"Tested in a way we've never been tested before"......and Bank Base cut by 0.5%

We’re being tested in a way that our generation has never been tested before.  These are uncertain times and no one can predict what the future days, weeks, months will bring.  The Bank of England has cut interest rates by a significant 0.5% to just 0.25% and at the time of writing, this is predicted to be cut even further.  Especially seeing that the Federal Reserve (FED) in America have just cut their rates by a full 1%.  All countries are trying to prevent a global recession, avoiding 2007/8 all over again.

All I can say at this time is keep safe and look after number one.  Get your house in order quickly.  Impact will inevitably be shutting both of our offices in Horsham to protect our staff and families, but we will continue to work from home and be available on phones, online and by webinar facilities (Microsoft Teams, etc).  Not everyone will get this horrible virus and lenders still want to lend.

Yes, it might take a little bit longer to arrange things, as home working takes effect and some, especially the banks and building society security systems and such, will experience new challenges with all of their staff working from home.  But lending will go on and right now is an ideal time to take advantage of the amazing rates and deals on offer.

Remortgaging should be a very simple process and we can guide you through the requirements and deals on offer. 

Even staying with your current lender once your current fixed rate has expired and transferring to a new rate is pretty straight forward.  We can assist with all of these, remotely and quickly.

Finally, I’ll say it again, look after number one. You will probably have some time on your hands, you have the paperwork at home and you have the superb team at Impact online and available to help you throughout the whole process.  Or just even to give you some free advice.  No one knows how long this unprecedented experience will last, so just make sure you’re in a good position to see it through.  Stay safe.

Fixed or Tracker rate? What's your preference?

So, do you go Fixed, or do you go Tracker?  A question we are asked many times every day!

With a fixed rate, you know that every month your mortgage payment will be exactly the same until the product period ends. Normally this can be two, three, five or ten years.  However, you will have a penalty to pay, if you decide to leave during the fixed rate product period.  Note that the mortgage product period and the term of the mortgage are two different entities.  The fixed rate product period might be for five years, but the mortgage itself might be for twenty-five years.  Make sure you understand the difference as after five years you could be moving on to the lenders Standard Variable Rate (SVR), which could be a lot higher (possibly in excess of 5%).

With a tracker rate, this will normally be an interest rate charged in addition to the Bank of England base rate, currently 0.75%, and will move immediately any changes occur.  However, most tracker rates have no penalties to leave.  So, great if you are planning to move imminently or have bonuses due and want to repay a large lump sum off your mortgage.  They can also be cheaper than a fixed rate, but obviously have more risk of increasing rates too.  

For those sitting on the lenders SVR – 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!  And lenders can alter their SVR when they choose.

So, in short, the fixed or tracker conundrum is down to personal choice.  A number of clients visiting impact are looking for a longer-term fixed rate for certainty and to help manage their monthly budgets.  But a number are still happy to take a short-term tracker rate and are confident that rates will not fluctuate too much in the coming months.  Either way, there are some good products available with minimal set up costs and it does seem to be a ‘race to the bottom’ with regards to pricing currently.

One thing to think about though – if you are contemplating a tracker rate for now, with the intention of changing to a fixed rate later on, be aware that if rates start to rise you might find that the fixed rates have already increased before the tracker rate even starts to.

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 are low and delays are across the market...

Following the recent regulatory changes across the mortgage market, specifically in the Buy to Let sector, and with rates currently so low on the Residential side, it was inevitable that delays were going to occur.  A few days can be the norm, but the reality is that some lenders are now advising of delays in excess of a month to process cases.  Yes, a month!  This really becomes an issue if the lender asks you to provide further information as when this is submitted, you will normally go back to the end of the queue!  So bear this in mind if you are in a contract race to buy your dream property and the Estate Agent is badgering you to get the survey instructed.

There have been some fantastic product launches over the last week or so, including some outstanding five year fixed rates.  One example from Santander offers a fixed rate for five years for those with a 40% deposit with a rate of just 1.89%  (APRC 2.49%), which includes a free valuation and free legal costs on remortgages.  Terms and conditions apply etc.  The market is hotting up!

We've even seen a sub 1% fixed rate for two years launched this week, again for those with a 40% deposit.  However, with all things, check behind the marketing headline.  The rate may catch your eye, but if the fees are expensive and it does not include free valuation or legals, it can prove less compelling than a slightly higher rate that includes all of those benefits. 

Some rates have been reduced for those who have had historic issues.  One example, with our friends at Kensington, allows for some historic issues over two years ago and will look at rates starting from 4.34% for those with just a 10% deposit.  

A number of lenders don't use credit scoring systems and prefer a manual approach, so don't think you cannot get a mortgage until you have tried!  Always shop around to find the best deal and always check the small print!  Naturally, I would recommend speaking to a professional who can search the whole market and advise which are the most appropriate deals available to you!

Are you ready for your 'payment shock'?

In recent columns I have used the word 'panic' to describe the possible rush to secure a good mortgage deal before they vanish when rates rise, and also made comment on how lenders may be feeling in terms of possibly missing their annual lending targets. The latter should lead to some good deals which I feel sure will hit the market in the last few months of this year.

However, there is another important term I think worthy of mentioning now and this is ‘Payment Shock’. A well worn term during the mid to late 90's and one which I think Mr Jannels 'senior' may have played a part in coining! It describes the potential increase in monthly mortgage payments when an incentive period, for example a fixed rate, comes to an end and the mortgage moves to the lenders standard variable rate. It is worth reflecting that a one percent uplift on a mortgage of £200,000 may mean a monthly increase of up to £166.66 and, in many cases the rate may well increase substantially more than this.  Imagine the impact of a two or three percent rise! Not unusual if the lenders standard variable rate is in the late four percent range. 

We try to keep a listening ear open to those in our sector who are considered 'gurus' and their predictions on interest rate rises and when they will happen. In truth, no one can be certain, other than that they will rise. It is important therefore for mortgage borrowers to consider the potential of any rate increase (payment shock) and how it will affect them. A good time perhaps to consider a new fixed rate?

Finally, a commentator once wrote about consumers carefully researching prices for a new dishwasher or fridge and then shouting from the rooftops when they have saved £20 from shopping around. And, why not? Yet the financial press and advisers alike will regularly lament on the fact that borrowers will allow their monthly mortgage payments to continue regardless when they could be saving multiples of £20 every month! 

Market slowing but rate options on the up!

The market has slowed over the last week or so.  This is surprising as we've seen many lenders reduce rates again, with some being adjusted by a huge 0.7%. The number of products now available is circa 9,000 which is more than it has been for some time.  With many short term fixed rates sub 2%, five year fixeds sub 3%, and even a ten year fixed at sub 4%, the remortgage market should be booming!

However, even with a slight slow down, there are many unusual properties being purchased.  AToM recently assisted with the purchase of a property that had been split in to seven individual flats and where the title has not been split. In essence there was only one title for seven properties.  Normally lenders stipulate a separate title for each unit.  Valued at £1.9m and a loan of £1.4m being required, many of the normal lenders declined their interest.  But, due to the customer being an experienced landlord, we managed to find a specialist lender who would accept the whole scenario. Following an in-depth valuation, confirmation of rental income achievable for each property, and normal underwriting, the lender completed quickly.   This is just one example of many complex and specialist scenarios that pass through our doors each week!

Finally, credit scoring is still creating challenges for mortgage applications to high street lenders. 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. If the computer says ‘no’, you will tend to find all high street lenders doors shut to you. Fear not, if you want a loan to value of 90% or less and you can prove income, there are lenders who do not rely on a credit score. They manually review and underwrite clean and affordable applications on an individual basis. AToM has access to a number of these lenders so don’t despair if the high street lenders say ‘no’, if you fit the above profile, give us a call to see if we can assist.