Mortgage & Remortgage Articles
Fee Free Mortgage Deals
Fee free mortgage deals may not offer homeowners or potential homerowners the value for money they first think. Based on an analysis of several mortgage / remortgage packages, its been calculated that only people looking to borrow less than £57,000 can find a good deal with a fee free mortgage or remortgage. Based on this, these deals are best suited for those looking to remortgage or those who have already paid off a substantial part of their home loan. In what may surprise many homeowners, the best mortgage or remortgage offers all incur the most fees up front. Lenders are being very innovative with products, but because mortgages can be so complex borrowers need to be cautious and ensure they get best deal. Fee-free deals are not as simple as they are marketed to be, so people need to look beyond any headline rates and special offers. Unfortunately, the more money-conscious consumers are more likely to be attracted to the 'free' part of fee-free - but doing a bit of homework beforehand could expose the pitfalls of a fee-free deal.
Some 2.5 million people in Britian are struggling with paying back their debts, a rise of 700,000 people in just six months, new figures reveal. A YouGov poll commissioned by debt consultancy firm Thomas Charles found 8.4 million people or one in five of the UK population has unsecured debts of over £10,000. Of those owing more than £10,000 a third of women and a quarter of men said they were in financial difficulty and reporting regular repayment problems. Seventy per cent of those owing over £10,000 or 1.4 million adults - said they are 'quite likely', 'likely' or 'certain' to declare themselves bankrupt or take out an Individual Voluntary Agreement (IVA) in the next six months.Mr Falla, director of Thomas Charles, said: "Our latest research confirms that the debt problem in the UK is continuing to worsen. "We are currently witnessing a correlation of increased borrowing alongside a massive decrease in the number of people coping with their debts. If action is not taken to curb borrowing trends in the UK, the situation is likely to spiral over the coming years." He added that the UK could soon hit "a tipping point" where those in financial trouble outnumbered those who were not. He advised people with debt troubles not "to bury your head in the sand".
Credit Scoring - Will I be able to borrow money?
Problem Remortgage? Here at Shore Thing Mortgages, we specialise in finding the right mortgage product for those who find it difficult to remortgage their home due to financial problems and constraints such as bad credit, mortgage arrears and CCJ's. But there are many reasons why you or your property may be turned down when applying for a home loan. Lenders analyse two main criteria to decide whether to offer you a mortgage. Firstly, is the property you wish to buy adequate security for the loan, and secondly, are you a good credit risk?
The first question involves gaining information about your financial position - from the various credit cards you may have, to any outstanding loans. Further, you will undergo a credit search and receive a credit score. In doing this, the lender will look at your financial history with regards to how well you have coped with previous borrowing, whether you are on the electoral roll, and information about any other financial companies which may have carried out similar searches on you. Notice will be taken if you have made repayments on time, but also, if you have fallen behind at any point. Mortgage arrears, County Court Judgments (CCJs), defaults or bankruptcy are all troubling points, and so, prior to making their decision, the lenders will consider these also. This information is held by credit reference agencies, and can take up to six years to clear.
The next stage to the process is for the lender to score each point which they have noted whilst assessing your file, and then, once totaled, either grant you the loan or not.
It is important to remember that lenders have different scoring systems and so, you may not qualify for a loan with one lender, but you could with the next. Having said that, it should be noted that each credit search carried out will be placed on your record, and so, may hinder your chances of succeeding with the next application.
As unfair as it may seem, with no credit record, you may also find it difficult to receive a loan, as the lender may not wish to take a risk on you. Further, if you are unable to prove your residency over the last three years, and you are not on the electoral roll, you may be refused a loan also. After all, you may not be who you say you are. If you are registered to vote, and may need a mortgage in the future, it may serve you well to obtain a registration form from www.rollingregistration.co.uk or call the Electoral Commission on 020 7271 0500.
As you can probably see, many lenders are particularly fussy over who they lend to. Not only do they analyse the problems you may have experienced in the past, they also calculate the likelihood of you running into financial trouble in the future.
If you have been in a job for only a few months, or if you are still in a probationary period, the lender's decision can often be swayed against you - regardless of your past employment record. Such a scenario clearly has its downfalls. Contract workers are most likely to suffer from refused credit as they often have short term contracts. With this in mind, contract workers can immediately and easily rule out several high-street lenders when they look for a mortgage.
For those who are self-employed, or work on commission, receive regular bonuses or have the ability to work overtime, the problems remain. Being self-employed is viewed as being more of a risk by many lenders. If you have at least three years of audited accounts then most lenders will accept that you are able to keep up repayments. Those with fewer, or none - it may be harder to prove your ability. With regards to those who receive bonuses, commission and/or overtime, lenders frequently calculate the maximum loan value by taking your basic wage, and adding only half of your regular overtime, bonuses or commission to this.
If you are a sole applicant, in most cases, the lender will offer you a loan of 3.25 times your salary. Joint borrowers have more of a choice. Either, their salaries can be added together, and multipled by 2.5 or 2.75, or, alternatively, the first salary can be multiplied by 3.25 and the second salary can then be added to this figure.
After the lender has picked faults with your credit history and personal finances, you may still have your mortgage application rejected due to property problems. If you fall into financial difficulty, your home may be repossessed in order for the lender to sell to recoup their investment. With this in mind, the property must have the ability to sell. Such features as thatched roofs, properties of unusual construction, listed properties and those of part-home-part-commercial building - may all be rejected. High rise and ex-council flats may also suffer due to this. This is because of increased fire risk, and many lenders only accept mortgage applications for residency of the first four or five stories of high rise apartments.
As is clear from this, your mortgage application can be rejected for numerous reasons, relating to your financial history or potential property. There may not be a solution to some problems presented, but in many cases, there is a lender willing to offer you the right mortgage. Here at Shore Thing Mortgages, we have a whole panel of lenders with the ability to deal with non-conforming mortgage requirements, - so why not fill in our online enquiry form now, and see what we can offer you. You've got nothing to lose.
High-street lenders have a tendancy to steer clear of any mortgage circumstance which may be viewed as non-conforming. However, in today's society, many people fall into this category due to CCJ's, bad credit or mortgage arrears, but also, those who are self-employed, contract workers or those who rely on bonuses/commission. Fortunately, there are lenders dedicated to helping those who suffer from such a financial position, and Shorething Mortgages is a closely linked introducer to lenders of this sort.
Freehold Vs Leasehold
The suburbs are out; inner-city apartments are most definitely in. Great numbers of new apartment complexes and warehouse conversions are cropping up in all UK cities, providing their inhabitants with unparalleled cityscape views. Such housing is often aimed at young, successful businessmen/women, with an eye for what's trendy and what's not. However, a major disadvantage to such apartment living is that many are leasehold properties.
Leasehold properties tend to have a much lower value than those of freehold. So, what can you do to increase the value of your apartment?
There are many things which you can do. Firstly, the idea of securing the freehold of the property is a priority. In some instances, people have been known to receive the freehold due to the mismanagement of the residential property by the landlord. The 1993 Law (amended in 2002) allows for the right to "collectively enfranchise" a building, which means that a leaseholder can purchase the freehold at a reasonable price. For this to occur, various rules apply. There must be a minimum of two flats in the building, two thirds of leaseholders must have leases that had more than 21 years when they were granted, any commercial units must not cover more than a quarter of the floor space and half of the flats must participate - unless there are two flats, in which case, both must take part. Further, those leaseholders who do take part, must own a maximum of two flats in the building.
Through enfranchising your property, you may notice a drastic increase in property value. This is due to the property buyer's preference for a "share of freehold" purchase, and the ability for leaseholders to grant themselves 999 year leases once they own the freehold.
Once the freehold has been achieved, many inhabitants become more willing to invest money into the development of the property - from painting the hallway to improving the surrounding environment. This is because they are able to see their investment go into something which will benefit them in the long term, whereas if they didn't have the freehold, their property value would be decreasing every year anyway.
Tax Implications for Buy To Let Properties
If you have, or are looking at purchasing a property to let, there are some important tax issues which must be noted.
Tax will be charged on the income generated from your rented property after allowable expenses are deducted. The following points are items for which you will be eligable for tax relief:
- the interest on the mortgage
- rental insurance
- maintenance on the property
- letting agency fees
- 10% of annual rental income to allow for depreciation to value of furnishings
- professional advisory costs incurred after the purchase of the property
You can contact your local tax office for more information on tax implications regarding your rental property, and ask for a copy of the Inland Revenue Income Manual (PIM).
The Right To Buy Scheme
The Right To Buy Scheme is a policy passed in the Housing Act of 1980 within the UK, giving tenants of council housing the ability to buy the home they live in. Local authorities have always had the power to sell housing to their tenants, but this was, up until the late 1970s, very unpopular. Margaret Thatcher (former Prime Minister) and Horace Cutler (Chair of Housing, Greater London Council) combined forces to put the scheme into practice, and this proved very successful. In 1997, the discount available to council housing tenants was reduced and by 2005, the rules relating to the Right To Buy scheme had changed. Five years tenancy is now required for new applicants to qualify, and any properties purchased after October 2004, cannot be placed directly onto the market should the owner decide to sell. If they wish to do so, the owner must contact the previous owner (their previous landlord) and offer them 'first right of refusal'.
Self Certified Mortgage market to increase
Following various investigations within the Self Certified Mortgage market, Alliance and Leicester announced in June that they were to debut in the specialist home loan sector. Previous to this, it seemed that the niche market suffered a great deal of controversy due to the investigations conducted by the BBC and subsequent to this, the FSA. Both reports concluded that there had been a case of 'income inflation', seeing lenders grant applicants mortgages of upto 10 times their actual annual income.
The Self Certified sector (£11.8bn) represents a small portion of the entire UK market, currently valued at £300bn. However, with the number of people opting to become self employed, work on a contract basis or alternatively, have more than one means of income rising, this figure is only set to increase.
Mortgages and Remortgages for the self employed
Starting your own business will have implications on a mortgage or remortgage application.
Lenders don't like to take too much of a risk, so most will not be prepared to offer one of their conventional loans (prime) unless you have two or three years audited accounts. With these accounts you can apply for a mortgage or remortgage just as any other borrower would. However, you may find that the amount you can borrow is less than the amount you can afford to pay. One reason for this is that your accountant is likely to limit the amount you declare as take home pay to reduce your tax bill. This is of course, perfectly legal but it means the amount the lender bases its income multiple on is less than you really make, with the result being that you can borrow less.
When calculating how much you can afford to borrow some lenders will look at your earnings over the last three years and average them out. This average will be taken as your income and will be multiplied to work out the maximum you can borrow. This is all well and good if you have built up your business and your takings are pretty consistant. But, if your company is relatively new, or profits are rapidly growing, this may have an affect on the amount you can borrow from a lender.
Alternatively, you could apply for a self certification mortgage or remortgage. with this kind of mortgage deal instead of handing over your accounts you declare your income and the lender takes your word for it. This is useful if you want your mortgage or remortgage calculated on your real income, and if you don't have audited accounts it could be the only way to get a mortgage or remortgage loan.
If you apply for a self certification mortgage or remortgage you will still be asked for details
of your financial commitments and the lender will undertake its usual credit checks. Some
may even contact your accountant or bookkeeper to establish that your business is solvent,
but if it's a true self certification mortgage or remortgage you won't be asked for confirmation of earnings.As with a conventional mortgage or remortgage the lender will be interested in how long you had your current job. many insist that you have run your own business for at least 12 months, although there are lenders who will accept a shorter period
For any self self certification mortgage and remortgages you may find that you need a bigger deposit than for a standard (prime) mortgage or remortgage. Many lenders limit the
loan to value (LTV) on self certifiction mortgages or remortgages to 85 percent, although there are a few who will consider lending up to 90 percent LTV.
Remortgaging with problems
Remortgaging is a good way to clear outstanding debt, reduce costs and avoid a County Court Judgment (CCJ) against your name. CCJs are issued to borrowers who have been unable to repay a debt or to renegotiate repayments with the creditor and have therefore been taken to Court for non payment of debt. Once a CCJ is issued it will be added to your credit record and will remain there for six years.
If you have a CCJ against your name you will find it hard to persuade a high street lender to give you a mortgage or remortgage. Most of these lenders require that any existing CCJs must total less than £250 and must have been paid off before they will consider you for a mortgage or remortgage. Some insist that it is at least three years since the CCJ was satisfied, but some will consider mortgages and remortgages for people who have yet to pay off a CCJ. These lenders are normally referred to as sub prime lenders. If you are in this position, you are likely to be charged a slightly higher rate of interest for your loan than you would be if you had a clean credit history.
Rather than you having to search for a lender willing to give you a loan, you could fill in our simple application form and allow us, here at Shorething Mortgages, to find a specialist lender for you, who is willing to consider offering people in your financial position a mortgage or remortgage.
Self certification mortgages or remortgages for employees
Some lenders only make self certification mortgages and remortgages available to the self
employed, but others are willing to consider applications from employees. This can be helpful to those on low basic incomes, but who earn bonuses or commission, for example, a car sales person. When assessing how much they can loan you, lenders tend to use only half of any income in addition to your basic salary. With a self certification mortgage or remortgage, you can add all bonuses and commission to your salary and declare the total income. The same is true if you have income from freelance work done outside of your normal job.
Average House Price Above £ 200,000
The average home in England and Wales has risen above £200,000 for the first time, according to a new report.The average asking price for a property is £201,600 which is up 2.7 per cent from January and up 4 per cent in the past year, says Rightmove, the property website, which records the asking prices of properties on its website.
A shortage of sellers and increasing demand has pushed asking prices to record levels, says Rightmove. The time a property stays on the market fell sharply from an average of 94 to 81 days. And agents report that competitively priced property in areas of limited supply is flying off the shelves and selling as soon as it comes on the market. Mr Shipside, commercial director of Rightmove, comments. The markets picked up quickly this year. As a result, properties are selling more quickly and stock levels are declining. House prices have moved through the £200,000 barrier to record levels several months earlier than the market anticipated!
For the first time in 11 months, all property types saw prices rising. The largest increases are at the lower end of the market as the recovery is driven by growing demand for terraces
houses and flats.
Mortgage Lenders Boost Buy-to-Let Boom
If you thought the buy-to-let bubble had burst, think again. It's about to blow bigger than ever. Banks and building societies, thankful that the feared house price crash never materialised, are now queueing up to throw money at the landlord club. Yesterday Nationwide building society, through its UCB Home Loans buy-to-let subsidiary, didn't just loosen its lending criteria, it unlocked the gates and threw away the keys. Whereas previously Nationwide allowed a landlord just two buy-to-let mortgages, now it will give them up to 10 each. And don't worry about the size of the loan - they're quite happy to lend a landlord up to £3m. Nationwide is joining an extraordinary rush by other banks to grab a share of the new lending boom. A few weeks ago HBOS raised the lending ceiling on buy-to-let landlords from £2m to £5m. West Bromwich building society is about to dump its £3m limit, Derbyshire building society has lifted its to £5m - and brokers say it can be pushed as far as £10m. Paragon, the biggest buy-to-let specialist, already has a £10m limit.
It's not just the maximum lending limits that have changed, so have other lending criteria. The banks used to want rental income to equal at least 130% of the loan repayments. That's now dropped to 125% and in some cases has gone as low as 100%. Banks have also created a curious new formula for judging interest cover; whatever mortgage the landlord takes, the bank assumes it is at bank base rate plus 0.75%. By dropping the assumed interest rate, it makes it even easier to lend.
The banks' rush to lend is a result of new figures which suggest that buy-to-let landlords are a safer bet than first-time buyers. Landlords' three-month arrears rate, currently at 0.86%, is lower than the mainstream market. The dodgier property investment clubs have been closed down and last year's dubious valuations on new-build flats are being tackled. All the evidence now points to an orderly housing market rather than the crash in values that so many had either predicted or feared.
Remortgages to fund home improvements
Homeowners who are unable to afford a new property can still feel as though they are moving up the property ladder by improving their existing home. Financial experts remind homeowners to consider the benefits of home improvements, which could be financed by a remortgage or loan. Not only can this be a more affordable option, but it also avoids the hassle and complication of moving house, according to Mr Jones, joint managing director of Nemo Personal Finance. Home improvements financed by a remortgage can provide homeowners with an alternative to moving house if they need to accommodate a growing family, or if they simply want more space, Mr Jones said. The cost associated with moving house is increasing and this has motivated many homeowners to invest more in their existing property. This trend could intensify next year when Hips come into effect.
The right type of home improvements can also have the benefit of increasing the value of a property, making a decision to remortgage more lucrative. With the significant number of television programmes inspiring homeowners to stay put, improving what they already have.
Remortgaging Cheaper than Home Improvement Loan
More than 42 per cent of homeowners are choosing to extend their property as an alternative to moving, but the difference between choosing the right and wrong home loan or remortgage to fund improvements could cost homeowners as much as £17.89 billion.
With the average house price expected to soar to around £300,000 by 2011 its no surprise that homeowners are choosing to extend their property. But research from comparison website moneysupermarket.com reveals that people choosing the wrong loan to fund their home improvements could end up £2,130 out of pocket.
Borrowers wanting to secure extra cash on their mortgage to fund work on their house will be offered a home improvement loan. But moneysupermarkets figures show that they would be better off if they remortgaged to pay for the renovations instead.
Louise Cumming, head of mortgages at moneysupermarket.com, said: Not only will a remortgage save you money in the short term, but the home improvements should increase the value of your property for when you do want to move.
Interest on a home improvement loan from a lender would be charged at the typical rate of 6.5 per cent as much as 2.13 per cent over more competitive remortgage rates which are
Cumming added: Many lenders have really simplified the remortgage process so associated costs can be minimal, with products offering free valuation and legal fees for standard transactions.
And remortgaging to a larger loan incorporating an allowance for home improvements could work out more cost effective even after remortgage exit fees.
Right to buy in England
If you are a council tenant, you may be able to get a discount to buy the home you currently rent. This is called the Right to Buy. You may also have kept the Right to Buy if your home has been transferred from the council to a housing association since you moved in. We will now explain the discounts that may be available and how they work.
Am I eligible?
Can I afford it?
How much is the discount?
How do I apply?
What if I want to sell it later?
Am I eligible?
Being a council tenant doesn't automatically give you the Right to Buy. You must have been a council, housing association or armed forces tenant (or a combination of these) for a total of at least:
- two years if your tenancy started before 18 January 2005
- five years if your tenancy started on or after 18 January 2005.
Even if this is the case, you may be excluded if:
- the property isn't your only or main home
- your home isn't self-contained
- you live in sheltered housing where services are provided
- your home has been designed or adapted for people with special needs
- the council has demoted your tenancy or obtained a court order to suspend your Right to Buy
- because you have behaved antisocially
- your home is provided as part of your job (for example, if you are a caretaker)
If your home has been transferred from the council to a housing association since you moved in, you probably still have the Right to Buy. This is called the 'preserved' right to buy.
If you are not sure whether you have the right to buy or the right to acquire, get advice from a housing aid centre, citizens advice bureau or other advice centre in your area.
Can I afford it?
It may be difficult to keep up with the ongoing expenses of being a homeowner if you have a
very low income. Whatever type of scheme you want to buy through, you will need a reasonable income to get a mortgage. Many schemes have a minimum and maximum income level which you will have to meet to be eligible (most will not accept people on means tested benefits, or people who can afford to buy on the open market).
If you don't have the cash to buy your home, you will have to get a mortgage from a bank or
building society - councils no longer provide mortgages.
How much is the discount?
If you apply for the right to buy, a valuer will assess what the property is worth, and you will be offered the opportunity to buy it at a reduced price. How much discount you get will depends on:
- how long you have been a council tenant
- whether the property is a house or a flat
- the age and condition of the property
The discount is usually a percentage of the value of the property but there is also a maximum discount for properties in different areas of the country. In many parts of London and the south east, for example, the maximum discount is £16,000, regardless of the value of the property.
How do I apply?
If you want to apply for the right to buy, ask the council for the right to buy claim form (RTB1). Complete and return the form, and keep a copy. The council has to give you a decision within four to eight weeks.
If the council decides that you have the right to buy, it has to send you a formal written
notice that describes the property and explains:
- the terms and conditions of the sale
- the value of the property
- the discount you will get and how it is calculated
if the property is a flat, an estimate of the service charges you will have to pay details of any structural problems that the council is aware of If the council says you don't have the right to buy, it has to give you a reason. If you think the council's decision is wrong, you can ask for a more detailed explanation. Contact a local advice centre if you are in this situation. The council may be wrong.
What if I want to sell it later?
If you decide to sell your home within the first five years, or it is repossessed by your mortgage lender during that time you will have to repay some or all of the discount. How much you have to pay back depends on how soon this happens. Check with your local advice centre if you are worried about this.
Sub Prime Remortgages
Increasing number of people taking out sub prime mortgages or remortgages are being pushed into expensive products when they may be able to qualify for cheaper ones, according to latest research.A survey by Moneynet reveals that there has been a 20 per cent rise in the number of people opting for 'non-standard mortgages and remortgages'. "The increase in demand for adverse credit remortgages and mortgages is undoubtedly a symptom of people overstretching themselves," comments Mr Brown, chief executive of the website. Mr Brown went on to say that it is "a worry" that adverse credit deals are being promoted to borrowers who may be eligible for standard (prime) mortgage deals from high street lenders. Research by Moneynet reveals that customers with only minor arrears or County Court Judgements (CCJs) can be lent to at normal (prime) rates of interest. However, Mr Brown remarks that it is often simply a case of identifying the lenders that wants business in order to find flexibility in their lending policy. "Our advice, except in extreme cases, would be to discuss the individual details with an independent broker with a view to establishing whether or not a deal can be struck at normal rates.
Bank holds interest rates
The Bank of England today held interest rates at 4.75 per cent after last month's surprise quarter-point hike, but opinions are deeply divided on future policy. The uncertain climate was underscored when the Halifax said house prices advanced strongly last month, rising 1 per cent, suggesting August's surprise interest rate hike has so far had little effect on the UK's resurgent property market.
The robust monthly increase in house prices reported by the Halifax was twice the rate expected by City economists and will strengthen the case for those who feel further rate hikes will be needed. The increase means prices were 8.2 per cent higher in the three months to August, compared with the same period a year ago.
The figures follow similarly strong data from rival Nationwide, which said house prices rose
by 0.8 per cent in both July and August. However, strong housing data will compete in the minds of the Bank's policymakers with figures released yesterday that showed a slump in confidence among service sector companies. A report from the CBI and Grant Thornton showed the biggest drop in service volumes for five years, placing pressure on the Bank to keep rates on hold. Analysts will now wait for the minutes of this week's Bank meeting, due on September 20, to glean insight on current thinking. Mr Shaw, the Investec economist, said: "The [Monetary Policy Committee] no doubt wanted to avoid springing two successive surprises on markets. In addition, the fundamentals did not justify another tightening at this stage. The MPC has time to sit and wait to assess further evidence." However, he added: "It would take some very poor news on the economy, very good news on inflation or a combination of both to stave off another increase."
There were also suggestions today that August's rate hike is yet to filter though to the housing market, with analysts pointing out that the most recent hike only hit variable-rate morgage holders this month. Economists also played down suggestions house prices are set to pick up further pace, noting that the Halifax data showed annual house price inflation moderating to 8.2 per cent in the three months to August from 8.8 per cent in the three months to July and a peak of 9.4 per cent in the three months to June. The average house now costs £179,043, according to Britain's largest mortgage lender. Mr Archer, chief UK economist at Global Insight, said: "Higher interest rates are now adding to the affordability pressures already stemming from moderate earnings growth, soaring utility prices, and the marked overall renewed firming in house prices in recent months. "Even the small increase in interest rates so far could have a significant dampening impact on housing market activity, given stretched affordability." Halifax chief economist Martin Ellis said soaring utility bills and higher mortgage rates following the Bank of Englands decision to lift its base rate in August would cap price rises. He said: "These developments, combined with the historically high level of house prices relative to average earnings, are expected to constrain housing demand and moderate house price inflation over the remainder of the year."
Simon Wallace, an economist at the Centre for Economic Business and Research, believes a November hike is still likely but added: "If inflationary pressures do continue to diminish throughout September and October and the downturn in the USA starts to spill over to the United Kingdom the November decision may be less of a done deal."
First-time buyers offered home loans for groups
HSBC, Britains biggest bank, is targeting short of cash first-time buyers who cannot afford a home of their own with deals that allow up to four borrowers to club together on their mortgage. Since the end of last year, the number of group loans issued by HSBC has soared by 50 per cent, as rising house prices have pushed the property ladder out of the reach of thousands of aspiring homeowners.
New research by the bank has indicated that three quarters of first-time buyers would consider buying a house with friends. Mr Blackshaw, the senior manager of lending markets at HSBC, said: We are addressing customer need. First-time buyers are increasingly unable to meet traditional lending criteria as a result of house-price growth. As prices are unlikely to fall any time soon, we are expecting this trend to continue. HSBCs promotion of group loans comes as banks and building societies face mounting pressure to offer bigger loans to struggling first-time buyers, who now are borrowing a record average of 3.21 times their incomes, according to figures from the Council of Mortgage Lenders (CML).
Last month, Morgan Stanley shook up the market with the launch of a shared equity loan through the investment banks new lending arm, Advantage, which offers up to seven times borrowers incomes in exchange for a share of potential profits when they sell. Yet there is growing concern that solutions such as clubbing together could create problems for unwary first-time buyers. Sue Anderson, of the CML, said: Borrowers need to be careful. This kind of offer can create unstable households, which could ultimately be bad news for the owners and for the property market.
Keith Tondeur, of Credit Action, an independent debt advice charity, said: They are building a housing market bubble, but if the bubble bursts, millions of borrowers will be in trouble. Although group mortgages are rising as a proportion of total lending in the UK, they still account for a relatively small percentage. Between 2000 and 2005, the number of mortgages lent to groups of three or more borrowers more than doubled, from 0.3 per cent to 0.7 per cent, according the CML.
Other lenders, including Abbey, HBOS and Britannia Building Society, allow up to fourfriends, the legal limit for the number of joint owners allowed on one property, to buy together.
The cost of a remortgage
If you want to cut costs by remortgaging, don't forget to add up the extra fees and charges to make sure you're getting a good deal. These days, there are thousands of competitive remortgage deals to choose from. And with the reduction in the number of products with early repayment charges beyond the initial deal period, there is no reason for anyone to be paying a lenders standard variable rate (SVR) in today's market.
The average SVR is currently 6.44 per cent according to Moneyfacts, and some lenders, including Norwich and Peterborough and Nottingham Building Societies, have increased their SVRs before the 0.25 per cent rise in the Bank of England base rate. With the current Moneyfacts best-buy discounted variable rate for 95 per cent loan-to-value (LTV) at 4.19 per cent for two years, there is more than a 2 per cent difference between the average SVR and the best deals available, which means remortgaging when your current deal ends is likely to result in substantial savings.
You can also save switching to a fixed rate, even though fixed rates are generally higher than variable rates. For example, paying a 6.5 per cent SVR on a 25-year £150,000 mortgage, the repayments are £1,013 a month, but on Nationwide's three-year fixed rate at 5.13 per cent, they are £888, resulting in savings of £4,483 over the three-year deal period.
Find a new remortgage deal
- Extra costs
However, the fees charged on some products have been increasing, which means you should take a close look at all the costs involved before choosing a new deal. Research by MoneyExpert.com showed that remortgage application fees have increased by as much as 22 per cent in a year, with the average now at £407 for a discounted rate and £494 for fixed Exit fees, or the charges for leaving a mortgage lender, have also increased in recent years. For example, Alliance & Leicester now charges £295 compared to £150 five years ago, while the Woolwich charges £275 instead of £95.
The Financial Services Authority, which regulates mortgages, is already questioning the fairness of these charges but some lenders are still offering a good deal. Nationwide Building Society only charges £90 and introduced the fee as recently as May 2005 after charging nothing for a number of years. Borrowers with less than ten years left on their mortgage pay nothing as a reward for their loyalty. Other hidden costs to watch out for are telegraphic transfer fees, which most lenders charge for transferring the funds to your solicitor. BM Solutions is among the lenders charging the most at £49, while Nationwide charges £20, whereas Cheltenham & Gloucester charges nothing.
- Potential savings
But while fees have generally increased, the number of products with application fees has actually decreased. In the last year or two the principle of charging fees has become diluted, says Mr Clifford, managing director of mortgage broker Mortgageforce. Fees used to be payable on all mortgages but now they mostly apply to special products such as fixed rates or self-certification mortgages or remortgages. This mean its possible to remortgage to a product with very few costs and many lenders offer deals with no valuation or legal fees for remortgages. It is also possible to choose to pay a slightly higher rate but no fee or a lower rate with a fee.
Portman Building Society, for example, charges a £499 fee for its two-year fixed rate remortgage product at 4.89 per cent but no fee on its two-year fixed rate of 5.15 per cent. Theres a lot more choice now, and its important for borrowers to think carefully about what they want, says Lynsey Hallam, spokesperson for Portman. Its important to remember that you will have to pay the interest rate for the duration of the deal, so in many cases it may be worthwhile paying a fee to get a lower rate.
As a result of mortgage regulation, lenders now have to be completely transparent about the
fees they are charging by including them on the key facts illustration (KFI) for each product. This means it is easier to compare the rates and fees of different remortgages side by side.
Its also important to look at whether you will have to pay any early repayment charges to
switch lenders, although it may still be worth remortgaging if you do, and exactly how much
your redemption figure is. You may owe more than you think you do because of charges that were added at the outset, points out Mr Clifford.
While interest rates are not as low as they were three years ago when the base rate was at
3.5 per cent, and anyone switching from a very low rate taken out two or three years ago is
likely to have to pay slightly more, they are still historically low. However, some borrowers benefit more from remortgaging than others. Anyone on a specialist product because of poor credit problems in the past who has now repaired their credit could save significantly by switching to a mainstream product. Borrowers on a SVR will also benefit.
- Alternative options
Remortgaging every few years or being a so-called rate chaser is now common practice for
many borrowers. However, there are alternatives to serial remortgaging. One option is to go for a long-term fixed rate, although with slightly higher rates, they tend to make sense for borrowers targeting long-term financial goals, for example, in a countdown to retirement. There are plenty of competitive long-term rates around, including a ten-year deal from Leeds Building Society at 4.99 per cent, a 15-year product from Northern Rock at 5.19 per cent and a 25-year loan from Kent Reliance Building Society at 5.5 per cent, but all tie you in for the duration of the deal.
Another alternative is to take out a flexible remortgage, which will allow you to make overpayments to pay off your remortgage early. This means you are willing to pay more now to save interest in the long run, says Mr Eagles, mortgage advisor at Simple Finance.
However, its a good idea to re-evaluate your financial position every few years. Towards
the end of a deal period is the ideal time to do it. Its in borrowers interests to review
their situation regularly and the market is so competitive that there are always good deals
around, says Mr Clifford.
Remortgaging at the end of a deal is likely to be worthwhile for most borrowers. Just make
sure you look at every aspect of a product, including its fees and charges, before choosing
one - not just the initial rate. An independent mortgage adviser can help and will be able
to look at the whole of the market to find the best deal for you.
Deal of a lifetime or not
Pensioners who release equity from their homes through a lifetime remortgages scheme will collectively pay more than £60 million in interest during the first 12 months. As many as 23,470 lifetime remortgages worth over £1.015 billion were taken out between July 2005 and July 2006 by pensioners looking to raise extra capital through their homes. According to MoneyExpert.com, the average APR charged on lifetime mortgages is around 6.63 per cent but rates range from around 5.7 per cent to as high as 8.9 per cent a difference of 3.2 per cent. MoneyExpert.com says that by shopping around, a 70 year-old taking out an average policy of around £44,000 and living until 85 could reduce their final repayment by as much as £57,000. Interest paid on a lifetime remortgage is added to the initial loan and the total is repaid when the customer dies. Mr Gardner, Chief Executive of MoneyExpert.com, said: For an increasing number of pensioners, equity release schemes are an important means of raising cash for a more comfortable retirement. But the complexities and variety of the products makes choosing the right scheme difficult.
As the market matures, more consumers will research the pros and cons of equity release and it stands to reason that they should be able to do some initial digging themselves. People need to know just how much they risk losing if they don't research the market properly. Among the lowest rates on offer are those from Holmesdale Building Society with two products at 5.7 per cent and GE life, Just Retirement and Bristol and West at 5.9 per cent. However, customers need to be aware that certain low rates are only on offer to people borrowing higher amounts. Rates can also vary depending on how much of the value of the home is set against the remortgage. Some products also offer a drawdown facility allowing clients to release cash over a period of time. Mr Gardner said: As with most financial products, choosing on rate alone is a risky business. Most equity release customers will inevitably enlist the help of a financial adviser, but if they do research the market first we would recommend treading carefully and considering what your priorities really are.
Homeowners lose out by not remortgaging
Only 5 per cent of homeowners remortgage enough times to save money over the lifetime of their mortgage.
A report commissioned by Standard Life has found that consumers focus on the short-term
rather than on long-term value when choosing a remortgage. Homeowners could be £15,000 worse off by choosing a discounted remortgage over one that charges a low standard variable rate (SVR), unless they remortgage regularly. Most consumers questioned said that the main factor for choosing a remortgage was initial low repayments. Even when shown that another remortgage was cheaper over 25 years, they still went for the cheapest upfront option.
Regular remortgaging means keeping on top of the best deals, but Standard Life research has shown that 45 per cent of consumers remortgage just once and only 5 per cent of the population will remortgage enough times to save money. This means that 95 per cent of consumers will be better off choosing a low SVR over a discounted deal that may revert to a high SVR once the deal period has ended.
Those that don't remortgage could end up paying £77,000 in fees and additional interest. Typically, customers need 12 years at least six two-year discount period to have a lower total cost from a discounted remortgage compared to sticking with a non-discounted low SVR remortgage.
Mortgage debt crisis looms
Over three quarters of a million homeowners fell behind with mortgage repayments during the past year, prompting fears of an increase in repossessions. Research from Citizens Advice estimates that 770,000 households have missed one or more payments, and the situation could become worse as interest rates rise. It appears that first-time buyers are struggling the most. A survey of 2,000 homeowners by the CAB found that 13% of under 24-year-olds had missed payments, with 4% of the total admitting to missing payments. Banks have been criticised for relaxing lending criteria to make it easier for people to get on the property ladder. Some lenders are prepared to lend up to six times a person's salary, while others are offering mortgages of 100% of the property's value or more. The Coventry Building Society is currently offering a 125% mortgage, which is 95% mortgage and 30% personal loan. According to the Council of Mortgage Lenders, first time buyers are borrowing the largest multiple of their salary on record. The average first time buyer will borrow three times their salary, the group said. Mr Harker, chief executive of CAB, said: 'There is a clear need for more information and advice about the consequences of taking on financial commitments, particularly for younger adults.'
The charity has dealt with over 50,000 inquiries about arrears on mortgages and secured
loans in the past 12 months. Repossessions have hit over 8,000 in the past six months, their highest since 2001. Bankruptcy and Individual Voluntary Arrangements (IVA) have also soared in recent months. It is expected that interest rates will be raised to 5% before the end of the year as the Bank of England struggles to keep inflation under control. That would put even more pressure on those homeowners on variable and tracker mortgages.
Remortgages for home improvements
Almost every other person in the UK is expected to spend money improving their home in the next year. With the average amount of £5,500 to be spent per person, Homeowners may be able to benefit by taking out a remortgage to raise capital from their property.
Figures show that around 1.8 million homeowners are set to spend more than £100,000 on improving their properties. Research also shows that some 2.9 million homeowners are set to spend large amounts of money as a result of keeping up with friends and neighbours. With stamp duty and the uncertainty over rising interest rates, it's understandable that so many people are looking to improve their existing home instead of moving.
Regionally, it homeowners in the Midlands who are set to spend the most on improving their homes, with almost four million people set to spend an average of £8,900 each on their
properties. Those wishing to make home improvements may be able to release the equity caught up in their property by taking out a remortgage.
Cut the cost and remortgage
It makes sense to pay the least interest you can, making your home purchase more of a bargain. More and more mortgage borrowers are remortgaging to release the extra equity in their home. Many are paying off debts, making home improvements, or even investing in buy-to-let properties. Some are simply remortgaging to get a better rate and reduce their monthly repayments.
Recent research shows the average homeowner could save up to £79 a month or £948 more a year by switching their mortgage loan. But for whatever reason you are thinking about a change, make sure you shop around when swapping your mortgage loan. What seems to be a great deal can often be loaded with extra fees and penalty charges which is often how mortgage lenders claw their money back on a low initial rate.
The most obvious starting point for any remortgage is with the current mortgage lender. Whether you are looking to reduce your monthly payments or to borrow more, asking your mortgage lender if it can offer you a better deal than the one you are currently on is a good first step.
Staying with your building society or bank will save you a valuation fee, which normally costs around £200. But it is usually sensible to wait until your initial rate deal period is over before you try to move, or you will be charged an early redemption penalty, usually on a percentage of the amount of interest you would have paid. if you want to release extra equity, it may be that you will have to pay for another valuation. But whether you stay with your old mortgage lender or find a new mortgage lender, you will still have to pay a mortgage arrangement/application fee, which could be anything from £60 to over £1,500 just to remortgage. Remember, most mortgage lenders are geared up to attract new customers. So the chances are any rate you get from your current mortgage lender won't be as good as the mortgage rate they are offering to new customers. If your old mortgage lender is being unhelpful and you want to shop around, you'll benefit from an array of special deals, including waivers of mortgage arrangement and valuation fees.
Some mortgage lenders, like The Abbey will not charge a mortgage arrangement fee if you are simply using your house to raise extra cash. If you have paid off your mortgage then they will not charge you a fee, especially if you only want to raise a small amount of cash, like £30,000.
For those looking to remortgage, websites like www.problemremortgage.org.uk will be able to put you in contact with a mortgage company that can help you with a remortgage what ever your personal circumstances, ccjs, arrears, defaults and bankruptcy. That's why, unlike so many high street lenders, our lenders are not judgemental of people with arrears, CCJs or a poor credit history. In fact, they go out of our way to work with you. So, whatever your exact situation, we will try our best to find a mortgage that fits your needs.Click on our enquiry form and fill in the information required and we will put you in contact with the right mortgage lender.
Don't let Buy-to-let cost you
Before buying property to let,do your homework you might be better off putting your money in the bank or boilding society.
Buying to let is increasingly popular. Buy-to-let borrowing set new UK records in the first half of this year, with lenders advancing 152,500 loans, worth £17.5 billion. Buying property to let (buy to let) can be a sound investment that will bring in a decent return while the house or flat also rises in value. But it isn't all plain sailing and would-be landlords need to weigh up the pros and cons carefully. You need to find a mortgage to suit you, budding property entrepreneurs should remember there are lots of ways of investing, and buying property can be risky. You must be sure that buying to let will give you better returns than putting your money in the bank for the same period.
The key is to think in terms of running a business. Basically, turnover in the form of rent needs to exceed the costs of buying and maintaining the property. As a rough guide, the rent from the property needs to exceed running costs by 25-30 per cent. This profit will cover the owner for times when the property is not rented out, any large expenses such as a broken boiler, and costs such as tax on the rental income.
The steps to remortgaging
The first thing to do is look for a lender likely to be competitive over the longer term. Resist switching to a lender who is offering those remortgaging a meaty cashback but whose interest rates are uncompetitive - otherwise you could find yourself itching to remortgage again in a few years time.
You then need to establish the costs of switching. If these are higher than the potential long-term savings, remortgaging may not be such a good idea. And it can be expensive. The costs come from some or all of the following sources: arrangement and valuation fees for the new remortgage; early redemption penalty on the existing mortgage; mortgage indemnity premium; solicitors fees; Land Registry and local search; and buildings and contents insurance attached to the new remortgage. Also, you may end up losing your right to mortgage interest relief on the loan. So, you do need to compare how much you will save by remortgaging with how much it will cost.
The first expense to consider is the possible redemption penalty on your mortgage. These can vary from three to six months additional interest payments if you redeem the mortgage within a certain period of time after taking it out. Some mortgages do not have redemption penalties, but fixed rates are almost certain to have them and they are common on mortgages taken out within the past four years. Read the small print on your mortgage to find out if redemption penalties are applied to your particular mortgage, or write to your lender asking it to list all the costs of redeeming your mortgage early. If the costs are too high, you have not lost out by asking and you can postpone remortgaging until the penalty is lower. There are also likely to be costs attached to the particular mortgage or remortgage product to which you want to switch. Most fixed-rate remortgages have arrangement fees varying between £200 and £400. On top of this you will have to pay a remortgage valuation fee which tends to vary from £130 to £180, depending on the lender and the size of the loan. If you have negative equity in the property, you will have to find the additional amount of money you owe on your old mortgage if you take out a new one. So, don't redeem it unless you really have to. And, don't forget, if the amount you are borrowing is more than 70-75 per cent of the property's value, you may have to pay a one-off mortgage indemnity guarantee (MIG) premium on the new remortgage. Many homeowners are caught out by this charge as it may not have been payable the first time around, either because lending conditions have become much tighter over the past few years, or lenders' loan-to-value criteria have changed. Lenders do have a habit of forgetting to mention this MIG premium, so make sure you ask how much it is likely to be.
Of course if you receive a good cashback you may have enough money to pay for the remortgage and still have some left over. If not, there are ways of keeping the expense as low as possible. Some lenders have special remortgage packages, so keep an eye out in the press for or on this web site for the cheapest package available. But watch out for the conditions attached to many of the fixed-rate offers or discounts.
If you remortgage the property with the same lender you may pay lower redemption penalties and arrangement fees - if you pay them at all. Also the lender may dispense with some of the legalities involved, so you may save on your solicitor's bill, and they may be able to match the deal you've been offered elsewhere. You may not hear about these deals until you ask about remortgaging. Then you will probably discover that your lender is very keen for you to stay and is prepared to offer you a surprising number of valuable incentives.
Once you know exactly how much it is likely to cost you to remortgage, calculate the savings you can make on the repayment mortgages. These obviously depend on the size and type of the loan, what the interest rate is, and how long this rate lasts for. To judge whether or not remortgaging is worthwhile compare the costs with the savings - but don't forget that the costs will be payable upfront while the savings will gradually accrue over a period of time.
Are you paying too much for your mortgage
If you are paying too much for your mortgage, why not remortgage to a cheaper one? It can be done, but is it worth it?
The remortgage market has become increasingly competitive as borrowers start to regularly switch between lenders trying to get better deals. The Council of Mortgage Lenders reports that remortgaging accounted for £28.8 million, or 39 per cent of the market, in the first quarter of 2006. After all, a mortgage deal isn't for life. Its simply an arrangement you have with a lender where you borrow the cash to pay for your home. If another lender subsequently offers you better terms, such as lending at a lower rate, then you'd be a fool to refuse, wouldn't you?
However, thats exactly the situation that many of you are in. Some of you are paying out far more for your mortgage than you need to because you haven't taken advantage of one of the many good deals around these days.
Of course, not everyone is going to be better off remortgaging. If you've only recently set up your mortgage then you've probably already got a pretty good deal. That's because the mortgage market has become much more competitive in recent years. Even so, remortgaging is a good way of escaping from high variable or fixed interest rates and taking advantage of some of the current fixed-rate or discounted mortgages which can have a much lower interest rate. For instance the current standard variable rate varies around 5-6 per cent but you can get three-year fixed rates at less than that, and even five-year fixed term mortgages. Discounted rates and cashbacks can't be ignored either. Remortgaging can also benefit those on variable-rate mortgages who believe that interest rates are on the rise and want to fix their mortgages before this happens. While you may not save money immediately, you at least gain the security of knowing exactly what your monthly repayments will be in advance, for the period of the fixed rate. With interest rates rising and fixed rates still at competitive levels, not to mention lenders offering such attractive discounts and cashbacks, it may seem tempting to get rid of your existing mortgage as soon as possible and find a new lender, or a remortgage with the same lender. But before taking out a remortgage, make sure you know exactly what costs are involved and that it is worth your while going through the expense of remortgaging. Of course, such calculations can be simplistic. Depending on how quickly they respond to changes in general interest rates, mortgage lenders can sometimes offer a competitive rate and sometimes not. But if your lender has consistently had a higher rate than its rivals over a period of years, or has been one of the last to respond when the Chancellor has cut interest rates, then it could be time for a change.
Falling pensions could spark upward trend in remortgage market
As less people are putting money into pensions, more could begin looking at remortgaging to ensure financial stability during their later years. Figures released by Moneyfacts have shown that personal pension returns have fallen by as much as a half in the last 10 years. The news means that even if Britons are putting the same amount of money into their pension pot every year, their average with-profits pension fund could be half what it would have been in 1996. These latest figures should serve as a powerful reminder that securing a comfortable retirement will only be possible for those individuals who actively monitor and manage their own pension provision, warned Mr Eagling, editor of Investment, Life & Pensions at Moneyfacts. The research from Moneyfacts could cause more people to consider other options of financing their retirement, with taking out a remortgage and downsizing their homes one method to increase the amount of money available in later life.
Remortgaging could fund home abroad
Homeowners with dreams of owning a home abroad could make this a reality by taking out a remortgage, experts claim. New data suggest that homeowners can save more than enough for a deposit on a second home abroad within two years of remortgaging. Its been calculated that a typical homeowner could cut their monthly mortgage payments from £607 to £451, enabling them to save £3,700 with in two years of taking out their new remortgage. This would cover the deposit required for a holiday home in an emerging market such as
Egypt. With house prices starting from as little as £30,000 in markets that continue to mature, getting onto the overseas property ladder can be much more affordable than buying a second home in the UK, while providing a similar return on your investment.
The calculation is based on a variable rate mortgage of 6.75 per cent on a typical loan of £107,000 being moved to a fixed-rate or tracker mortgage dealt at 4.99 per cent or less. Remortgaging, for a better rate or to raise cost effective capital, is no longer a long and painful experience.
Remortgage to clear credit card debts
Many homeowners appear to be taking out a remortgage to clear credit card debts and other loans, the latest figures suggest. Data from the British Bankers' Association (BBA) show that remortgage lending has strengthened, while consumers appear to be reducing their unsecured borrowing.
Many financial experts speculate that homeowners are taking out remortgages to consolidate existing debts, with August's interest rate hike potentially motivating many to clear their debts. New remortgage lending rose by an underlying £6.2 billion in August, far surpassing the £5.8 billion rise in July and above average for the past six months. At the same time, unsecured personal lending fell by an underlying £0.2 billion in August, bringing the six-month average down to £0.1 billion. Credit card borrowing saw the largest fall, down by £0.4 billion, while loans and overdrafts rose by £0.2 billion. Mr Dooks, BBA director of statistics, noted the contrast between mortgage and unsecured lending. He commented: The draw-down of house purchase loans in particular has driven net mortgage lending higher of late and August's increase set a new monthly record. This buoyancy in mortgage lending is contrasted by the trend in consumer credit, where credit card lending has shown a further decline (the fourth month in a row) while lending on personal loans and overdrafts was weak.
33% can't afford to buy
33% of people are being squeezed out of the property market, new research warns. The survey found that a third of working households with occupants under 40 cannot afford to buy property, rising to half of all households in the south. People that can afford to buy are seeing a greater proportion of their income taken up by housing demands, with mortgage repayments taking up the largest chunk of average salaries since the early 1990s. Our analysis points to worrying prospects for those on middle incomes and below. The most pressing policy challenges concern increasing affordability for first-time buyers and ensuring housing is available for those on low incomes. Inadequate affordable housing, rising repossessions and a failure to apply for housing benefit were also all concerns highlighted by the report. The report was published as the Council of Mortgage Lenders revealed that mortgage lending hit a record high in August, with buyers forced to borrow ever larger sums to afford a property.
First-time buyer market increasing
First-time buyers are still facing an increasing struggle to get on the property ladder, figures suggest. Prices for the type of properties sought by first-time buyers are rising at a faster rate than the market average price. The average first-time buyer was looking at a property worth £174,782, 11.6 per cent more expensive than a year ago and 36.4 per cent up on August 2004. Among all mortgage hunters, property values were up just 2.08 per cent on the year before, with average house prices standing at £213,111. Moreover, for all buyers, the average mortgage sought was £3,840 less than in July, falling to £133,415. The first-time buyer market is now racing ahead, suggesting more would-be buyers are set to be priced out of the market.
Affordability drops in Scotland
Rising house prices in Scotland have seen many Scots on middle incomes priced out of the housing market. The average person needs to borrow a mortgage four and a half times their salary to afford a home, although regional variations see this rising in many areas. With most lenders only willing to extend a loan of four times annual income, this means that many would-be buyers are priced out of the market. A survey of 50 Scottish towns and cities, found that Edinburgh was the least affordable and Lochgelly in Fife the most. In Edinburgh, typical wages total £26,304 while the average house is seven times this at £180,000. Buyers in Glasgow need to borrow five times their annual income. Moreover, mortgage repayments are taking up a larger proportion of monthly income, with buyers in Helensburgh using 46 per cent of their take-home pay for loan repayments and Glaswegians 37 per cent. However, local property experts claim that mortgage approvals and buyer activity remains strong, suggesting buyers are finding ways to get a foothold on the property ladder.