Welcome to the brokers blog; where we discuss the latest developments, common queries, spurious sources and the sublime, ridiculous and esoteric aspects of the mortgage industry.
I wrote recently about the tough decision some people have about whether to fix their mortgage now; or wait on their standard variable rate, exposed to potential rises.
With today’s announcement that the Bank of England Base Rate will stay at 0.5%, the decision hasn’t got easier.
There is, however, a nifty product currently being offered by the Nationwide Building Society (one of the few lenders still vying for new business).
It 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, a key difference 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 arranged your tracker, which means that if house values continue to fall, you can still access 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 are not sure which way to turn, this at least offers a get-out clause which typical tracker products will not.
There have been muted announcements from the FSA that indicate they may ban fast-track and self-certification mortgages for people in full-time employment; there still seems to be a lack of understanding of what self-cert is for.
Self-certification lending is intended for those who cannot prove their income; or for whom traditional lending practices of considering variable income at a rate of 50% would cause unfair difficulty in borrowing.
Many types of employment are paid predominantly in commission income, such as recruitment consultants, estate agents, business development managers and stock brokers.
These are all forms of employment that may produce a need for self-certification.
Others that own a business which produces very irregular income streams; such as those in the tourism sector; or paid upon completion of irregular contracts, may also 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 and ask for bank statements and other supporting information. So if the figures are out of the ordinary, lenders should be asking questions; hopefully, if the FSA keep this in mind, it won’t be banned.
There is a home for self-certification that shouldn’t be ignored.
A big question for many first-time buyers is whether it is possible to buy a property without a deposit; in the absence of 100% mortgage products.
One way is the government’s Home Buy Direct shared-equity scheme, which allows customers to buy a house for 70% or more of its value.
The property developer makes a loan for the remainder on an interest-free basis which reverts to a low rate, such as 1.75%, after several years.
Some property developers involved in the scheme offer purchases without a deposit.
The scheme operator is repaid by “staircasing” (the owner buying a bigger share later on); or on the sale of the property, in which case they will take their percentage of the sale value.
Housing associations also run similar schemes known as “shared ownership”, where you purchase between 25-75% of a property and pay a nominal rent on the remainder; however, these may require a small deposit. Broadly both schemes are similar.
To find out more, search for Home Buy Direct on Google or for housing associations in your area.
One way that won’t usually work is the vendor reducing the sale price. Known as a vendor’s deposit, this is very unlikely to be accepted (in the present climate of declining property prices).
So pretty much all lenders will take the lesser figure for the valuation, leaving you back at square one.
As a mortgage advisor, you often have to try and combat the expert opinion of “the bloke down the pub” and even apparently knowledgeable sources.
Whilst looking for a table of current standard variable rates recently I came across this quote on fool.co.uk:
“First of all, let’s look at Standard Variable Rate (SVR). This is the standard rate of interest that lenders use, and as it says, it is variable. This is because it is linked to the Bank of England base rate – so whenever that goes up, so will your mortgage rate and thus so will your mortgage payments.
However, SVR Mortgages aren’t just linked to the base rate, they’re usually set at around 1-2% higher. This makes this type of mortgage very expensive.”
Any mortgage broker worth his salt would cringe at the apparent advice that SVRs are linked to the Bank of England Base Rate or “BOE Base Rate”, and will move in line with it.
Any borrower whose SVR is still above 3% is probably more than aware that this is not the case.
In reality, the lender’s SVR is a rate that could move due to many things including; LIBOR, the BOE Base Rate; the need to attract savers and a myriad of other market forces.
That’s why the full extent of the cuts in the BOE Base Rate has not been passed on in full to many borrowers, as banks just need to recapitalise.
What’s the point you ask? When you’re looking to find out what to do with your mortgage, a qualified mortgage advisor has a legal duty of care to you. Something neither a website nor the bloke down the pub; will provide.
People have been asking me recently whether it is the right time to fix their mortgage deal now that rates are increasing.
It is an interesting question without a very straightforward answer, but here are some things to consider.
If you are on a standard variable rate or will be soon; 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 fixed deals; if you have a decent amount of equity in your property.
Currently, fixed rates are available around the 3% mark if you have 25-30% equity. If your current rate is above 3% then it’s well worth considering switching to a fixed deal.
If you don’t have a lot of equity or if you have any significant adverse credit, the picture changes considerably; it may be better to wait until rates are about to jump significantly.
It largely depends on how much more a month you will have to pay to fix it now.
But for those with a low standard variable, the big question is when will the Bank of England Base Rate go up, and by how much?
And while Mervin King announced that it definitely wouldn’t go up this year, it’s worth looking at inflation.
You may have noticed petrol prices rising again, and crude oil has bounced back to $70 a barrel.
This could have a sizeable effect on the Retail Prices & Consumer Prices Index, and importantly on swap rates; if you look at other commodities which filter down to consumer prices such as steel and aluminium many are enjoying a boost at the moment too.
Swap rates drive fixed deals, and many lenders have just increased their fixed rates due to changes in swap rates.
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.
The swap rate increases are likely due to inflation concerns and the anticipated rise in base rate; so they 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.
