Two million sitting on a Lenders Standard Variable Rate!

New lenders will be a key part of the mortgage market in 2016.  A number of lenders have applied for authorisation from the regulator and a number of others have contacted AToM with regards to re-launching in to the market place.  It's a buoyant market and lenders can see growth in 2016, especially whilst rates remain low. 

With this in mind, it still amazes me how many people do not change their mortgage.  HSBC have recently suggested that over two million borrowers in the UK market are sitting on a lenders standard variable rate (SVR) in excess of 3%.  In fact, the average lenders SVR is sitting around 4.82%, whilst the market continues to enjoy record low rates.  Short term fixeds are commonly around the 1.25% mark with five year deals circa 2%.  This makes it worthwhile to review your options and see if you can save money.

Remortgaging away from your current lender should not be looked upon negatively!  Many lenders will cover the cost of surveying your property, as well as covering the legal fees in transferring your mortgage from one lender to another.  But most of all, you should think of number one as this could save you money on your monthly budgets and, subject to terms and conditions, this can only be a good thing. 

In other news, Halifax is changing its income multiple to a flat 4.75 times sole or joint incomes.  For loans over £500k, this remains at 4 times income.  I suspect we will see some other lenders follow suit in to the new year and the lender will still require a full affordability assessment to be carried out.  However, this is pretty generous and many customers still believe they can only get 3-4 times income, so 4.75 times income, especially joint incomes, might be an eye opener for some!

Finally, outside AToM we have a box offering free ‘Property Today’ papers.  This is a good gauge to the local market and how interested people are in properties each week.  Last week, we ran out in a couple of days.  Possible signs of a buoyant local market (despite low stock levels), or just a lot of people keeping an eye on things?  Who knows…

Don't miss Horsham's Landlord show on 28th November

If you are currently in the process of changing your mortgage, has your current provider, adviser, arranger advised you of the regulatory changes that are due to be implemented shortly?  This is especially important if you are looking at buying a new build property that may not be completed until after March 2016.   One of the key areas of the new Mortgage Credit Directive is that lenders must issue a 'binding offer'.  This means that unless a material change occurs, post mortgage offer, or the customer has provided inaccurate information, the lender cannot re-underwrite the case.  This sounds pretty straight forward.  However, if you are arranging your mortgage today and on current lender structures, come March 22nd, your offer will be null and void.  Thus between now and 21st March, the lender should send you another mortgage offer which will be compliant with the new regulations.   This new offer also introduces an obligation on lenders to give customers the right to seven days of reflection (a cooling off period).  These are just two examples of a number of new regulations that are coming into effect and that you should be aware of.  More news will follow on this. Of course, as with the last regulatory changes (Mortgage Market review – April 2014) you can be certain that the national press will publicise all you need to know, just a week before the regulations hit the market!

Finally, we're just over a week away from Horsham's FREE and dedicated LANDLORD event.  On Saturday 28th November, at the Drill Hall, Denne Road Horsham, a number of local businesses will be exhibiting and offering key information and regulatory updates that come in to effect in 2016.  Whether a first time Landlord or an experienced portfolio investor, the event will offer information and assistance for all.  Organised by AToM and Spofforths Accountants, exhibitors include the National Landlords Association, Courtney Green, Guy Leonard, Leaders, Rix & Kay Solicitors, David Everett Plumbing, Lady Decorators, Community Fire Services, Durrants Removals, Sharon Davis Inventories and much much more!  Hope to see you there!

They say no base rate move in 2016. Now, use a broker!

As mentioned in one of my earlier columns, I could not envisage a rate rise for some time and, at the earliest the end of 2016, start of 2017.  This has now also been stated by the Bank of England who suggest that there will be no movement in base rate for the whole of 2016.  If it's correct, then good news indeed!  What this means is that lenders effectively have cheap money to lend.  In the current climate, with minimal property stock for sale, reduced activity across the market and increased targets, we will see a lot of competition and possibly rate decreases as Lenders become more focussed on attracting new business. 

This will also apply to the non high street lenders.  They will have an uphill struggle to compete with the bigger lenders in rate reductions.  Where this breed will succeed is through helping those who are rejected by the high street, for whatever reason.  As the household names usually work on a computer automated credit scoring system, not everyone will fit the mould required.  The smaller lenders have an ability to manually review an application, assess it on its merits and carry out a credit search, rather than a credit score.  Rates are not far different from those on the high street and in most cases, the process will be the same.  But having a human underwrite your application can be a big plus when other avenues may have been closed to you.

What is for sure is that obtaining professional advice from a company who is willing to stand behind their recommendations and build a relationship with you, rather than just treating you as a number, should be a key priority.  Yes it may cost a small fee, but finding the right mortgage for your needs has to be more important in the longer term.  As more and more regulations hit the mortgage industry, dealing with someone who is experienced and who has access to the whole market, rather than just a small panel of lenders, should mean that you get the appropriate advice and less stress to concern you later on.  Remember, this is the biggest debt you're ever likely to have.  It should therefore be treated with the up-most respect.

Buy to Let now with free valuation and free legals (including purchases*)

With the year end closing in fast, and new regulations only just around the corner, we are starting to see some lenders advising their plans for next year.  Many lenders have increased targets and AToM has been in contact with a number who are looking to launch or re-launch (having been dormant) during the coming months.  The majority of industry pundits, including myself, don't believe rates will now change until late 2016, or early 2017.  So with a slightly quieter market, competition, especially rates, should be fierce for the remainder of this year and moving into next year.  This can only be good news for the end consumer.

For those with Buy to Let / Investment property interests, we have seen new lender, Foundation Home Loans, stir up the market as they have launched products with free valuations, free legal costs and will accept customers who have no minimum trading period on employed or a self employed basis and no minimum income requirements.  This is in addition to looking at customers who may have had a blip or two on their credit history.  Although a recent new entrant to the market, Foundation have an appetite to lend and are innovative.  I think we will see a lot more from them in 2016.

Another lender has launched a five year fixed rate for Buy to Lets with a rate sub 4%.  This whole sector will remain buoyant while the rental market continues to grow at a substantial pace.

Nationwide House Price Index confirm UK house prices increased by 0.6% in October, with the annual price growth edging up to 3.9% from 3.8% in September.  The average house price now stands at £196,807!

And finally...due to an increase in business volumes, we’re looking for staff to join our expanding AToM team.  If you know someone in the mortgage sales sector, with the relevant qualifications (or studying towards them) and who likes to be kept very busy, then please ask them to get in touch! 

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!