Secured loans are not as expensive as you think..

I'm finding it a really good time to be in mortgages!  Rates are low, customers need professional assistance more than they ever have done and competition in the market is at it's highest for some years. This is across all areas of the market place from Residential Mortgages to Buy to Let, and Bridging Loans to Secured Loans.

In fact, the latter has seen a large increase in demand. A secured loan is a 2nd, or subsequent charge, designed for homeowners and which allows the equity in their property to be used as security.  Loans usually start from £3.5k and now range right up to £2.5m!  There are also no 'up-front' fees to find although costs for valuations and legals (for example) are added to the advance.

We tend to find that many customers looking to remortgage to raise additional funds are already on an attractive rate with their lender. To move away could be costly and they could end up on a much higher interest rate.  Depending on the amount already lent as a mortgage, compared to the value of the property, most lenders will allow a secured loan to be added as additional borrowing, right up to 95% of the property value.

The secured loan is usually repaid over a shorter term than a mortgage, circa 3-7 years, but the term can be longer and up to 25 years, although this will increase the amount of interest repaid. Rates vary depending on the customer’s circumstances and current level of borrowings.  

This market is also predicted to grow in 2016 when a new EU Directive is implemented.  In short, when a customer wants to remortgage to raise additional funds, the intermediary/broker will need to demonstrate the best outcome for the customer and not only look at a full remortgage on a first charge basis, but compare with an appropriate secured second charge loan allowing the customer to keep the existing mortgage or a further advance with the existing funder.  Although the Directive is still a way off, the FCA principles already apply to firms and individuals so best outcomes and best practice for borrowers are at the forefront of any advice and recommendation. This demonstrates more than ever the need to seek professional advice!

More rate fluctuations and lenders dislike payday loans!

Rate fluctuations seem to have been rife over the last few days as lenders continue to compete for business.  Barclays have cut some Help to Buy rates by up to 0.7%, Accord Mortgages cut their five year fixed rates by up to 0.2%, both Skipton Building Society and Santander launched their lowest ever two year fixed rate deals whilst The Mortgage Works (the Buy to Let arm of Nationwide) has launched the first ten year fixed rate mortgage for Buy to Let customers.  This is all good news for the end consumer but also shows how comfortable lenders are in promoting fixed rate monies over variable rates.  To me, this is in line with the general market consensus that the Bank of England base rate is probably not going to change for some time yet.  

Affordability plays a huge part in a lenders decision to assist customers with mortgage finance.  All lenders will look at the customers ability to repay any loan both now and stress tested to higher rates in the future.  As a result, some lenders have restricted the maximum they will lend to customers depending on their deposit.

This week, we have see Woolwich cap their income multiples for all loans over 80% of the property value.  For anyone with less than a 20% deposit, income calculations will now be a maximum of 4.5 x income (previously this was up to 5.5).  This is possibly as a result of recent Bank of England stipulations that only 15% of a lenders mortgage book may be loans with more than 4.5 x income calculations.

And finally, the news streams are saying this week is one of the busiest for customers looking to take out payday loans to pay off post Christmas debts.  I can't advise you either way, but I will say that if you are looking to take out a mortgage in the next twelve months, and you have had payday loans, be aware that lenders are likely not to assist you.  Payday loans are treated much like adverse credit but lenders are more likely to accept someone with historic adverse than someone who has taken out payday loans.  Homework is therefore crucial! 

Activity is high and criteria is changing!

A number of lenders have launched ten year fixed rates!  One even below 3% (up to 60% of the property value).  This is a bold move by the lenders but attractive if you know your movements are going to be minimal over the next ten years.   However, the expectation that the Bank of England base rate may stay at its historic low for some while longer yet might encourage more people to consider a variable or tracker type mortgage rate over a long term fixed rate.  It's a difficult decision to make.

According to the Halifax, more borrowers purchased their first home last year than in any year since 2007.  Some 326,500 first timers purchased a home in 2014, up 22% from 2013.  The lender also reported that first time buyers accounted for 46% of all mortgaged house purchases last year.

Halifax House Price Index suggested that house prices rose at their slowest pace for 11 months in the three months to December.  The average house price hit £188,858 last month, representing 7.8% growth from £175,193 in December 2013.  On a monthly basis, prices grew 0.9 per cent from £187,197 in November and the lender says it expects house prices to grow between 3% and 5% in the next year.

Metro Bank have launched in to the Buy to Let portfolio arena.  As well as looking at individual properties to let out, the lender will now consider funding up to 25 properties with a maximum loan of £5m.  Terms apply but for this type of investor, competitive, long term and flexible funding can be a scarce resource and therefore this is a welcome addition to funding options.

And finally, good news!  Charter Court Financial Services, who currently own mortgage specialist lender Precise Mortgages, has been granted a banking license.  The new bank, which will be called Charter Savings Bank will launch in the first half of 2015 and will be a welcome new addition in the sector.

My wishes for the year ahead..

I didn't make any New Years resolutions, purely on the basis I very rarely manage to keep them!  But if I were to make a wish list for the mortgage market, it would include Lenders becoming more lenient to the self employed, more lending for First Time Buyers and the over 65's and that we could find more builders! The latter point may not enthuse everyone, especially on a personal front living locally, but the economy undoubtedly needs more house building.

That said, there does appear to be much building work going on locally, mainly by large property developers. In addition, we are seeing many enquiries for those looking to build their own dream home. Many have been enquiring about mortgages to buy a property, knock it down and build a new one in the same location.  These are normally called Self Build Mortgages or Development Projects.  Others are looking at substantially renovating their existing properties.  If you are considering either of these, have a chat with a local architect first to see if your plans are realistic possibilities. They will have a good idea as to what the local Council Planning Officers will accept and of course, what they will reject!   Lenders then may look to lend funds on a stage payment basis. Stage one might be the foundations, stage two might be ground level and so on.  Each stage would require sign off by the buildings inspector, and often the lenders own valuer, then funds would be released.  The lender may not lend the full build amount, so be prepared to put in a reasonable deposit, especially at outset to demonstrate your own commitment.  For extensions and renovations, it may well depend on the size of the work and what funds are required. 

Some of the lenders in this sector may not be household names.  As many lenders fight for customers business in a tight market, we are seeing some of the smaller lenders offering market leading rates as well as niche products to build up their portfolio and attract new business.  Nevertheless, they are still there to lend and it is always worth shopping around before committing.  Competition can only be good for the end consumer.