Do your mortgage homework before deciding!

A mortgage is the biggest debt you’re ever likely to take on, so do your homework and shop around, as you would for you weekly shopping!  We are always surprised that someone will announce to the world that they saved £30 off the price of, say, a fridge or cooker, yet fail to apply the same research into their mortgage!   The number of mortgages available is rising on a daily basis and rates are incredibly competitive.  But even whilst shopping around for a new mortgage, be wary that many ‘institutions’ are likely to carry out a credit search on you.  Make sure you stipulate at the outset of any mortgage conversation that you do not authorise any credit searches, until you agree you are happy to proceed with a specific product or lender.  Too many credit searches in a short amount of time could be detrimental to your credit score.  If you have not reviewed your credit search before, get it for free (30day trial period) from Credit Expert (see www.atomltd.co.uk for a link). It’s well worth a review and a good insight on how attractive you may, or may not, look to a lender.

In addition to a large increase in First Time Buyer enquiries recently, we have also seen a vast increase in customers looking to consolidate debt or even look at debt management plans.  Both can sometimes cause issues. If you consolidate unsecured credit in to your mortgage, although your monthly payments may be lower, you may be paying more for your debt over a longer term.

With debt management plans (DMP), or Individual Voluntary Arrangements(IVA), again, the lower monthly payments may help in the short term, but you may well find it hard to gain an approval from a lender to refinance at a later date.  Lenders tend to shy away from DMPs and may not assist anyone who has been in an IVA unless it has been discharged, normally, for more than three to four years.  Advice should always be sort before entering in to these types of arrangements.

Activity increases, but interest only dealt another blow

Both HSBC and Yorkshire Building Society have distanced themselves from interest only this week.   HSBC has decided that only ‘premier banking’ customers will be allowed the privilege of this option where as Yorkshire Building Society has withdrawn the option completely and all residential mortgages will be on a repayment basis moving forward.  This does not affect Buy to Let mortgages via their brand Accord Mortgages as interest only will still be an available option.

These decisions were announced on the day of the Chancellor’s budget speech (possibly hoping that the budget would take all the headlines..!).   I will not review the new Help to Buy scheme this week as some details still need to be fully understood within the sector, but it does appear that Government are putting a pretty big reliance on the housing market to get the economy back on to its feet and ensure some stability with their plans.  Only time will tell.

Lending figures were down again in February as mortgage lending dropped 3% from January’s figures, according to the British Bankers Association.  Approvals fell to £7.1bn from the previous months £7.3bn.   The number of approvals also fell from 56,595 to 55,399. 

I find these figures somewhat surprising as rates are incredibly low, there’s a large amount of activity across the whole sector and nearly every lender is reporting a huge volume of business with some experiencing service level issues as a result. 

With this in mind, try not to give a lender any excuse not to lend to you.  Keep your payments up to date where possible and this also includes utility bills (gas, mobiles, etc).  There are a small amount of lenders who will assist those who have missed payments, or have had credit issues, but you will tend to find that the rates offered are at a premium as they will tend to ‘price according to risk’.

Finally, AToM is taking part in the Horsham Rotary’s ‘Great Easter Bunny Hunt’, along with a number of shops in the town.  The idea is that children visit each shop, play the ‘find the carrot’ game, write down the bunny name next to the shop and once all completed enter their form for a chance to win £40!  See the Rotary website for more information and terms, but most of all, have fun!

Buy to Lets are right for some and a good investment, over time

Buying a property for investment purposes is usually termed as a ‘Buy to Let’.  The property is normally let out on a six month assured shorthold tenancy (AST) agreement.  This is a very active market and many mortgage lenders offer buy to let mortgages to both experienced landlords as well as first timers.  

One such lender is BM Solutions.  Owned by the Lloyds Banking Group, BM Solutions has been at the forefront of the buy to let market for some years.  However, their appetite to lend appears to be increasing and this can only be good news for prospective borrowers.   They have recently altered their criteria and will now accept mortgage applications where landlords are letting their properties to students or tenants who are receiving benefits (including housing benefit, rent rebate or rent allowance).  Maximum number of people on an AST is five.  This is a good move and looking to assist a specific area of the Buy to Let market.

Rates in the Buy to Let sector are also quite competitive with 5 year fixed rates available in the mid 3%’s and some products offering free valuation and legal costs for remortgages.   For shorter term loans, the rates are lower.

As First Time Buyers struggle to raise deposits to climb onto the property ladder and some turn to, or continue to rent, the Buy to Let market should remain buoyant for some time yet.

Buy to Let properties will often provide a modest monthly return over and above the mortgage payment.  The additional amount can be used to supplement income, or, with flexible mortgages, can be used to “overpay” the mortgage and reduce the term.  Most lenders in this sector will require the rental income to exceed the mortgage payment by up to 25% and, after costs such as managing agents this should leave some spare cash to cover repairs, maintenance and landlords insurance.  It should also enable a fund to be established to cover the mortgage payment in the event that there is no tenant in situ for a while.   

Generally, Buy to Let should be considered as a long term investment.  That said, it is a popular sector of the market and can provide a source of income (after expenses) and capital appreciation over time. Remember though that the value of property can fall as well as rise and you will need to take this into account in your planning.

 

Don't Dilly Dally, otherwise you'll miss out!

The limited edition mortgage products available for ‘seven day only’ are back!  Santander, or Abbey for Intermediaries as we still know them in the broker world, have launched a number of market leading fixed rates for a limited period.  In order to bolster books and attract a wealth of new customers, these two year fixed rates are sub 2% with minimal fees and free valuation.  Although requiring a hefty deposit at 40%, they’re great products and only available for 7 day slots.  Maybe we’ll see a few others join in these quick fire offerings before the end of the financial year…

But despite the newly attractive rates, it is still tough out there.  Lloyds TSB carried out a survey of over 500 first time sellers and 65% of these suggested that raising a deposit was their biggest obstacle.  Over 22% say it’s now harder to move up the ladder than it was to get on it!

With this in mind, I turn to one of this month’s largest issues - the Bank of Ireland rate hike.   Around 13,500 existing customers will have their rates increased over the coming months.  For those with Buy to Let mortgages, rates will rise from 1.75% above Bank Base Rate (BBR) to 4.49% above BBR in May!  Those with residential Bank of Ireland mortgages will see rates increase to 3.99% plus BBR from October.

The Bank says the changes reflect the significant increase in the cost of funding these mortgages and refers to a “special condition” in its mortgage contract that permits the hike.

This has obviously angered a lot of customers, including many mortgage professionals who had mortgages from this lender.  Even more so that Bank of Ireland also fund the mortgages offered by the Post Office, who, incidentally are currently offering near market leading competitive fixed rates to new customers!  Obviously I have to be careful in what I say here, but the mortgage profession is strictly guided and assessed by a policy called ‘Treating Customers Fairly’.  Enough said I think!

 

Looking at 'Right to Buy / Acquire' or Shared Ownership?

We are seeing a large increase in enquiries from those looking to purchase the property they live in at a discounted price, as offered to them by the local council or housing association.  Termed as ‘Right to Buy’ or RTB, usually the minimum period to live in the property to obtain a discount is five years and the discount from the open market value of the property could be as much as £75,000! But note, the five years as a council tenant does not necessarily have to be in a row, and may possibly be different addresses.  Terms and conditions apply!  Lenders will look to assist those looking at RTB purchases and some offer mortgages with minimal, or no deposit required.   For those who may have had a historic issue with their finances, again, there are lenders who will assist, but they are likely to require a deposit of up to 25% of the discounted purchase price.

Right to Acquire is another term we are seeing used more lately.  Usually the customer living in the property is eligible for a discount varying from £9,000 to £16,000, depending on where they live.   As with RTB, there are lenders who will assist, but they are a little more limited in number for this type of scheme. 

Another option is called Shared Ownership.  As the name suggests, the purchase of a property is shared with another party, usually a Housing Association.  First time buyers, if eligible, can purchase a percentage of a property (between 25% and 75%) and a Housing Association purchases the remainder.  The buyer then pays rent on the latter percentage, in addition to their mortgage payments, with the option to purchase an increased share of the property later on. There are many schemes available and a good supply of properties, so do review all the options available.

Finally, the Nationwide House Price Index suggests that house prices rose by 0.2% in February and the typical UK house price average now stands at £162,638. 

Lenders targeting those with small deposits.

According to the Council of Mortgage Lenders (CML), gross mortgage lending fell in January by 9 per cent.  Lenders advanced £10.4bn, compared to £11.4bn in December.  This surprised me as with rates so low, the mortgage market has been buoyant with activity.  AToM reported our third best month, for four years, in January!  February was slightly quieter with a half term and a shorter month making a difference in figures.  However, overall, the continuing price rate war between the high street lenders is putting a huge amount of confidence back in to the mortgage market.

The higher loan to value (LTV) products are making an apparent comeback, especially for First Time Buyers.  We’re also seeing different ways in which a lender is looking to assist.  The most recent is from the Bath Building Society who has launched a 100 per cent home loan.  However, the brief details include the ‘bank of Mum and Dad’ allowing a charge on their own property to the equivalent of 25 per cent of the borrower’s property value.   This is pretty similar to a deal that Aldermore Mortgages recently launched.   Both signs that lenders have an appetite to lend and are being innovative in providing solutions.   Other lenders have lowered rates recently to those with small deposits.  Accord Mortgages recently reduced rates by 0.4% on their 90 per cent products (10% deposit).

With so many rate changes and reductions, lenders will look closely at recent payment profiles, how many recent credit searches you have incurred by financial institutions and more.  So don’t give any excuses not to lend to you.  The more credit searches you have on your profile, over a recent amount of time, the more likely your credit score will be lower as a result.  Try and ensure there’s no missed or late payments as these will also decrease your credit score.  In short, your credit search / score are the basis on which most lenders will initially decide whether to lend to you or not.   The best rates will almost definitely go to those with the best credit scores.   If you’ve not checked your credit file before, it is well worth a review.  Experian and Equifax tend to be the main two providers used in our market with both offering free trials and you can find links to these on the AToM website.

And 200 mortgage columns later....

Way back in November 2008 I was engaged in an interesting conversation about the parlous state of the mortgage world and enjoying a coffee with a friendly WSCT manager, when I inadvertently agreed to write a weekly column specifically geared to the mortgage market and its impact both locally and generally.  Who would have thought that, four years later I would still be writing it, the paper would still be publishing it and more importantly, you are still reading it! 

As I reach the 200^th column milestone, it is fair to say that it has been an enjoyable and rewarding task enabling me to express a personal view of the mechanics as well as the financial issues which affect us all in our everyday lives.  Sometimes not for the fainthearted, it has to be said, but hopefully useful nevertheless.

The last four years has seen seismic change in the mortgage sector and this has included a high street lender or two hitting the wall in late 2008. Since then I have commented on detail including a dip, a double dip and even the possibility of a triple dip recession.  None of us have any firm indication either way on the latter at the moment!  We have seen times when mortgage availability was so limited that we were almost back to the days my father sometimes refers to when mortgages were rationed and you had to have sufficient savings with a lender simply to gain an interview! 

Lenders have come, lenders have gone.  Quantitative easing, Swap rates, LIBOR Rates, Funding for Lending and many other ‘jargon’ titled mortgage terms have been regular features in my articles. In more recent times we have seen a gradual increase in mortgage product availability and more so in product innovation designed to help gaps in the market. These have included niche First Time Buyer products and the dramatic increase in Bridging Finance.  In the last few weeks I have been able to report on the fantastic rate price war in all areas of the market, which now proudly boasts over 4,000 products.  Still some way to go from the boom time of 07, but the light at the end of the tunnel may no longer be the headlights of an oncoming train!

On reflection, the last four years has been a roller coaster ride in the mortgage marketplace and I envisage that there may still be a rocky ride ahead but with a more positive outlook than at any time during that period.  I look forward to continuing to report on developments as they occur and I hope that 2013 will bring further competitiveness within the mortgage sector.  This can only be of huge benefit to the end consumer.

Finally, for this article at least, thank you to the WSCT for printing my column each week and an even bigger thank you to you for taking interest in them.  Here’s to the next 200....!