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Tag: Variable Mortgages

If you have an interest-only mortgage now could be the time to consider switching products before the window closes.

In the last two weeks, both Natwest and Coventry Building Society ceased offering interest-only mortgages for residential property following Nationwide’s decision to do the same some time ago.

Add to this the vast number of lenders who have restricted interest-only borrowing to less than 75%, 66% or even 50% of the property value and the market for these mortgages is now stricter than ever.

Borrowers on interest-only mortgages currently sitting on their lender’s variable rate should consider changing their mortgage to a new product now before the market contracts further.

With the FSA’s announcement that interest-only lending would become part of the mortgage market review following the credit crunch, many lenders have reacted in a kneejerk fashion, and Eliminated the option for customers with a suitable repayment strategy to refinance their loan regardless of the plausibility of their circumstances.

This is already creating a large number of mortgage “refugees” unable, simply due to the lender’s criteria to arrange a new mortgage and who then become trapped on a variable rate without the option to move.

Whilst this may not be the end of the world whilst the Bank of England Base Rate is low it could result in thousands more repossessions in the event of the collapse of the Euro.

This scenario would almost certainly see wholesale increases in lenders’ standard variable rates which many borrowers might find too large to handle.

For those in the last years of an interest-only mortgage or even halfway through with borrowing of more than 50% of their property value, waiting too long to consider a move to a new product could see them shut out of the market in the long term.

Of course, for those borrowers without a suitable strategy for repaying an interest-only loan, then this is the right time to think about switching either to a full repayment mortgage or alternatively, if investments such as endowments are not performing and are predicted to fall short of requirements, a part repayment and a part interest-only loan might be suitable.

For more information contact one of our whole of market advisors on 0845 4594490.

How the potential collapse of the Euro could affect your mortgage costs

Whilst it remains unclear how close we are to a collapse of the Euro, one thing is clear; predicting how the fallout would affect financial markets is no easy task, even for seasoned financial experts.

In pure mortgage terms, one set of products appears to be particularly risky in the current market; is any which tracks a variable rate as opposed to the Bank of England base rate. These include discounted rates, variable rates and Libor-linked or Libor-rate deals.

All of these products could be subject to increases if the Euro collapsed, even if the monetary policy committee of the Bank of England decides to keep interest rates low.

When the BOE base rate was reduced heavily in 2008, many lenders did not pass these cuts into their variable rates for some time; as doing so would have seriously jeopardised their ability to remain afloat.

Similarly, in the scenario of the collapse of the Euro and or the default of a nation such as Greece, Spain or Italy, this would undoubtedly cause a similar crisis in the banks leading to a drying up of money markets and upward pressure on banks’ variable rates.

Most discount-rate mortgages are offered by smaller building societies, which typically have a much lower risk exposure and would be better insulated against having to raise their variable rates significantly in a similar scenario. However, they are not immune to this risk.

More concerning, though, are Libor-linked deals; these are linked to the going rate of lending between UK banks and could rise a lot if we saw more market turmoil.

Even so, tracker deals could still be a risk; who knows how the different repercussions of this kind of event could ultimately play out?

So when looking at current products, comparing the difference between fixed and variable rates, in general, is well worth doing. I would take a pragmatic approach where the difference is minimal, as it seems likely that the last string of bailouts may yet prove to be the tip of the iceberg.

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 TYPICALLY CHARGE AN ADVICE FEE OF £299 PAID UPON FULL MORTGAGE OFFER. SOME BUY TO LET AND COMMERCIAL LOANS ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY
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