SimplyFinance - Mortgage

Do You Know which Mortgage Rate You're Paying?

2010-03-04T00:00:00Z

A mortgage is likely to be the most significant expense that most of us will face in our lives, and yet a surprising number of people would not be able to say which rate they were currently on. According to recent research by the Post Office, 28% of mortgage holders do not know what interest rate they are paying on their home loan. This amounts to a staggering 3 million UK borrowers who could potentially be paying back their mortgage loan at an uncompetitive rate.

Over a third of borrowers (35%) are currently on their lender's Standard Variable Rate (SVR). Some may be on this rate because in fact they have decided that it is the best decision for the moment. However, at least a third of these SVR borrowers are assuming that the lender's 'default' rate is the best one for them.

The problem is that if you rely on the goodwill of your lender to put you onto the most competitive rate for your circumstances, you are likely to lose out. Banks have absolutely no incentive to make their SVR competitive because it is never available to potential new borrowers. Instead, this is the rate that you will be moved onto when your fixed rate mortgage deal, your discount rate mortgage deal or your stepped rate mortgage deal has come to an end.

Post Office Personal Lending Director, Marco Hughes, said: "Although it might seem that staying on your current SVR is the easiest thing to do, you are much more vulnerable to interest rate rises. Some providers have increased their SVRs quite significantly even though the Bank of England base rate has not moved and as a result many borrowers are seeing their monthly mortgage repayments increase more quickly than they thought.

"If you're thinking about switching mortgage, now is the best time to do it, before rates rise further. With many SVRs at or above 4% there are already better deals to be had out there. Switching mortgage does not have to be a stressful experience and spending a bit of time searching and comparing deals could save you a significant amount of money in the long term."

If you try and move your mortgage to another provider (or to a different product at the same lender), you'll probably be subject to charges for doing this within the introductory period. This is because the bank can only afford to offer you a cheap fixed, discount or stepped rate deal if they can guarantee your business (and those lovely interest payments) for a certain period of time. However, once you are out of this introductory period, you can have your mortgage with whomever you choose, and you (usually) have absolutely no obligation to stick with your current provider. In the world of personal finance, loyalty definitely does not pay.

The first step should be to find out from your lender which interest rate you are currently paying on your mortgage loan, if you do not know already. If you've been with a lender for a few years, don't assume it's the same rate you started on. If you are tied into an existing mortgage deal, find out how long you have left on this deal and make a note to start shopping around several months before it runs out. Whichever stage you are at currently, it makes sense to shop around and see what else is available in the market.

If you'd like to talk through your options with an experienced adviser, simply fill out our short mortgage form and an adviser from the Simply Finance network will be in touch with you shortly to give you no-obligation advice and quotes tailored to your current circumstances.

Is it Going To Get Even Harder for Homebuyers?

2010-07-15T23:00:00Z

As if it has not been difficult enough to obtain a mortgage over the past few years, things may be set to get even trickier for new homebuyers. The Financial Services Authority (FSA), the company that currently regulates the UK's financial services industry, has published a report outlining proposals for further tightening mortgage lending criteria.

Of course, for most of us a mortgage is the single largest financial commitment we will take on, and it stands to reason that mortgage holders should be able to comfortably meet the repayments. However, the report has met with a mixed response from the industry. Although debt charities welcome the suggestion of offering consumers increased protection, some in the mortgage market are concerned that stricter regulation will make mortgages even more expensive for homebuyers, as well as less accessible.

What does the report say?

The main aim of the FSA's report is to put forward suggestions for responsible practices in time for the next economic 'boom' period, based on the learnings from past mistakes. The three main areas covered by the report are:

Interest-only mortgages

An interest-only mortgage is one where you do not need to repay any of the actual amount borrowed until the end of the mortgage term. As the name would suggest, you would only need to repay the interest on the mortgage each month. The idea is that if you took out an interest-only mortgage, you would also have an investment portfolio in place (an endowment policy is a common complementary product) that would grow over time giving you the necessary funds to clear your mortgage at the end of the period.

According to the FSA, many homeowners count on future house price rises to provide them with the capital to repay their mortgage. Of course, this plan only works as long as house prices continue to rise. Several years ago, this gamble failed spectacularly for thousands of UK homeowners when the housing market collapsed and many people found themselves with properties worth less than the value of their outstanding mortgages (known as 'negative equity'). Recognising that interest-only mortgages are becoming increasingly popular, the FSA wants much stricter regulations on who can get accepted to avoid people getting into financial difficulties.

Self-certified and Fast-track mortgages

Self-certified (or 'self-cert') mortgages are products available to self-employed consumers, or to anyone who for different reasons has a non-standard income stream. During the last mortgage 'boom' period, the regulations on self cert mortgages were relatively lax and unscrupulous lenders started offering self-cert mortgages to anyone who was not able to get accepted elsewhere. Needless to say, some people got accepted for mortgages when they could not really afford them. Now that lending criteria are so restricted, it's much more difficult to get a mortgage without verifying your income, but the FSA would further clamp down on acceptance for this type of mortgage.

However, there is still a 'fast-track' mortgage application process. This is available only to homebuyers with an excellent credit rating and a larger house deposit. Due to the lower risk that they present to the lender, the income verification for these individuals is not quite as rigorous. In their report, the FSA is suggesting a higher level of regulation for fast-track mortgages. They accept that fast-track mortgages actually result in a lower than average level of missed mortgage payments overall, but expresses concern that the fast-track mortgage will become the new self-cert mortgage, with the more relaxed income checks being exploited by lenders looking to get new mortgage customers accepted.

How much borrowers can actually afford

The FSA have made recommendations that lenders establish a 'maximum borrowing capacity' for every consumer looking for a mortgage, based on their income, their expenditure and their disposable income. Shockingly, they found that 46% of households either had no money left, or had a shortfall after mortgage payments and essential living costs were deducted from their income each month.

The report also recommends that lenders take future interest rate rises into consideration, especially if potential borrowers are not particularly financially stable already. Customers with a lower credit rating should also apparently be on the 'high-risk' list, something which sounds reasonable considering that these would be people who have missed three or more months' worth of loan repayments, had a county court judgment (CCJ) taken out against them due to debt, or have recently been declared bankrupt.

Are borrowers experiencing 'the calm before the storm'?

The FSA suggests that the current low interest rates may be masking future problems for mortgage holders - their data indicates that people who took out a mortgage in 2007 and then remortgaged or moved to their lender's standard variable rate mortgage in 2009 or 2010 saved an average of 140 GBP on their monthly repayments. The danger is that even a modest future rise in interest rates could seriously increase the number of households struggling financially.

The report makes the point that 'when borrowers are financially stretched, they have less capacity to save, making them particularly vulnerable to unfavourable life events or income shocks in the future'. The danger is that people may take on further debt in order to meet their mortgage payments, so that affordability issues may not come to the fore until several years after the start of the mortgage term. For example, someone with a 600 GBP income shortfall a month could cover this shortfall for three years by taking out a further loan of 25,000 GBP. By the time this debt starts catching up with the borrower, they could be at serious risk of losing their home.

Are mortgages going to become more expensive?

The main concern in the mortgage industry is that if both self-cert and fast track mortgages are consigned to the history books, it will become even harder for consumers to get accepted for a mortgage. Also if mortgages for 'lower risk' consumers require stricter income checks, the danger is that the administration fees for these mortgages will go up. Mortgage organisations such as the Council of Mortgage Lenders (CML) also argue that the industry has now learned from the mistakes of the past and that increasing the regulation for mortgages is unnecessary.

Some positive feedback comes from Malcolm Hurlston, chairman of debt charity Consumer Credit Counselling Service, who comments: "Buying a home, particularly for the first time, is a huge step. It is the biggest financial decision that most people will have to make so it is important that they make the right choices. Banning self-certified mortgages, and adding increased protection for those with a history of debt problems, will help inform these decisions and prevent people from being sold a home they cannot afford."

The FSA report forms part of a wider review of the lending practices of the past, and the consultation and research will be ongoing until November. To request a callback from an experienced mortgage adviser, simply fill out our short form.

How much is your Mortgage really costing you?

2010-01-28T00:00:00Z

When you buy a property there are a number of 'hidden' costs that you need to consider as well as the obvious ones. Buying a property is a complicated legal process requiring the involvement of various experts, including a surveyor, solicitor and conveyancer, so you will have to foot these additional bills for a start. This article details the main additional costs you will encounter when purchasing a property, to help you budget and make your purchase as streamlined as possible. You can also use our true cost mortgage calculator to work out your expenses.

Always read the small print on the mortgage rates

Although tighter controls have been imposed on consumer lending in the last few years, competition to attract new mortgage business is still fierce, and therefore lenders publish what seem at first glance to be extremely low rates. As many unfortunate customers of the Skipton Building Society found recently when the lender's Standard Variable Rate shot up by a couple of percent, a 'guarantee' of a capped rate is not necesssarily set in stone. However, be as prepared as you can by looking at the small print before agreeing to the deal.

Arrangement fees

There are other factors to take into consideration when calculating the actual cost of your mortgage. Is your mortgage broker charging an arrangement fee? This will typically be a percentage of the sum borrowed, although it could also be a flat fee. Not all mortgage brokers will charge you an arrangement fee as they get paid an introduction fee by the lender, but it is fairly common so make sure you ask them for full fee details before proceeding with the mortgage.

Valuation fees

A full property valuation is usually required by a mortgage lender before they will approve your application. This enables them to confirm the property's worth, something that is particularly important in the current financial climate when millions of consumers have seen the value of their property fall. Lenders sometimes foot the bill for the valuation themselves, although the cost usually falls on the consumer, and you should expect to pay between £100-200 for this service. An extra point to check with your broker or lender is whether the valuation fee is refundable in the event that your mortgage application is refused.

Surveying fees

It is important to have the property surveyed before you go ahead with the purchase, to protect yourself from making an unwise investment. There are two types of survey, the homebuyer's report and a full structural survey. The homebuyer's report is a more basic survey, costing about £300 and often included for free in the lender's service. This includes a check of the superficial condition of the house, making sure that there are no obvious faults.

Should you find evidence of structural damage, it would be wise to have the full structural survey (which would set you back about £800), because if you later find that you need to carry out serious repairs on the property as a result of any damage, the costs could be far greater. Any damage uncovered by this survey would enable you to push for a discount on the price, that would take any future repairs into consideration. Alternatively, evidence of significant damage or subsidence in the property would warn you against making an unwise purchase.

Stamp Duty

If you buy a property that costs more than £25,000, you must pay a Stamp Duty tax, which is calculated as a percentage of the total purchase price. This increases depending on the value of the property from 1-4%, so if the purchase price is between £125,001 and £250,000 you pay an extra 1% in Stamp Duty, if it is between £250,001 and £500,000, an extra 3%, and an extra 4% if the property costs over £500,000. If the property has a purchase price of £125,000 or less, you are exempt from paying Stamp Duty on the property. Use our Stamp Duty calculator to check the Tax payable on your new property.

Conveyancing fees

Conveyancing is the legal process by which ownership of a property is transferred from one person to another. This is carried out either by a solicitor or by a licensed conveyancer, and both buyer and seller need to have their own conveyancing representation to ensure that there is no conflict of interest. The conveyancer's role is to ensure that the terms and conditions of the contract are fair, and that all the financial information required for the sale is correct.

The conveyancing process can take several months to complete and the costs will vary depending on the company that carries out the work. When the Land Registry costs and other fees for searches are taken into consideration, the full cost of conveyancing can stretch to £600 or more. Due to the complicated nature of the work this process should only be carried out by an expert, so this would not be a good place to cut corners on your purchase costs.

Building Insurance

Lenders almost always require you to have home buildings insurance before they will approve your mortgage application. Buildings insurance protects you (and the lender's investment) should your house be damaged by fire, subsidence or extreme weather conditions such as floods, and would cover the costs of repairing or even rebuilding the property. Depending on the policy, some insurers will also pay the costs of temporary accommodation for you and your family while repairs are being carried out.

Although this insurance is compulsory, there is nothing to say that you have to buy it from your lender. Many insurers offer very competitive rates for buildings insurance (often with a reduced premium for home contents insurance if both are taken out together), so you can often get a much better deal by shopping around. The cost of buildings insurance will depend on many factors, including the size, age and condition of the property and whether you live in an area prone to flooding or subsidence.

If you would like to talk through your options with an experienced mortgage adviser, you can request a free mortgage quote by filling out our short mortgage form.

Is your Standard Variable Rate Mortgage rate on the rise?

2010-02-04T00:00:00Z

Last week, Skipton Building Society used the small print in mortgage contracts to raise its Standard Variable Rate (SVR) from 3.5% to 4.95%, breaking a guarantee to its customers. To put this into perspective, this amounts to a monthly repayment increase of around Â£120 for a homeowner on a 25-year Â£150,000 repayment mortgage.

The trend began with Marsden Building Society at the start of the year, and since then, in addition to Skipton, Norwich&Peterborough and Holmesdale Building Societies (to 5.35% and 4.89% respectively) are among those who have announced an SVR hike. More building societies are expected to follow in their footsteps.

Naturally consumers are angry - you simply don't expect a guaranteed maximum payment to be exceeded. But the building societies must have their reasons for risking losing a number of their customers, right? We look at the reasons behind the SVR increases, and what you can do about it if your mortgage rate has become unmanageable.

What is the Standard Variable Rate?

The Standard Variable Rate (SVR) is the 'default' rate of interest that banks and building societies charge customers for borrowing. The SVR is different at every lender, and the lenders can change the rate at any time. Normally, the SVR reflects changes in the Bank of England base rate, although lenders are under no obligation to track the base rate if they choose not to.

If you have been on a mortgage rate with an attractive introductory offer, such as a fixed rate mortgage for say, the first three years of your deal, you would automatically revert to the lender's Standard Variable Rate mortgage product once this fixed rate period is up. In most cases, the lender's SVR is much less competitive than their other mortgage products - after all, new consumers cannot get these rates, so they have no incentive to make them sexy.

How can these building societies change a 'guaranteed' rate?

Even when there are guarantees against raising the SVR above a certain percentage, there are usually clauses in the small print stating that this guarantee can be withdrawn in 'exceptional circumstances'. These could include any circumstances in which the lender's business may be put at risk, and in the current economic climate - with interest rates at unprecedentedly low levels - many other smaller building societies could use this reasoning to increase their Standard Variable Rate.

Why are the building societies doing this?

For the smaller building societies, the majority of their customers are on tracker rate mortgages, which will mean relatively low monthly repayments whilst the base rate remains at 0.5%. The smaller building societies are therefore working on very tight margins where it comes to their lending.

All of the banks and building societies need to attract savers, because these are the consumers that bring regular cash flow into the business. And if smaller building societies are unable to attract new savers because they cannot afford to pay competitive interest rates on savings, they need to find some way of bringing in some extra cash. Although the tracker mortgage rates cannot be put up, the SVR can be changed at any time, and so this is how the small building societies have had to adjust their rates to counteract their earlier low-rate lending.

What can you do about it?

If you are on your lender's Standard Variable Rate at the moment, you can choose to remortgage and find a better deal elsewhere. Choosing a fixed rate remortgage would at least guarantee that the rate would not be able to rise for the period of the remortgage loan, guaranteeing you a higher level of financial security.

The only reason this may not be an option is if you do not have any equity available in your property, as this would make it harder for you to actually improve your rate by moving. However, there is no harm in shopping around to find out whether you could improve your current mortgage situation.

Want free, no-obligation quotes and advice tailored to your personal circumstances?
Request a callback from a qualified remortgage adviser today by filling out our remortgage form.

Post Office is the Latest to Offer 90% LTV Mortgage Deal

2010-05-12T23:00:00Z

In a bid to attract new mortgage business from first-time buyers, the Post Office announced its 90% loan to value mortgage deal earlier this week. This product is one of a number of new mortgage deals offered by the Post Office as it continues to gain prominence in the UK's mortgage lending market.

The 90% LTV deal offers a 5.45% fixed rate mortgage for the first two years, followed by a variable rate of 2.99% over the Bank of England's base rate (currently working out as 3.49%) for the remainder of the mortgage period. With a 999 GBP arrangement fee, this brings the overall cost for comparison (APR) to 4.1%, which is competitive when compared to similar home loan deals from more established lenders.

However, varying interest rates aside, it is encouraging that a number of high-street lenders are now offering 90% LTV mortgage rates, including HBSC and Santander. The return of higher loan-to-value mortgage deals is great news for first time buyers, many of whom have been prevented from getting onto the property ladder by the property market crash - and the subsequent belt-tightening by mortgage lenders.

The past three years have been a frustrating time for new homebuyers, because many of those that could not afford the more sizeable deposits were put off by the high interest rates (almost 9% in 2008) that were charged on riskier mortgages. Now things are not just looking up for new homebuyers, since many of the 90% LTV mortgage rates - including the Post Office deal - are also available for those planning to remortgage their property. New entrants to this market also means a greater level of competition, further driving down the rates.

So if you have been sitting on your mortgage deal for a while or you've been unable to afford a higher deposit, now might be the time to check out the market and see what deals are available.

Fill out our short form to request a callback from an experienced mortgage adviser, who will be able to advise you of the best deals available for your circumstances.

How will the Low Base Rate affect Borrowers?

2010-03-05T00:00:00Z

As the Bank of England announced last Thursday that the base rate will remain at 0.5%, concerns emerged on how this continued low rate will affect mortgage borrowing. The announcement comes at a time when inflation is expected to rise and UK house prices have fallen for the first time in seven months. Currently inflation expectations are at 3.5% while house prices, according to Halifax and the Royal Institution of Chartered Surveyors, fell by 1.5pc last month.

"The next few years are going to be difficult to predict in terms of mortgage rates and some volatility for borrowers may well be unavoidable', said Martijn van der Heijden, head of mortgages at HSBC.
This instability has divided experts on the subject of how homeowners should approach their mortgages. It is especially the case when the average bank loan rate is currently at 4.74%, according to Defaqto, the independent mortgage rates aggregator.

"Undoubtedly the biggest winners from the fall in interest rates have been those consumers who have been sat on standard variable rate mortgages," said Hannah-Mercedes Skenfield, mortgage expert for Moneysupermarket.com. "We have a situation where many consumers are sitting on extremely low rates and have no incentive to move."

The standard variable rate (SVR) is each lender's 'default' mortgage rate, loosely linked to the rise and fall of the base rate. The SVR is a rate only given to existing customers after their introductory deals have ended. Although this rate is typically uncompetitive (because banks do not have to use it to attract new business), the low base rate in recent years has kept many lenders' SVRs looking quite attractive.

But for those not currently benefiting from their SVR, which is the best mortgage in the current climate? Ray Boulger, consultant for the John Charcoal consultancy firm, thinks that the political uncertainty in the lead up to the election will harm fixed rate pricing. "The economic arguments continue to suggest a tracker mortgage is the right choice for most borrowers because the economy is in such a mess that very low interest rates are here for some time yet."

Others seem to think that it is not the types of rates that are the main factor in mortgage decision but the disposition of banks to offer a better service to the public. "Banks need to start lending more to consumers," says Tracy Gordon, associate partner at Mortgage Require, a mortgage consultancy firm. "There is a need for better competition in the market since more banks need to offer better deals for people."

Robert Sinclair, director of the Association of Mortgage Intermediaries, concurs with Gordon's statement adding: "Funding for mortgages remains restricted and this will continue to limit what is available to consumers over the next few months."

Are you looking to move your mortgage, or planning to get onto the property ladder? Professional advice is key to finding the right mortgage for your needs, so fill out our short mortgage form and we'll connect you with an experienced mortgage adviser for no-obligation advice and tailored quotes.

Watch out for Mortgage fees when Shopping Around for a new Mortgage

2011-01-26T00:00:00Z

Now may be a good time to think about taking out a new fixed rate mortgage to protect yourself against possible future interest rate rises. However new research from Which? Money shows that mortgage lenders charge a baffling array of set up and other fees on their mortgages, for example, fees for booking an interest rate, administration fees, arrangement and valuation fees.

In addition many lenders will also hit you with charges if you get behind with your payments, want to change from an interest-only to a repayment mortgage and if you take out your buildings insurance with someone other than your mortgage provider, for example. In fact Which? Money found 39 different types of fee on the 1,100 fixed rate and tracker mortgages it looked at. Shockingly most mortgage lenders have more than 20 different fees. Newcastle Building Society has the most with 29 and Ipswich Building Society has 28 different fees on its mortgages. However, a handful of providers have kept the number of charges to a minimum – Stafford Railway Building Society has only three different types of fee, and HSBC and First Direct have just four and five charges respectively.

Stuart Beattie from HSBC mortgages commented on the research: ‘Once a customer completes their mortgage with HSBC there are no further fees during the life of the loan. Our transparent fees approach provides homeowners with an assurance that if the fee isn't mentioned in the sale documents, then they won't have to pay it. We also offer a number of 'fee-free' mortgages where booking and completion fees are removed and a standard valuation is included at no cost.’

Mortgage fees are very important as they make it almost impossible to easily compare mortgage deals and work out which is the best mortgage for you. The best way to compare mortgage deals is to look at the total cost of the mortgage over its life, or introductory deal period.

Which? Money editor, James Daley, said: 'Finding the right mortgage used to be as simple as looking for the best rate but the array of fees nowadays has made it a much harder task – it’s never been more difficult to understand how much your mortgage is going to cost you. Lenders should make it clear what the total cost of a deal is so borrowers can make easy comparisons.'

Which? Money also found that the level of fees has gone up since the financial crisis in 2007, with four out of five two-year tracker mortgages for 90 per cent of the property’s value charging over £990 in set-up fees in 2010, compared with just one in five in 2007.

How to get a Good Deal on Your Mortgage

Firstly you need to think about what sort of mortgage is right for you. For example, a fixed rate mortgage interest rate will not change for the length of the fixed rate period, typically between two and five years. Tracker mortgages change in line with movements in the Bank of England base rate plus a percentage. With many industry experts expecting interest rates to rise in 2011 a fixed rate mortgage means that your repayments won’t change for a period of time.

However it’s essential that you shop around for a new mortgage and speak to an independent mortgage broker to find the right mortgage for you. Some mortgages aren’t available from mortgage brokers so it’s important that you also look at what is available directly from mortgage lenders. You can compare all available mortgages using an online comparison tool, like, the Mortgage Finder from Which?. You will also need to check if you have a penalty to pay for leaving your existing lender.

When comparing mortgage deals you should take into account the total cost of the mortgage rather than just looking at the interest rate – this way you will get the best deal taking into account fees and charges. The interest rate you will pay and the type of deal available to you will depend on how much deposit you have. In recent years lenders have reserved the best deals for people with larger deposits and it has become harder to take out a new mortgage or switch your mortgage to a new provider.

Get a free mortgage quote!

First Time Buyers, Your Time Has Come!

2009-10-08T23:00:00Z

According to new research from national lender Abbey, it is now actually cheaper for potential first time buyers in the UK to purchase a property than to continue renting. The only exception to this is in London, where it would still work out more expensive to get a first time buyer mortgage than it would be to remain a tenant.

The research found that 1.61 million Britons were looking to buy in areas outside of London, and based on today's first time buyer mortgage rates, the people surveyed would save £624 each or a collective £1 billion over the next 12 months if they did decide to buy a place of their own. Unfortunately for those based in the capital looking to get onto the property ladder, the fact that house prices are still at a premium means that they would actually be £466.19 worse off per month by choosing to buy rather than rent.

For the potential first time buyers outside London, the average monthly rent comes to £434. First time buyer mortgages, as they stand in the market today, would cost an average of £382 per month if taken out with a 25 per cent deposit - a saving of £52 per month. Of course if you are able to put more upfront capital into your property in the form of a larger deposit, your savings could be even greater.

Across the UK, typical first time buyer properties (new-build flats and terraced houses) now cost an average of £92,861, a decrease of 9 per cent from last year. Therefore, if you were looking to take advantage of these lower prices, you would need an average deposit of £23,215 (or 25 per cent) for a first time buyer mortgage. It's particularly good news for potential first time buyers living in Wales, where you would make an average monthly saving of £90.91. This is followed by the North West (£87.43) and Yorkshire (£77.06). Buying a place in East Anglia as opposed to renting would save you a fairly disappointing £2.59 per month.

As the mortgage market is so competitive, many lenders will offer you free valuation and legal fees with first time buyer mortgages, so you should make sure that you shop around to see who can offer you the best deal. If you have a deposit totaling 25 per cent or more of the value of the property you wish to buy, you are hot property for mortgage providers, so if you don't have sufficient savings yet but you want to buy a place, get started as soon as possible. Consider an ISA for tax-free savings or a savings account where you have limited access to your money, as these types of saving usually yield the highest returns.

To find out more about first time buyer mortgages, and talk to an experienced adviser from the SimplyFinance network about your options for getting a mortgage, simply fill out our short first time buyer form and an adviser will be in touch shortly.