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The Mortgage Brokers Blog; news, views and insights

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.

Latest Posts:

COVID update; can you remortgage or product transfer, during lockdown?

Covid-19 has had a massive impact on the mortgage marketplace, with some lenders withdrawing altogether and thousands of products withdrawn from sale. The outlook is not as gloomy as you may imagine if you need to remortgage.

If your current deal is about to end, ends later this year, or if you want to

 remortgage to consolidate commitments and reorganise 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current deal ends imminently, whilst there has been a reduction in the number of lenders and products, many of those withdrawn are for house purchases or higher-risk lending.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 the market and your current lender simultaneously.

If your income has fallen, this might affect your ability to change lenders but would not prevent you from transferring deals with your existing lender.

If your mortgage deal is ending within the next 6-months

For anyone whose existing deal ends by late Autumn, now is an ideal time to think about remortgaging.

Several lenders’ remortgage deals are valid for six months, so you can apply well in advance, taking advantage of the low current rates and arranging everything 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 reduction made by the Bank of England into new fixed-rate mortgage deals, there is a good chance that this never happens.

With vast financial losses in every industry, it is difficult to imagine lenders vying 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 predict how the market will progress over the year, but the likelihood of rates getting significantly better than today seems dim.

Consolidating credit commitments into your mortgage

This is where the remortgage market has already shrunk significantly. So, if you want to trim down your outgoings and reduce your typical monthly commitments, it may be wise to act now rather than wait. 

Be aware, though, that consolidating credit commitments into a mortgage often presents poor value for money. And may be more expensive than alternative options, like balance-transfer deals or converting credit card debts into a personal loan.

It is also important to note that you often convert unsecured credit commitments into one secured against your home. That means 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 understand whether a debt-consolidation remortgage is the correct solution for you. 

Changing your mortgage term

You do not 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, and you may be able to do this midway through an existing deal, even if you have early repayment penalties.

Again, you can possibly change the term when you remortgage or product transfer, and if you want to reduce your outgoings in this way, get in touch to 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 options to prevent you from getting into arrears, including the government’s payment holiday scheme.

If there is a risk of you defaulting on obligations like a credit card, loan, hire purchase or other non-secured credit commitments, then consolidating these into your mortgage is a potential solution. 

But this increases the risk of losing your home by converting unsecured commitments into 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.

COVID update; managing your mortgage, payment holidays, and Bank of England Base rate changes

The coronavirus has caught governments, businesses and consumers off guard, so the situation is continuously changing, but there is good news for most people.

Firstly, for those who want to remortgage during the current lockdown, to consolidate commitments, or whose current deal is due to 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 rely on an electronic valuation (i.e. an estimate based on previous sale prices and local market trends, like estimates on sites like Zoopla).

That may mean you have difficulty if you have spent significant sums renovating a property and want to consolidate commitments into your mortgage.

Reports of lenders closing funding are based on a handful of small specialist lenders (new to the marketplace anyway) ceasing to offer new lending. Some larger lenders have limited their purchase lending loan-to-value limits, 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 paying your mortgage, you should contact your lender as soon as possible. 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.

That means they must consider offering solutions such as a temporary switch to interest only, if suitable, or consider alternatives like increasing the term or taking 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. 

Arrears will also worsen future costs and the options available when you remortgage.

Bear in mind that any proposed solution will likely cost you more in the long term. So, it’s not a gift or freebie, and it may not make sense if you have plenty of savings 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 the only temporary solution available. It is unclear if the government’s statement about payment holidays will apply to commercial lending.

You should still contact your lender early to discuss what assistance they may 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 affect them across their whole lending book, so they are likely to be magnanimous.

Registers of Scotland Shutdown

We have become aware of clients whose sales are pending soon and 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 it seems likely that a solution is imminent. Until this point, Scottish sales will not be able to complete.

Bank of England Base Rate Changes

If you are considering a new mortgage, I will write 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 their mortgage soon, they present a dilemma.

Fixed-rate mortgages are unlinked to the BOE base rate, so the reduction in this has not yet passed through to most fixed-rate mortgages, although one or two drops have popped up.

As lenders will be extremely hard hit by the lockdown, they might seek to increase their margin on lending, so these rate reductions might never be passed onto fixed rates fully.

That means most borrowers can 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 as they follow the BOE rate.

However, no one currently offers tracker or variable-rate mortgages with any cap or upper limit that I know of, and given that this is a time of unprecedented global turmoil, wild changes to interest rates are not outside of the realms of realistic possibility.

The pitfalls of unmarried couples buying a property in a sole name

In this series, we’re exploring the hidden value of mortgage advice.

Often, when people think about the benefits of a mortgage advisor, the cliched norms of being whole of the market, having insider knowledge and getting the best deals are what spring to mind.

We like to think about getting a little 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 more significant, like hundreds of thousands of pounds more.

We can all be a bit rate-obsessed and inclined to focus on the most apparent numbers, but the biggest risks to consumers are often those least apparent.

Most customers might only have one transaction in a lifetime where their choices may have such extreme consequences, but would you know enough to see those pitfalls when they exist?

Recently, I spoke to clients intending to buy a property in a sole name, as unmarried partners. And the potential impacts of that decision troubled me.

Like many customers, as his spouse had recently ceased employment, he thought it best to apply in sole name. Whether for simplicity’s sake or because he assumed it had to be a sole application.

Many people think that without an income, you cannot be an applicant; in truth, it would limit the maximum loan a little, but for most people, it is unlikely to jeopardise their application. 

Anyway, that’s what a mortgage advisor is for, to advise, even if that means discussing two scenarios. 

But this decision could have far-reaching consequences outside of mortgage lending, so I would immediately advise them to get tax, inheritance planning, and legal advice about other ramifications.

So what difference would it have made applying in sole names, and 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 neither married nor civil partners, you don’t benefit from joint inheritance tax thresholds totalling £650k, and you also lose the joint-main residence allowance totalling £1 million. 

You can’t have joint ownership without a joint mortgage, and there is no such thing as a “common law” marriage outside of divorce settlements.

It’s fair to assume that tax allowances and property values will increase over time. But based on the purchase price of £600k and today’s tax allowances, we get an analogue of how future costs might stack up.

Whether or not they have a valid will, they may only use the applicant’s IHT allowance to pass the property onto children. 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 £110k of inheritance tax being liable by their children on death. However, if the applicant died first, leaving the whole property to his partner in his will, they could use both their allowances in series, but the two don’t combine in the way a married couple’s 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 left the property to her children, the whole asset would be chargeable again, potentially leading to 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 half of the property value to the children and half to the partner, but ultimately still liable for the £110k.

That could also have its pitfalls to if the applicant died whilst the children were still minors (as raising any loan to pay the tax burden with a property co-owned by children is unlikely, if even possible).

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 larger benefits. That is relevant as it’s likely that this type of affluent customer ends up with further savings that may also pass to children, and could bear even more tax.

If they had arranged the mortgage in a sole name and had not made a valid will (its estimated that roughly 60% of people die without one), the consequences could be 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 still minors, it would need to go into a legal trust to be held for them until they were 18), this scenario with a looming tax bill of £110k and a property you don’t technically own, 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; 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 residing in the property, potentially problematic in an acrimonious separation.

That all shows that arranging a mortgage can have wide-reaching technical consequences and huge financial impact, so if you’re working with a good adviser, you are much more likely to avoid catastrophe than if 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 situations that have huge risks attached and guide you to take further advice on those decisions that might be questionable.

What are the real costs of mortgage advice and who pays a brokers commission?

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.

Sony a7 on the sony website

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 a7 at Jessops

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.

Example of Natwest products from our sourcing system

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.

Image of worse rates available direct

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.

Don’t believe the tripe; self-employed mortgages – do you need an accountant?

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.

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. PLEASE NOTE THAT SOME MORTGAGES SUCH AS COMMERCIAL BUY-TO-LET ARE NOT REGULATED BY THE FCA.

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