Mortgage Conditions Deteriorate

The UK economy has shown signs of increased weakness, which has done nothing to help the beleagured mortgage sector.

Under strict lending criteria, banks have seen a dramatic fall in the number of mortgage approvals they have been able to make. According to Bank of England the number of mortgage approvals has fallen to 15 year low.

Inter bank lending rates have increased as financial institutions try to improve their fiscal positions. The cost of fixed rate mortgages has risen and the deposit required has increased.

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Rise in Unsecured Loans Threatens Economy

With a marked drop off in the number of mortgages available, UK consumers have been switching to other means to finance their shortfall. In particular, last month showed an unexpectedly large rise in the number of unsecured loans. It appears consumers are using unsecured loans to meet the shortfall created by the declining mortgage market.

In the past UK consumers have used mortgage equity withdrawal to finance spending. But, this remortgaging is becoming more difficult due to stagnating house prices and more expensive mortgages. Instead it appears consumers are taking out unsecured loans.

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Most Competitive Mortgages Become Harder To Find

The recent credit crunch has hit the big mortgage lenders the most. This is because they rely on financing the mortgage lending by borrowing on money markets, which have recently dried up. This means they have had to withdraw products and increase interest rates to reflect the deteriorating market conditions.

With big banks offering less competitive mortgages, the best deals can often be found at smaller building societies who rely on saving deposits to fund mortgage payments. This is a complete list of building societies in England and the UK.

However, due to the unprecedented increase in demand many building societies are now also running out of saving deposits to finance mortgages. Therefore, even the smaller building societies are having to withdraw mortgage products and increase interest rates.

However, the most competitive rates can still often be found at the smaller building societies. A report by Moneyfacts suggested that:

the top 10 mortgage lenders, (who have a total of 75 percent market share) accounted for only 27 percent of the 250 most competitive mortgages on offer in March.

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Graduate Mortgages with HSBC

HSBC offer a special product for graduates who have finished university in the past 5 years.

To qualify you need to have a Graduate Plus current account. The Graduate mortgage includes:

  • Borrowing upto 4.5 times income. However, this depends on affordability. If you are making student loan repayments this will count against you.
  • For normal mortgage products a deposit of only 5% is required. This is good with lenders such as the Nationwide insisting on 10% deposit.
  • Choose from fixed rate mortgages, tracker mortgages or variable mortgages. These all come without any extended tie in period, meaning that you can remortgage to another company in a few years.
  • Interest is charged daily.
  • The tracker mortgage enables a degree of flexibility and you can overpay without incurring a fee. However, there is a fee for overpaying the fixed rate or variable mortgage
  • Option of home start - years of interest only payments
  • There is no exit fees
  • No tie in period

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Current HSBC Mortgage Deals

HSBC offer a range of mortgage deals. If you want to remortgage to the HSBC they will lend you 90% of your home value, requiring a 10 % deposit. For graduates buying their own home, HSBC will lend 95% of the value. Their remortgage deals include:

  • A mixture of capital repayment or interest only mortgages.

Home Start Mortgages

This mortgage product gives reduced payments for the first 3 years. It means that the total cost of the product is higher, but the lower payments are usually desirable when you first buy your home as this is usually when money is at its tightest.

Where appropriate they will pay

  • Any enquiry fee charged by your current lender (note an enquiry fee is not the same as a mortgage exit fee, you may still be eligible for some fees.
  • The standard valuation fee for your property
  • A Completion Fee which is charged to transfer funds to your previous lender on successful completion of the remortgage
  • Any district Land Registry search and registration fees

Mortgages at HSBC 

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How much salary to borrow?

Before taking out a mortgage it is important to know how much you can and should borrow. With the ratio of house price to incomes at an all time high, it is tempting to borrow to the hilt in order to get a mortgage for the house.

 3 Times Salary. The traditional model of mortgage lending was a simple income multiple of 3 times salary. With current long term interest rates at a low level, this would provide a mortgage that is quite affordable for the average homeowner.

4 Times Salary. An increasing number of high street banks are offering mortgages upto 4 times salary. Mortgage lenders that will lend 4 times salary include:

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Mortgage Reduction UK

To reduce your Mortage there are various things that you can do.

Firstly to Reduce Mortgage Payments

  1. Extend Mortgage Term - Longer repayment period means lower monthly payments, but higher total cost.
  2. Interest Only - Means you only pay interest payments and not capital repayments. Cheaper monthly repayments. But, need to find an alternative means of paying off debt.
  3. Remortgage to Cheaper Deal. At the end of your mortgage introductory offer, try remortgaging. As long as you don’t have high repayment charges move it to the best deal. Spend time to find most attractive deal, it can save £100s each month.

Reduce Total Cost of Mortgage

1. Make extra Lump Sum Payment. Making extra lump sum payment will reduce the total cost of your mortgage quite significantly. The earlier you pay it, the greater the cumulative impact it will be. Not only do you reduce capital payments but also compounded interest payments.
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Early Repayment Charges on Mortgages

Unfortunately, many people take out mortgage with hefty early repayment charges. If this is the case there is little that you can do about it. With the high penalties, it is usually best just to see the agreement out. For example,  a standard Woolwich mortgage charges  6 months interest at the prevailing standard variable rate; this could easily be several thousand pounds. Rather than paying off a mortgage early and facing the penalty, use the money to invest in an alternative saving scheme. (see best saving rates here)

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Best Savings Rates in UK

If you are looking for a good return on your cash savings, these are some of the best current rates of interest by the leading banks and building societies.

  • Scarborough Building Society 6.3% (guaranteed to be at least 0.25% above base rates until March 31 next year)
  • Icesave 6.1% (Ice savings website)

Best Fixed Savings Rate

  • Northern Rock 6.2% fixed for 2 years.
  • Nationwide 6.15%

Fixed rates offer very good value with base rates predicted to fall to 4.5% by the end of the year. The only drawback is that it is essential you are happy to keep the money in the bank for 2 years. There are quite significant penalites to  early repayment. Read the rest of this entry »

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0% Interest 6-12 Months

A useful financial tool is to make use of credit cards and loans which offer introductory rates of 0% for between 6 and 12 months (in some cases upto 15months)

The advantage of using these credit card balance transfers is that you can keep your debt paying no interest. The savings on interest payments should be used to pay off you debt capital, rather than just paying.

For a credit card user with £2,000 debt, the savings can be very significant. Normal interest charges on a £2,000 credit card debt would be around 18%. This is at least £360 a year interest. It is often the case that people paying the monthly repayment only meet the interest charges so do nothing to reduce the capital and therefore, their debt problem only gets worse.

However, if you can stop interest payments for a period of 6 - 12 months, you have an opportunity to make extra payments.

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