The Finance Blog

It is clear that Prime Minister Gordon Brown wishes to make the topic of housing towards the top of his political agenda. Examples of this can be found in the recent proposals to increase housing stock and encourage longer-term fixed rate mortgages.

It is clear that many of these proposals are much needed - building more homes has to be a positive move. There has long been the problem of a lack of supply in the UK housing market. Even with the new annual housing building target for 2016 from 200,000 to 240,000, many industry pundits have predicted that even with the extra figures this may not be enough to satisfy demand.

So where are all these new homes going to be built? I mean, after all we are just a small island. Many believe that the government will have no choice than to start eating into our beloved greenbelt land. It is simply not plausible to believe that there is enough space in our towns and cities to build all these new homes. On this point many believe that the government is simply echoing the voice of many would be first time buyers in order to gain support for this growing issue.

Aside from political spin, another initiative that the new Chancellor has announced is that of 20 - 25 year fixed rate mortgages. The jury seems to be out on this one however many mortgage brokers feel as though this move represents pointing the finger of blame at their industry for the present housing crisis.

Shared equity is not exactly a new idea although it has come to the forefront of the government's plans in recent times. The Prime Minister wishes to make more housing affordable through shared equity schemes. At the present time, many shared equity schemes seem to be geared solely towards key workers. Many people are put off these schemes due to confusion surrounding them - eligibility and legal issues combined.

Many of us will have heard of the Right-to-buy schemes however this is very much restricted to council housed areas. The initiative was introduced in the Thatcher years in order to provide the 'ordinary' man with the opportunity to purchase his own home. The Right-To-Buy scheme has faced its fair share of critics over the years. Today there are over 1.7 million people on the waiting list for a council property.

Many of the initiatives that have been proposed are simply old hat - seen it all before. The topic of housing is a very fiery issue and one in which will spark much emotion. There is no doubt that there needs action needs to be taken and an element of risk at the same time.

  

Tuesday, 2 September 2008

In recent years the housing market in the United Kingdom has seen a huge increase in the demand for investment properties and buy to let mortgages. This housing boom has been brought about largely by the promise of a house price increases and a regular rental income.

There are other factors of course that have played a part in this transformation of the UK housing market. Property has long been viewed as a safe investment by the British people. Our love of bricks and mortar is evident countrywide. The pension crisis in the nineties has only added fuel to the fire in respect of the investor's need for a reliable long term investment.

Buy to Let mortgages are essentially the same as the standard owner occupier type mortgage. There are however a few key differences. The main difference between the two types is that at the time of writing Buy to let mortgages do not fall under the banner of the Financial Services Authority (FSA) watchdog. The other key differences are in the way that the buy to let lender assesses these applications in respect of both risk and affordability.

Buy to let lending has long been perceived by many lenders as carrying a greater degree of risk. The thinking behind this is that a tenant is less likely to look after the property with as much care as the owner occupier. The difference between the two rates has become much less obvious however in recent years largely due to the level of competition now prevalent in the market place. It is now possible to see buy to let mortgage rates on par with their owner occupier counterparts however the lender arrangement fees tend to be a great deal higher.

Secondly the way in which the buy to let lender assess affordability is a different calculation to that of income multiples or a debt to income ratio. Buy to let lenders will assess affordability by taking into account rental income – A logical method one would say.

The buy to let bandwagon does have however many pitfalls. The main risk associated with buy to let property investment is the lack of suitable tenants. There are many considerations that must be taken into account when looking to invest in property – The main two factors being location and type of property.

There are many areas throughout the country that are completely saturated with rental properties. This can pose big problems when attracting suitable tenants. It is well worth taking time out to research areas where there is a lack of rental properties. It is also important to realize that certain types of properties will be easy to rent out than others – for example one bedroom flats tend to be more in demand than two bedroom ones. This consideration also ties in with locality.

The most important thing when thinking about investing in property is not to rush into anything without firstly planning ahead.

  

Tuesday, 12 August 2008

You only have to look on the foot of any mortgage lender or mortgage broker's website to see a written warning stated in bold that 'your home may be repossessed if you do not keep up repayments on your mortgage'. That of course is the nature of a mortgage and secured finance in general

Missing a payment on a mortgage or secured loan is a very big problem for both a borrower and lender. From a borrower's point of view if the missed payments are left to accumulate then they run the risk of having their home repossessed. From a lender's point of view, they potentially run the risk of not being able to re-coup all monies owed from the borrower if in the worst case scenario; the property is not sold for its full market value at auction after being repossessed and there is a shortfall remaining subsequently. Both parties will generally wish to avoid court action at all costs unless the situation is left to worsen to the point of no return as perceived by the lender.

In every situation where a payment is missed on a mortgage or secured loan, the best advice that any mortgage professional will give the borrower would be to contact the lender at the earliest possible stage. In some situations where the borrower is unable to work due to an accident, sickness or unemployment; a protection policy will be in place to be claimed upon to cover the mortgage payments where the individual has arranged one previously. However, where there is no such insurance policy in place then the borrower will need to make an arrangement with the lender to clear off the arrears.

By contacting the lender, they may be able to assist you in a number of different ways. These solutions may include simply setting in place a repayment plan over a set period of time in order to clear the balance of the arrears. This may be applied by simply increasing the borrower's monthly mortgage payment over a period of six months for example. This option is will tend to only be used where the borrower has the financial capability to make these increased payments. Another idea may be to switch the mortgage from Capital Repayment to an Interest only one for a temporary period of time. This may ease immediate cash flow issues for the individual however again; this solution would only be available of course to those paying their mortgage on a Capital Repayment basis.

Many mortgage products today allow for payment holidays to be taken which could also be used in these situations where money is tight. A term extension may be appropriate where the borrower is paying the mortgage on a Capital Repayment basis. The lender may even decide to capitalize the arrears into the mortgage. Any measure that is suggested will very much be worked out on a case by case basis as each borrower's situation will differ from another.

  

Tuesday, 29 July 2008

Borrowers who are intent on finding the most competitive fixed rate mortgage would do well to watch out for excessive arrangement fees being added to the loan. Many eye-catching fixed rate mortgages will often have attached astronomical fees that are not quite so attractive on second glance.

Many brokers within the industry claim that some mortgage deals that on first glance appear to be the most competitive on the market could actually work out more expensive when compared to loans carrying higher interest rates but lower arrangement fees.

It is common for a mortgage lender to calculate their arrangement fee as a percentage of the loan advance - given the level of many mortgages in the United Kingdom today; this can of course result in huge fees being applied. Up to 3.5% may be applied as an arrangement fee at the top end for the chance to fix a low rate of interest for a number of years.

In the current economic client it is true to say that these are uncertain times for mortgage payers in light of the four interest rate rises in less than a year. The cost of borrowing has soared on both sides of the fence - lenders and borrowers alike. This week it was reported that the Bank of England's Monetary Policy Committee decided not to raise interest rates by only the narrowest of margins this month giving rise to speculation of imminent increases. This speculation has only helped to drive up the swap rates on the market – the rates of interest that predetermine fixed-rate prices - which in turning is forcing many lenders to withdraw much of their old range products.

Cast your mind back only two years ago where you would be able to secure a fixed rate mortgage for as little as 4.39 per cent. Nowadays however, many borrowers would expect to arrange a rate in excess of 5.5 per cent.

Since the start of this month, many of the major High Street lenders such as Northern Rock and Halifax have already withdrawn many of their best fixed rate deals. Within the industry it is widely regarded that if swap rates continue to rise, it will not be long before the demise of the sub-6 per cent mortgage unless you are prepared to pay a large arrangement fee.

When looking for the most competitive fixed rate deals, care must also be taken in respect to applicable 'Overhang' penalties. Another way for a lender to offset the cost of a competitive fixed rate of interest is by ensuring that the borrower pays the standard variable rate of interest for a predetermined period of time, or charging an early repayment charge for moving the mortgage before this period ends.

  

Saturday, 26 July 2008

A secured loan is in essence a loan that is secured against a property or asset - For most people this usually means their own home or investment property. A mortgage is perhaps the most common form of secured loan that most of us take out at some stage in our life. Mortgages and secured loans enable us to realise our dream of home ownership which would be out of the grasp of most people should such a transaction require a full upfront payment.

In the case of homeownership; the sheer size of the loan needed to purchase the property would in most cases would make it a too greater risk for the lender should there be no re-course to recover their money in the event of borrower default. The re-course in this case would of course mean property repossession. By the very nature a secured loan means that most individuals will take any reasonable measure to ensure that the payments are kept up on time and in full - Anxious of the repercussions that would occur if they were not.

The term 'secured loan' when used in the mortgage industry however refers to a second charge homeowner loan. Second charge relates to the way that the legal charge is registered against the property - This is usually second to that of a first mortgage.

Secured loans are usually arranged for those borrowers seeking extra finance who are tied into their current mortgage with a substantial early repayment fee to pay should they switch lenders. Secured loans may also be arranged for those homeowners who are looking for additional capital in a shorter timeframe than it would take to complete a remortgage application.

Of course not all borrowers have the same attitude towards debt repayment. This subsequently means that lenders assess each application on an individual basis keen to ensure that where there is a higher risk of lending to certain individuals, that they adjust the interest rates accordingly. Secured loans can be arranged for nearly every type of borrower from those with a perfect credit record to those with a poor one.

The rates of interest applicable to secured loans depend largely on your current situation. Generally these rates of interest will be slightly higher than those offered by first mortgages lenders. This difference is due to the fact that in the event of property repossession, the second charge mortgage lender would in effect, have to queue up behind the main mortgage lender and hope that there are enough monies left over to clear the balance of the loan outstanding.

  

Wednesday, 23 July 2008

There is no doubt that keeping up the monthly repayments on various debts coupled with the price of modern living can be a very difficult task. When it comes to debt repayment on a mortgage or secured loan however; not everyone prioritises these repayments over every other form of debt. This can of course have serious consequences - the worst case scenario being property repossession.

Falling into mortgage or secured loan arrears can be caused by many different factors - In the majority of cases this can happen due to a relationship breakdown, accident, sickness or unemployment. Another common factor of course is as previously mentioned - having high levels of consumer debts and outgoings. This can have a snowball effect in the way that one or two missed payments on a credit card or store card can make its way down to the more important commitments such as the mortgage or secured loan (where applicable). For the majority of individuals, the monthly mortgage repayment represents the largest single outgoing. For this reason, there is a very real temptation to free up the money allocated to pay the mortgage in order to alleviate other more seemingly pressing commitments.

Even when the circumstances seem at their most dire, many borrowers may be surprised to discover the many different courses of action that may be taken to stop the problem from escalating and ultimately; preventing repossession of the property. The majority of these options may be open to you at the discretion of the lender such as; term extension, capitalisation, payment holidays and payment plans.

Another option to consider is that of a remortgage. Where you have available equity within your property and an ability to satisfy affordability criteria, a remortgage can offer one of the most effective ways to combat the problem of repossession.

Even with a possession order, it is still possible to save your home. In most cases, where a possession order is granted to the lender by the courts, the homeowner is given 28 days to make arrangements to vacate the property in question. It is in fact possible to prevent any imminent eviction by way of repaying back the debt to the lender, inclusive of any arrears and charges. Even if a property has been repossessed by the lender, the amount owed may still be paid back immediately prior to the property being sold.

Without taking decisive action in these situations, repossession is not just a threat that faces the borrower but a very real possibility. Even with children, a court is not likely to make such exceptions very often.

In the initial stages of mortgage arrears there is a temptation for many to bury their heads in the sand. This mentality will include ignoring phone calls and emails, not opening the post and so on. This is not widely regarded as a sensible approach to such situations. Losing a property to repossession is a devastating experience and one in which can be avoided in most situations - regardless of the underlying reasons behind the mortgage arrears. It is important to obtain professional help at the earliest opportunity. As little as a just a couple of missed payments can be enough for a mortgage company to start repossession proceedings.

  

Thursday, 17 July 2008

An Early Repayment Charge (ERC) is also known within the industry as a redemption penalty, or redemption charge. It is a common condition of many fixed rate, discounted and capped rate mortgage products that an early repayment charge will be applied in the event of redeeming the mortgage before the tie-in period finishes. This tie-in period will of course differ from one mortgage product to another - generally speaking, the tie in period will last for as long as your fixed, discounted or capped rate.

Another charge that you may have heard of is an overhang penalty - This is not very common in todays market however it can be applied even after your fixed rate period has come to an end. The best time to find out about these different charges is at the start of any mortgage or loan application. In respect to mortgages, all fees and charges are highlighted in the Key Facts Illustration (KFI) which will be issued to you before the start of the application.

Many fixed term unsecured and second charge loans will apply an early repayment charge throughout the duration of the loan term. Again the charge applied will differ from one lender to another and will usually be calculated as one months interest, or a number of months worth of interest.

The early repayment charge will often have a large bearing on a borrowers selection of mortgage. If an individual is looking to move house within any given tie-in period, it is important to ensure before embarking on the mortgage application that the product is portable, or the early repayment charge applicable is kept to a minimum. In every case it is important to do your research and enquire at the start of any mortgage or loan application about any early repayment charges applicable.

If you are considering paying off a mortgage or loan before the end of its term or tie in period, you must be aware at the outset that this action could prove extremely costly. Many mortgage lenders will calculate their early repayment charges on a percentage of the outstanding loan amount. Many sub-prime mortgage lenders may calculate this as high as 6% of the outstanding balance!

  

Tuesday, 8 July 2008