by admin | Jan 30, 2020 | Mortgage News
The fact that mortgage lenders are now expected to apply fairly stringent “affordability criteria” to borrowers is probably, overall, a positive. It is, however, not necessarily a benefit to everyone. The media has been quick to pick up on the situation of “mortgage prisoners”, sadly lenders and the FCA seem to have been rather slow to respond, although they do appear to be getting there (at long last).
What is a mortgage prisoner?
A mortgage prisoner is essentially someone who is unable to remortgage. It is often used to refer to people who cannot switch to cheaper deals because they are now considered to be unable to afford them even though they are currently paying more on their mortgage.
It may also be used to refer to people who have had a change in circumstances which does not necessarily impact their ability to pay but does cause them to fall outside standard lending policy, for example, people who’ve recently become self-employed.
The issue of people on interest-only mortgages is a more nuanced one as they would be likely to need to switch from a cheaper deal (i.e. only paying the interest) to a more expensive one, which might quite reasonably raise questions about affordability. While acknowledging that the end effect is the same, the route there is definitely somewhat different.
How to break out of financial jail
Regardless of your situation, your first port of call should ideally be a professional mortgage broker. If the issue is simply that you are a “round peg in a square hole” then they may be able to bypass computer algorithms and get your application in front of an actual human who can apply human judgement and common sense. Alternatively, they may be able to point you towards lenders who can apply a bit of flexibility.
For example, if you are currently on an interest-only mortgage and you want to switch to a repayment mortgage knowing that you cannot afford it over the long term (e.g. after retirement), but simply wanting to build up equity in the property and to have control over when, exactly, you sell it to downsize, then a mortgage broker may be able to assist in finding a lender who can work with that.
Another option (depending on your age) might be to extend the term of an interest-only mortgage to the point where you can use equity release to pay off the principal. Depending on the type of equity release you choose, you might then be able to pay off some or all of the principal (and/or interest) and/or downsize, so you avoid dying with debts on your estate. Having said that, if you get a “no negative equity guarantee” then the extent of your estate’s liability will be limited to the value of your home after your death so that may not be a huge issue for you.
How to make yourself more attractive to mortgage lenders
A mortgage broker can help you to make the most of what you have, and the more you give them to work with, the easier it will be for them to help you. There are three key factors which determine how attractive you look to a mortgage lender. The first is your credit score and the second is your loan to value ratio, which can also influence affordability (the more you can pay upfront, the less you have to find in monthly repayments) and, of course, affordability.
There is lots of advice online about improving your credit score. In the context of remortgaging, improving your loan to value ratio basically means either paying down your mortgage to reduce the amount you need to borrow on a new mortgage or increasing the value of your home. If you have any spare cash, it may be worth looking into the latter approach to see if it increases your options.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Equity release refers to home reversion plans and lifetime mortgages. To understand the features and risks ask for a personalised illustration.
For Equity Release we act as introducers only
by admin | Jan 17, 2020 | Mortgage News
The short answer to this question is probably. It would depend on your lender’s policies, but there’s a least a decent chance that they can accept credit card payments. As the old saying goes, however, just because you can, it doesn’t mean that you should. Here are some reasons why you might not want to.
You’re probably going to find it a bit of hassle
This may sound a bit of a weak reason, but it’s worth mentioning. You could find yourself having to spend quite some time waiting in a queue to make a payment by phone. Depending on your lender’s number and your phone package, this could work out expensive.
You could end up hitting your credit limit very quickly
Mortgage payments tend to be fairly major commitments, which means that for most people, it’s probably only going to take a few of them for you to hit your credit limit (assuming you just make your minimum payments).
You could be surcharged
In principle, you could be surcharged for paying with a debit card, but in practice it’s much more likely with a credit card due to the higher processing fees involved.
You could wind up paying a lot of interest
The interest rates on credit cards tend to be massively higher than the interest rates on mortgages (and if you are surcharged, the interest will be added to the surcharge as well).
Why might you want to pay your mortgage with a credit card
It’s a bit cheeky, but if your credit card lender is offering a really good deal linked to a minimum spend, then you might want to use your credit card for everything you possibly can and pay it off immediately. This might not work if your mortgage lender implements a surcharge. You’d have to do your sums.
Alternatively, if you have a very short-term cash-flow problem, then you might want to use your credit card to pay your mortgage to avoid taking a hit to your credit record for what is just a short-term issue, which you are confident you can address.
Alternatives to paying your mortgage with a credit card
First of all, it’s always best to avoid getting into a situation where you might struggle to pay your mortgage each month. This may sound like stating the obvious, but it’s often much easier to take preventative action (even if it involves making some sacrifices to find the money to fund them) than it is to deal with a situation which circumstances have forced upon you and for which you are not prepared. Ways you can prepare for temporary cash-flow issues include:
Having cash savings, the amount you will need will depend on your situation but ideally, you will want to have at least 6 months worth of living expenses set aside.
Have insurance, income protection insurance and critical-illness cover might help to cover loss of income.
Ideally, you will want them in place when everything is still going fairly smoothly as policies are unlikely to pay out for issues which arose before you bought them.
Other possibilities
The previous suggestions are all under your control. You can also try asking your mortgage lender for a payment holiday or to switch to an interest-only mortgage for a limited period. You could think about letting out a room in your home (if your lender permits it). You could even look at downsizing
Alternatively, you could try looking at ways to reduce your other expenses and/or increase your income to be able to afford the payments.
Your property may be repossessed if you do not keep up repayments on your mortgage.
For insurance, we act as introducers only.
by admin | Jan 4, 2020 | Mortgage News
Mortgage lenders are now obligated to look at long-term “affordability” when calculating whether or not to offer a mortgage. This is not necessarily a bad thing, but it can create challenges for people in unusual situations, especially for those who have a bad credit record. Fortunately, these challenges often be overcome. Here are some tips.
Make your credit record as good as it can be
There may be nothing you can do about your credit record being bad, but there may be some actions you can take to limit the damage. Make sure you take care of any “quick wins” such as making sure that you are listed on the electoral roll. Similarly, make sure that you check for any mistakes as you can ask for these to be rectified.
Depending on the situation you may even want to see if you can get any “black marks” removed, for example, if you defaulted on a debt, but can now afford to pay it, then you might want to try reaching out to the company and seeing if they will take your payment and remove the mark.
Make a point of managing your finances impeccably
This is partly an extension of the previous point and partly a reflection of the need to practice good financial management in general. Basically, you want to be in a position where you can convince lenders that you really have dealt with whatever issues messed up your credit file in the first place. Acting responsibly for a month or two is unlikely to impress anyone, but acting responsibly for a year or two is more likely to be taken seriously.
In short, even if your credit record is “bad”, if the issues were in the past and you can clearly demonstrate that you’ve now sorted yourself out, then you can really improve your chances of being taken seriously by lenders.
Build as big a deposit as you possibly can
Admittedly this holds true for just about everyone in the UK (and quite possibly in other countries as well) but it has particular relevance for borrowers with bad credit. Basically the more of the purchase price you can pay upfront, the less the lender is at risk in the event that you default, or, to put it another way, the more chance there is that they’ll recover the full loan principal from the sale of the house, even if it takes place in a buyer’s market.
With this in mind, depending on your situation, you may want to look at properties which have room for some kind of expansion, for example space at the side, an attic or a basement. That way you could take out the mortgage on the price of the house “as is” and then increase the usable space later when your credit record has improved (if only through time).
If you’re thinking about going down this route, be sure to consider all the implications. For example, you might want to research the likelihood of you needing planning permission (and if so your chances of getting it) and think about the level of potential disruption building works could involve.
Go through a specialist mortgage broker
Simply put, if you’re a potential borrower with a bad credit record then you’re the proverbial square peg in a round hole. In other words, you’re exactly the sort of person who’s likely to struggle with algorithms and automated scoring and, by contrast, to get particular benefit from “the human touch”. A good mortgage broker will take time to listen to you and understand your situation and as well as having a good knowledge of available mortgage products, they may also have professional contacts with lenders to help get your application past computers and in front of actual people.
If you would like to know more or are thinking of applying, please contact us
Your property may be repossessed if you do not keep up repayments on your mortgage.
by admin | Dec 27, 2019 | Mortgage News
All things considered, it’s probably fair enough that the news has been dominated by the question of what Boris Johnson’s election victory means for Brexit. It’s probably also fair to say that Brexit will have a huge influence on the UK over the coming years, if not decades.
It is, however, also important to note that Brexit is only one issue among many. The economy in general and the housing market, in particular, are also key issues for UK residents and while they will almost certainly be influenced by Brexit, they will also be influenced by various other factors, not least of which being government policy and practice. With that in mind, here’s a quick overview of what the election could mean for mortgages.
The Brexit issue
Having just said that Brexit is only one issue among many, there’s no getting away from the fact that it is likely to be a very important issue. Given that the Conservative win makes a hard Brexit massively more likely, it’s probably safe to assume that this will have an adverse impact on the Pound, at least over the short term. This assumption can be supported by a look at the way the currency markets have reacted to Brexit-related news and, in particular, the way the Pound has dived since it was announced that Boris Johnson intended to try to make it illegal to delay Brexit any further.
In and of itself, a weak Pound is bad news for some and good news for others. It does, however, have the potential to push up inflation and if that happens there will be one of two outcomes. Assuming that the government sticks to the current rules on inflation (i.e. a target of 2% with a 1% margin of error either way), this would effectively force the Bank of England to raise interest rates, which, of course, is bad news for borrowers. That being so, borrowers might want to look for a fixed rate, possibly a longer-term fixed-rate, to give themselves reassurance.
Any remortgaging decision should be taken with care and not just because there tends to be quite a bit of upfront expense and paperwork. Fixed-rate mortgages can be relatively expensive, partly because they are still something of a niche market and partly because they essentially combine two products, a mortgage and an insurance policy. At the same time, however, while there is a limit to how far interest rates can drop (unless you believe the government would use negative interest rates), they can rise indefinitely.
The affordability issue
Whatever your views on Brexit, hopefully, you will benefit from the fact that the saga appears to be coming to a close and that, one way or another, we can all move on. As is always the case in life, this is likely to be easier for some people than others. For example, people in professions for which there is high demand globally may feel confident about their ability to “keep calm and carry on”, whereas other people may feel rather more vulnerable.
If you already own your home and are having concerns about how to pay your mortgage over the long term, then it might be a good idea to speak to a professional financial adviser. They might be able to help you find options you might otherwise have overlooked, which could be anything from taking advantage of the rent-a-room scheme to looking for a mortgage product with some degree of flexibility, such as an offset mortgage.
If you are looking to buy your first home and are concerned that Brexit could make it harder for you to get a mortgage, then you may want to look at products such as the Lifetime ISA and/or the Help-to-Buy scheme, to see if they could make it easier to build a substantial deposit and thus increase your attractiveness to lenders.
Your home may be repossessed if you do not keep up repayments on your mortgage.
by admin | Nov 30, 2019 | Mortgage News
Interest-only mortgages are exactly what they sound like. During the lifetime of the mortgage, you only repay the interest on the mortgage. The principal only becomes repayable at the end of the term. On the one hand, this keeps your monthly payments low. On the other hand, it means you pay the maximum amount of interest because the amount owed does not go down over the term of the mortgage as it does with repayment mortgages. It also means that there is a huge bill waiting for you at the end of the term.
Interest-only mortgages are still very much alive and kicking
These days, interest-only mortgages have just about disappeared from the residential-mortgage market. They are still very much in use in the buy-to-let market but that is another situation. There are, however, still a number of “legacy” interest-only mortgages at various stages of maturity and if you hold one of them, then you need to start thinking seriously about your options.
Option 1 – convert to a repayment mortgage
This may not be as easy as it sounds given that interest-only mortgages are more affordable month-to-month than repayment ones, so, you may find that the higher payments required for a repayment mortgage are out of your reach, especially if you are due to retire over the course of the term. On the other hand, it might not be out of the question either, especially if you are going to be working for most of the term. Although you will not have any equity in your home, if it’s value has gone up, then that will effectively act as a deposit for you and reduce the amount you need to borrow.
Option 2 – sell your home
You don’t have any equity in your home, so equity release isn’t an option. In practical terms, you’re just renting it from the bank, while you work on getting the money together to buy it outright. In principle, you have an advantage over renters in that you can do what you like with and in your own home. The flip side of this, however, is that you also have the responsibility of maintaining the property.
If you can’t convert to a repayment mortgage and don’t yet have a feasible plan in place for paying off the principal at the end of the term, then it might be best to consider whether or not you really stand a decent chance of being able to do so and, even if you do, whether you’re really willing to do whatever it is you’re going to need to do to make that happen. In other words, how much of a sacrifice are you willing to make?
Unless you are 100% sure that you can get the necessary funds together and that you’re willing to do whatever is necessary to achieve your goal, then it might be best just to grit your teeth and sell your home, even if you are in negative equity, because there’s no guarantee that the situation will get better if you wait. In fact it might get worse.
Option 3 – increase your income so as to be able to make the repayment
There are lots of potential ways to increase your income from monetizing your home in some way (e.g. renting out a room), to starting a side-hustle, to looking at savings and investments. Each has different advantages and disadvantages and chances of success. If you’re going to go down this route, then it may make sense to talk with a financial adviser so that you can get an unbiased second opinion on how practical your plan is likely to be and whether there are any adjustments you could make which might improve its chances of success.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Equity Release refers to home reversion plans and lifetime mortgages. To understand the features and risks, ask for a personalised illustration.
For equity release, savings and investments we act as introducers only.
by admin | Nov 23, 2019 | Mortgage News
If you’re a satirist, Brexit is the gift which keeps on giving. If you’re anybody else, Brexit is probably something you’d really like to see resolved one way or another so you can get on with your life with some idea of what the future is likely to bring (even if you don’t necessarily like it). If you’re involved with the property market, Brexit could raise all kinds of interesting questions, the answers to which may depend on your personal situation.
If you’re a renter
Brexit isn’t the only reason why it can be challenging to find good rental properties, although it’s unlikely to be helping. As a renter, the first question to ask is whether or not you actually want to stay where you are. If you do, then the next question is whether or not you can reasonably expect to be able to afford to stay where you are. If the answers to both these questions are yes, your best approach may be to continue “as is” for the time being, but to prepare yourself for a potential move if circumstances change. For example, declutter your belongings as best as you can and try to save some money so you have a deposit handy. If you have pets, then consider the possibility that you may have to start paying “pet rent” due to the limits on deposits.
If you’re a landlord
Property investment is all about the numbers and now is a really good time to review your numbers and think about how you would navigate your way through whatever Brexit might feasibly throw at you. In particular, think about what you might do if interest rates were to go up and/or if income tax was to be increased (or a new tax levied on landlords). If you’re currently living on the investment edge, you may want to think about reducing your portfolio.
If you’re looking to buy
All the standard buying guidelines still apply and need to be taken seriously. For example, you will want as big a deposit as you can possibly put together and you can expect to be grilled thoroughly about your ability to afford a mortgage over the long term. That said, if you’re in a fairly stable, “Brexit-proof” job, you could be in an excellent position to buy now, while other people are sitting on the sidelines to see what Brexit is going to throw their way.
If you’re looking to sell
Buyers are still active, although the degree of buyer activity can vary widely throughout the UK. This means that if you are thinking about selling, it’s probably a good idea to try to take a firm decision sooner rather than later so that you give yourself the maximum, possible time to sell your home. It’s also strongly recommended to pay close attention to presentation and to be realistic about pricing. You will also want to choose your estate agent with care, specifically, make sure you can have confidence in their ability and willingness to deal with any complications which arise after an offer has been accepted.
If you’re a homeowner looking to stay put
If you are a homeowner looking to stay put, then the key question is whether or not you can afford your mortgage over the long term, regardless of what happens as a result of Brexit. If you are at all unsure about this, then you need to look seriously at what action you can take to address the situation. For example, you might want to think about moving two children into one room so you can take advantage of the Rent a Room scheme. You might also want to look at your mortgage deal and see if there is any way you can improve it. For example, you might want to take out a fixed-rate mortgage so that you know that you will have the same payments each month regardless of what interest rates are doing.
If you’d like more information please speak to one of our mortgage advisors
Your property may be repossessed if you do not keep up repayments on your mortgage.
The FCA does not regulate estate agents and some forms of buy to let mortgage
For estate agents we act as introducers only.
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