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How to pay off a mortgage early

[ Posted May 29th, 2009 ]

Every borrower wants to pay off their mortgage early – and a loan product that may help you do this is an offset mortgage.

Many lenders are pushing offset mortgages in TV advertising, so here’s a guide on how the scheme works.

The mortgage product was launched in Australia and moved to Britain in the nineties.

Offset mortgages come in two types –

Current account mortgages

This links a borrowers income to their mortgage. Any income paid in to the account reduces the mortgage, and the resulting interest due.

As the borrower pays bills and spends are paid out through the month reducing the balance.

For example, if a borrower has a £120,000 mortgage and earns £2,000, at the start of the month the mortgage balance is £118,000.

The mortgage balance is calculated daily on the balance outstanding, so the more a borrower has in the bank, the less the mortgage payment.

Savings can also be paid in to reduce the balance further.

Savings account mortgages

The principle is similar to the current account mortgage. Instead of having separate savings and mortgage accounts, a borrower keeps them together in a single account.

The savings cancel out part of the mortgage, so if the borrower has £10,000 in savings and a mortgage of £200,000, interest is calculated daily on a balance of £190,000.

The savings can be increased or withdrawn at any time.

This is certainly worth considering for borrowers with savings in a low interest rate account because rather than earn little or no interest, the same money is cancelling out higher interest mortgage debt.

Some offset mortgages also include facilities for additional borrowing up to a certain level or credit cards.

How do they repay the mortgage early?

The offset principle reduces the balance at various times throughout the life of the mortgage and the amount of interest paid, so more of the the monthly mortgage repayment goes towards paying off the capital or amount borrowed.

This way, the borrowing is reducing quicker than a traditional capital and repayment mortgage.

Depending on how borrowers manage their accounts, this mean s years can be knocked off the mortgage term so the debt is repaid early.

Where can borrowers get an offset mortgage?

Lots of lenders have offset mortgages under different names for their own marketing purposes, but the principles behind each product are the same.

Find the best rates by searching a mortgage comparison site for offset or current account mortgages.

The lending terms for offset mortgages are much the same as those for other mortgages, so a first time buyer or a homeowner looking for a remortgage will have to meet the same qualifying criteria as for any other loan.

Property ladder pulled from under first time buyers

[ Posted May 26th, 2009 ]

Only three in every ten would-be first time buyers believe they ever have a hope of owning a home.

Most feel the lenders and government inaction have pulled the property ladder out from under them and that their chance to climb back on will never come, according to a survey by Property Live, a home selling portal.

The Property Live research revealed that first time buyers have to find a 25% cash deposit to even get a lender to let them through the door to talk about a mortgage – let alone make an offer.

The problem stems from two factors -

  • Banks and building societies want a bigger deposit to lessen their exposure to risk from homeowners who cannot afford to repay their loans and to make sure they are not left with a property in negative equity as they market keeps falling
  • The Bank of Mum and Dad, who traditionally finance a lot of first time home purchases with a gift deposit raised from remortgaging their own houses can no longer raise cash because do not have enough equity to borrow more

The research shows that 65% of would-be first-time buyers believe they will never be able to afford their own home, with the figure rising as high as 92% in some places.

Only 15% of those who do expect to eventually buy their own homes feel it will happen in the next two years.

And 5% of those questioned did not expect to be able to buy a home for five years or more.

The Nationwide Building Society index showed house prices fell by an average 0.4% in April, with the year-on-year drop standing at 15% less than last April.

Last month, mortgage lending dropped back £1 billion according to Bank of England figures, to the lowest monthly figure for many years.

Lenders are still publicising low rate headline mortgage products for first time buyers as well as other home buyers – you can easily find what is currently available by checking a mortgage comparison site like ours.

Searching our site will return the best rate first time buyer and remortgage products matched to your personal needs from across the mortgage market in seconds.

Some lenders are trying to attract first time buyers by offering mortgages with conditions – that involve tying cash tied up in a bank savings account paying a miserable rate of interest.

It could be these lenders have an ulterior motive in trying to attract savings because currently only deposit taking banks and building societies can raise any cash to lend on the wholesale money markets and by basing their borrowings on other people’s savings, they could be trying to sidestep exposure to future risks.

Mortgage lending down a £1 billion

[ Posted May 22nd, 2009 ]

Banks and building societies are lending less money despite billions of pounds of taxpayers’ money paid out to keep them in business.

The Bank of England says that mortgage lending is at an eight year low – with the amount of loans offered in April £1 billion down on March.
 
Much of the decline is due to borrowers tending to stay on their lender’s standard rate rather than remortgaging to a better mortgage rate at the end of a fixed or other special rate deal.

Many are locked out of remortgaging because the equity – the mortgage free part of their home’s value – is too high to qualify for new borrowing as lenders tighten up lending criteria.

The Bank of England’s figures are in line with those issued by the Council of Mortgage Lenders, which shows a 9% drop in mortgage advances for April.

The Bank said data from the UK’s six biggest lenders showed mortgage applications had risen over recent months with buyers returning to the market.

Mortgage acceptance rates were broadly unchanged since the start of the year, although approvals for house purchases rose during April, building on increases seen in February and March.

The survey also showed that the rate at which unsecured lending – like credit cards and loans – is growing was the lowest since 1992 during for the period January 1 – March 31.

Unsecured lending acceptance rates by lenders were little changed during April and demand remained weak.

Interest rates fell slightly during March, although during the past six months they have fallen by ‘considerably less’ than the Bank of England base rate and inter-bank lending rate Libor.

Part-nationalised banks, like Royal Bank of Scotland and Lloyds Banking Group have announced multibillion-pound loan allocations for mortgage and business customers in return for state support.

HSBC, which has not received help from taxpayers, has also pledged to boost mortgage lending this year.

Despite these promises, the money for borrowers is more of a drip than a flood and little of the cash has hit the property market – and on the figures above, is decreasing.

Finding a mortgage can still be a daunting task unless borrowers have at least a 10% deposit – and with many lenders this is still not enough to get their best rate mortgages.

For prospective borrowers looking to buy or remortgage, a mortgage comparison site like ours can reveal the current best rate mortgages in seconds.

You can also use our site to look for the cheapest loan deals and best credit card deals.

Mortgage watchdog to ban self-cert loans

[ Posted May 19th, 2009 ]

Mortgage watchdog the Financial Services Authority is to ban self-certification mortgages after admitting mistakes were made in continuing to let lenders grant the loans to borrowers despite major regulatory worries.

The FSA is looking at the mortgage market to tighten up lending rules and this new review will probably spell the end for self-certification loans in the UK.

Self-cert mortgages - often called liar loans – were aimed at the self-employed and freelancers who had fluctuating annual income or difficulty in proving their earnings. Lenders generally charged a higher interest rate for a self-cert mortgage than for a similar product for a borrower who could verify income, so the loans were more profitable than standard mortgages.

Ending the ability to borrow this way will lock many more people out of the mortgage market – besides the self-employed and freelancers, the loans were also popular with borrowers earning irregular overtime or commission and contract workers.

Lenders allowed these borrowers to say how much they earned and then carried out no checks to confirm whether the stated income level was correct. They also allowed employees who should have been able to verify income with a reference from their employer to take out the loans as well.

The FSA’s retail markets marketing director Jon Pain told an FSA mortgage conference that at the height of the property boom, 45% of mortgages offered were self-cert loans with no proper checks carried out to verify income.

The FSA reviewed the market in 2002 and proposed a ban on self-cert mortgages for employees, but banks and building societies objected and the FSA took no action.

"The industry disagreed, and we relented," said Pain. "Since then, we have seen a significant increase in the amount of self-certified lending to employed customers for no perceptible reasons with hindsight, this may have been a mistake."

A further review was carried out by the FSA in 2004 and at the time, the FSA  stated that mortgage lending controls for self-certification products were appropriate.

Many firms let borrowers inflate their salaries to obtain bigger home loans, and many people on these deals are now in financial difficulty.

In his speech, Pain said a key problem was that lenders stopped verifying income when considering home loan applications. He said that in 2007, 45% of all mortgages were made without a check on the stated income.

The FSA is the government organisation charged with regulating financial services, including mortgage lending, in the UK

"Many of the specialist lenders heavily marketed and sold self-certified products, and a large percentage of these have led to correspondingly high levels of arrears and fraud," said Pain.

The responsibility of affordability checks and income certification was offloaded to the broker or financial adviser instead of the lender, added Pain.

"Given that so many self-certification mortgages have been sold, and so many of them are now in arrears, should there be more constraints on this type of lending?" said Pain.

The FSA is now reviewing self-certification mortgages again with a view to insisting on income verification checks for all mortgages. Lenders will have to check the financial documentation provided by the borrower before a mortgage offer is made.

Cheapest mortgages for years – if you can find one!

[ Posted May 15th, 2009 ]

Borrowing for mortgages is cheaper now than since 2004, but borrowers still need large deposits to buy and overall lending remains difficult to obtain, according to the latest monthly lending survey from the Council of Mortgage Lenders.

House purchase lending accounted for 35% of all mortgage lending in March, up from 31% in February and the highest proportion since December 2007.

Remortgaging accounted for a higher number of loans in March, but the number was only 8% higher than in February and 45% lower than in March 2008.

The CML expects remortgaging to remain muted, because of attractive rates automatically cutting in for many borrowers as they come out of their existing deals, and because of reduced remortgaging opportunities for those with lower equity as a result of falling house prices.

Within house purchase lending, first-time buyers accounted for an increasing share – 40% of loans, up from 38% the previous month. This is the highest proportion since April 2005, although the absolute number of first-time buyers remains low – 12,500, up from 9,200 in February but well below the 17,800 recorded in March 2008.

First-time buyers on average borrowed three times their income and 75% of the value of their property in March. Both these average measures were unchanged from February. For those with deposits large enough to enable them to buy, the combination of low interest rates and lower house prices mean that their monthly interest payment now equates to only 15.1% of their income, the lowest proportion since June 2004 (15.1%).

There were 18,900 home mover loans in the month worth £18.9 billion, up from £14.9 billion in February – an increase of 27%, but 34% down on March 2008. The average home mover loan was £115,000, compared with £135,000 in March 2008. Interest payments typically consumed 11.4% of a home mover’s income, the lowest proportion since January 2004 (11.4%).

Commenting on the latest data, CML head of research Bob Pannell said:  "Because the flow of lending is still constrained, there is a sharp dividing line in the housing and mortgage markets between those who can raise a substantial deposit and those who can’t.

"For those who can, the burden of debt payments is low and mortgage interest is consuming proportionately less income than for a number of years. This is good news for now. Even so, a mortgage is a long term commitment. People borrowing now should be mindful of the years ahead when interest rates eventually rise, as they will."

If you are looking for a mortgage to buy or refinance, then try a comparison site like ours for the best interest rates.

How to find a mortgage for your dream home

[ Posted May 13th, 2009 ]

If you are a first time buyer or looking to trade up, now’s the time to take some simple steps towards  picking up the keys to your dream home .

Put your finances in order

The financial year has just ended, so you should have paperwork like your P60 – the slip from your employer that showed how much you earned last year – and mortgage statements to hand.

Start a folder to put your financial papers in so they are quickly available when you need them.

Get mortgage pre approval

Use a mortgage comparison site like ours to look for the best rate mortgages – but rather than look for a product, look for a lender who meets your needs and go to them for pre-approval.

Mortgage pre-approval means you sit down with the lender and go through mortgage underwriting and they give you a certificate stating how much money they are willing to lend.

You can worry about products and interest rates when you have found a property because it’s likely they will have changed by the time you complete your home purchase.

For now, you just need to know you can get a mortgage and how much you can borrow so you don’t waste time looking at properties you can’t afford. You can also get some idea of the monthly repayments, but remember rates will only go up, so build in a safety valve so you can afford more expensive repayments in a year or two’s time.

Bid aggressively – it’s a buyer’s market

Don’t worry about the price tags estate agents put on property. If you make an offer they are legally obliged to put it forward to the owner regardless of how much lower it is than the asking price.

House buying is business – you look after your side of the deal and let the  seller worry about their side.

The fact is, according to the latest figures from the Royal Institute of Chartered Surveyors, estate agents are only selling on average a house a week.

You hold the power – you have mortgage pre approval and the money to buy.

Explain to the estate agent, in a polite manner, that  plenty more estate agents and houses out there and you understand if they don’t want to do a deal but you are going to drive a hard bargain and if they don’t want to take your offer, you are going elsewhere.

Go back to your lender

If you have a bid accepted, go back to your lender and look at the deals and interest rates.

Again, shop around with a mortgage comparison site like ours to find the best deal and mortgage interest rates.

Use your pre approval as leverage and take it in to a couple of other lenders as proof one of their rivals is prepared to lend to you and see what they offer.

Now’s the time to push for the best interest rate.

What borrowers should know about mortgage rates

[ Posted May 8th, 2009 ]

Homeowners or buyers looking for a best rate mortgage deal have to sift through more than 1,500 mortgage products on offer from banks, building societies and specialist lenders.

To be precise , it’s 1,589 mortgages.

A year ago, double that number of mortgages were on offer from a lot more lenders – some of whom have disappeared or been swallowed up due to cash problems.

In those heady times, few lenders required a deposit of more than 10% to buy a new home or equity for a remortgage. Because prices were spiralling upwards fuelled by property market inflation, it didn’t seem to matter and raising a mortgage was really no hardder than signing your name on a piece of paper.

Now, the cash or equity needed to secure a best rate mortgage might as well be a king’s ransom for some people because they have no hope whatsoever in raising the cash and are ‘frozen’ out of the mortgage market.

If you have no deposit at all, only 10 mortgages are on the market. Even if you have 5%, that only adds another six to your options and at 10% deposit you have 112 mortgage products to choose from.

One way mortgage lenders are controlling the quality of their customers and the risk of a mortgage becoming a bad debt is by increasing the amount of deposit required to obtain a new mortgage.

The table below shows just how many products are available for each 5% of equity:

 
Deposit Mortgages
0% 10
5% 6
10% 96
15% 272
20% 143
25% 633
40% 429

The best mortgage interest rates also depend on the amount of cash the borrower puts in to the deal – the best rates are for the best customers, who in the lender’s eyes are those borrowing the least percentage of money against their homes. Anyone looking for a top rate deal with a 5% deposit might as well give up right now because the juicy rates are reserved for the 60% equity customers.

Now take these equity figures and compare them with the latest completed sales figures from the Land registry and the biggest housing sale activity took place in homes priced between £50,000 and £250,000 – with 19,648 transactions in England and Wales.

The average house price for homes in England and Wales was:

Home type Average price
Detached £233,970
Semi £142,667
Terraced £119,891
Flat £142,396

To get the best rate mortgage for a terraced house, a borrower needs £56,958 equity and just over £57,000 for a semi or flat. This may be achievable for someone who has lived in a property for a long time or has substantial savings, but for the average first time buyer, pinning hopes on a low rate mortgage is a pipedream.

The fact is mortgage lenders are trying to lure borrowers with headline grabbing low rates that most can never hope to claim because they are shut out by lack of cash.

Finding a best rate mortgage deal is easy – just use a mortgage comparison site like ours, but getting an offer might take a little more work.

How lenders price homeowners in to paying a little extra

[ Posted May 5th, 2009 ]

The mortgage market is a minefield for unwary homeowners or first time buyers looking for the best rate mortgage deals.

Taking out a loan is a straightforward process –

  • The lender examines the homebuyer’s credit record and assesses them as a good or bad risk
  • A surveyor reviews the property they want to buy and gives an opinion of value for security
  • The bank or building society then makes a decision to lend or not based on risk and security

That’s it. It’s not complicated…or the procedure wasn’t complicated until homebuyer and homeowners looking to remortgage found out more about the process as the recession exposed what generally goes on behind closed doors.

Finding the best remortgage deal means thousands of homeowners are running in to difficulties with property valuations.

Lenders are so worried about exposure to risk from existing customer s losing their jobs and security drooping out from under the loan because of falling house prices, only a few cream of the crop customers are now qualifying for a remortgage.

Even then, these A-listers are paying over the odds because valuers and lenders mark down their home values.

The problem comes with the amount of equity a homeowner has – that’s the difference between the property value and the mortgage debt against the property.

If a homeowner has 20% equity, they can expect to pay about 1.3% for the same mortgage as a homeowner with 25% equity.

This amounts to about  £135 a month more per month on mortgage payments for the homeowner with 20% equity.

Evidence is emerging that lenders are marking down property values that leads to homeowners paying a higher interest rate for their mortgage.

For instance, the Halifax docked 40% off one house price even though the bank’s own house price index has fallen by 20% in a year. That means the borrower, who had a £250,000 mortgage, ended up paying an additional £290 a month because the bank valuation took the house from the 25% equity band in to the 20% equity band.

For remortgages, many banks and building societies rely on mortgage data collected from various sources – either their own in-house indices or the Land registry or an equation based on several sources.

Some lenders instruct surveyors to give a ‘drive by’ report on just the outside condition and neighbourhood. This doesn’t reflect new any rear extensions or internal features and improvements that could add money to the property’s value.

For homeowners looking for a competitive remortgage deal, making sure a home is valued according to the rules laid down by the Royal Institute of Chartered Surveyors is a must.

These rules are aimed at standardising the valuation process the surveyor conducting a thorough visit to the property and using at least three recent ‘comparables’ to show what similar houses within 500 metres or so of the valued property have sold for.

Another good idea is to use a mortgage comparison site like ours to compare lender’s mortgage rates and how the monthly repayments would vary if a property was pushed in to another equity band.

Bailed out banks offer cheaper home loans outside UK

[ Posted May 1st, 2009 ]

Banks bailed out by British taxpayers are offering cheaper mortgages to customers outside the UK than those back home.

Best fixed rate mortgage rates in Eire are 2.74% for a two-year fix for first-time-buyers with the Halifax – while a two-year fix here costs 4.19% and the buyer has to put down a whacking 40% deposit to get the rate.

The Royal Bank of Scotland charges UK customers 3.09% for a new mortgage, while in Ireland, a similar product attracts a 2.95% interest rate.

Yet, the cost of raising the money on the interbank wholesale money markets is the same for both countries.

Both the Royal Bank of Scotland and Halifax explain this as a matter of competition in the markets – with Irish homebuyers getting lower rates because the rates have to be lower to attract customers.

Another interpretation is that the banks are making more money out of their UK customers because they choose to charge a higher margin here when they could opt to be more competitive and charge lower interest rates.

"Across the first-time buyer ranges available in both the UK and Ireland, there is no direct product comparison available. The length of the product term and the cost of funding are integral in reaching all pricing decisions. These decisions are taken discreetly within their own markets," said a spokesman for the Halifax.

British taxpayers have spent more than £60 billion bailing out the Royal Bank of Scotland  and Lloyds Banking Group, who own the Halifax, leaving the Government with a controlling stake in each.

"It is appalling that British taxpayers’ money appears to be going towards revitalising the Irish housing market rather than helping domestic borrowers.

"Taxpayers did not cough up so that they could then be charged unfair rates while our neighbours in Ireland get a great deal. There is some difference in money market rates, but nowhere near enough to justify charging British people double the Irish rate," said Matthew Elliott, chief executive of the lobby group, The TaxPayers’ Alliance.

The message from the lenders is that they consider borrowers in Ireland a lesser risk than those in the UK, so are prepared to offer them better deals, yet the Irish economy is suffering similar problems to the UK and other European Community countries.

Some other banks and building societies are offering UK mortgage rates closer to those in Ireland – but expect borrowers to put down a much larger deposit to qualify.

To find the current best deals, tryour mortgage comparison site, which searches the market in minutes and returns a list of up-to-the-minute products offered by a wide range of mortgage lenders.

 
 
 
 
mortgagerates123.co.uk aims to provide every client with cheap, affordable and best mortgage loans in the UK market, however the actual mortgage rate available will depend on client's financial circumstances and credit history. Although, mortgagerates123.co.uk has made every effort to ensure that the mortgage rates listed are correct, it bears no responsibility in case of an error. 
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