New approach to the offer of mortgages

Changes put forward by the Financial Services Authority will introduce some of most significant changes to the mortgage market this country has seen in recent times.

The FSA new rules for banks  to follow on approving mortgages are designed to make sure customers are not able to borrow more than they can afford. They include a ban on self-certification mortgages, new rules for those seeking to remortgage, stricter rules on interest-only mortgages, improved affordability checks, and a change in the rules on how advice is given by mortgage brokers.

These changes have come about prevent another boom in mortgage lending and in house prices. This is what happened in the middle of the last decade and why some right wing commentators say we are now facing one of the worst financial disasters ever witnessed.

So how does the affordability test, as proposed, work?

A lender will consider how much you spend on essential household expenditure such as heating and council tax plus basic living costs and other debt commitments. If these changes are implemented a lender will no longer have to consider how much you spend on discretionary spending such as on leisure activities and holidays as it will expect a borrower to change spending habits if the borrower wishes to succeed with the loan application.

Lenders will also apply a “stress test” on your finances so as to assess your ability to afford your mortgage repayments if interest rates rise in the future.

What about interest only loans?

Borrowers will only receive an interest-only mortgage if it can be proved there is a robust strategy to repay the capital, such as from the sale of a second home or have an Isa (Individual Savings Account) or from regular bonuses.

Replacing existing mortgages will also prove difficult under these new rules though the FSA have introduced “transitional arrangements” to help existing creditworthy borrowers that might not be able to move home or refinance as a result. Lenders will be allowed to waive the new affordability rules for existing borrowers if the borrower has met repayments for at least the last 12 months and have not fallen into arrears. Existing borrowers who need to borrow more will however be subject to the new affordability rules.

These new rules are unlikely to change the current attitude of borrowers and in the short term are likely to keep property prices stagnant.  Whether this will assist first time buyers remains to be seen, though our view is that they will only serve to make it more difficult for those looking to get onto the property ladder and force more people into looking to the rental market.   These rules could very well begin to turn our property market into those markets commonly found on the continent where home ownership is not a priority and indeed a goal of those looking for a home.

The rules will create a more stable housing market but one which will be seeing a reduced number of transactions and one where only those who have financial stability and a track record of proving it will be able to become home owners.  Whether this is good for the country as a whole and will lead to a more stable and balanced society will remain to be seen.

As conveyancers, there will be fewer transactions around and as those borrowing will face higher lender fees and perhaps spend more money to prove their track record and credit worthiness, there may be a temptation to make economies elsewhere, and perhaps look to find the conveyancer advertising the lowest price.

At MJP we understand this, and this is why we offer a competitive price for our moving service, but with the commitment to ensure we also provide a personalised service and one in which we take pride.   We are able to offer a quality service at a discounted price because we operate a unique case management system and have quality checks built into every stage of our process.  All out clients can access the system and receive regular updates straight to their phones.

Each client is also assigned his or her very own case handler who will oversee the transaction throughout its course.

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

"David Pett and his team have been excellent - regular updates and speedy responses to queries. Something that has been problematic with other solicitors in the past" 

Louise Stone - December 2011

Q&A: Moving your mortgage

Can re-mortgaging really save money?

More often than not more people pay more for their mortgage than they should.  Interest rates charged by some lenders are often high to compensate for the cost of advertising attractive headline interest rates.  On top of this lenders are charging high arrangement fees and levying heavy early redemption penalties. For these reasons you need to check very carefully before committing to any change.

Is there any help around to assist me?

There are professionals around that specialise in this area.  Some work for the lender and can only advise on the lender’s range of products. There are others who are totally independent and who are free to give advice on products from the whole of the market. Be careful however as some charge a fee for their advice whilst others charge both a fee and take a commission from the lender with which the mortgage is placed. It is best to shop around and to always check the rates quoted by the advisor.

At MJP we can put you in touch with an Independent Financial Advisor and if you decide to place instructions with the Advisor and we are paid a referral fee we will be happy to share this with you.

Can I do it myself?

Yes but with care!

Here is a check list:

• Check the terms and conditions of your existing mortgage to see if there is penalty for switching mortgage. If there is, you must decide if it is worth switching to a different rate or stay put until the penalties have expired.
• Explore with your current lender if they can offer a more favourable deal
• Shop around in any event and look towards a different lender to get a better deal.

Could I re-mortgage instead?

Yes.

As well as reducing your monthly payments, you can also use re-mortgaging as a way of releasing some equity that has built-up in your property's value.

Borrowing through your mortgage may be much cheaper than taking out a personal loan, but the debt is secured meaning that if you cannot keep up with additional payments, you could risk losing your home.

Which deal is best for me?

There is a wide choice of  products and here are a few of the more popular ones:

• Fixed-rate mortgages are ideal for people who want certainty and must be able to regulate how much they will be spending each month.
• Discounted loans offer a reduction off the standard variable rate for a set period. If rates fall further, the rate that you will pay will also go down. However, when rates rise, so will your mortgage payments.
• A capped-rate loan will set a limit on the rate you will pay. If rates rise, your payments will not go above that level. However, if rates fall below the cap so will your repayments.
• Flexible mortgages allow you to overpay and underpay when you choose and without penalty. This is ideal for people who have fluctuating incomes or who want to clear their mortgage early.

What do I need to look out for?

Avoid deals with extended redemption penalties.

Extended redemption penalties are often hidden in the small print of a mortgage contract and are sometimes called early repayment penalties or charges.

Before you agree to a mortgage you should be presented with a key facts document. This should outline all the mortgage charges and small print in plain English.

Always read the key facts document thoroughly and if you are unsure of any clauses take advice. At MJP we can help you and provide advice on any queries you may have.

How do I apply?

Obtain a 'redemption statement' from your existing lender.

This will tell you how much you owe.

You must then complete an application form from your new lender.

Your new lender will value your home. This will cost between £200 and £300.

Most lenders will also charge an arrangement fee.

Some lenders offer dedicated re-mortgaging services with free legal work and valuations but others will charge for this service. At MJP we can offer a legal service for re-mortgaging at prices starting at £250 Plus VAT

How long does it take?

It should take about a month to complete the process, if not sooner

You will get a mortgage offer of advance, if the lender's surveyor is satisfied with the value and condition of your home.

Your new lender will liaise with your existing company.

Once you have received a completion statement from your solicitor or new lender, the process has finished.

For further details on how MJP solicitors can help you please call 01603877004 and ask for David Pett or email david.pett@m-j-p.co.uk

Morgan Jones and Pett Conveyancing Service - 01603877004