Firstbuy scheme: Mixed news for first time buyers?

Here at The Big Property List we have been highlighting some of the issues facing first time buyers who are trying to get involved in today’s housing market. Quite often, it can be a real rollercoaster ride if you’re in this position and this weekend summed that up perfectly. On the one hand there was good news as more details emerged with regards to the Government’s First Buy scheme but there was a warning that it may not be the breakthrough that many buyers were hoping for.

Essentially, FirstBuy will allow homeowners who are able to put down 5% as a deposit to take out a mortgage at just 75% of the cost of the property, with a shared Equity loan being made available for the remaining 20%. The first properties will be made available from September and the qualifying household income must be less than £60,000. At first glance, the news seems to be the perfect answer for those struggling to get a foothold on the ladder but there are some disadvantages.

FirstBuy only applies to new homes and that fact alone rather limits the choice. Although it’s not exactly a hardship for a first time buyer to ‘settle’ for a new property, if there aren’t any new developments in your area it does restrict your options. Moreover, it’s likely to mean that demand will outstrip supply and that is already being seen in London where the money that has been made available is only likely to help around 940 buyers.

Property developers have however welcomed the scheme and it’s believed that up to 100 companies will lend their weight to the Government’s initiative. Taylor Wimpey, Barratt and Bovis are among those taking part.

Meanwhile, four lenders have so far indicated their intentions to back the scheme with Nationwide, Halifax, Melton Mowbray Building Society and Barclays expected to be joined by around 16 more providers.

There is no indication that there will be help among those lenders for those with a less than perfect credit history.  While there may be help for those with a chequered credit past under the Homebuy Direct scheme, there is no indication as yet that FirstBuy will assist in any way.

The whole project has been met with some cynicism and it’s felt in some quarters that it is merely a scheme to help developers clear overpriced properties. For many buyers however, this could be the answer they’ve been waiting for, providing that the meet the criteria.

Mortgages – be prepared

Plan for a mortgage as you would a holiday, with enthusiasm and precision.

Mortgage lending criteria over the last couple of years has tightened up and this may continue through 2011. We recommend to give yourself the very best chance of securing a mortgage in 2011. Start your preparations now.

1. Credit report/ score

When a mortgage application is placed the lender usually credit searches the applicant.

We recommend that you order a credit report prior to starting the mortgage process, why?

– to ensure that you have not been a victim of identity fraud.
– Find out what your credit score is: 0 low and 1000 high

If the score is low, it might be improved by,
I. Setting up Direct Debits for payments of credit cards/storecards or loans. One late payment can count against you. Show the mortgage lender you can manage your accounts.
II. Register on the Electoral Role at each address resided. Still living at home? make sure that from the age of 18 you are registered.
III. If you are in rented accommodation even just for six months, we recommend you ensure you register on the Electoral Role.

Click here to ask Carol a question or arrange a no-obligation consultation

2. Documents – be prepared

Some mortgage lenders have a time limit to get documentation to them to support an application. Having the following documentation to hand, aims to ensure a quick mortgage application process.

I. A current driving licence or passport for personal identity
II. A utility bill or bank statement not older than three months showing your current address and name.
III. Last three payslips/3 years accounts
IV. Latest P60
V. 3 months bank statements

3. Independent mortgage advice

If a mortgage lender credit searches / scores an application, a ‘footprint’ is left on your credit report and your score could potentially be lowered. If you are unsuccessful in obtaining a mortgage and you have to go through the process again, the new lender will see the previous activity. Talk to Your First Mortgage Company who can undertake a Feasibility Study on your behalf. This will let you know potentially, how much you could borrow, what type of interest rates are available and most importantly will help you gain an understanding of your purchasing and monthly payment budget.

There are no guarantees that you can obtain a mortgage but by good preparation, the feasibility of you being accepted is likely to be much greater. Good luck!

Click here to ask Carol a question or arrange a no-obligation consultation

The Financial Services Authority does not regulate some forms of mortgages. There may be a fee for mortgage advice. The precise amount will depend upon your circumstances, but we estimate that it will be £275. The overall cost for comparison is 4.6% APR.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP YOUR REPAYMENTS ON YOUR MORTGAGE
Please note that there may be variations for those living in Scotland and Northern Ireland.

Carol D Brown Cert CII(MP & ER)
Click here to Contact Carol
01635 550179

Gross mortgage lending rose in July 2010

The Council of Mortgage Lenders has today announced that Gross mortgage lending in the UK rose by 5% in July 2010 compared with June.  This is still down 3% year on year but is on par with the CML’s revised forecast for the year.

In today’s market commentary, CML economist Paul Samter commented:

“It is difficult to see anything other than a slow market for the rest of this year as underlying activity remains subdued. The rest of 2010 is likely to see rather lower lending and transaction numbers compared to the same period last year.

“But for most home owners, the situation is not that bleak. The vast majority of households continue to pay their mortgages in full every month, and many have benefited from the record low interest rates. This looks set to continue for some time yet. While there are a range of risks to the outlook, low rates will further help most stay on top of their finances.”

To fix or not to fix, that is the question

by Andy Golding, Chief Executive of Saffron Building Society

The question that every borrower wants to know the answer to is whether to tie themselves into a fixed rate mortgage deal, and at least get certainty, or whether to take a gamble on a variable rate and hope it pays off.

The answer is all a matter of what happens to interest rates. In the strangest set of economic circumstances for at least 60 years, there are many opinions but very few facts to go on.

Economists use the phrase “balance of probability” quite a bit, so what is the balance of probability for the direction of UK base rates?

Interest rates are used by the MPC to control inflation. The basic theory being that rising rates take capacity out of the economy and falling rates put it back in. With rates at an all time low and having been so for quite some time now, plus the impact of the significant Quantitative Easing programme, both designed to stimulate the economy out of recession, you could expect that now that the UK is back into growth again, that inflation could start to rise quite rapidly.

The latest readings show that high street sales picked up more than expected and the Bank of England’s survey of regional agents showed some relaxation in the availability of credit, some signs of rising pay and continued growth in the manufacturing sector.

The target CPI measure of inflation hit an eighteen year high of 3.7% in April, though has since dropped slightly to 3.4%, is still comfortably above the target rate of 2%. The RPI measure shows the cost of living having increased by more than 5% over the last year. The rise has been largely driven by the reversal of the VAT reduction, the weakness of sterling and higher fuel costs.

However, the Bank remains confident that the CPI measure will drop back below 2% within a year, as was outlined by the Governor in his letter to the Chancellor following the inflation release. The decision to keep monetary policy on hold has been unanimous until June’s MPC meeting, where one committee member voted to raise base rate to 0.75%. The MPC are also highlighting the need to tackle the fiscal deficit, although the Governor welcomed the plans he had seen last week. A credible deficit reduction strategy would increase the likelihood of rates remaining lower for longer.

The risks to the Bank’s view are that energy prices continue to rise as they have been doing, spurred on by speculators and Chinese consumption, (whose economy has returned to double digit growth) and VAT increases introduced in the emergency budget, coupled with strong exports and a continuing relaxing of credit. These factors together would push inflation higher still and would therefore put pressure on the Bank to raise rates.

So do you fix or not? Rates could rise quicker that the Bank are currently predicting. Probably not much, if at all in 2010, but potentially in 2011.

As a mortgage borrower, fixing now for, say, 5 years provides certainty of price. Fixed rates are unlikely to get any cheaper.

That said even best buy fixed rate mortgages are significantly more expensive than best buy tracker or variable rates. If Mervyn King is right, you will take a hit on additional cost unnecessarily. Either way it’s a gamble. But even at 50/50 odds, ask yourself whether you could afford your mortgage if rates went up 3.5%. On a £150,000 interest only loan that is an increase of £437.50 per month!

There is no right answer, which is why Saffron offer both fixed and tracker mortgages in order that borrowers can choose whichever mortgage they feel most comfortable with. The advice we give is always to consider what you could afford if your payments increased, and whether that increase would be unfortunate or unfeasible for your circumstances.

Saffron Building Society is a regional building society and has been providing savings accounts and mortgages to communities in the East of England for over 160 years. They offer a range of fixed rate mortgages and tracker mortgages. They have over 120,000 members and are the ‘most followed’ Building Society on Twitter! Visit us at www.saffronbs.co.uk or follow us @SaffronBS

Are you wondering: what will the interest be on my mortgage this year?

The upside of the credit crunch fuelled recession has been, for many British families, lower mortgage repayments on loans. Despite the media’s love for doom and gloom these lucky souls have been going about their business not believing their luck. The mortgages in question are those calculated at the lenders’ standard variable rate (which may or may not be tied to the bank of England Base rate) or tracker mortgages (About 1,500 C&G customers on tracker mortgage at 1.01% below Bank base rate have been paying no interest at all on their home loans since March 2009! according to Citywire).

Historically low interest rates have meant that some homeowners have actually found an extra few hundred pounds in their bank account each month as a result of the Bank of England’s efforts to buoy the housing market and avoid an even greater disaster of a recession.

Those who have a mortage with a lender who ties their variable rate to the BoE base rate have been the happiest, or those with tracker mortgages.

However some banks (such as Standard Life) have an arbitrary standard variable rate that they set themselves. (Remember that kid that wouldn’t let you play with his ball unless you agreed to his version of the rules?)

Some of these lenders whose SVR is not tied to the bank’s rate are starting to hit many UK homeowners with a rate rises in an efforet to recoup losses made elsewhere reports citywire this week.

Our own Professional Landlord recently sold a house due to his mortgage company (Standard Life) keeping their SVR for low LTV customers at 6.67% despite the base rate sitting at 0.5%. A remortgage deal for an existing customer? Why no sir, those are reserved for our special new customers only sir.

In fact Buy-To-Let investors tend to fare worst in these circumstances and are seen as fair game by lenders as their interests are also commercial. Or so the argument goes.

A quick and dirty list of Lenders’ SVRs shows some disparity:

Marsden building society 5.95%
Mansfield building society5.59%
Ipswich, Scottish and Cambridge building societies and Accord Mortgages, most of which are well over 5%.
Skipton SVR 4.95%
Norwich & Peterborough 4.85%.
Natwest 4.00%
Santander SVR 4.24%
Nationwide Building Society SVR 3.99%
HSBC SVR 3.94%
First Direct SVR 3.69%
Halifax standard variable rate (SVR) 3.5%
Barclays SVR 2.49% (via the Woolwich)

Sources: Citywire & Mortgage Rates

Most analysts agree that the BoE base rate will rise from 0.5% this year, but moderately and towards the end of the year – into 2011 looks a bit far out from here to say but again moderate increases are expected.

So what can we learn from this? If you’re remortgaging or getting a mortgage then tracker deals inherently are a gamble of sorts and you could get lucky like those C&G customers above, or you could get unlucky and we could enter a period of high inflation – or something in between. If you are taking a new fixed rate deal then look carefully at how the lenders’ SVR is calculated – is it the arbitrary judgement of the boardroom or is it contractually tied to the BoE base rate?