28 April 2011

Know the mortgage process

The Easter break always tends to stifle the supply of any deeply interesting mortgage news, so this week I thought I would recap on the mortgage process.

The mortgage process, regardless of whether you are a first time buyer, home mover or simply re-mortgaging, will be roughly the same. On any new purchase, the selling agent will seek to agree a number of deadlines with you, including the arrangement of mortgage finance. At this point you should make sure that you speak to an independent mortgage brokerage who will assess your overall financial position and discuss your mortgage requirements with you. They are required by law to provide you with an Initial Disclosure Document detailing who they are; who regulates them; their scope of permissions; whether they are restricted to a small lender panel or ‘whole of market’; any fees and costs involved including any charged for advice or consultation. This document also advises how to complain if you are unhappy (now or in the future) with the advice provided.

A good advisor will complete a financial fact find ensuring that they fully ‘know and understand their client’s financial position and requirements.’ This is necessary before any ‘advice or recommendation’ can be provided. Be patient as this process can be lengthy. It is in your best interests however, ensuring that you receive the best possible advice designed to meet your personal mortgage needs and requirements.

Once you’ve agreed the best mortgage for you, a decision in principle (DIP) will be completed, usually on-line with the chosen lender. This involves brief personal details, income disclosure and a credit search. Be wary here as too many credit searches will have a negative effect on your credit score. Ensure that the product and lender are right for you before a DIP is conducted.

DIP decisions are normally instantaneous. Assuming success, it is then upgraded to full application. Payment for valuation is made (sometimes free) and the valuer confirms to the lender if, in their opinion, the property is suitable security for mortgage purposes. A more detailed in-depth survey (homebuyers report) can be arranged at the same time, but for a slightly higher cost. That said, for older properties it should be considered a worthwhile investment as it could save you thousands in the long run.

The chosen lender will require information on income, identity, proof of residency as part of their due diligence requirements. Assuming no issues arise, a mortgage offer should be issued. Then, subject to the solicitor’s conveyancing process, you are now on the road to completion and, if it is a purchase, you should soon pick up the keys to your new home!

Enjoy the long weekend!

21 April 2011

It's good to talk!

We’ve been bombarded with visitors over the last few days as hoards of children embark on the Great Easter Bunny hunt, organised by the Rotary Club of Horsham. It’s wonderful to see so many people taking part and obviously its superb fun for the children as they are spoilt with chocolate, if they find the bunny and carrot! We’ve also had some great enquiries from those who have been dragged, I mean accompany, the children on their tour of the participating shops! This event has certainly been worthwhile for all involved and created a great community spirit.

The Buy to Let market has welcomed back an old name - Mortgage Trust has relaunched this week with some great mortgage rates and their products are only available via mortgage brokers/intermediaries. Mortgage Trust were a major player in the Buy to Let market some years ago and their new product range, some with free valuation and free legal costs, give the impression they want to achieve that status once again.

The “fix or track” debate goes on! With inflation down to 4%, many pundits are now predicting that the Bank of England base rate will not change for the remainder of the year. Therefore, a good low base rate tracker mortgage over a short term could be beneficial. However, there are also some great fixed rates on offer too. Who knows what is right and what is wrong!? Most agree that rates will increase. It’s a case of when and whether or not you are prepared to gamble your biggest monthly expenditure on a ‘could be this month’, ‘could be next month’ scenario. You will almost definitely find that by the time the Bank Base rate does start to rise, the cost of fixed rate monies will have already risen.

It’s good to talk, and we don’t charge for conversations! If you are worried out the cost of your mortgage or especially what would happen to your individual monthly payments should rates increase, please do come in and see us. On an average £100,000mortgage, a 1% interest rate rise could cost an extra £83 per month. AToM is totally independent and offers advice on mortgages for the whole market.

Wishing you and your families a very Happy Easter!

14 April 2011

17% of UK adults failed to pay one bill in last 12 months.

The sun is shining, kids have broken up for Easter, inflation is down to 4%, The Bank of England base rate remains at 0.5% for the 25th consecutive month and the Council of Mortgage Lenders confirm that lending for house purchases climbed by 8% in February. Perhaps I should end my column now, on a positive!

The worrying trend seems to be the public perception of what will happen when, not if, bank base rate rises. Moneysupermarket.com has established that an alarming 17% of people surveyed feel they will be unable to afford their mortgage payments when interest rates do rise, while 6% have already put their home on the market.

According to the UK Payments Council, at the end of 2010 there were an estimated 63m credit and charge cards in the UK compared with around 62m people in the country. Total credit card debt in February 2011 was £58.5bn and the average interest rate on credit card lending is currently 18.84%, which is 18.34% above bank base rate (0.5%)!

Creditaction suggest 1 in 10 UK adults are permanently overdrawn. One third of people have moved into the red during the last 12 months and 17% of UK adults (almost 8 million people nationwide) failed to pay at least one bill over the last year, potentially putting their credit profiles at risk.

We enjoyed the company of a work experience student from a local school last week. A well educated young man. Although he knew about credit and debit cards, he had little knowledge (as is the case with many of his generation) what would happen if he missed a payment later on in life to any credit agency or even a mobile phone provider. It was a real eye opener for him!

Finally, if you have not yet nominated a local business/individual in the WSCT Business Awards 2011, please make sure you do! All businesses, large or small, need a ‘pat on the back’ and recognition for their hard work and efforts. The closing date for nominations is Friday (15th April), so be quick and vote wisely! As an aside, did you know, I have been writing this column, every week, since November 2008...?!

08 April 2011

Lenders are restricting the Interest Only option.

There has been much hype recently regarding Interest Only versus Capital and Interest (Repayment) mortgages. With an Interest Only mortgage, you only pay interest, so, at the end of your chosen term, you still owe the lender the same amount as when you began. Normally with this method, it is recommended that you contribute to a saving or investment vehicle to generate funds to repay the mortgage. This is generally optional but the Financial Services Authority (FSA) are paying great attention to this as they do not want to see customers with large debts remaining later in life.

With a Repayment mortgage, you pay both capital and interest each month. Initially, this is more expensive, but it does mean that you pay back the full loan by the end of the term, assuming you meet the lenders required payments on time.

We are seeing more and more lenders tighten their requirements on Interest Only mortgages. Nationwide and Lloyds Banking Group (including Halifax) have recently limited the maximum loan available on an Interest Only option to 75% of the property value. Above this level, Repayment is mandatory.

Some lenders charge higher interest rates if you take an Interest Only mortgage and many are trying to persuade customers to switch from this method to Repayment. Some no longer offer Interest Only at all!

Why the recent attention to these repayment options? Simply, because many borrowers who have stepped onto the property ladder chose the cheaper option promising to review their payment plans at a later date. The problem is, the ‘later date’ never seems to arrive! As we all know, people generally live to their means. Many borrowers on this scheme have no savings or viable plans to pay back the debt and this is worrying!

However, Interest Only mortgages remain practical for certain professions - people entitled to annual bonuses - the fluctuating income of self employed - employments where lump sums are received after a number of years in service are some examples.

Some lenders offer a part and part option, enabling the customer to pay some of their loan on Repayment and some on Interest Only. This serves to help many borrowers and keeps monthly payments at a lower level yet the underlying issue still remains. At the end of the mortgage term, the Interest Only element still needs to be repaid! Seek professional advice.

01 April 2011

If you can, overpay!

For those lucky enough to be on a very low bank base rate tracker mortgage, you may have enjoyed a couple of ‘comfortable’ years with the bank base rate being at an all time low. However, are you one of the few on tracker rate mortgages who have taken advantage and overpaid on their monthly payments? Barclays recently carried out a survey of over 1,000 borrowers and found that only 10% were currently overpaying and 6% are planning to start overpaying this year. For those who have not yet started, this could be a missed opportunity on shaving a number of years from the term of the loan, or reducing the interest paid each month, even by just overpaying small amounts.

The Buy to Let market (investment properties) looks set to be the most competitive sector of the mortgage market as further lenders signal their intent to offer products to this area. Metro Bank, Santander and Yorkshire Building Society are just a few that have signalled their interest for later in the year. Skipton Building Society has also this week re-launched in to the Buy to Let marketplace. As First Time Buyers continue to struggle to get on the property ladder (the government First Buy Scheme may assist a few), the rental market is expected to continue its rapid growth. Interest rates for investment properties have tended to be slightly higher with larger lender fees charged for arranging these types of mortgages. However, with more lenders already competing, both rates and fees are already starting to reduce and will fall further as the market becomes crowded.

Finally, larger loan availability is also on the return. Having been somewhat restricted over the last few years, obtaining loans of £1m + have been slightly more difficult to achieve. This is set to change as Nationwide have recently increased their maximum loan to £2m at 75% of the property value and 70% above £2m on an individual case by case basis. Bank of China will also consider loans of up to £10m for the right applicants. All steps in the right direction and one might even start to get slightly excited at the increasingly positive nature of the mortgage news circulating the market of late!