Mortgage Payment Holidays, Rates, Home Working, Valuations and more.....seek advice

What a difference a week can make!  Testing times for us all.  I want to review a few key issues this week, hence the slightly bigger column than normal!

Let’s start with Mortgage Payment Holidays:

As mentioned by the Chancellor last week, everyone may be entitled to a mortgage payment holiday of three months.  The holiday allows a borrower to DEFER mortgage payments for an agreed period of time.  At the end of the holiday, the normal monthly payments resume.  HOWEVER, you will still need to repay the money owed and you WILL incur interest on your mortgage during the holiday. Please note that you will need to speak with your lender first and they will decide whether you are eligible for the payment holiday.

You should certainly not stop your direct debits but do continue with your normal mortgage payments until the lender agrees your payment holiday.

If you don’t need to, don’t take the payment holiday! This may sound strange, but behind the scenes, and despite saying it won’t affect your credit score, it will possibly affect your ongoing ability to borrow. No one knows exactly how these holidays will be accounted for when you go to re-mortgage or buy another property.  Lenders want to see that you have consistently paid your last twelve monthly mortgage payments.  If you take the payment holiday, you will have only paid nine.  With the onslaught of technology making decisions, a computer may not be able to decipher that you’ve had an approved payment holiday for three months. It will only see that the mortgage has not been paid.  In the interim, this is may seem small beer in the grand scheme of things. The reality is that, for onward future finances, it could be huge.  We know this as in more normal climates, you can take one mortgage payment holiday and it is usually registered as a ‘U’ on your credit reports and we can sometimes have trouble getting these through lenders current systems.

Rates - are fluctuating hourly, with some resemblance to the crash in 2007/8.  Some lenders have withdrawn rates at midnight and tell everyone the day after, so they won’t receive a spike of business. We all understand why bank base rate (BBR) changed but this has resulted in a huge number of Tracker rates (tracking the BBR) being withdrawn. Existing customers charging rates obviously reduce with the changes, but these great rates are not open to new clients.  Fixed rates haven’t changed too much, but some have increased.  It’s mainly criteria where we have seen changes.  Some lenders have withdrawn high loan to values, so 95% deals and for Buy to Lets, many lenders have mainly dropped to 75% loan to value.  In short, if you find a great deal, be quick!

Home working – Most brokers, lenders, surveyors are now fully functional from home.  This is causing problems for some lenders.  One major high street lender has already confirmed that it can only handle so many bits of business each day in the new format and as such, once it reaches its quota, it will stop taking further business for that day!  Business continuity plans at their best!  

Valuations – Although it’s a slightly different business as usual, the one part of the market we all rely on is the valuation of the subject property.  The surveyor is the eyes of the mortgage lender and relies on their feedback to confirm suitable security.  If the valuer cannot assess the property, the mortgage market will grind to a halt. This is the one bit I’m really concerned about and keeping a close eye on developments.  Many lenders have already stopped physical valuations of properties to protect their employees.  Watch this space.

Finally, we, at Impact SF are fully functional and working from home during normal business hours.  We continue to offer our free advice service, so speak to the team, pick our experienced brains and we’ll help you wherever we can.  Stay safe.

Bank Base has risen...... don't get stuck on the lenders SVR

Last week saw the Bank Base rate rise for the first time in ten years.  It now stands at 0.5%.  The monetary policy, which meets each month to set the base rate, voted by 7 to 2 to increase the rate, in a bid to slow down the rate of inflation which currently stands close to 3%, 1% over its target.

For those with mortgages on a tracker rate, the lenders will probably pass on the full 0.25% increase, with effect from the following month.  So, expect a rate increase letter and a higher payment in December!

For those on fixed rates, nothing will change, until your product fixed rate period ends.  Then it will be down to what’s available at the time.  Unless you are on quite a high fixed rate, in which case sometimes it’s worth looking to see if it’s beneficial to pay any redemption penalties you may have to fix on to a lower rate, that might be available now.  This needs professional advice.

For those on the lenders standard variable rates – WHY?!  The lenders SVR tends to be more expensive than other products available and you should act now as you’re probably paying too much as it is!  Some lenders SVRs are circa 5%!  Lenders will alter their SVRs when they choose. 

The increase in 0.25% will probably take an extra £21 out of your pocket each month, per £100,000 on your mortgage.  Not vast amounts.  However, this could signal the possible end of the cheap rates…

Lenders tend to buy tranches of fixed rate funds from the money markets.  This is then lent to the consumer until the tranche ends.  At that point, they acquire more funds and so on.  However, the latter will inevitably be more expensive and so rates will rise, etc.   As I write, some lenders have increased rates, marginally, but there’s still some amazing products available and I suspect these will be around for some time yet as lenders are desperate for business.  Many products also include free legal costs and free valuations on remortgages, so minimal costs to change lender.  But do remember, although I don’t think they will for some while yet, these products can be withdrawn at any time.  So, if you’re thinking of changing or reviewing your mortgage, now might be the right time to get the paperwork out!

Rates to rise in 'near term'.

Hopefully you will have seen the headlines this week, but if you haven’t, the specific one I am referring to is where the Bank of England governor Mark Carney has said he expects the bank base rate to rise in the “near term” – thought to be within the next few months.

He did emphasise that this would be a limited and gradual process as the bank begins to ease its “foot off the accelerator” of the UK economy.  Mr Carney also warned about lenders becoming more reckless in their consumer credit lending, including credit cards and car finance.

Coming from the Bank of England, this is a bold statement and one we should all take note of.  So, is now the right time to long term fix? 

Difficult to answer, as it’s down to personal preference.  The points to note in the statement are that this will be a gradual process.  We all know rates will rise, but it’s when and by how much that no one can predict.  Therefore, if you know your circumstances are not going to change for the foreseeable future and you like the security of knowing your outgoings remain the same each month, then a long term fix is probably for you and there are some great deals to be had currently.   But if you like a bit of comfort in your monthly budgets and are a bit more of risk taker, maybe something shorter term is more applicable to your needs.  The rates will be slightly lower, but of course at the end of the term, you could be meeting the full on barrage effect of a rate rise.  Obviously, terms and conditions apply and each person is different, so personal preferences is key and advice should be sought.

And finally this week, some great news from our good friends at Precise Mortgages.  Charter Court Financial Services, the parent company of Charter Savings Bank, Precise Mortgages and Exact Mortgage Experts, has been valued at approximately £550m as part of its stock market flotation.  The specialist mortgage finance company will make more than 95 million shares available.  This shows the continual need for specialist mortgages and how well the lender has done since launch in 2011.  Congratulations to all of the teams there. 

"Best time ever to take out a mortgage" say the Nationals

The national press were spouting some fantastic headlines last week.  Especially one who ran with a front page stating 'Best time ever to take out a mortgage'!  This of course was fantastic news for the lenders and also mortgage brokers, who were referenced in the article.  

But is it really the 'Best time'?  Ten year and five year fixed rate offerings are in abundance and the lowest I can remember.  What we are also seeing, and have done for some weeks now, is a fantastic rate price war on the high street.  For the right deal, right income, right borrowing percentage of the property value, we're looking at short term deals only just over the one percent mark.  If we'd have been told this would happen a year ago, we might have laughed in disbelief!  In addition, the Bank of England governor in a recent speech even alluded to a possible rate cut after suggesting inflation will become deflation, causing yet more stir across the market and pundits to push back rate rise estimations even further, well in to 2016.

So, there seems to be no right or wrong answer to the question ‘is it the Best ever time to take out a mortgage?'  There is only what is right for your individual circumstances and budgets.  One thing is for sure, rates will change and they are so daily currently!

Finally, AToM are delighted to announce the launch of a new specialist lender, Foundation Home Loans. With just a small number of launch partners, FHL will be offering Buy to Let products across the market with a number of niches including no minimum income requirements, some credit history issues considered, max age 85 at the end of the term, no credit scoring and no early redemption penalties on some products.  This is an exciting time and we welcome FHL to the market and look forward to working with them.

The valuation is for the lender, not you!

Some weeks there is just too much news to take in and it can be difficult to assimilate and report on. Then there are quiet weeks where nothing much seems to happen.  This week has been the latter and the mortgage market has been quieter than normal.  So, what to discuss?

Well, it all went Wonga at Newcastle FC this week as the lender has agreed terms to take over the clubs shirt sponsorship.  Current sponsor, Virgin, indicated that they were sad to be losing the sponsorship deal previously negotiated by Northern Rock, the bank they recently acquired and whose name they are now phasing out totally.  

The Bank of England Base rate was retained at 0.50% for another month, but watch this space. There are a number of highly rated financial gurus predicting a cut in November.  Will it happen?  No one really knows but the momentum is gathering and we will see before too long.  If there is a reduction then it may not be for long and any resulting decreases in lenders tracker, discounted or fixed rates should be snapped up quickly.  Don’t miss any opportunities to save yourself money!  

On a separate subject, valuations on properties to be mortgaged come in various guises. Every mortgage lender will require a valuation on the property although, in some cases, they will not actually visit. This is because they can often access detailed information electronically.  Of course, this can prompt a borrower, who has paid a fee, to question the reasonableness of this method. In fairness to the lenders, it is a tried and tested system and rarely proves incorrect.  They have expenses regardless of the visit and this system does have the effect of keeping prices down.  Remember that this, fairly basic valuation is for the lender, at your cost, and should not be relied upon as a guarantee that the property is sound and fit for purpose.  Seek a more detailed survey if you have any doubts.

What if 'the computer says No'?

A flurry of activity in the mortgage market this week as a number of lenders reduce their rates.   Virgin Money, Natwest, Accord Mortgages and Platform are a few of the lenders who have cut various rates in their product offerings.  This follows decreases in both LIBOR and SWAP rates (in the main, measures against which banks lend each other money).  This is good for the end consumer and I’ve even heard whispers that this could lead indirectly to a Bank Base Rate cut shortly.  Who knows, as uncertainty seems to the only certainty in the financial sector!  Personally, I’m not sure a cut is a good thing right now, but with many companies struggling to survive and some big casualties (JJB the most recent noticeable), it will be welcomed by all those on sitting on a bank base rate tracker.

I mention credit scoring/searching quite a bit, but it really is so important in the current financial world when deciding to lend to you, or not!  Most lenders credit score applications based upon the amount of credit you have, whether you are on the electoral role and your recent payment profile on any existing credit.   The number of recent credit searches you have on file will also have an impact.  Nearly all financial institutions will register a search against you.  So, if you have recently updated your car insurance, home insurance, taken out a mobile contract and just got a new credit/debit card, that’s probably four searches in a short amount of time!

If the computer says ‘no’, you will tend to find most high street lenders doors shut to you.  But fear not, if you have a reasonable deposit and can prove all income, there are lenders who do not credit score, but will manually review and underwrite affordable applications on an individual basis.  AToM has access to a number of these lenders so don’t despair if the high street lender’s computer says no, give us a call to see if we can assist.

Never a dull week in the Mortgage Market!

Never a dull week in the mortgage market!  I was at a presentation from a major lender late last week and who predicted Bank Base Rate won’t move for a good couple of years, but also advised us to ignore their predictions as they have been far from right over the last 3 to 4 years!  Helpful!  We also then saw reports suggesting that the Lloyds Banking Group wanted to reduce their share of the mortgage market from 28% to 25%.  This is a huge reduction.   We also saw RBS publicise a reduction in their share of gross mortgage lending from 14% in Qtr 1 2011 to 11% in Qtr 1 2012.  More signs that although the market is very busy, it is in certain areas, and not necessarily via household names. 

In other news, the Co-Operative Bank decided to withdraw its Interest Only offering entirely from all residential offerings and sadly, after five years of trying, Portillion has decided to call it a day and abandon its lending ambitions.  The latter showing it really is so difficult to launch a new lender in current climates.

Many people ask me “should we fix our mortgage rate now?”  This is a difficult question to answer and one I always answer with a question – are you a gambler?  At some point, Bank Base Rate will increase; I think we are all aware of that and it is just a question of when?  Five year fixed rates are proving popular and competitive in the current climates.  However, if you decided to take an attractively low tracker now with a view to fixing at a later date, be wary that when the BBR does increase, you can almost guarantee that fixed rates will have already been substantially increased! 

Finally, outside AToM we have a box offering ‘Property Today’ papers.  This is a good gauge to the local market and how interested people are in properties each week.  Over the last two weeks, we’ve run out of papers over the weekend (normally they last until Thursday!).  Possible signs of a buoyant local market, or just a lot of people keeping an eye on things?  Who knows…

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!

Kids are back to school - make use of your spare time

The kids are back to school, the holidays are over and you may (or may not) be looking forward to peace and quiet and having some time on your hands. However, as the final few months of the year race towards us, maybe it’s time to start thinking about 2011 and what trials and tribulation this may bring. Without doubt, the only certainty in the current financial markets is uncertainty. When will bank base rate rise? Who really knows what is happening with house prices? Will 2011 lending become further restricted as the banks scrape and save(!)to pay back the £300bn lent to them via the Special Liquidity Scheme? All of these lean towards ensuring you review your current financial arrangements and ensuring you are on the best deal to see you through the medium to long term. Whether you require the security of fixing your payments for an amount of time, or whether you are a bit of a risk taker and might look at a short to a medium term tracker or discounted option, right now, both are available at attractive rates in the mortgage market. A quick review with an independent mortgage advisor who has access to the whole of market mortgage rates could be time very well spent.

On the other hand, we’re also seeing a vast increase in those purchasing a property for investment purposes. The Buy to Let market is rapidly increasing again as people turn to renting rather than purchasing in the current climate. Mainly due to their ineligibility to obtain a mortgage for whatever reason. Investors see this as a great opportunity to increase their investment property portfolios and taking advantage of the great rates in the market. Be advised though, if this is something of interest, lenders tend to charge large arrangement fees for setting up the Buy to Let mortgage and you may be eventually be subject to Capital Gains Tax at a later date, on any profit made on disposal of the property.