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Important Mortgage Options

28th July 2009

As you may be aware the Bank Rate remained at 0.50% following July's Bank of England announcement and has not moved now since falling to this level on 5th March.

Cautious Lending

Lenders however, have stubbornly continued to be very selective in their targeted "Mortgage audience" in general and the most competitive deals are stil only available to the lowest risk cases, i.e. those representing 60 - 75% of the property value. There are more deals becoming available at higher loan ratios but interest rates are quite heavily loaded, maybe by as much as 1.5% even.

Credit Scoring at higher loan ratios has been stepped up and Lenders are less willing to take non-guaranteed overtime and bonus earnings into account, making large loans also more difficult to source.

Silver Lining

On a more positive note Estate Agents and Builders are reporting an increased level of enquiries and viewings and in some areas are also reporting a shortgage of good housing stock as potential Vendors are reluctant to try to sell at reduced valuation levels and an underlying fear of unemployment.

This brings several borrowing issues to the forefront:

• "What should I do when an existing deal runs out?"
• "Should I Fix or take a Variable interest rate?"
• "What will interest rates do in the short/medium term?"

Our Advice

As always there are no real scientific answers. Our advice/recommendation would be as follows:

Towards the end of an existing deal, (6-8 Weeks prior), ask your Lender to confirm what you may be offered at today's rates and what their Standard Variable Rate will be if you do nothing. The very best SVRs are only about 2.5% and this maybe the cheapest intial tempting option but will offer no defence against future possible rises. Some of the worst SVRs are still 5%+ so be careful. See what other options you have if you stay put and what fees may apply if you sign up for a new deal.

As Independent Mortgage Brokers we can then look elsewhere for you to check competitiveness.

Whether to go Fixed or Variable Rate, (maybe Tracker), will depend on your attitude to risk and financial position at that time.If you can afford to maintain your Mortgage should rates rise then maybe a Tracker will prove an initially cheaper option on paper. Fixed Rates have already drifted upwards over the past few weeks as it is anticipated that the Bank Base Rate can only go one way eventually. If you are on an already tight budget or in any way fearful of rate rises, you must look towards Fixing as a defensive measure. The tough part will be accepting almost certainly an initially higher rate from day one, in the belief you may benefit a little way down the line.

Rates will rise, they must do but the hardest part is predicting when. I cannot even try to put a time on that aspect I am afraid.

Moving House?

If you are moving house then it is a different scenario altogether and again an area where our Independent status will be of benefit. Even if you are tied to your Existing Lender by way of penalty, you may want to borrow additional funds and we can look at their current Product Range and recommend a "Top-up" product.

Most Lenders will allow you to switch your existing scheme at it's current volume level. If you were lucky to have say a "Lifetime Tracker" at a very low margin over BBR, then it would be highly likely to carry this on and viable to take further funding on, maybe by Fixed Rate, thereby "hedging your bets".

For an intial free chat, please contact David Bentley on either 07872 117 335 OR Carolyn Silver on 020 7324 6030

Disclaimer: This information is offered in a generic form and not to be taken as specific advice which we cannot give without a full personal factfinding assessment. Your Home may be at risk if you do not maintain a loan secured upon it.

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