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 an article some time ago about the FSA’s proposed changes to end self-certification and fast-track mortgages; I made a big point about how this could leave many people struggling to refinance and cause trouble for the recovery of the housing market.
The FSA confirmed last week that they would take action; the press has been making similar observations to my own today about the impact any regulation could have on our recovery and those borrowers with an existing loan of this type.
But over the weekend, I had a realisation; and made a U-turn on the subject. In reality, there are few legitimate borrowers who cannot “prove” their income.
The point is that the word “proof” and its interpretation is the key detail. Almost all people can show evidence that the income they declare is broadly accurate; they may not be able to prove income in the manner that a traditional full-status mortgage would require.
For example, if you have a business from which you could take far more income than you currently do without running it into decline, that is your prerogative.
You should still be able to evidence in a suitable way that your business has the potential for you to take further income and that the loan would then be affordable.
It may not be satisfactory at your local building society now, but lenders with good product development teams will soon see how to create a new type of product to cater for this market once their appetite comes back.
So if the FSA gets this legislation right and does not dictate or define what proof consists of, then there will still be the opportunity for lenders to market products for those with non-standard income, priced above full-status products as before but simply requiring some evidence to back up that the income declared is not a total fabrication.
The FSA just need to be careful not to try and make this legislation so watertight that it chokes the housing market to death.
There have been so many new rates announced over the last two weeks it hasn’t been possible for me to talk about them all.
Suffice it to say, if you are remortgaging or buying your first or second property, rates across the board have dropped by as much as 0.3%.
Arrangement fees also seem to have reduced, with several of our broker best buy products now having arrangement fees below £600, against an average of £999 for most headline rates a few weeks ago.
Swap rates have dropped significantly since the massive drop in BBA LIBOR over the past two months; this has helped fuel cuts in fixed rates; there still seems to be a general lack of movement on rates at higher loan-to-values for borrowers looking to remortgage.
Fixed rates at 85% loan-to-value; for example, continue to sit around the 5.99% mark with little movement.
It will be interesting to see who makes the first move on this market of higher loan-to-value remortgage borrowers (if indeed there is any drop at all); it seems almost as if the pot is so big that banks are scared to dip their toe in the water in case they get swamped.
It certainly can’t be claimed that a remortgage at 85% is a greater lending risk than a purchase at the same loan-to-value, yet you could get a much better rate if you were buying at this LTV.
Mortgage Advisors will be keeping their eyes peeled for changes on these higher LTV products; hopefully, the news that interest rates are likely to remain low in the long term will help to drive swap rates down further and one of the big banks into releasing some decent remortgage rates for those with little equity.
And if you’re listening, a 95% purchase product wouldn’t go amiss either!
The Woolwich has responded to criticism around their stepped tracker rate, which, with a current headline rate of 1.98%, is one of the lowest rates available in the market.
I commented that the product was restricted to mortgages between £200K and £500K, severely limiting its market, when I announced the new rate here a couple of weeks ago. These restrictions have ceased as of today. The product is now available for loans between £5K and £1 Million.
Woolwich has not chosen to address the lengthy tie-in for five years with a 2% early repayment charge though, which could make the product very costly in the long term.
Instead, they have released a new lifetime tracker at the Bank of England Base Rate +2.29% with a £999 application fee available up to 70% loan to value, or at +2.69% with no fee again to 70% loan to value. The new products have early repayment charges of 1% for two years, making them much more favourable for some borrowers, but crucially both allow you to switch to a later fix without penalty if desired.
Both products would have a valuation fee of £295 for a purchase at 70% loan to value, with a mortgage of £100K and a lender Conveyancing fee of £126, giving an APR of 2.9% and 3.3%, respectively.
As usual, always read the separate Key Facts Illustration before deciding on a mortgage product, and to speak to a mortgage advisor, call 0345 4594490.
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 may pay up to 1.5% of the loan amount. Some buy-to-let and commercial loans are not regulated by the Financial Services Authority.
The Nationwide Building Society has just released its latest house price indices today, which for the first time since the beginning of the credit crunch, show that year-on-year house price inflation is now static at 0.0% change from September 2008.
That indicates the average house value has recovered any losses since this time last year, as prices continue to rise month on month. Monthly change is down slightly at 0.9% from 1.4% in August. It leaves the average drop since the 2007 peak at 13.5%, some way off the 40% drops expected by pundits until recently.
The news comes in a week where lenders have continued to announce reductions in interest rates on products up to 75% loan to value, with Nationwide themselves releasing a raft of new rates yesterday, of which there were too many for me to go into detail, more news will be available this week.
In Q&A, we take a look at some of the questions mortgage advisers deal with regularly.
Question; what are the pitfalls and benefits of an interest-only mortgage?
They say life is all about risk; this question is a prime example.
If you want the certainty that your mortgage is repaid in full (providing you keep up your payments), then you should take a repayment mortgage.
However, if the cost is too high in the short term, you could take an interest-only mortgage and move to a repayment mortgage later, although you should be aware that the interest paid will be dead money and not reduce your debt.
If you take an interest-only mortgage in the long term, you are gambling that by investing wisely, you can outperform mortgage interest rates with your investments, producing a surplus by the end of the mortgage.
However, if your investment does not perform as planned, there will be a shortfall which you will have to find elsewhere at the end of the term.
But your investment must also outperform mortgage interest rates over the full loan balance; and the entire term.
Whereas if you take a repayment mortgage, the capital part of your payment would gradually reduce the interest element, so like for like, you will repay more interest over the term on an interest-only basis too.
Also, income earned from investments may be subject to further taxation, which increases the risks of shortfalls attached to interest-only loans.
That means interest-only lending on people’s primary residence is considered high risk and is harder to arrange.
On buy-to-let loans, interest only is commonplace. The reduced monthly payments give landlords more breathing space if a tenant fails to pay; allowing for the faster accrual of additional funds for other purchases.
