Short Term Loan required?

The ‘Short Term Lending’ market is growing at a rapid pace. Specifically geared at speedily arranged loans, normally with a monthly rate of interest and pre-agreed with an ‘exit’ route, the term ‘Bridging Finance’ is quickly becoming a household name. With many lenders in the market, offering loans up to 75% of the property value (sometimes higher with additional security offered) these types of loan are calculated and charged on a daily/monthly basis, with some even offering to roll up the interest (no committed monthly payment). Interest rates start from 0.75% per month and normally are arranged over a period of between 1 to 18 months. Most will carry a lender fee, an assessment fee, some will include early repayment charges and possibly an exit fee. However, for the right scenario, these loans provide a superb funding line.

Ideal scenarios for Bridging Finance include –

1) Chain breaking or not sold your property yet
When the chain breaks or you have not sold your property but found one you have fallen in love with, bridging finance may enable you to complete on the purchase before you have sold your existing home.

2) Refurbishment – allows you to buy and refurbish property quickly
A loan to support with the purchase of a property and then undertake the refurbishment
before it is eventually presented to a mortgage company or bank for long term re-mortgage finance, or sold.

3) Purchasing properties at auction
Short Term Loans can be arranged very quickly and can be ideal where there are tight deadlines to meet. A typical 28 day completion from purchasing an auction property is usually easily achievable. A pre-auction valuation is considered a must.

These are just some examples, there are many others.

However, where there are positives, there can be negatives! Many lenders have set a minimum term for a property to be owned before they will allow a remortgage to occur. This is usually six months. So please ensure this is factored in to any purchase, budget calculations, etc before committing to any Short Term Funding/Bridging Finance. For more information, or to discuss a specific scenario, please contact AToM.

What a load of PR!

Lenders are lending, mortgages are flying through with little delays and lenders are doing everything in their powers to help the First Time Buyer…..What a load of PR!   Don’t believe everything you read in the papers.  Some lenders are currently 12 working days behind.  Others nearly a month, or two.  The more you shout, the longer the delay, it appears!  However this is not the case with all lenders, just a few.  If you’re in a rush to get your mortgage arranged, make sure you review the lenders service levels first.

A mortgage is the biggest debt you’re likely to ever take on, so you need to do your homework and understand more than just what the national press decide to publish. Advice is crucial and ideally from a company who can offer ‘whole of market’ mortgages, not just products from a limited panel of lenders, like some Estate Agency chains or a Bank/Building Society who only offer their own products.

Most lenders have a set of rules and criteria that need to be met even before requesting a decision in principal (stage at which you are credit searched for pre approval).  Some will not allow a purchase where the vendor has owned the property for less than 6 months.  Some won’t look at unencumbered properties for remortgages, or assist where the customer sold their house within the last year and are renting, so falling between a first time buyer and a residential home owner. Some won’t allow lending in to retirement and so on. 

All of these are little idiosyncrasies that should be known by anyone advising on a mortgage. These save time and probably unnecessary credit searches being carried out.  Remember, the more credit searches you have against your name, the more likely your credit score will decrease, which may affect your ability to obtain finance. Whoever you talk to about your financial requirements, make sure you say at the outset that you do not want to be credit searched, unless you give them the authority to do so.

The computer can still say 'no'

The Bank of England held the base rate for another month and we all breathed a small sigh of relief as some industry pundits had suggested that a reduction may occur.   Obviously it would be good for the consumer, but not so good for keeping the funds moving around the marketplace.   As it is, many are already enjoying a nice base rate tracker and sitting comfortably with no intention of moving, and why would they?  From the business aspect and funding lines, lenders need to turnover customers, attract new business and collect fees.   More money moving around is good news for the market; static money tends not to be!

With this in mind, and as I have not reported on the monthly “creditaction” figures for a while, here are some stark reminders of the state of the economy:
·         Average household debt in the UK (including mortgages) was £55,448 in June. 
·         The average amount owed per UK adult (including mortgages) was £29,687 in June. This was around 121% of average earnings.
·         105 properties are repossessed every day (based on Q1 2012 trends).
·         1,443 Consumer County Court Judgements (CCJs) are issued every day
·         314 people are declared insolvent or bankrupt every day
·         1,607 people a day reported they had become redundant between March and May 2012.
·         The UK population is growing by an estimated 1,342 people a day

Meanwhile, credit scoring is creating havoc for mortgage applications via 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 on any existing credit.  If the computer says ‘no’, you will tend to find all 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. If you fit the above profile, give us a call to see if we can assist.

Competition is a good thing for the end consumer

As the world’s eyes are diverted from the on-going banking and financial issues and redirected to the biggest sporting event in the world, it makes you wonder how much business will be lost due to people sneaking off and watching the Olympics!  I’m sure I’m overdue a sick day or two! 

Competition is also taking place in the mortgage finance arena as we witness some rate wars taking place, which can only be a good thing for the end consumer.

For those on an attractive lender standard variable rate, but who need to raise a small amount of funds, a secured loan might be an option.  Secured loans tend to be a ‘second’ charge on your property and provide an alternative way to release equity from your home whilst leaving your current mortgage in place.  Various lenders operate in this arena and strong competition has bought rates down to below 7%.  Rates are subject to circumstances and terms and conditions, etc.

In the first charge arena, we have seen HSBC promote a sub 3% rate fixed for 5 years.  Santander quickly followed and, through brokers, also offered a free valuation and free legals on their 3 year sub 3% fixed re-mortgage product.  Natwest have also joined the front runners and launched a sub 3% fixed for 5 years, through the intermediary sector.  All subject to terms and conditions and individual circumstances, etc!  Others cutting rates include Accord Mortgages by up to 0.6%, Nationwide by up to 0.4% and Halifax by up to 0.5%.  Great to see!  Definitely worth a review with someone who can access the whole of market, if you’re looking to change your mortgage.

And finally (and I had to end on an Olympic note!) if you are lucky enough to own a property near the main Olympic sites in London, Lloyds research suggests that homeowners have seen the value of their home rise by nearly £70,000 since the winning bid was announced in 2005.  The average house price across the 14 postal districts closest to the main site for the London 2012 Olympic/Paralympics Games stood at £273k in March 2012, an increase of 33% from July 2005s average of £206k.

Payday Loans and Mortgages = Limited options

We get many enquiries where the customer has had historic financial issues, missed a payment or two or occasionally, not made a payment at all.  Even so, in the current climates, some specialist lenders will still look to assist, albeit at a premium cost.

However, more recently you can’t pick up a newspaper, or put on daytime TV, without seeing the ever increasing number of ‘payday’ type loans available.   They are everywhere and pretty self explanatory as to why they are being used, normally more month than money…   

But, I want to explore the consequences for those who have taken out a payday type loan (short term loan, high interest rate) and then apply for a mortgage.

Payday loans are being treated, more recently, as an ‘adverse’ entity by some lenders in the market.  Even the lenders that accept customers who have had CCJs, defaults, missed mortgage payments registered against them, MAY NOT accept someone who has taken out a payday loan.

One such lender publicised their views this week - ‘Payday loan data is one of many items included in our review and if a mortgage applicant has a current or had a recent payday loan, it is unlikely that we will consider their mortgage application.’

The credit reference agencies have also buckled under the pressure from lenders to show such information on customer credit checks.  Companies like Experian now show Payday loans as a separate entry and therefore, make it easier for any prospective lender to see any history with regards to these types of loans, before making their decision whether to lend or not.

There are always two sides to every argument - “if they can’t afford to get to the end of the month, should they be looking for a mortgage?” and “the new loan will be cheaper allowing the customer to be in a better position”.     

I’m not against payday loans, they will be right for some people in certain circumstances.  But I will strongly point out that if you do take out such a loan, you will most definitely limit the number of lenders available to you when you come to apply for any type of mortgage finance.

Changing from Interest Only is not a job for 'tomorrow'.

Most weeks, I try to bring a bit of humour, sarcasm and light heartiness to a relatively uninteresting, but extremely important part of most of our lives.  How else could I entice you to read a column about mortgages!?   However, I need to be serious this week and discuss the huge issues surrounding mortgages on an ‘Interest Only’ basis.   

Many have taken out mortgages on an Interest Only basis.  To clarify Interest Only - if you take out a £100k mortgage loan over 25 years on Interest Only, at the end of the 25 years you will still owe the lender £100k!  As the term says, you are only paying the interest on the loan borrowed.  Historically, many also contributed to an endowment policy that acted as a savings plan which would hopefully match the outstanding loan at the end of the term.  Enough said!   Today, ISA’s are normally the preferred savings vehicle but many have not carried on with the savings plan as other distractions have, for whatever reason, taken priority.

Lately, we’ve seen many who have just a matter of years left on their Interest Only mortgage with no repayment vehicle in place.  The stark reality is that unless they can afford to repay the mortgage over a short term on a Capital & Interest basis, they risk losing their house when the lender demands repayment of their debt at the end of the contractual period. 

Where the big problem lies is that many consumers suggested that their repayment vehicle would be ‘sale of property’, i.e. they would downsize at the end of their mortgage, normally coincided with a retirement date.  The issues, more recently, may well include house price decline and there may no longer be enough equity in the property to downsize and still purchase a suitable property to live in. 

Arranging a repayment vehicle for an Interest Only loan is not a job for ‘tomorrow’.  As we all know, tomorrow never comes.  So, do it now!  Sort out a plan of action and put it into motion.  Speak to your current lender or mortgage broker and see if you can change to a repayment option.  There may be other options available to help you achieve repaying the loan over a specific time period.  But don’t delay…the clock is ticking!

A serious lack of consumer confidence...

Where do I start this week!?  So much negative news surrounding the world of financial services.  As I write this column, the Breaking News is that Bob Diamond has resigned as Chief Executive of Barclays, following his Chairmans departure some hours earlier.   Both following Libor (London Inter Bank Offered Rate) and Euribor, the interest rates at which banks lend to each other, fixing and interest rate swap miss-selling scandals.  Also, in relation to last week’s fine of £290m by the FSA and US authorities after it admitted that their traders manipulated Libor.  This now leaves a rather large ship with no captains to steer them.  No doubt the board will act quickly and more light will have been shed on the matter by the time this is printed.  However, the bottom line is that, allegedly, a number of other banks are also under investigation and thus, this could be just the first of many, and in addition, it‘s a further act of mistrust and will bring an increased lack of confidence to an already fragile market.

This comes in the wake of the technical issues at Natwest/RBS, which affected many customers across the country.  Despite the bank confirming all issues had been sorted last week, the bank still has issues and some customers, allegedly, were hit with incorrect duplicate payments on their mortgages this week.   Does make you wonder how we ever functioned without technology and, more worryingly, how totally dependent we have become on it…

And finally…the Bank of England’s latest figures suggest that gross lending secured on dwellings hit £12.2bn in May up from £11.6bn in April.  Repayments also rose from £11.4bn in April to £11.7bn in May.   House purchases fell to 51,098 in May from the 51,627 figure recorded in April and remortgage approvals also dipped from 30,799 in April to 29,244 in May.  All signs of a reduced availability of mortgage credit and with the Eurozone crisis still in the mix, and a serious dent in consumer confidence, we might not see these figures change dramatically any time soon.