA keep this mind it won’t be banned. There is a home for Self Certification that shouldn’t be ignored.

Can I Buy without a deposit?

A big question for many first time buyers at the moment is how can I purchase a house without a deposit in the absence of 100% mortgage products.

One way that is possible is the governments Home Buy Direct shared equity scheme which allows customers to buy a house for 70% or more of its value, the developer or makes a loan for the remainder on an interest free basis which later reverts to a very low rate such as 1.75% after several years. Some of the property developers involved in the scheme are offering purchase without deposit.

The scheme operator is repaid either by staircasing (buying a larger stake in the property towards 100% ownership) or on sale of the property in which case they will take their percentage of the sale value.

Housing associations may also run similar schemes known as shared ownership where you purchase between 25-75% of a property typically and pay a nominal rent on the remainder however these may require a deposit. Broadly both schemes are quite similar.

To find out more search for Home buy Direct on Google etc or for housing associations in your area.

However one way that usually wouldn’t work is if the vendor simply strikes the deposit value off the sale price. Known as a vendors deposit this is now very unlikely to be accepted and pretty much all lenders will take the lesser figure for the valuation leaving you back at square one.

Time to fix your mortgage?

A lot of people have been asking me recently whether it’s the right time to fix their mortgage payment in light of the fact that rates have started to go up.

And it’s a very interesting question without a very straightforward answer, but here’s the main considerations to think about.

Firstly if you are on or about to go onto your banks standard variable rate, is it below the current fixed rates? Many banks haven’t passed on the full rate cut and there are SVR’s out there far higher than current fixes if you have a decent amount of equity in your property. There are fixed rates available around the 3% mark if you have 25-30% equity.

So if your current rate is above 3% then it’s well worth considering if you have the equity there however if you don’t have a lot of equity or if you have any significant adverse credit the picture changes considerably and it may be better waiting till rates are about to jump significantly, it largely depends on how much more a month you will have to pay in order to fix now.

If you have a very low standard variable rate then the really big question is when will bank base rate go up and by how much? And while Mervin King announced that it definitely wouldn’t go up this year, it’s well worth looking at inflation. You may have noticed petrol starting to go up again and crude oil prices have bounced back to $70 a barrel. This could have a big effect on the Retail Prices Index & Consumer Prices Index and very importantly swap rates, and if you look at prices of other commodities which eventually filter down to consumer prices such as prices for metals like steel and aluminium many are enjoying a boost at the moment as well.

Many lenders have just increased their fixed rates due to increases in swap rates. Unfortunately without a crystal ball it’s hard to know whether swap rates will continue to rise or if they may even fall again before the bank base rate changes. It is likely though that the swap rate increases are due to inflation concern and the anticipated rise in base rate so may continue to rise moving forward. Historically speaking a 3-4% interest rate on a mortgage is still low so this all points to now being a good time to fix for 2-3 years as long as your circumstances suit.

Should Affordability be regulated?

Hi and welcome to this the first post of the brokers blog.

As my first topic I thought I would comment on Gordon Browns recent suggestion that there may be a move to regulate the affordability models used by banks and building societies when determining how much to lend to a borrower.

I am probably one of few people in an industry based around percentage commission to think that this is a good idea in essence, but I am all too aware of the dangers of getting it wrong.

The point being the dual regulation system we have currently with Mortgages being FSA Regulated and non residential and second charge lending being essentially unregulated outside of the limited involvement of the OFT (Office of fair trading).

There’s no point regulating affordability on first charge residential loans without bringing second charge loans and Buy to Let into the same body of regulation, or the effect will be to encourage further the misuse of Buy to Let mortgages for the purposes of getting a larger loan leaving the market still open to abuse and also encouraging people to take more expensive second charge lending for debt consolidation.

Its important not to get carried away with the sentiment of the moment and bodge regulation just because it seems like a good idea to bring the banks into line with each other. Perhaps the question should be is it time to regulate all non-commercial lending under the same body (and I include Buy to Let in non-commercial) as well as limit the affordability calculation used?

The answer is probably yes. However even then there is a very important thing to consider, how do you regulate that without leaving a significant number of people locked out of a re-mortgage? Because whilst it is favourable to have a control on the fire of house price inflation it definitely isn’t a good idea to lock people on existing 4 to 5+ times income Mortgages out of competitive new rates, at the same time as leaving them exposed on their variable rate to every change of bank base rate.

Whatever the government does decide to do on this they need to think carefully about how it can be done without leaving thousands of people in even more danger of mortgage default.

Another important aspect to it is that it will be likely to further the reduction in house prices, which would currently leave people deeper in negative equity. There are still many areas where the average first time buyer simply can’t afford to buy at 4 times main income, so the market is still generally overpriced in many areas, and bringing in this type of regulation could worsen the pain of the credit crunch for many particularly those who have pushed their income that bit further and are already treading water.

So in my opinion whilst it’s definitely needed, a bull in a china shop approach could be nothing short of disastrous.


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