Positive movements from lenders..

Lenders have been actively looking at their offerings this week and loosening their criteria, positively.  As I have said before, I think in the run up to the end of the year, we will see a number of attractive deals launched by lenders who want to build up their pipelines ahead of, what will be, a very demanding 2016.

First Time Buyers have been in the spotlight as both Nationwide and Santander focus on the higher 'loan to value' market. These products cater for those looking to purchase their first property who have a deposit as small as just 5%.  Santander's products will be launched later in the month, but Nationwide's are an attractive proposition with starting rates sub 4% and £500 cash back to help towards the costs involved in arranging a mortgage.  

Interest only mortgages have also come back on to the lenders radar.  NatWest has confirmed it will offer interest only mortgages to customers who earn over £100k per annum and who have an 'acceptable' repayment strategy.  So, this may not be open to everyone, but it is positive that lenders are looking for gaps in the market in which to attract more business.  

This also shows in recent figures released from the Bank of England confirming that lenders approved more mortgages in July, than in any month since January 2014.  This amounted to 11,766 approvals, up 8% compared to July 2014.

And finally, do you look at your financial budgets frequently?  A report from well known credit referencing agency Equifax has suggested that over 78% of mortgage people surveyed are not currently budgeting for a rate rise.  We all know rates will rise, even though the Bank of England base rate was held for the seventy eighth consecutive month this week, but nobody knows when this will happen.  Many people asked did not know how much a rate rise would cost them on a monthly basis, despite many respondents believing rates would rise over the next twelve months! 

What is a normal retirement age for mortgages?

You may have seen the Citizens Advice Bureau release research estimating that nearly 1 million people have an Interest Only mortgage with no obvious way of repaying it.  This means that come normal retirement age, the lender has the right to request repayment of their loan.  If the customer has no way of repaying this and has just continued to pay the interest over the last twenty five years, they face having their home repossessed or being forced to move out.  On the high street, the end of the loan term will normally hit those aged between 65 to 70.  This is not new news, but does highlight that people are still burying their head in the sand and hoping this will go away or the lender may be lenient.  No chance on either.  You may get a years extension, but the lender will want their money back and that you cannot avoid.

However, there are a number of lenders that recognise that 'normal retirement' age is no longer set in stone and people continue to work long in to later life.  Many will consider loans ending at the customers age of 80 (maybe to 85) and on a repayment basis, so no loan outstanding at the end of the term.  This is all subject to affordability and will depend on the loan size compared to the value of the property.  These are also not high street names and as such, rates may be slightly higher than the big super tanker, large volume producing household names that we are used to.  But at least they will consider helping out and could keep you in your home!

This also runs in line with recent reports that the top six lenders in the UK are losing market share to the smaller lenders.  Virgin Money, Skipton and Coventry have all posted figures with a year on year increase in excess of 25%.  But where the smaller lenders are really winning is the ability to think outside the box and in some cases, manually assess your application with no credit scoring.  The smaller lenders can be more innovative and change things quickly to suit market conditions and to attract new business.  Don't be shy of a non household name, they could very well be the best lender for your next mortgage move..

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! 

69% of all mortgages written by advisers!

The importance of mortgage advice has never been greater and it is an interesting fact that, according to the Council of Mortgage Lenders, 69% of all mortgages were written through professional advisers during the second quarter of the year. This is a substantial uplift on previous quarters and there are probably a number of reasons for this including long delays we are advised are happening with some lenders both in interview availability and processing times. 

The professional mortgage adviser reviews the whole market for you and can identify the best lending options and then deal directly with the lenders central processing units, speeding up the process from application to offer. That said, even in this area we know of at least one lender that is eleven days behind on post or electronic updates. A good adviser will listen to your specific needs and timescales and ensure that they line you up with a lender who will match both. So, if speed is crucial then you may need to consider working with a lender where the rate may not be the keenest on the market but where you get what you want. Your adviser will discuss this in detail with you before you make any decision.

On a different subject, a number of mortgage lenders are looking ruefully at their performance against target for the current calendar year and casting sideways glances at their competitors. At the start of the year, no one was really sure what the effect of the 2014 Mortgage Market Review would have. A number of lenders are, allegedly, well below target and we will probably see a price war in the next few months as they look to gain ground before the year end

Rates are creeping up...

Panic Panic Panic.........ok, so that's a little dramatic!  However, we have seen a number of lenders increase rates over the last few days.  TSB, Halifax, Nationwide, Virgin Money, NatWest and Coventry Building Society are just a few who increased their rates on various product offerings.  We have seen SWAP rates (the mechanism through which lenders can acquire a fixed price for funding over a specific period of time) start to creep upwards and as such lenders are re-pricing accordingly.  Despite my headline, I don't believe it is really time to panic just yet.  Many pundits are suggesting middle of 2016 before we see a true rate rise.  Just keep an eye on things if you are looking for a long term bargain.

What we have seen recently are lot of enquiries to remortgage for home improvements.   Increasing the value in your property can involve large renovation, adding a room or two and a general investment in time and builders.  That said, with house prices booming in the local areas, many have decided to look at cosmetic changes.  So up-grading kitchens, bathrooms, redecorations and so on.  Whether small or large, the investment in property can bring rewards to the value and if you are staying put, reward in the satisfaction of home comfort.  Plus a potential large saving in stamp duty too versus moving home!

We have also seen an 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 interest for your debt over a longer term.  With debt management plans, or Individual Voluntary Arrangements (IVA), etc, 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 debt management plans and may not consider anyone who has been in an IVA unless it has been discharged for more than three to four years. Advice should always be sought before entering in to these types of arrangements or agreements.

Sometimes a conversation with a human being is just what is needed!

Over the last few weeks, we have seen a number of lenders who have post positive half year results.  Many stating that they have increased lending against their previous financial year.  But this is hardly surprising as many didn't want to lend (or maybe were not allowed to!) post the new regulation implementations in early 2014.  However, it is important to run with the positive news and such announcements on half yearly figures show that lenders are now keen to lend and are looking at ways to compete in an active market.  What this means is that end consumers should be able to bag a bargain for some time yet whilst rates remain low and competitive.  Some industry pundits are even stating that it will be the middle of 2016 before they expect any rate rises...

This has also resulted in a swing between the high street and niche lenders.  The smaller lenders are stealing market share from the 'super tankers' on the high street as an increasing number of consumers are requiring a manual and human assessment rather than a computer decision making system.  Despite all of the available technologies in the current climate, sometimes a conversation with a human being is just what is needed!

From where we see it, on the front line, I would dare to suggest that consumer confidence appears to be the highest it has been for some considerable time.  People are selling, people are buying and many are remortgaging!  August is never normally this busy!  It is not just one geographical area either, although does appears to have a leaning to the south. What does seem to be apparent is that the demand is for ‘all types of mortgages' for all types of people!   From the straight forward, to the complex, to the commercial shop front, to the credit issues, to the first time landlord investing in their first Buy to Let property and so much more, we are seeing many different scenarios.

Finally, Nationwide House Price index has indicated that House Prices increased in July by 0.4% compared to June and 3.5% over the last twelve months.  The average house price now sits at £195,621.

New entrants to the Buy to Let market!

With the rental market continuing to be buoyant, and with no signs of declining, the mortgage market is active as lenders recognise the huge demand for Buy to Let (investment property) mortgages.   These can be from a first time landlord, right through to the experienced House of Multiple Occupation (HMO) / Student Let portfolio investor.   Deposit requirements can be as low as just 15% and as this sector has also recently been through a price war, rates are competitive (some now sub 2%) and may also come with packaged deals, such as free valuation and free legal costs.

But with so many lenders now in this sector, rates may not remain the main area of competition for much longer! Some lenders are also reviewing criteria in order to attract new business.  Many lenders historically would not allow first time landlords, anyone earning an income less than £25k per annum, those who have more than ten properties, or those who may have had previous blips on credit history, to give you a few examples.

However, we have seen recently that criteria and attitudes are being relaxed and lenders are having to compete to attract more business.  There are also a large number of new entrants to this market including Foundation Home Loans, AXIS Bank, Fleet Mortgages and Pepper Home Loans to name just a few.  Each have launched their own niche propositions and are looking to attract a certain type of Buy to Let customer.

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 125%, normally at a marginal rate of circa 5% 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. Remember that, whatever the deal, lender terms and conditions will always apply.