Lower Interest rates or Lower Charges, which saves you the most?

Applicants for new mortgages are being advised not to necessarily opt for the cheapest mortgage interest rates by paying higher mortgage fees, while lower rates might seem more appealing they could ending up costing you more money than you save, the trick is to work out how much money it will cost you during the full life of the mortgage term.

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Since December 2009 mortgage fees have risen +13% so it is important that you make a calculation of accumulative costs, Just because the interest rates are low (0.5% currently) this may not mean that you have the best mortgage deal by paying excessive fees during your mortgage setup.

The decision to either pay fees upfront to secure a lower interest rate or to lessen your initial fees and pay a slightly higher rate of interest largely depends on the amount of money you are borrowing. With a larger mortgage say+ £250,000 lower interest rates could see you saving a considerable amount in the long term, but mortgages which are relatively low will not reflect the kind of savings you would expect with lower interest rates, any saving made could well be absorbed by high mortgage fees, on a month to month basis it may seem prudent to opt for lower interest rates the fees may add an extra financial burden during the initial stages and may well have an impact on the deposit you can afford to put down.

It advised that borrowers avoid mortgage deals where the fee is directly related to the cost of the property or the amount borrowed, this is also important for larger mortgages although as mentioned above you may be able to make savings in the long term.

So in summary, calculate the total amount repayable including application fees and charges and then work out how much interest payments will be made over the full term, don’t be taken in with low interest rates as you may find a sting in the tale when it comes to paying your charges especially if that figure is being added to the mortgage.

Base Rate Trackers & Lifetime Trackers

With Interest rates falling since December 2007, it wouldn’t be a bad guess to predict those on Base Rate Tracker Mortgages benefited the most, average rates of between 3-6% over the last 20 years have been smashed to an all time low of just 0.5%, those with larger mortgages will have saved an enormous amount while those with smaller mortgages will have saved less but will not have seen a single rise in their mortgage repayments.As long as the BOE base rate doesn’t rise and inflation stays low savings could be made for years to come, it is important to know however that application fees have risen 13% since late 2009, so it may be a bit late to take full advantage.

What is a base rate tracker?

This type of mortgage follows (tracks) the Bank of England Base Rate or it could be designed to follow the lender’s own Standard variable rate (SVR). So if tracker has a  Base Rate of say plus 0.5%, then if the Base Rate is 2.0%, your repayment rate will be 2.5%. The lender could at any time raise their SVR if on such a mortgage but with a BRT the amount is fixed until the end of the term. Base rate trackers also come with lower fees than discounted or fixed rates. So because the rate is fixed by the lender and is free from unnatural increases borrowers tend to find this product appealing. This mortgage can also be discounted for the first few years helping you to save money. Lifetime tracker mortgages will track the Bank Rate for the entire term of your mortgage with a guaranteed maximum percentage of typically 3% with a £999 setup fee.

Santander have recently launched a new two-year tracker mortgage for borrowers who are looking to remortgage, it is available for up to 70% LTV, with a rate of 2.99% and no fees. While Woolwich provide a Lifetime tracker with rates from 2.6-3.2% again with a max LTV of 70% this isn’t a remortgage either, mortgage deals for remortgages come with no setup fee.

95% Mortgage Deals – Are they real?

With High LTV mortgages making a comeback, it seems that the mortgage market may be experiencing a recovery, as well as Skipton Building Society offering high loan to value mortgages there are nearly 40 lenders launching similar products, over twice as many as last year, this is good news for the self employed who have struggled to get a mortgage more recently. Skipton’s product offers a mortgage with rates from 5.69% - 5.49% with a maximum loan of £250,000. But the real coup de gras is their 2 Year Fixed Rate Mortgage at 95% yes 95% at a reasonable 5.99%.

While these mortgages do make you think that the mortgage recovery is on its way we must be careful. Firstly this mortgage may be on the lenders website for you to apply too, there is the possibility that these are here just to entice an application, shortly followed by a sales pitch!!

The Council of Mortgage Lenders announced that gross lending for Q4 2009 was £41bn, 2010 had seen a considerable loss of £7bn on the previous year, so time will tell whether these high LTV products are going to have an effect.

There has been no significant increase in house prices in the last few months, the rise has been less than 1% and shows no sign of getting better. So it seems likely that these high LTV products are merely decoration for there more secure mortgage deals.

With house prices not likely to rise, high LTV mortgage may see investment possibilities limited; house prices are meant to go up to at a reasonable rate as to raise equity in the property, paying nearly 6% on your mortgage payments in not going to help.

But in the end while there are a few products on the market the average LTV for a property is still only just over 60%, as lending restrictions haven’t changed the criteria for successfully attaining a mortgage is still strict and lenders don’t want to take any chances. This is a real problem as lenders are being encouraged to lend more money to first time buyers.

So in summary don’t think that you can go out and get a high LTV mortgage tomorrow, the chances are that disappointment lays in your way and it is much more realistic to hold back and keep saving, we are bound to have a rubbish summer so stay in and save your money.

What happened to Stepped Mortgages?

In the 2000′s mortgage lenders were pedalling the “stepped” mortgage, essentially it was a discounted rate mortgage with incremental changes in repayments, so the interest rate would be at a low discount and is increased over the life of the mortgage term. While it did have the benefit of smaller payments during the first few years of the mortgage the interest rate started higher and then declined in line with the “stepped” increases.

Stepped tracker mortgages would have its interest rate tied to the Bank of England bank rate.  but again would be configured to either save in the preliminary payments of the mortgages or guarantee lower payments towards the end of the mortgage, these mortgages were even offered with cash back which was ideal for first time buyers and graduates.

It seems no lender uses this term anymore and is simply the old version of the current discounted mortgage, which in some cases can be stepped but usually is fixed for a period before reverting back to the original agreement.

High LTV Mortgages The Mortgage Market Needs Them!!

The housing market in the UK is being stifled in 2011 by the lack of high LTV mortgage  approvals, April turned out to have the lowest level for mortgage approvals since records started in the early 1990′s, with house prices expect to fall  borrowers are still being affected by tax increases and higher inflation. Mortgage approvals are running at less than half the levels they  were in 2006 and have dropped by about 2,000 on the previous month; those looking for their first home are most affected because they struggle to save the larger deposits to secure the best deals.

This is an Irony as there has never been a better time to get a two-year fixed mortgage deal for buyers deposits that can lower their LTV to around 70%, There is a 2.5% interest difference between rates of 75% LTV mortgages to 90%.

With house prices low you would think this would help the property market. but the lack of hight loan to value mortgages being refused borrowers with small deposits are left out in the cold, with only a 10% deposit borrowers will have to pay much large premiums for a two-year fixed deal. It’s clear the mortgage market needs cheaper deals for buyers with small deposits.

For those attempting to borrow 90% LTV for a two year fixed period the figures are only slightly up from February by a measly few percent, but if the mortgage/property market is going to recover we need to raise the higher LTV approvals in order for the housing market to even get close to the figures pre 2007.

The Bank of England has done its bit to help the mortgage market by holding interest rates at a astonishing 0.5% earlier this month, and wisely they don’t expect to authorise any rises until later this year or hopefully till 2012, this should at least give lenders the chance to approve much higher LTV mortgages thus reinvigorating the UK property market.

There is a downside to being offered such an attractive interest rate, when your two year fixed term has ended you could be facing a huge increase in mortgage repayments especially on mortgages over £200,000, and lets face it with interest rates as low as they are rates can only go up, while some countries in the EU offer 30 year fixed mortgages Britain seems unfair by offering such short term mortgages, lenders prefer to make their money approving remortgages rather than let the borrower save in the long term.

CAT Standard Mortgages

CAT ( Charges, Access and Terms)

There are standards set by the UK Government for mortgages and loans to ensure a level of standards amongst financial products. CAT standards are voluntary, so mortgage providers don’t apply them to all mortgages, although offering Non-Cat Standards mortgages does not imply dishonesty or anything similar.

Generally, having a CAT mortgage should mean:

CAT Mortgage Standards vary from mortgage to mortgage relating to variable, fixed, discount, cash back and capped rate mortgages.

Variable rate Mortgages

• No arrangement fee.
• If the BOE’s base rate falls, mortgage payments agree adjusted within one calendar month and the max interest rate should be no more than 2% above the BOE’s base rate
• No penalty should apply if you want to pay off part or all of the mortgage.

Fixed and capped rate loans

• booking and arrangement fees are to capped at £150,00
• Redemption penalties within the fixed/capped rate period should be no more than 1% of the amount you owe for each year of the fixed period, calculated monthly.
• There must be no redemption charge once the fixed-rate or capped period has come to an end.
• There must be no redemption charge if you stay with the same mortgage lender when you move home.

Points about the CAT standard Mortgage:

• It is not a mortgage guaranteed, recommended or endorsed by the government
• A CAT standard Mortgage is not automatically the best for you or even the best deal in the mortgage market.
• This does not mean the mortgage is the best deal available.
• Mortgages that are not CAT-standard are a “rip off” or more expensive, just that they may add extra hidden charges to offset the savings they offer you the borrower.

Mortgage Options for the Self-Employed

With Millions of people in the UK opting for  self employment it seems a shame that self-employed people in the UK do not have the same choice of mortgages as people who are employed.  However with a wide choice of mortgages available in the mortgage market today there should be no reason why a self-employed person can’t get a mortgage.

With the demise of the self cert mortgage self-employed borrowers can face months of negotiating with lenders to secure a mortgage, with strict criteria governing the information need to satisfy a lender newly self employed people face the toughest task. Self employment may not necessarily mean an individual owning their own business they could be low paid manual workers, high-paid IT professionals, journalists or artists.

Tip:
Self-employed borrowers should consider applying to a bank or building society that provides them with their business banking.

With all this in mind it is important to understand what criteria banks and building societies use to consider an application. Coventry Building Society seem to have the most favourable options for the self-employed.

Self-Employed applicants must be able to provide proof of income for a two year period which is more reasonable the usual three years although this drops to one year when the applicant is considering Buy to Let. Directors with more than a 20% share in the company they work for are also considered but directors of limited companies who have less than a 20% share are treated as an employee.

What is profit?

Most profits are defined as gross annual income as the applicant’s share of net profit before dividends any salaries paid  must be deducted before arriving at net profit.

Sole Traders, Partnerships, Sub-contractors must be able to provide proof of income over a two year period at least, falling to one year for Buy to Let mortgages. The gross annual income is the net profit before dividends for partnerships.

If you have 3 years of accounts that don’t (on average) qualify you for a mortgage then you can use your last two years of accounts but you must a demonstrate a steady progression in turnover and profit or provide a accountants Certificate, so providing your accounts reflect your improving position 100% of the projection could be taken into account,  If you do not even have two years of accounts then as long as the LTV does not exceed 80% then only one year’s accounts may be considered. 100% of the projection may be acceptable if the average of the single years net profit figures (after tax) demonstrate an improving position.

Bath Building Society does lend to the self employed or people using property as an investment. In some circumstances they can lend up to 95% of the property value although a large proportion of the lending Loan to Value is below 80%.  There are no official products available that offer sub-prime or self certification mortgages.

Interest Only Mortgages Going?

Since the recession took a hold in 2007 over 250,000 homeowners have changed their mortgages from a repayment mortgages to interest only mortgage, this is largely due to the fact that many borrowers were in arrears or were experiencing financial difficulties or perhaps redundancy.

Most borrowers would want an interest only mortgage not just because it is more affordable, it also gives much more flexibility for borrowers repaying the main capital debt.

Many mortgage owners use annual bonuses or ISA’s to repay any outstanding capital, the savings are quite substantial, for a £200,000 house borrowers can save up to £300 per month by only paying the interest only.

The only other way of reducing mortgage repayments is to extend the mortgage term.

With house prices pretty stagnant at this moment many mortgage lenders are not keen on remortgaging properties to interest only as there is a real risk of negative equity, only if there is considerable equity in the property will lenders even consider such a scheme. Only in cases where borrowers are really struggling will they even consider interest only repayments and only as a short term solution.

It seems that Interest only mortgages are beginning to become a thing of the past, but while there is still a demand and a need, there is still life in the old dog yet