Buying, selling and letting - Monday, January 12, 2004

Would you pay over the odds for a pair of trousers? Of course not. So why pay more than you need for your mortgage? Anna Bowden explains the ins and outs of remortgaging

Home owners in the UK are paying too much for their mortgages, according to Which? – to the tune of £2.2 billion a year. This is mainly because of inertia, says the report; most of us just can’t be bothered changing to a better deal.

If you are currently paying your lender's variable rate then you are probably paying over the odds for your mortgage. There are hundreds of deals available and interest rates are at an all time low, so why stick with your existing lender if you could do better elsewhere? Go out into the marketplace, shop around and find a deal that will reduce your monthly payments and thus save you a fortune over the term of your mortgage.
Remortgaging can also be used as a way of releasing some of the equity that has built up in your property's value, although there are certain caveats despite the fact that rates are so low: borrowing through your mortgage may be much cheaper than taking out a personal loan, but the debt is secured on your property and if you can’t keep up with the payments you could risk losing your home.

Add it up

Remortgaging is certainly more straightforward than it used to be, but borrowers shouldn’t rush into anything. The most important thing is to consider any costs involved. There may be redemption penalty clauses in your existing mortgage and/or in the next one, making you pay for leaving your lender or making you stay with the new lender after the special rate has expired. Redemption penalties do tend to be attached to fixed-rate and discount deals and are often only applied only during the special offer period, but your existing deal may still have overhanging penalties and it could cost you to leave the lender even if you are paying its standard variable rate (SVR).
Other costs could include insurance, a valuation and solicitor's fees and, in addition, any arrangement/application fees charged by your new mortgage lender which may cost as much as £500 or more. These costs, along with the penalties, could cancel out the savings you are hoping to make by switching mortgages. It's a simple question of adding it up. Obviously you don't want to switch mortgages to supposedly save money only to find yourself trapped in an unnecessarily expensive deal. The best remortgaging deal may be one that doesn't offer the lowest interest rate but doesn't tie you in either.

Before you apply for a new loan it is well worth speaking to your existing lender, as it might be able to offer you a deal which is better than your current one.
If it is unable to do so and you have found a new mortgage, you need to set the conveyancing process in motion. If your remortgage is at all complex it is worth talking your requirements through with a solicitor to get an idea of how much the legal work will cost.

Where do I start?

Get in touch with your lender and ask for a redemption statement. This should be fairly straightforward. When it arrives it will include information concerning the amount still owed on your mortgage and any penalties you will face if you want to pay off the loan. Armed with the redemption statement you can think about your new mortgage. Always get three quotes for comparison purposes. Once you have found a potential deal request illustrations showing what the monthly repayments will be. These figures can be compared with your current repayments to show the real monthly savings. Remember, if you are nearing the end of a fixed- or discount-rate deal you should also get an illustration from your current lender showing the repayment on its standard variable rate (SVR) as a comparison.

Lenders will often let you book a deal two or three months in advance, so you don’t need to wait until your existing special offer period is at an end before you start the remortgage process. If you are organised you could even complete on the day that your existing deal switches to a higher rate!
It should take about a month to complete the remortgage. You will get an offer of advance if the lender's surveyor is satisfied with the value and condition of your home, and your new lender will liaise with your existing lender. Once you have received a completion statement from your solicitor or new lender, the process has finished and you can relax. Just remember, remortgaging your property is not something to be ashamed of or shy about. You do not owe your lender loyalty and they are certainly making money out of you, as most lenders do not reward loyalty with a reduction in rates. Look around, find the best rate and spend the difference on yourself!

A punter’s view of the London property market

A grass root level survey by London property specialist Chesterton International gives an insight into the sales and lettings market in the capital from the home owner’s perspective. Property would appear to be the new pension alternative, as 63 per cent of landlords are aged over 45 years and 55 per cent have acquired their property as a 'buy to let' investment. Nearly half have seen their property increase in value by more than 50 per cent since they bought it and 70 per cent have no intention of selling in the near future. Property ownership is split equally between male and female landlords and both are hopeful of finding the perfect tenant, preferably a non-smoker (13 per cent), professional (14 per cent), no pets (12 per cent) pays rent on time (16 per cent) and leaves the property in a good condition (17 per cent).

Tenants, on the other hand, have shown themselves to be canny negotiators when it comes to initial rental agreements with 86 per cent getting their rent reduced by up to 19 per cent of the asking price. Male tenants are slightly more effective at this (56 per cent). The most common restrictions in rental agreements are that 62 per cent have a no pets clause and 24 per cent allow 'no noise after designated times'. It also appears that tenants are becoming increasingly discerning – nearly a quarter of tenants surveyed took up to two months to get what they wanted, with a shopping list of criteria that included the right number of bedrooms (34 per cent), proximity to local transport (25 per cent) and adequate living space (23 per cent).

The same criteria also appears on potential purchasers' wish lists, with 31 per cent looking for more space, 19 per cent an improved location and outdoor space and 22 per cent a contemporary décor. Male respondents are particularly interested in more space (60 per cent) whilst 57 per cent of women are keen on the latter. Half the respondents were looking to buy on their own and 55 per cent of them had already bought over three times in the past. The predominate age category looking to buy (55 per cent) was 35-44 years old, although overall 32 per cent did not currently live in London.

Conversely, 56 per cent of people with their property on the market were not looking to buy another property in London, and more than half of those were looking to move 25 miles or more outside the M25 – 86 per cent of these people were single and 67 per cent were women. Nearly half had lived in their property for up to four years and 45 per cent cited the need for a bigger property as the main reason for moving. They also believe in spending money to make money – 39 per cent have carried out decorations in order to sell their property and 29 per cent have installed a new kitchen or bathroom, with 27 per cent having spent up to £5,000 on work to enhance their sale offer.

A punter’s view of the London property market

A grass root level survey by London property specialist Chesterton International gives an insight into the sales and lettings market in the capital from the home owner’s perspective. Property would appear to be the new pension alternative, as 63 per cent of landlords are aged over 45 years and 55 per cent have acquired their property as a 'buy to let' investment. Nearly half have seen their property increase in value by more than 50 per cent since they bought it and 70 per cent have no intention of selling in the near future. Property ownership is split equally between male and female landlords and both are hopeful of finding the perfect tenant, preferably a non-smoker (13 per cent), professional (14 per cent), no pets (12 per cent) pays rent on time (16 per cent) and leaves the property in a good condition (17 per cent).

Tenants, on the other hand, have shown themselves to be canny negotiators when it comes to initial rental agreements with 86 per cent getting their rent reduced by up to 19 per cent of the asking price. Male tenants are slightly more effective at this (56 per cent). The most common restrictions in rental agreements are that 62 per cent have a no pets clause and 24 per cent allow 'no noise after designated times'. It also appears that tenants are becoming increasingly discerning – nearly a quarter of tenants surveyed took up to two months to get what they wanted, with a shopping list of criteria that included the right number of bedrooms (34 per cent), proximity to local transport (25 per cent) and adequate living space (23 per cent).
The same criteria also appears on potential purchasers' wish lists, with 31 per cent looking for more space, 19 per cent an improved location and outdoor space and 22 per cent a contemporary décor. Male respondents are particularly interested in more space (60 per cent) whilst 57 per cent of women are keen on the latter. Half the respondents were looking to buy on their own and 55 per cent of them had already bought over three times in the past. The predominate age category looking to buy (55 per cent) was 35-44 years old, although overall 32 per cent did not currently live in London.
Conversely, 56 per cent of people with their property on the market were not looking to buy another property in London, and more than half of those were looking to move 25 miles or more outside the M25 – 86 per cent of these people were single and 67 per cent were women. Nearly half had lived in their property for up to four years and 45 per cent cited the need for a bigger property as the main reason for moving. They also believe in spending money to make money – 39 per cent have carried out decorations in order to sell their property and 29 per cent have installed a new kitchen or bathroom, with 27 per cent having spent up to £5,000 on work to enhance their sale offer.

On a high

The UK new homes market looks set to finish the year on a high as recently-released figures by SmartNewHomes show a significant increase in demand and price. November figures show that buyers were willing to pay an average of £221,654 for a property, up by 2.7 per cent on October and an 11.6 per cent increase compared to the previous year. The greatest increases in price over the past year have been in Greater London (20.5 per cent) and the North (16.4 per cent).
As well as across all regions, the increase in demand was also consistent across property types. November saw a 10.71 per cent increase in semi-detached properties, and penthouses have seen a strong recovery from slipping prices earlier in the year with buyers now willing to pay an average of £313,671.

David Bexon, Chief Executive, Smart New Homes comments: ‘The increased demand for new homes shows no signs of diminishing, with prospective buyers willing to pay an average of £22,991 more for a property than a year ago.
‘Sustained low costs of borrowing, growing incomes and the inherent desire to own a brand new home all point to fuller growth in 2004. We are convinced that new home demand growth will continue over the next 12 months.’

Long-term customers subsidise cheap deals for new borrowers

Banks and building societies could face an investigation into the way they offer low-rate mortgage deals to lure new customers at the expense of long-standing borrowers, it was revealed yesterday. A study commissioned by chancellor Gordon Brown found that millions of home owners are subsidising the cut-price deals offered to first-time buyers and people who are remortgaging. The report's author, Professor David Miles, indicated he may recommend that the Financial Services Authority or the Office of Fair Trading use their powers to tackle this ‘undesirable’ cross-subsidisation.

‘There is no evidence of classical anti-competitive behaviour, but I am concerned that some features of the market are not working as well as they should and in the interests of all borrowers,’ he said.
It is not only lenders in the firing line. The report also takes a swipe at borrowers, saying many people who take out mortgages are too concerned with what the initial monthly payments will be and are ignoring the benefits – in particular the payment certainty – that long-term fixed-rate home loans can offer.

One lender that will feel vindicated after this news is Nationwide, which in 2001 stopped offering cut-price mortgage deals to win new customers at the expense of established borrowers. Instead, a new range of mortgage products was launched, available to all borrowers. The lender took heavy criticism and lost market share, but last month finally announced that its net mortgage advances in the six months to October 4 were £7.5 billion, compared with £2.9 billion in the same period last year.

Why do so many home owners pay uncompetitive rates when cheaper deals are all around? The rewards of remortgaging are great and the process easier than ever, finds Sean Horton, director of Enhanced Wealth Limited.

When was the last time you considered changing your mortgage lender? The vast majority of people only contemplate this when they move home or perhaps wish to borrow more money. But the opportunity to remortgage, and the advantages it can bring, should be high on a borrower’s list of priorities.

The current mortgage market is well developed and hungry for remortgage business. The lenders have streamlined their application process and criteria to make it as easy as possible. Most will waive the solicitor costs and valuation fees, making it almost cost-free. Applications can be made over the internet, with mortgage offers available in days instead of weeks.

But why do it at all? Well, if you took out a mortgage product two years ago that has just finished, you will now be paying a higher monthly payment based on the lender’s standard variable rate of about 5.75 per cent. Taking advantage of a ‘fees free’ transfer could reduce that rate down to 3.50 per cent with a new lender. That’s a saving of £2,250 per year on a £100,000 interest-only mortgage.

Other reasons could be to transfer over to a competitive fixed rate now that interest costs are rising, to make use of a flexible mortgage product or simply to raise extra funds for home improvements or a second property purchase etc. These schemes are not restricted to residential mortgages on your own home. Anyone with a buy-to-let mortgage can also remortgage for the same reasons and advantages.
The process is not excessively complicated and certainly much simpler than when moving home.
But before you rush off and apply for a new mortgage there is one task that needs to be done. It is important to first check with your current lender what fees or penalties, if any, will be payable when the loan is paid off. This will help to establish the viability of remortgaging as the new lender will not pay these fees.

By using the services of an independent mortgage broker you will not only save time but will also receive comprehensive guidance on which new mortgage is the most suitable for you, with a full breakdown of the costs involved. Many will then undertake the administration and assist with any questions or further requests from the lender.
The restrictions are few and the advantages great. So go out and grab yourself a remortgage bargain.

Why do so many home owners pay uncompetitive rates when cheaper deals are all around? The rewards of remortgaging are great and the process easier than ever, finds Sean Horton, director of Enhanced Wealth Limited..

When was the last time you considered changing your mortgage lender? The vast majority of people only contemplate this when they move home or perhaps wish to borrow more money. But the opportunity to remortgage, and the advantages it can bring, should be high on a borrower’s list of priorities.

The current mortgage market is well developed and hungry for remortgage business. The lenders have streamlined their application process and criteria to make it as easy as possible. Most will waive the solicitor costs and valuation fees, making it almost cost-free. Applications can be made over the internet, with mortgage offers available in days instead of weeks.
But why do it at all? Well, if you took out a mortgage product two years ago that has just finished, you will now be paying a higher monthly payment based on the lender’s standard variable rate of about 5.75 per cent. Taking advantage of a ‘fees free’ transfer could reduce that rate down to 3.50 per cent with a new lender. That’s a saving of £2,250 per year on a £100,000 interest-only mortgage.

Other reasons could be to transfer over to a competitive fixed rate now that interest costs are rising, to make use of a flexible mortgage product or simply to raise extra funds for home improvements or a second property purchase etc. These schemes are not restricted to residential mortgages on your own home. Anyone with a buy-to-let mortgage can also remortgage for the same reasons and advantages.
The process is not excessively complicated and certainly much simpler than when moving home.
But before you rush off and apply for a new mortgage there is one task that needs to be done. It is important to first check with your current lender what fees or penalties, if any, will be payable when the loan is paid off. This will help to establish the viability of remortgaging as the new lender will not pay these fees.

By using the services of an independent mortgage broker you will not only save time but will also receive comprehensive guidance on which new mortgage is the most suitable for you, with a full breakdown of the costs involved. Many will then undertake the administration and assist with any questions or further requests from the lender.
The restrictions are few and the advantages great. So go out and grab yourself a remortgage bargain.

Hotproperty brings you the latest trends and deals in today’s fast-moving mortgage marketplace.

UK wakes up to offset mortgages

Awareness of offset mortgages among home owners has doubled since the spring, according to First Direct. The latest survey shows that 45 per cent of homeowners are aware of offset mortgages, up from 20 per cent in early 2003. The highest awareness is in London, where 56 per cent of home owners claim to have heard of offset mortgages (where the interest on your mortgage is reduced by funds in your separate saving and current accounts).
Alan Hughes, chief executive of First Direct, said: ‘A mortgage is probably the single biggest expense people have and it’s certainly good news that more people know they could save thousands of pounds each month by choosing an offset mortgage.’

Housing market surges

The British Bankers' Association reports that the value of mortgages approved last month rose to 80 per cent above the level reached last year. The dramatic rise has been attributed in part to first-time buyers returning to the market.
House price rises of around 28 per cent per year recorded at the start of the year have cooled, but a rise in new mortgage approvals of 39 per cent last month suggests that price rises may spiral upwards again. The average mortgages size is £111,900, up 29 per cent compared to October 2002. Remortgaging continues to drive the market forward with the number of loans 32 per cent higher than a year previously.

In a fix

The Market Harborough Building Society (MHBS) is currently offering a new two-year fixed deal with an interest rate of 3.25 per cent. With a maximum loan-to-value (LTV) of 90 per cent, the maximum that can be borrowed is £500,000 and the minimum £35,000. This mortgage can be tracked using MHBS’s unique online Mortgage Application Tracking System.
Other mortgages offered by MHBS include a lifetime stepped discount deal, with a three per cent discount in year one, a two per cent discount in year two and a one per cent discount for the remainder of the loan. The base interest rate is 2.74 per cent in the first year (APR 4.74 per cent), with 3.74 per cent in year two and 4.74 per cent for years three onwards. A minimum pay rate of four per cent will be applied from year three. Flexible options include payment holidays, drawdown facilities and a rate selection facility (the latter not available during the fixed-rate period), and the LTV is a maximum of 80 per cent. For further details about these or other MHBS products visit website mhbs.co.uk.

First port of call

Portman Building Society is now offering a wide range of fixed-rate mortgages, including a two-year fixed deal at 1.99 per cent (5.4 per cent APR, fixed until 1 December 2005), with the facility to make part repayments of up to five per cent of the original amount borrowed, without incurring any repayment fees, for each full twelve month period from completion of the loan until 1 December 2005; a five-year fixed deal at 5.25 per cent with the same benefit as above (until 1 December 2008); and a two-year fixed deal at 4.25 per cent (5.7 per cent APR fixed until 1 December 2005), with a ten per cent part repayment facility. For further details visit website portman.co.uk.

E-Conveyancing – the way forward?

The belief that the introduction of Home Information Packs (HIPs), announced recently in the Queen’s Speech, will add impetus to the e-conveyancing revolution has been supported by research from the private local search company OneSearch Direct.

Despite the proposals having met with opposition from professional organisations such as the National Association of Estate Agents (NAEA), the research reveals that consumers will welcome the change. Over 48 per cent of people questioned in a recent poll believe that at present the prospect of lengthy conveyancing deters people from moving home, and of those who were aware of the proposed introduction of HIPs the majority were in favour of the initiative. Enthusiasm was particularly strong among home owners, many of whom have suffered as a result of sluggish conveyancing.
‘We were unsurprised to find that such a large proportion are put off buying because of the lengthy legal processes, bearing in mind that it takes councils an average of four weeks to produce a local search,’ said Ronnie Park, managing director of OneSearch Direct. ‘Clearly there is a need for the system to be changed, and the Government has recognised this in its proposals to introduce Home Information Packs.’

Under the present system, solicitors are appointed to carry out conveyancing when the buyer has decided upon a property to purchase. It then takes approximately six weeks until contracts can be exchanged as solicitors generally use local authorities to carry out manual local searches. Under the new proposals, however, HIPs will be compiled before the house is put on the market. It will be in the seller’s interest to have a local search commissioned quickly and it is thought likely that many solicitors will choose to use services such as that offered by OneSearch Direct, which offers a fast electronic service with an average turnaround of only five days.

With e-conveyancing developing at a rapid rate, HIPs are being introduced at a time of substantial change in the industry. To succeed, it is important that they are developed in parallel with the e-conveyancing revolution.
‘There are currently strong concerns in the industry about HIPs, but we believe that consumers can benefit from the legislation which, if fine-tuned and developed alongside e-conveyancing initiatives, will speed up the home moving process,’ said Park.

Fix your rate

Although earlier this month the monetary policy committee (MPC) of the Bank of England decided to keep interest rates at 3.75 per cent, the general consensus since the 0.25 per cent rise in November is that rates will rise further, and home owners would be wise to think of fixing their mortgage interest rate while they still can. With a fixed-rate mortgage, you can be sure of how much your mortgage payments will be each month for the duration of the fixed-rate deal.

E-Conveyancing – the way forward?

The belief that the introduction of Home Information Packs (HIPs), announced recently in the Queen’s Speech, will add impetus to the e-conveyancing revolution has been supported by research from the private local search company OneSearch Direct.

Despite the proposals having met with opposition from professional organisations such as the National Association of Estate Agents (NAEA), the research reveals that consumers will welcome the change. Over 48 per cent of people questioned in a recent poll believe that at present the prospect of lengthy conveyancing deters people from moving home, and of those who were aware of the proposed introduction of HIPs the majority were in favour of the initiative. Enthusiasm was particularly strong among home owners, many of whom have suffered as a result of sluggish conveyancing.
‘We were unsurprised to find that such a large proportion are put off buying because of the lengthy legal processes, bearing in mind that it takes councils an average of four weeks to produce a local search,’ said Ronnie Park, managing director of OneSearch Direct. ‘Clearly there is a need for the system to be changed, and the Government has recognised this in its proposals to introduce Home Information Packs.’

Under the present system, solicitors are appointed to carry out conveyancing when the buyer has decided upon a property to purchase. It then takes approximately six weeks until contracts can be exchanged as solicitors generally use local authorities to carry out manual local searches. Under the new proposals, however, HIPs will be compiled before the house is put on the market. It will be in the seller’s interest to have a local search commissioned quickly and it is thought likely that many solicitors will choose to use services such as that offered by OneSearch Direct, which offers a fast electronic service with an average turnaround of only five days.
With e-conveyancing developing at a rapid rate, HIPs are being introduced at a time of substantial change in the industry. To succeed, it is important that they are developed in parallel with the e-conveyancing revolution.

‘There are currently strong concerns in the industry about HIPs, but we believe that consumers can benefit from the legislation which, if fine-tuned and developed alongside e-conveyancing initiatives, will speed up the home moving process,’ said Park.

Fix your rate

Although earlier this month the monetary policy committee (MPC) of the Bank of England decided to keep interest rates at 3.75 per cent, the general consensus since the 0.25 per cent rise in November is that rates will rise further, and home owners would be wise to think of fixing their mortgage interest rate while they still can. With a fixed-rate mortgage, you can be sure of how much your mortgage payments will be each month for the duration of the fixed-rate deal.

David McCann, director of Clear Finance, explains why it is a good time now to look into remortgaging or releasing equity in your home.

An interesting statistic shows that around two thirds of all UK home owners have not yet taken advantage of current low interest rates by remortgaging their existing property, therefore the vast majority of home owners could be paying too much on their mortgage by staying with their existing lender.

It is understandable that some people are resistant to change, but you could save thousands of pounds each year by making the switch and reducing your interest rate. There are options open to everyone, including those who have been through troublesome financial times or who have even been on credit repair schemes and are now back on track financially. Switching deals may well get you a lower rate or better benefits, so it is worth at least speaking with a remortgage expert.
Not only might you be able to lower your rate, but there may also be the option to release equity tied up in your home. Today you can remortgage for almost any reason: you may wish to make home improvements, purchase a new car, take a well deserved luxury holiday or consolidate any outstanding credit commitments (such as credit cards, loans, hire purchase and so on). These are just some of the many things you can do with the cash tied up in your home - and your monthly repayments could still be lower than they are at present.

It makes superb sense to remortgage. Making home improvements, such as an extension on your home, could add greater value to your property in relation to the additional funds you have raised. Remortgaging could enable you to start up your own business or fund the purchase or part purchase of an investment property you were seeking as your alternative retirement fund. And if you have several credit cards with large outstanding balances and exorbitant rates of interest, or if you are even in financial difficulty, it could save you money - both in the short term by reducing your monthly expenditure, and in the longer term by costing less overall. Remortgaging can provide you with a clear solution for almost all instances and is a more streamlined process than a house purchase, taking less time to complete. 

So think about it. Maybe you could save money by remortgaging or by raising additional funds to go ahead with your plans, or both. Now is an ideal time to make that decision and to take full advantage, before rates rise too much. Remortgaging makes sense, and that is why it is becoming increasingly popular in the UK.