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.
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.
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.
