Adrian Garside

I have just blogged about an e-mail I recieved from the Abbey, regarding a mortgage that is only open to existing current account holders only.

Yesterday, I spoke to a customer and the league table had a product from the Coventry Building Society at the top of the list. One of the criteria – Coventry Savings Customers of 3 years standing, only.

Things that make you go hmmmm.

Step by step the mortgage market is slowly becoming a little more relaxed about lending.

I have just had an e-mail from one of the mortgage clubs with a reasonably decent deal it has come up with from the Abbey for a mortgage requiring just a 10% deposit.

Now, in my world, we all know Abbey’s usual lending rules. However, this is a brave move for them and this product doesn’t follow the usual rules, there are a few restrictions.

So, although this e-mail was only sent to mortgage brokers, it still said:

“To help you identify a typical customer who is more likely to be accepted for this product, please make sure they meet the following criteria.”…and it goes on to list a few points – people with low debts, no missed payments etc, but very unusually, the must be Abbey Current Account holders.

So,  they are limiting the lending to only the very best existing customers  with A grade credit scores only. Normally, on a scale of A – E they lend to C, with D’s being considered and E’s being declined.

I welcome the Abbey’s foray into the 90% market, but I suspect the entry criteria will limit the number of takers to…well, possibly not even 100′s of people across the country.

But, it is a step towards what we regard as normality, and if nobody makes these steps we’ll never get there. Hopefully Abbey’s experience will be good and they’ll make more mortgages available, with slightly looser restrictions and encourage other lenders to reduce their deposit requirements.

Self certification mortgages. Surely if you want to obtain a mortgage and say you earn £30,000 pa, you should be able to prove it?

Well, self certification mortgages are where you don’t, and that seems to be an encouragement to commit fraud, so why bother having them?

Well traditional lenders are a bit, …well, traditional,  about what is income. So, basic salary is income, or if you are self employed, your net profit is income. If you are employed, some (usually half) of your overtime and bonus can be income. And that is all fine for most of us.

But, what if you rent a room out to a lodger – Revenue and Customs allows this income up to about £4500 pa without paying tax, and people use this as an income. Lenders don’t count it though. What if you recieve £1000pm maintenance from your rich ex husband? Some lenders will consider it, but under certain circumstances only.  I have a client who plays on line poker and makes £5000 pa a year. Not counted.  What about someone who has a job paying £15000, but makes £4000 from ‘rent a room’, £5000 from poker, £5000 from car boots and £1000 from training the local kids football team? How much does he earn? You’re right, £15000, even if he declares the car boot and football money most lenders won’t be interested.

Or lets take a less ‘wheeler dealer’ scenario and take a regular salesman. Most salesman are on low basic salaries and a decent amount of commission – lets take a successful salesman who has been making £50,000 pa for the last 2 years. His basic salary is £15,000. Well most lenders will take half his commission – and say he earns £32,500.  Still good money, but four times £50k is alot different to 4 x £32.5k when you are buying a house. He may need a self cert mortgage.

And take the self employed – you buy a car for £24,000. This year ‘allowed depreciation’ will be £6000. That is wiped off your income. You work from home, so a portion of all your home bills are wiped off your income.  So, the self employed can and do earn more than their accounts suggest, perfectly legitimately.

So, there are people, who genuinely need self cert, and that’s why it needs to exist.

The trouble is, it is abused and people think it’s one of those ‘OK’ crimes,  and somehow that needs stopping.

Currently the FSA wants to ban self cert. It may happen, to stop the abuse.

That’s going to be bad news for some people especially those who have self cert mortgages now, as they won’t be able to switch lenders so will become trapped in the house they have, with the lender they have.

But, that may be the lesser of two evils.

We all know that there are money saving websites out there, indeed, I have not only used them myself, I used to be a moderator for one of largest ones, so, broadly, I am a fan and I think they are generally a force for good.

However, they are useful to a point – they shouldn’t be followed blindly, nor taken as a replacement for professional advice.

So, for instance – last week I saw a couple who were looking for a fixed rate mortgage and they asked me to advise them on the best product of that type. Before I advise someone, I take a fairly detailed overview of their circumstances and in this case, the overview revealed they had substantial savings attracting 0.1% interest. I advised the clients to take an offset mortgage – a particular kind of mortgage that uses savings to offset interest on the mortgage – they can save people a great deal of interest on their mortgage.

2 points here -

1.  They’ll save in excess of £1000 a year, every year,  as a consequence of my advice

2. No comparison website would have revealed this.

The next point, a telecoms company called Swiftcall have decided to pull out of the UK residential market. That’s fine, and their website makes this clear, they are not accepting new applications for their products and will cease providing their products from 30/11/09. They have done everything right.

So, it’s odd that they still feature on one of the major price comparison sites.

So, moneycomparison sites – broadly good, but are no substitute for advise on big ticket items and shouldn’t be relied upon as accurate.

I note that more and more providers, including some that I recommend, are now advertising as a virtue the fact that they are not listed on comparison sites.

It’s an interesting development.

Well, here we risk straying into advice, and that’s not the purpose of this blog, so I’m going to show you how to compare some 5 year fixed rate mortgages and assume that all other features are the same.  I’m not saying a 5 year fixed rate is best, just to be clear.

Here’s how to find the best one.

Hard facts.

Technically the best way is to add up 60 monthly payments, the booking fees, survey fee and exit fee. If you are comparing deals with and without free legal fees, factor this in too.

If two products are similar on this method, one with no booking fee and one with a booking fee, the zero booking fee one should win, because if you add the fee to the mortgage, you will be repaying it beyond the 5 years.

This bit is all about making sure you give as little money as possible to the lender.

Soft facts

OK, so what if the best deal has an uncomfortable monthly payment?  Well, it may be technically the best, but it’s unsuitable for ‘you’ – so here’s what you do. By now you’ll have a little league table of 5 year fixed rates in order of overall cost – move down it until you have a product with a monthly payment that suits you.

It’s worth considering the ongoing rate after the 5 years – if two products are similar, choose the one with the lower ‘follow on rate’.

If you haven’t done already, you would look at ability to make overpayments as well as other features at this point too.

Hope that was OK

I have noticed that fixed rate pricing is slowly coming down and the ‘impending apocalypse prophesies’ of  what happens when interest rates go back up are easing, although they haven’t gone away completely.

Popular opinion in financial surveys seems to suggest a more gradual increase to interest rates as inflation fears ease.

The current ‘hope’ is that interest rates may start rising slowly, starting in the second half of next year, according to the Sunday Times over the weekend.

That is better than predictions have been over recent months and if it comes to pass, is  great news for most of us.

It has to be said though – this weekend’s survey was amongst economists…and economics isn’t a science, it’s an…art? – well it’s certainly not a science -  and depending on where your political opinion is rooted, your opinions for the future may differ.

It’s interesting to note a couple of trends in the world of fixed rates at the moment.

There are many more 4 year fixed rates coming to the market. Until recently there were no 4 year fixed rates at all, so this is odd, and so there must be a reason.

My best guess is that fixed a rate for 5 years is too risky – for the lenders/money markets. This is probably the best case for having a 5 year fixed rate that I can think of, assuming all your other circumstances add up.

At best it may mean – year 5 is unpredictable (as are years 2, 3 and 4 in my book). At worst, it could mean the predictions are bad.

If you are looking at long term fixed rates, it is very important that you get exactly the best deal – 5 years is a long time to be spending an extra £20pm because you didn’t – you may not find out, so you may never worry, but equally, if I borrowed £1000 off you and didn’t give it back you’d be pretty offended and that is what an extra £20pm over 5 years entails.

So, do proper shopping around, use a whole of market broker who will include the internet/branch offerings from the lenders (- he won’t earn commission from this so you’d be charged a fee – I charge £500, but I’ll refund that if I earn commission from the transaction).