Mortgages Uncovered

In the last article we looked at Fixed Rate, Variable and Flexible mortgages. This time around we be looking at Base Rate Tracker, Capped Rate, Discount Rate and Cash-Back mortgages.

Base Rate Tracker: In a base rate tracker mortgage the lender agrees to link your mortgage rate to the changes made by the Bank of England to the base rate for a set period of time. The Bank of England reviews their rates every month, even if this does not mean a change every month. Like the fixed rate mortgage, the lender will charge for early repayment and arrangement of the mortgage.

Capped Rate: A capped rate mortgage is similar to a variable rate one. The difference here is that while your mortgage rate is variable, there is an upper limit above which it cannot rise. Once again, there maybe an arrangement and early payment fee.

Discounted Rate: With a discounted rage mortgage, the lender will give you a discount on the standard rate for a fixed length of time. similar to the fixed rate mortgage, here again the greater the discount, the shorter the period for which it applies.

Cash Back: Depending on what has been agreed with your lender, you will receive cash back at the beginning of your mortgage, which is a percentage of your mortgage. If the mortgage is paid in full early, then you may be asked to pay back some or all of the cash back as well.

The overview provided in the last two articles gives a very skeletal description of the different general types mortgages available. The suitability of each mortgage to you depends on the amount you need to borrow and what length of loan will be required for you. A mortgage adviser can help you with all these points and help you achieving a suitable agreement with your lender.

Finding a mortgage to suit your needs can be very difficult, confusing and often exasperating. At this time where a diversity of mortgage packages are harder and harder to come by, a little more work needs to be done to find a mortgage that suits you best. The first step to take is to understand the different types of mortgage available, narrowing down the options to help you make the final, and correct, decision.

Over the next two articles we’ll take a brief look at the various schemes available to the paying public. Remember, it is important to speak to independent mortgage advisors before making any decisions, hopefully though, once you are armed with some basic facts, you will be able to ask the right questions to help them find the best deal for you.

Fixed Rate: A fixed rate mortgage will enable you to fix your rate for any chosen period between 1 and 25 years, with the options changing according to each lender. At the end of this chosen period, the rate will be restored to the lender’s standard rate for that year. It is usual to find that the lower the agreed upon interest rate, the shorter the fixed period. A fixed rate mortgage will be applicable to an early repayment and arrangement charge.

Variable Rate: In a variable rate mortgage the interest rates will change, influenced by the decisions of the Bank of England. This will effect the payments made each month, but that does not necessarily mean that the payments will get more and more expensive. Each lender will have a different method and time frame for making changes to your payment, some will adjust the payment each month while others make one change yearly.

Flexible Mortgage: A flexible mortgage allows you to make changes to your payment according to pre-agreed limitations. Payment holidays and paying more when you can are both features of this kind of mortgage. The actual features of your flexible mortgage will depend on the lender and what you have agreed with them.

In the next article we will take an overview on Base Rate Tracker, Capped Rate, Discounted Rate, and Cash Back mortgages.

It seems that Sydney, Australia, is not just the home of stunning architecture like the famous Opera House, it is also the number one city in Australia for stress over mortgages, and no amount of beach barbeques seem to be able to shift it.

Silly stereotyping aside, new research by the ratings agency Fitch has shown that out of 947,000 residential mortgages across the country, arrears are rising – although still not that high if you ask me being as they’re only 1.88%).

Anyway, the suggestion is that there is a steadily widening gap between the well off and not-so-well-off as stress levels caused by mortgages climb. Apparently it’s western Australia that has the has the lowest percentile of arrears but at the same time the region is also facing the fastest deterioration.

Ben McCarthy, managing director of Fitch has been quoted as saying: “Nine of the top 10 worst performing postcodes in the country are actually in New South Wales, and eight of those nine are actually in south-western and western Sydney.”

Hmm… I wonder how these figures compare with similar problems in ‘old’ South Wales here in the UK…?

 Few will be surprised at the BBC’s report that the number of available types of mortgages have crashed in this last 12 month period from around 11,000 to a mere 3,200, making these the most profound changes for a generation.

But what’s causing all this? Do we really needed to ask?

The so-called ‘credit crunch’ has prompted UK building societies and banks to withdraw thousands of mortgage products and up their interest rate charges on loans of all kinds. Where does that leave the rest of us…? Schtum.

According to a leading mortgage research company, Moneyfacts, the average cost of mortgages in the UK have risen by £200 in the last 2 years.

Before the crunch squeezed so hard, homeowners could have come off of a two-year fixed deal in could typically have got themselves another fixed deal at about 4.34%, compared to the 6.65% they have to pay now. Banks are becoming more and more nervous about lending money to so many customers and 100% mortgage deals have completely vanished from the market.

These problems originate largely from the sub-prime lending crisis in the USA, which is still sending shockwaves through global banking systems. This crisis has meant that banks are less willing to lend each other money, the corollary of which is that banks are also less likely top pass risk onto us average Joes in the form of mortgages or loans.

Insecurity breeds insecurity, and despite what we might have been told throughout the eighties and much of the nineties, there is no such thing as ‘easy’ money.

As mentioned in a previous article, the buy to let sector in the housing market is perhaps the only area that has held firm, and even made some slight growth during this period of credit crunch. Although nothing is safe it seems. As pressure mounts on the economy it is possible that some tenants may find that they are unable to pay their rent on time and this would in turn up the pressure on property investors. Many of the buy to let companies or landlords with a chain of properties rely their earnings from existing properties to invest in new properties and for general maintenance. So if enough tenants are late with their rent this may have a knock on effect across a chain of properties and investments.

Beyond the buy to let sector, the buoyancy in house markets that the UK had witnessed for so many years has finally started to topple along with the country’s credit problems. More and more investors in the UK are moving out of property markets because of problems with finance and arranging loans for new purchases.

Whether all this results in the housing crisis some experts have been predicting remains to be seen, but one thing is certain, this situation is unlikely to improve as long as high rates and lender uncertainty continues to squeeze UK investors out of the property market.

It may be an old British belief that jumping onto the property ladder is THE Thing To Do, but doubtlessly to the creeping horror of the sorts one might see at a UKIP conference, it seems that more and more British citizens have started to emulate their cousins from the European mainland by embracing rental properties rather than mortgages.

Why are less people wanting to buy properties outright? The number of UK citizens living different sorts of rented accommodation rose from 10% in 2002 to 12% in 2007, and although this might not look like such an earth-shattering shift, it’s pretty impressive when you think just how many people that extra 2% represents.

As house prices have continued to rise and rise and as mortgages have become to harder get for many people, the property experts at Paragon have released figures showing that long term renting has become a much more common and acceptable practice within the UK – and not just for individuals and young professionals. Families are getting in on the act too.

The knock on effect of this has been a marked rise in the houses being purchased in order to be let out, which in turn has pushed property prices even higher. I’m not sure how the UK will be able to break out of this spiral without another huge economic disruption similar to the credit crunch. The higher house prices climb, more people are forced to rent, meaning that property owners and landlords have more money to spend acquiring new houses to rent, pushing prices up even further, and so on and on.

This really is a tricky situation and I will be interested to see what our government does to balance things out, if they CAN do anything

Brits may like to believe that a man’s home is his castle, but if you happen to be renting your castle you’re not going to be the only one holding the keys to the portcullis…

With all the publicity about the credit crunch, you have to wonder how this has affected mortgage advisors or mortgage brokers, as they are also called.

On the one hand, you would imagine that the demand for mortgage advisors has dropped because many people are waiting to buy a house.  On the other hand, house prices have dropped slightly and so those who can now afford it, will be wanting to apply for a mortgage.

Many mortgage advisors have found that the demand for their services has increased, as people have an increased awareness that mortgage rates have increased, lenders are being more particular about applications and they know they need to be sure they have found the best deal for their circumstances.

Having read the Jargon page on this site and the earlier articles, regular readers may now be aware of the vast availability not just of the number of mortgages available from many different lenders but also of all the different types of mortgage types and the way they all work differently.

Perhaps you have even thought of a career as a mortgage advisor yourself?  I have thought about it in the past, having taken out several different mortgages, imagine the money I could have saved myself just by doing my own mortgages.  To become a mortgage advisor, you have to get your CeMAP qualification.  There are several CeMAP courses available from different CeMAP training companies and the quality and prices can vary considerably, so be sure to choose a good CeMAP training provider.

According to figures from moneysupermarket.com, demand for payday loans has increased by 55% since last year.

Tim Moss, Head of Loans at moneysupermarket.com, said: “The rise in payday loans is astronomical and symbolises just how difficult people are finding it to cope day to day.  Payday loans can be useful as a short-term credit vehicle. They are a bit like taxis – convenient for short journeys, but if you are going a long way, there are much cheaper ways to travel.  They should only be taken out when it’s absolutely necessary and you are sure you can pay it back quickly. Anyone looking for longer term credit or unable to pay off the debt immediately, should steer clear of them.  It would be wiser to borrow the cash from family or friends or arrange an authorised overdraft with your bank.”

Payday loans are short term loans, with payment schedules of around 30 days and typical interest rates of 25% – per month!  Although that might sound a lot – indeed it is – if you were borrowing just £80 and paying back £100, that is cheaper than going into an unauthorised overdraft.

You need to weigh up your personal circumstances to decide what is right for you – but be sure you are going for the cheapest option.

Property Investment Portfolio has bought several sites to transform into industrial units and create a new business park.  The industrial units will be built on the old site of Paramount Windows.

This will give new opportunities to those who want commercial mortgages.

Director Arv Soar commented: “These will be the closest industrial units to the town centre and Mansfield remains one of the cheaper areas of the East Midlands for both residential and commercial property.”

Alliance & Leicester have launched two new mortgage products.

The first is a two year fixed deal at 5.99 percent and the second is a two year base rate tracker.  The base rate tracker starts at 5.89 per cent then moves to 1.49 per cent above base rate.

Both deals offer a maximum of 75 per cent loan to value ratio (see Jargon page for what this means) and have a maximum loan of £1 million (not a problem for me then!)