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.
With rising unemployment and the continued economic downturn, it is unsurprising that mortgage brokers and insurers alike have noted increases in enquiries about mortgage payment protection insurance or accident sickness and unemployment insurance, as it is otherwise known.
So I thought now would be a good time to discuss how the cover works and what types are available.
Few homeowners know that income support for mortgage interest is only available 39 weeks after redundancy or incapacity leaves you out of work.
And very few people would continue to receive pay at full salary for this length of time or even have sufficient savings to cover their mortgage and lifestyle for this duration; this is where the need for ASU cover applies.
ASU covers being unable to work due to an accident, sickness or unemployment (if applicable). And to help pay bills like your mortgage, insurance, utilities and food. They typically provide a benefit for between 12 and 24 months.
It has a deferment period usually of 4, 8, 12 or 24 weeks. It is the amount of time from being unable to work before 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.
You may have the option to include unemployment; this will only cover you for involuntary redundancy. If you are dismissed or resign, there will be no cover.
For the self-employed, care is required as many policies will not cover this type of employment, or supplementary income from freelance work.
Another point is they 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 before 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 ensure that the policy will be valid.
Cover can usually be arranged, for the cost of your mortgage and insurance, with the option to add an extra cover up to a maximum percentage of your income; or a percentage above your mortgage costs so that you cannot be better off receiving the benefit than if back at work.
There may be the option to “waive the premiums”, from the point of being out of work; you won’t be able to claim until the deferment period is complete, but you can stop paying the monthly premium as soon as you are 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 before making a purchase.
With many borrowers now falling fowl of credit scoring, it’s a great time to take simple steps to improve your credit score; here are some tips on how to do it.
Improve your payment history.
Simple budgeting steps can help improve your credit score by ensuring you always make your minimum payments on time. Setting up direct debits and checking there are always sufficient funds for these payments is pivotal to a high credit score.
Work to a budget.
It can be easier to stay on budget if you work out your fixed monthly bills (e.g. mortgage, car insurance, gas) and transfer your spending money to another account by standing order.
It is simpler to manage when you come to the cash machine. Just make sure you always leave a little extra in the account for bills in case they are higher than expected.
Update your information.
Make sure all your important information is up to date. Credit scores can be improved by ensuring your personal information is consistent and accurate across all sources.
Human underwriters still make many decisions, so it is always good to check everything ties together, such as your driving license, bank details and electoral roll, and that all are accurate & up to date.
Limit credit applications.
When you apply for credit, it is recorded on your credit file. If these increase rapidly, a lender may think you are in financial difficulty or have concerns about fraud. So shopping for a new phone and a store card may be best left until after any mortgage application.
Check your credit report.
It is now possible to check your credit report, so ensure that information is correct, particularly regarding public record information about CCJs, repossessions or bankruptcies and the financial connections section.
If there is anything on a credit report you do not understand, or if you are regularly refused credit for no apparent reason, it may be worth speaking to a mortgage broker or advisor.
Hello, and welcome to this first post of the broker’s blog.
As my first topic, I wanted to comment on Gordon Brown’s recent suggestion that there may be a move to regulate the affordability models banks and building societies use when determining how much to lend.
I am probably one of few people in an industry based around percentage commission to think this is potentially a good idea, but I am all too aware of the dangers of getting it wrong.
We currently have a dual regulation system with mortgages being FSA regulated, and non-residential or second-charge lending is 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 mortgages into the same body of regulation.
Or the effect will be to encourage further the misuse of buy-to-let mortgages to get a larger loan, leaving the market open to abuse and encouraging people to take more expensive second-charge lending for debt consolidation.
It is 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? As well as limit the affordability calculation used (and I include buy-to-let lending within non-commercial).
The answer is probably yes.
However, even then, there is a difficult question to consider; how do you regulate that without leaving many people locked out of a re-mortgage?
Because whilst it is favourable to have control over the fire of house price inflation, it isn’t a good idea to lock people on existing 4 to 5 times income mortgages out of competitive new rates; whilst at the same time leaving them exposed to their variable rate and every change of bank base rate.
Whatever the government does decide, they need to think carefully about how to do it without leaving thousands of people in even more danger of mortgage default.
Another important aspect is it will likely further the reduction in house prices which would, at present, leave people deeper in negative equity.
There are still many areas where the average first-time buyer can’t afford to buy at four times their income. So the market is still generally overpriced, and bringing in this type of regulation could worsen the pain of the credit crunch for many, particularly for those who have pushed their income further and are already treading water with repayments.
So, in my opinion, whilst regulation is needed, a bull in a china shop approach could be disastrous.
