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.

Interest Only takes another blow

Over the last few months I’ve mentioned Interest Only quite a bit.  Interest Only is one option to pay your mortgage, but it does exactly as it says, you only pay the interest on the loan.  So at the end of the term, say 25 years, you still owe exactly what you started with.   Normally a savings plan is also set up to build funds over time to match the mortgage amount at the end of the term.

This might be right for certain individuals who have careers that pay out a lump sum after a term, or for someone who gets many bonuses.  But unfortunately, that will no longer be a mortgage option you can get through Nationwide.  They have pulled out of offering Interest Only across their entire range of products.  The country’s biggest Building Society has said that it has taken the decision to remove this option as they were only processing 3% on this type of product.   In the scheme of things, very small and what happened to customer choice? 

The mortgage market is awaiting the imminent final release of the FSAs Mortgage Market Review (MMR) which highlights areas due for change and implementation of stricter rules across the market.  Interest Only was mentioned in the consultation stages, but it does appear that an over-reaction has occurred across the market place with many lenders restricting the amount that could be borrowed on Interest Only and Nationwide’s move could/will lead to others following suit and removing the option entirely.  No one wants to be the last man standing!

There’s no denying that this product has sadly been abused by some across the country in order to keep customers costs down and no suitable repayment vehicle being set up.  However, not all should be tarred with the same brush.  Many customers have reasonably performing endowments and investment returns that will repay any Interest Only mortgages and cause no risk at all, mainly thanks to the advice, recommendation and the brokers ‘knowing their customer’.  

In addition, lenders are consistently writing to all customers on Interest Only to ensure that a suitable repayment plan is in place and those who are no nearer to the end of their term should have sorted alternative arrangements.  Are you one of them?  Act now.

Without doubt this move has sent shockwaves through the industry and if others do follow suit, many customers could simply become mortgage prisoners with nowhere to go.

Positive activity in the mortgage market

Only a few days into the final quarter of the year and we’re already seeing lenders lowing rates to attract new business.  Woolwich have cut some rates by up to 0.2% and Abbey for Intermediaries have reduced various fixed rates across the range, both following numerous lender changes last week.  Accord Mortgages have also launched eight products aimed at First Time Buyers with a 10% deposit.  Rates are reasonable and some offer free valuations and £250 cash back.  All in all, it seems there is an appetite to lend in the last quarter (to hit bonus targets?!) and this is great news for the end consumer.

Second charge lenders are also in the midst of a price war.  Many have reduced rates, one or two new lenders have entered the market and another has increased their maximum loan size up to £200,000.   Many customers are making use of a second charge, rather than a full remortgage, as their existing first charge mortgage is on a very good rate and it may not prove cost effective to remortgage the whole amount.  Make sure you review all options available to you.

House prices have fallen 0.4% in September, according to the Nationwide House Price index.  The average house price now stands at £164k.  Nationwide go on to suggest that overall house prices should remain “relatively flat” or decline only modestly over the next 12 months.

With a recent Panorama programme highlighting the use of Payday loans around the country, I need to reiterate that these are classed as an ‘adverse entity’ with most lenders (not that some would admit it!).   In short, these lenders will charge a premium interest rate for a mortgage, compared to a high street lender.   However, even these lenders (those who accept customers with historic CCJs, defaults, or missed mortgage payments registered against them) MAY NOT accept someone who has taken out a payday loan.   So, although these may be right for a customer in certain circumstances, they will most definitely limit the number of lenders available to you when you come to apply for or change mortgages.  Seek advice.

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.

Much has changed since 2007...

Someone said to me this week its five years since Northern Rock crashed the ‘mortgage boom’ party and to be honest, I did ponder on where those years have gone!  Much has changed since 07 and lenders now appear to be run by their credit risk personnel, who in turn report to the Financial Services Authority, our regulators.   Let’s be honest, most feel that the FSA now run the lenders too!  As a directly authorised mortgage intermediary, we have had our fair share of ‘guidance’ by the regulator and with the fees involved just to trade in the mortgage market, it’s no surprise that so many have jumped ship and started new careers.  However, what this has left is huge gaps and I often wonder where the market will be in two or three years time as many more retire and fresh blood seems to be so scarce on the horizon.  What will be will be!  But in the meantime, there’s no substitute for honest, transparent professional advice and recommendation, based on your exact needs and requirements.   Online computer systems just can’t compete with that!

Halifax has launched a 5.89% (APR 6.1%) seven year fixed rate mortgage up to 90 per cent of the property value, exclusively for first time buyers.  There is no product fee and customers are eligible to receive £500 towards their moving costs.  Might be right for some very cautious people who like to fix payments long term.  However, rates are lower on shorter term fixes and with rates predicted to be static for some time, alternative products at the end of the short term are likely to still be more competitive.  But, the principle of trying to help First Time Buyers is to be applauded.

Finally, the 2^nd Charge Secured Loan market showed huge growth in July.  Second charge mortgage lending shot up by 11% according to the latest figures from the Finance & Leasing Association.   Many who require a loan to carry out home improvements or for other luxury items, but are currently sitting on very low lenders variable rates are opting to add on a second charge to their current property (sits behind the first charge mortgage).  Again, right for certain people but rates start from 6.9%, so will need to ensure its beneficial in the short to medium term compared with a complete remortgage to another lender/rate.

Act quickly - once they're gone, they're gone!

The summer is over, the kids are back to school and the post holiday credit card statements are on their way!   Ok, so a bit negative, but don’t panic when they arrive.  Debt Management Plans and Payday loans look like an attractive solution and they will be right for some people, however most mortgage lenders are not favourable to these arrangements.  If you are looking to change your mortgage, think twice before committing to such a plan.   Consolidating debts into one monthly payment via a secured loan or even a total remortgage may be a better option.  Obviously securing short term debt in to a longer term loan will inevitably increase the amount of interest paid and professional advice should be sought before going this route. 

Some lenders have been trying to boost mortgage volumes by launching products for a limited amount of time.  Accord Mortgages launched some superb products for a period of 10 days only.   These included cash back, free valuation, low arrangement fees and great rates.  A number of lenders took this approach around this time last year and maybe this is the start of things to come.  Watch this space and act quickly!  Once they’re gone, they’re gone.

Other lenders have made movements in the mortgage market over the last week or so, including rate reductions by Co-Op Bank, Tesco Bank, Santander, Coventry, Virgin Money and Skipton, to name but a few.  Lenders want your business, so make sure you shop around and do your homework.

August was a superb month for AToM.   Completion numbers, those taking out mortgage loans, were the best for nearly four years!  Thank you to all those who have been using AToM’s services, we really do appreciate it. 

Buy to Let takes a hit

The Buy to Let market has been hit hard this week as two of the major players make significant changes to their criteria.

BM Solutions (part of the Lloyds Banking Group) have withdrawn their House to House product.  What does this mean?  Well, the majority of investment mortgages, or better known as Buy to Lets work on a required rental calculation.  Most use a 125% rule.  Therefore the rental payment must be 125% of the monthly mortgage payment, usually based on the actual interest pay rate.  If the rental payment was short in calculation, then the loan offered would be reduced to fit.

The now defunct House to House product ignored this requirement and looked at the Buy to Let using the customer’s income and expenditure.  It was one of the only products in the market that offered this option and was incredibly useful for properties where rental coverage did not cover the mortgage payments by the required rental calculation.  The lender would consider the customers income when considering loan amounts.

The Mortgage Works (part of Nationwide) have also made a number of changes to their Buy to Let offerings.  These include the withdrawal of their regulated Buy to Let offering.   A regulated Buy to Let is where a sizeable portion of the property is rented out to a family member.  They have also withdrawn the option for clients to buy a property from a relative. 

With property prices still low, First Time Buyers struggling to get on the property ladder and returns on savings still relatively unattractive, many have invested in property as a long term investment.  This area of the mortgage market has been buoyant and as such, many lenders are incurring service issues.  So these are substantial moves by two major lenders begging the question if this is the start of more negative things to come?   Let’s hope not!