Remortgage to renovate rather than move? Or Buy to Let?

There have been a number of remortgage applications recently for those looking to raise funds to purchase other properties or to make improvements to their current homes.  Just around the local area, I have seen an amazing amount of building work and renovations / extensions being carried out.  Many home owners appear to be improving their current residence rather than taking the big leap of selling and moving up (or down) the ladder.  This appears consistent with the general view that there is a shortage of properties up for sale.

Other consumers might be making the next step, but are then renting out their current property on a Buy to Let basis rather than selling it.  Nice if you are in that lucky position!  The rental market is certainly buoyant and showing no signs of slowing down over the coming months. So a Buy to Let might provide you with a modest return for your investment and may be the start of building a little portfolio nest egg for later on life. We have noticed that this is a growing desire for many who fear that their pension arrangements may not be sufficient and that rental income may be a suitable supplement.  Many new lenders have also launched in to this sector over recent months.

Over the last week we’ve seen rate increases in the fixed rates arena as column inches increase in speculation over a bank base rate rise in November.  However, lenders are still competing for business even as we move in to the final stages of the year.  We’ve seen reductions in the Buy to Let sector and the specialist bridging/short term lending market has seen movements in both criteria and rate decreases.  There are many opportunities whatever your circumstances and lenders are willing to have a conversation in order to do the right deal.

Finally, AToM was thrilled to receive a National Mortgage Adviser Award for the Best Use of Technology last month.  Many thanks to everyone who voted for us, it really is appreciated! 

Rates rising....and great event for Landlords

You can’t have missed the increasing press column inches regarding a possible Bank Base Rate rise recently.  Sometimes I do think we talk the market in to a direction rather than letting it take its natural path!  History suggests that we tend to see the fixed rates rise first, before the bank base itself.  Over the last week we’ve seen a number of lenders increase their fixed rates, including Nationwide, Halifax and Barclays.  Some rates have increased by up to 0.9%!  I suspect others will also follow as SWAP rates (the mechanism through which lenders can acquire a fixed price for funding over a specific period of time) have also increased over the last week.

That said, the Bank of England has to take in to account the huge debt levels the nation currently has and that even a small base rate hike could have a significant effect on current spending levels.  However, it appears to be an issue which is gathering pace and we should watch this development closely.

Do remember that even if your rate is not up for renewal for a few months, some lenders mortgage offers are valid up to six months, so you can arrange a new rate in advance of your current rate coming to an end.   This will also ensure that you don’t move to the lenders standard variable rate, which will inevitably will be higher than your current rate, whilst looking for your next mortgage product. 

And finally, it was great to see so many people at the Landlord Property Investor and Homebuyer Show at the London ExCel last week.  It also highlighted how many people are not yet aware of the new rules surrounding portfolio landlords.  This is a large education piece and one that needs to be taken in to account asap by anyone who owns more than four properties.  Although each lender’s requirements are different, in the main, the common requirements are now a Business Plan, a Cashflow and forecast, Assets and Liabilities statements and full details on the whole portfolio including current mortgage, value, rent achieved, etc.  These new rules will take a while to bed in and as there is an increase in underwriting, I suspect delays will occur for a while, so be aware if you are in a rush!  

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!