It's not just about the rate, its about obtaining a mortgage and buying your house
London (PRWEB UK) 28 March 2013
This week the Credit Geeks did some research speaking to some of the key players in the mortgage market both brokers and lenders, and found some interesting insights into the current mortgage market.
There is an on going debate about the effectiveness of the Funding for Lending Scheme (FLS) with overall lending dropping in the last 3 months of 2012, with Lloyds, RBS and Santander reducing the amount they were lending. Mortgage Lending in January was up 11% year on year to £5.7 billion, and crucially 42% of loans were to first time buyers (vs 37% last year). February has lost some of that progress, with gross mortgage lending at £10.5 billion, down 8% according to the C.M.L. (Council of Mortgage Lenders).
Rates are dropping at all the deposit levels, but particularly for those with high deposits, for example Chelsea Building Society is now offering a two-year fix for 1.74% (for those with a 40% deposit) with a £1,695 fee. According to the Halifax house price index, prices across the UK rose 0.5% in the last month, with the average price now £163,000.
1. It’s Not Just About the Mortgage Rate, it’s the Total Cost Including Fees that are Important.
This is particularly the case for fixed rate mortgages, consumers need to consider the length of the fixed period and the total cost, for example the Chelsea Building Society example works out as below:
£180,000 mortgage amount with a 40% deposit (total house cost is £300,000.)
Monthly Repayment @1.74% (£642) x 24 months = £15,408
Fees = £1,695
Total Cost over 24 months = £17,103 (£15,408 + £1,695).
So when doing the comparison remember to include the fees in the calculation, another deal offering cashback on fees, or no fees but a higher rate, might actually be cheaper than the above, use our mortgage calculator to help you with this. Right now it is worth considering 5 year fixes, as they are at record lows, as with two years you end up paying fees again in 24 months to re-mortgage.
2. Mortgage Calculators are Misleading
Looks great to put in your total salary, but this can me misleading for example if some of your income is based on bonuses or commission or multiple jobs. Different banks, treat this in unique ways, some count 50% or 25% of your commission or bonus element. It also depends on when this is paid, for example monthly or annually. Not all salary calculators include your monthly costs for examples loans, or include dependents.
3. Its not all about the Rate, its about Buying a House
Banks change their rates all the time, based on supply and demand and competitor activity. They may create a very competitive rate, be inundated with applicants, which causes a backlog and hence delays to your applications which can lead you to lose the property you require. This is because the lenders cherry pick the best applicants in the scenario above.
Mortgage Brokers can help with pushing applications through quicker, and have experience in their client base of providers that are pushing applications through quickly. Saving £20 a month on the mortgage each month is pointless if you just lost your dream house.
4. Age is a Factor
Banks are not generally keen on lending on durations over 65, so consumers need to remember this when considering the rate, offered, for example if you are 34, your maximum term will be 31 years. Some banks may consider beyond 65, but this is not the norm right now.
5. All of the Market Brokers do not cover all the market.
Remember some lenders for example HSBC and Post Office (there are others), do not work with intermediaries (mortgage brokers), so mortgage brokers cannot by definition cover the whole market.
6. An Excellent Credit Score from Experian, Equifax or Callcredit Does not Guarantee Success
Your credit score from the credit reference agencies, is not what the banks use, when processing your application, they review your credit history, and they are undoubtedly very picky right now. A clean credit record, is a basic requirement at the moment, but it is also about other key factors, for example history with the lender, salary (and the mix between your basic and commission/bonus), time with current employer, whether you are a first time buyer and debt levels.
Any blemishes are going to make it a real challenge, to be successful however, make sure there are no late payments in the last 12 months, manage all your credit responsibly, and ensure you are on the electoral roll.
7. How your Salary is structured is Key
As mentioned previously, banks have different policies towards commission or bonus payments, mortgage brokers (for example London and County and John Charcol) can advise quickly on different lenders approach on this. If you are to receive a pay rise or a promotion some lenders will accept confirmation in writing from your employer as to when this will take affect.
8. Think about when the Credit Check Happens in the Buying Process
Customers should note too many credit checks on your credit record does not look good. Banks credit check you with your permission for example when you apply for a mortgage in principle, consumers need to time this appropriately, as mortgage offers last for 6 months. This is also where application delays can take time, which is when you have a mortgage agreed in principle and want to move to a formal mortgage offer.
9. Be prepared for your Mortgage Application, to Reduce Delays
When getting into the detail of your application, banks can require, a lot of information, for example paper copies of bank statements, savings accounts for the last 12 months. Although there are environmental benefits, there is a risk of doing paperless billing, when coming up to doing a mortgage application, as banks often require hard copies, and can reject downloaded versions from your on-line bank account. The bank you have your account with should be able to provide you with hard copies, so speak to them in advance. This also goes for savings, utility bill statements, or other forms of ID. Prepare this in advance to avoid any costly delays.
10. Use Mortgage Calculators They Save Time
Credit Geeks and other websites provide mortgage calculators, that save you time in working out what the monthly costs will be for the size of mortgage you want to purchase, remember our first point about including the fees aswell in your calculation.