Tips, Tricks, Info and News About the UK Finance Industry.
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We live in a fast paced society where peoples need to have instant gratification is prevalent. Whether it is instant access to download music at the click of a button or a 2 minute microwaved dinner, people what their goods and services instantly or they go elsewhere or lose interest and move on.
Managing your personal finances is also heading this way. Banks and lenders are at the cutting edge of technology offering sophisticated online banking, automated telephone banking and the ability to arrange mortgages and loans without leaving your house. All of this is making managing your finances a lot easier and quicker whilst making personal finance more accessible to the masses.
Consumers need for speed has also spread through to the remortgage process, a process that traditionally could take up to two months before the funds clear. But the lenders use of technology and desire to give the customers what they want has meant that this process has now been cut right down and a remortgage can complete in a matter of weeks.
One of the easiest and simplest ways to save money is to remortgage to get yourself a better interest rate. But in years gone by when you needed to free up some cash quickly a remortgage would not have been the fastest option. This is no longer true, remortgaging to another lender or product can provide you with a quick way to raise money. Although depending on your circumstances you maybe liable for an early repayment charge, which is a penalty for breaking the deal with your mortgage lender.
The recent developments in technology have seen the increased usage of automated valuation systems or AVMs in the mortgage application process, which means that almost instant offers are now available.
AVMs utilise electronically stored data about house prices so valuations can be carried out in real time as opposed to having to send someone out physically to carry out a valuation. This means that cases can now be completed in a matter of weeks or less.
For those cases where an AVM can not be used it will automatically instruct a physical valuation and automate the whole process save lots of time and administration costs.
This is great news for those borrowers that need a fast remortgage. With all those Christmas debts to pay off and the sharp hike in interest rates many homeowners have fallen into debt.
With many homeowners failing to keep up with their mortgage payments and sinking further into debt a remortgage is a great solution to pay off any outstanding debts, clear arrears and switch to a new lender for a better deal. Now all of this can be done very quickly, in a matter of weeks. This is great as it stops the homeowner falling further into debt and facing the prospect of repossession.
If AVMs are adopted by more lenders at the start of the application then you will be able to remortgage to a deal of your choice in a matter of days.
But don’t forget to make sure that remortgaging is your best option, as sometimes a further advance or secured loans will be more cost effective. Speak to your mortgage broker before you decide.
Related Links: Adverse Credit Remortgage Mortgage Arrears Commercial Remortgage
Thursday, 22 February 2007
To the potential buy to let investor, the prospect of rental income and a possible capital gain on disposal of the property is an extremely enticing one. This factor coupled with poor stock market performance in recent years has added to the property investment boom.
The fierce competition in the marketplace has now meant that the rates have become almost comparable to that of owner occupier mortgages. Traditionally interest rates have been higher for buy to let schemes and although this is still the case; the gap has significantly reduced in recent years making these schemes evermore viable for investors. A buy to let mortgage presents a greater risk to the lender because:
# There is no guarantee as to the consistent availability of tenants. Any periods during which no rental income is being received will affect the borrower’s ability to keep up the monthly repayments.
# The borrower may adapt a different attitude to the buy to let mortgage than if the property were his own.
# The value and saleability of the property may be adversely affected if it is badly treated by tenants and not maintained properly by the landlord/borrower.
Many buy to let mortgages are now available on a fixed or discounted rate. The terms and conditions of the mortgage will be similar to those of a conventional mortgage. They will usually contain a lender’s arrangement fee and an early repayment charge.
The main difference when applying for a buy to let mortgage, to that of a conventional mortgage, is the method of deciding suitable affordability/deciding how much to lend the applicant. The amount of the permitted advance is usually calculated on the basis of the expected monthly rental income being around 125% of the monthly payment of the loan – This is as opposed to using income multiples.
It is possible to arrange buy to let mortgages for up to 80% of the property value. The investor must first ensure that the rental income would cover the mortgage repayments and also the running costs.
The lender will ensure that a suitable form of tenancy agreement is used so that it is not prevented from obtaining a possession order in the event of default.
Potential buy to let investors will need to consider the following points:
# The location of the property. This is a very important consideration as different areas will have different demands for rental property. There are areas around the country where there is an abundance of property for rent, and not enough potential tenants to match the supply. On the flip side of course, there are hotspots around the country with limited rental properties available, which could produce a higher rental yield by investing there.
# The type of property. Many investors believe that one bedroom flats are easier to rent out than two bedroom flats. They will appeal to a range of tenants from couples to single professionals. It is important in this case to research the different areas to see where the demand lies.
# Property management. Often buy to let investors will use the services of a letting agent. The services of a letting agent will include sourcing and qualifying tenants along with the maintenance of the property. The letting agents will charge a fee for there services and this must be taken into account when working out the rental yield. The fee is usually worked out as a percentage of the rental income.
# The type of tenancy. An assured short-hold tenancy is the most effective lease. This will allow the landlord the right to take possession of the property at the end of the lease.
Along with the initial planning requirements, it is also necessary to consider the potential disadvantages associated with buy to let investment:
# The quality of the tenant can never be guaranteed.
# The availability of tenants again, cannot be guaranteed.
# House prices can fall as well as rise.
# Regular investment must be made as fixtures and fittings will be subject to wear and tear.
# Property is not a liquid asset. If the investor wishes to realise his capital, this cannot be done without first selling it.
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The role of the FSA is to oversee the regulation of the financial service industry in the UK and which incorporates most of the mortgage market. The FSA and the subsequent regulation brought forward have essentially come about by the need to offer a more efficient safety net for consumers.
Anyone who wishes to sell mortgages, whether they are estate agents or mortgage brokers, must be directly authorised by the FSA or must become part of an FSA authorised network.
Under the FSA regulatory regime there is a very important distinction between information and advice sales. The sales process must distinguish between on one hand cases where advice is given; and on the other hand those where information is given and a series of pre-determined questions are used in order to act as a filter through which a client can narrow down the selection of mortgages.
If you proceed with an information only sale then you will receive solely information about that particular product or range of products – no advice or recommendation will be included. An information only sale is usually only suitable for borrowers who are certain of the type of mortgage that they require. Only individuals who proceed with an advice-based sale can seek redress through the Financial Ombudsman service.
The scheme is designed as a safety net for borrowers which aim to offer compensation when financial firms go bust. In addition borrowers will be able to take their complaint to the Financial Ombudsman Service (FOS) The Financial Services Compensation Scheme in relation to Mortgage advice and arranging will cover the following:
# Claims against firms involved in mortgage advice and arranging: 100% of the first £30,000, plus 90% of the next £20,000. (A maximum total of £48,000).
Where an advised sale takes place, it must be based not only on a consideration of which mortgage best suits the client’s needs, but also on the affordability of the scheme for that client - An increasingly important factor which must be considered in an effort to stem irresponsible lending.
At all points of regulated mortgage sale, borrowers will now receive a ‘Key Facts’ document. This summary document outlines the key features of the mortgage product which will include:
# The fees and costs associated with setting up the mortgage.
# The interest rate applicable and monthly mortgage payment amounts.
# The commission payable to the seller from the mortgage lender in the event of mortgage completion.
# The overall cost of the mortgage for every pound repaid.
# Early Repayment charges (if applicable).
# Overpayment charges (if applicable).
# Any additional features - such as a cash back special offer.
For the borrower, The Key Facts (KFI) document primarily acts a tool to compare different mortgage products on the market. It also aims to make the overall process of shopping around more transparent.
It must be understood that not all mortgage contracts are covered under the watchful eye of the Financial Services Authority. For example, Buy to let commercial mortgages are not covered unless 40% of the property (including the land) is being used as a residence by the borrower or a direct family member.
Key Changes
A "Key Facts" document summarises details and allow consumers to compare mortgages easily Price information in any advertising and marketing material must be clear Both the pros and cons of the mortgage deal must be given in any advertsWhere advice is given, firms must ensure consumers are given a "suitable" mortgage.
Both lenders and advisers have to consider whether consumers can afford the mortgage if factors, such as, interest rates changed Charges must not be excessive.
New standards are being introduced to improve the treatment of consumers with payment difficulties or facing repossessionAdvisers must undertake specialist training.
This is aimed at helping people shop around and making the process more transparent. Salesmen are required to disclose any commissions they are getting and, whether they deal with the whole market or just one lender.
At the point of all sales, consumers now receive a summary document which illustrates the key features of the mortgage, known as a "Key Facts" document. This is aimed at helping people shop around and making the process more transparent.
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With many more borrowers opting to take out Interest Only mortgages, the importance of having a repayment vehicle in place to run alongside the mortgage it is often overlooked. Undoubtedly the increase in the popularity of these types of mortgages is due to the affordability factor in light of the need for borrowers to secure larger loan sizes.
The reasons why borrowers choose an Interest Only mortgage will differ from borrower to borrower; There will be those who take out an Interest only mortgage with a view to repaying the balance at the end of the mortgage term from their chosen investment, and there will be those borrowers who utilise the interest only payments as a short term solution to a more pressing financial need.
Mortgage Repayment Vehicles include:
# Full with-profit endowment policy;
# Low-cost with-profit endowment policy;
# Unit-linked endowment policy;
# Individual savings account (ISA);
It is always advisable to speak to a professional Financial Adviser before deciding on which route to go down. Mortgage advisers may provide information about these investment backed products, as this article intends to do, however only those individuals who are authorised under the Financial Services and Markets Act 2000 can give advice and make recommendations.
Endowment Policies
An endowment policy, whether with profit or unit linked has two key elements; firstly the policy guarantees to repay the loan in full if the borrower dies during the mortgage term (this is however subject to all policy premiums having been paid and the mortgage account being up to date) and secondly, it is the intention of the policy to provide a maturity value that is sufficient to fully repay the loan at the end of the mortgage term and at the same time, provide a surplus for the investor.
Individual Savings Accounts (ISAs)
ISAs were introduced into the market on the 6th April 1999 and they replaced PEPs and TESSAs from that date.With an ISA mortgage, an interest only arrangement is made with the lender whilst the entire capital will remain outstanding throughout the term.
Investment is then made into an individual Savings Account on a regular basis and at the end of the mortgage term the ISA fund will be used to repay the balance. There are two types of ISA – an Equity ISA and a cash ISA. Separate life cover will usually be needed to repay the loan early death.
To summarise between the different mortgage repayment vehicles; An endowment policy provides both protection and investment elements for the borrower, whilst Personal Pension Plans and ISAs will provide the investment element but do not contain any built in life cover – this will need to be arranged and paid for separately by the borrower.
Related Links: Adverse Credit Mortgages Commercial Mortgage Fixed Rate Remortgage
Wednesday, 21 February 2007
Arranging a mortgage and the mortgage/remortgage process in general, can at times be somewhat confusing, not least due to the fact that many of us have little or no understanding of what many of the related words and terms actually mean. This glossary has been designed to dispel any confusion or misunderstanding about many mortgage and finance related terms that you may have encountered.
Advance
The amount of loan the customer takes out.
Adverse Credit
Having adverse credit is a negative credit rating, generally due to a poor history of loan repayments. Also see Adverse Credit Loans & Adverse Credit Remortgage & Adervse Credit Mortgage
APR
The ‘Annual Percentage Rate' (APR) helps you compare the cost of different mortgage deals. It takes into account the amount of interest you will pay, the length of the term of the mortgage and other related charges such as an arrangement fee.The APR is designed to enable prospective borrowers to compare the cost of prospective credit by a standard formula.
Bad Credit
Having bad credit can mean a different number of things. Often bad credit is accumulated by not repaying bills and debts on time. Bad credit can equate to having mortgage arrears, CCJs, defaults, IVAs and bankruptcies. Also see Bad Credit Loans & Bad Credit Remortgage
BACS – Bankers Automated Clearing system
The process of transferring money electronically from one bank to another.
Bank of England Base Rate
This is also known as the Bank of England's Repo Rate. This is announced from time to time by the Bank of England's Monetary Policy Committee.
Beneficiary
A person entitled to benefit, for instance under the terms of a trust or a will.
Bond
A fixed length agreement to pay interest on a debt.
Cap and Collar
A cap is a maximum rate of interest that can be charged for a specified period, while a collar is a minimum rate of interest that can be charged for a specified period.
CHAPS – Clearing House Automated Payment System
CHAPS is a telegraphic transfer through which the mortgage advance is sent to the conveyancer.
Completion
The time when payment of the advance is made to the customer and the agreement terms commences.
Compound Interest
This is an interest payment on both capital and on previously accrued interest.
Conveyance
This is the legal document which transfers ownership of unregistered freehold land.
Conveyancing
The legal process involved in buying and selling a property.
County Court Judgments (CCJ)
A CCJ is a judgment from a Country Court requiring the payment of a sum of money by one party to another.
Credit history
This is an individual's record of financial transactions which is compiled and held on file by the Credit Agencies.
Credit Reference Agency
A credit reference agency holds files on the borrowing records of nearly every adult in the UK. The information is collated from a variety of different sources. These agencies do no more than supply information to lenders. The lenders will then use this information as part of their credit scoring process.
Credit scoring
A system used by lenders to calculate the statistical probability that a loan they grant to you will be repaid. Different lenders will have different rules with regards to assessing risk. Each lender works out the characteristics of 'good' and 'bad' customers, based on its past experience. Each answer you give on your application form will be given a rating. If the combined total score is above a certain threshold, then your application will be accepted.
Decision in Principle
An initial decision will be made on whether the application can proceed. A decision in principle will be based on the information provided.
Easement
This is a Right of Way that allows persons other than the owner to access a property.
Encumbrance
Anything that has a limiting or detrimental affect on the ownership of a property, including, for instance, mortgages, leases, rights of way and easements.
Endowment
There are different types of endowment and they are all primarily investment products. They do also contain an element of life assurance. An endowment is often arranged as a repayment vehicle for a mortgage of which the proceeds are used to pay off the mortgage loan at the end of the term.
Equifax/Experian Searches
The Equifax/Experian credit search will show information registered against the name and address searched. This information will refer to adverse entries such as County Court Judgments (CCJs) and past/present credit transactions, including the insight service.
Fixed Rate
A fixed rate of interest is guaranteed not to fluctuate over a fixed period of time – this will of course subsequently mean that the repayments on a fixed rate of interest will not change over the same period. Also see Fixed Rate Remortgage
Flexible
A flexible mortgage is a mortgage product that will have a range of different benefits open to the borrower, such as overpayments, underpayments, payment holidays and interest calculated on a daily basis. Also see Flexible Remortgage
Equity
The equity of a property is simply calculated as the difference between the value of the property and the amount of the mortgage and any other outstanding loans secured against it.
Gazumping
This process occurs when the person selling the property accepts an offer and then accepts a new, higher offer from another buyer before exchange of contracts.
Gazundering
The practice of withdrawing a price already offered and making a lower offer. This is the flip side of the coin to the practice of gazumping. When the property market is weak, a buyer may try to reduce his or her bid for a home prior to the exchange of contracts.
Interest Rate
This is the rate of interest charged on a mortgage or loan. This may be different to the APR as it might not take into account associated fees and charges. Also see Low Interest Rate Loans
Land Registry
The Land Registry is a Government organisation that keeps on file records of properties in England and Wales. Any transfer of ownership has to be registered with HM Land Registry.
Loan Period
The loan period refers to the number of years or months over which the loan has been agreed to be repaid.
Loan to Value (LTV)
The LTV is the amount of the loan plus the outstanding mortgage balance in relation to the value of the property usually expressed as a percentage.
Local Search
This is a search carried out by your solicitor of the records of local authorities to discover issues such as who is responsible for road and footpath maintenance, whether the property has mains drainage and any planning matters that could affect the property or the area. This search is very much for your protection.
Mortgagee
The lender in a mortgage.
Mortgagor
The borrower in a mortgage.
Mortgage Arrears
A mortgage arrear is an unpaid sum overdue in relation to a mortgage. An arrear will usually be classified as a missed monthly payment.
Mortgage Repossession
Failing to meet your mortgage or secured loan repayments on time could result in mortgage repossession. This is when a lender is granted a possession order from the courts in order to repossess your home in the event of borrower default.
Negative Equity
This is when the amount you owe on your mortgage is greater than the value of your property. It becomes a particular problem if you are looking to move house.
Non Status
A Non Status mortgage is one that is offered without the need for the borrower to prove their income – much like a self certification. Also see Non Status Remortgage
Outgoings
Identified deductible expenses, comprising items such as 1st mortgage commitments, endowment and other credit payments.
Poor Credit
Having a poor credit rating is based on a wide range of factors ranging from missed payments on loans to late payments on Car Tax. Each lender has their own credit scoring system to assess the ‘creditworthiness’ of a borrower. Also see Loan For Poor Credit
Purchase price
The amount paid for property.
Redemption
The settlement of the loan in full.
Searches
Investigation made by your solicitor to check there is anything to cause concern about the present ownership of the property.
Self Certification
A self certification or ‘self cert’ mortgage is arranged for those borrowers, often self employed, with little or no proof of income. In this case the borrower declares their income as opposed to providing audited accounts or payslips. Also see Self Certification Remortgage
Shared Equity
A scheme essentially designed for first time buyers whereby a person purchases part of a property and the other part is held by a developer.
Shared Ownership
This scheme is similar to that of the shared equity, but in which the second part of the property is owned by a housing association.
Sitting Tenant
A person currently renting and occupying a property and who is legally protected against being removed.
Sole Occupancy
A property that is occupied by only the mortgage applicant(s) and their direct family.
Stamp Duty
Stamp Duty is a Government tax you have to pay on the purchase price of a property worth £120,000 or more. There are different rates in relation to the purchase price of the property.
Title
This document confirms the right of possession to an area of land.
Title Insurance
This is an insurance policy that is often taken out that will protect against any losses resulting from defects of title to a specifically described parcel of property.
Underwriting
Underwriting is a system used by many lenders and insurers to decide whether or not to approve applications for credit from customers.
Saturday, 17 February 2007
Buying a property and securing a mortgage is one of the largest financial commitments that many of us will ever take on. The dream of home ownership is one that many first time buyers strive to be part of. But with property prices seemingly ever increasing this dream can quickly turn into a nightmare. There is a huge temptation on the part of borrowers to overstretch themselves financially and even falsely inflate their income just to make that first step onto the property ladder.
It isn’t just first time buyers who at times may overstretch themselves financially. There is a very real culture prevalent of ‘buy now and pay later’ amongst many different types of people, including existing homeowners. This may often take the form of large unsecured debts such as credit cards, store cards, hire purchase agreements and so on.
But how does having unsecured debts mean that you put your property at risk?
In theory, having unsecured debts and commitments have absolutely no bearing on the security of your property. However, in reality there are many cases whereby borrowers may be inclined to prioritise their unsecured debt repayments over that of their mortgage or secured loan – this could be due on the main part to the more proactive stance that many unsecured creditors will take once payments start becoming missed – after all, they do not have any charge over a property in the event of borrower default.
Missing payments on a mortgage or secured loan can have very grave consequences, after all, if you do not keep up repayments on your mortgage, your property could become repossessed. This is a stark reality that is facing an increasing number of homeowners in the UK today.
If a borrower fails to meet his mortgage repayments on time then the account will fall into mortgage arrears. It is vitally important to deal with these arrears at the earliest possible opportunity. A large percentage of repossession cases can be avoided in the early stages.
What can be done to assist a borrower in arrears?
A lender may make available a number of options in the event of a mortgage account falling into arrears:
# A reduction in monthly mortgage repayments over a set period of time
# Revert the mortgage from Capital and Interest Repayment to an Interest Only mortgage (where applicable)
# Grant the borrower a ‘payment holiday’
# Extend the term of the mortgage in order to achieve a lower monthly repayment.
# Allow the accumulated arrears to be repaid over a set period of time – usually in form of an increased monthly mortgage repayment.
When problems are left to escalate and negotiations between lender and borrower have broken down, the intervention of solicitors and court action are inevitable.
What does Repossession actually mean?
Mortgage repossession is a legal remedy open to the lender in the event of mortgage default. Once the court has granted a possession order, the lender can legally take full ownership of your property. In most circumstances the property would be sold at the earliest opportunity in order to recover the outstanding debt. Once the lender has recovered their money and paid of any subsequent charges (if applicable) then the remaining balance will go to the borrower.Any shortfall following the sale of a property can be recovered by the lender – the borrower can be pursued for this shortfall for up to 12 years.
The lender must first approach the court to apply for the possession order. A mortgage repossession hearing will be set whereby the borrower must attend to put forward their case. It is rare for the possession order to be granted upon the first court hearing however a there must be evidence of an ability to improve the situation in the future. It is highly likely that upon a satisfactory first hearing, a suspended order may be granted. Any arrangement set up by the courts must always be abided by.
Previous Posts
- Government Housing Initiatives
- Buy To Let Mortgages
- Assisting A Borrower In Arrears
- Why A Low Rate Mortgage May Not Be All That It See...
- Secured Loans: What Are They?
- How To Avoid A Repossession Order Turning Into An ...
- What You Need To Know About Early Repayment Charge...
- Benefits Of Debt Consolidation
- Selecting A Commercial Property
- Bad Credit Remortgages Explored
