A shortage of credit, interest rates going up even as the Bank of England base rate goes down, and a collapse in house prices. All in all, it’s not the ideal background for going out to get yourself a mortgage. This week I look at how to get the best deals you can … and whether you need to think a little laterally.
First off … do you REALLY want to buy a house? And do you really want to buy one now, in a falling market? Nobody knows how bad things are going to get in Britain, but people are now seriously talking about a 25% drop in prices.
A good idea might be to put it off … rent for a year instead, because prices certainly have lower to go.
If you can put off purchasing for a year … Save hard … there are some great savings rates just now that DON’T demand you put your money away for years. This is because the retail banks are desperate to get deposit cash in to finance their lending … because of course if banks can’t lend, they can’t do business.
Eye popping deals at the moment include 10% from the Halifax. If you can tighten your belt and salt away a few hundred each month towards a mortgage (or toward paying down your current mortgage) you will be in a much better position to buy when the market starts looking healthy again.
And the more you stash away, the bigger your deposit. That means you’ll be ahead of the pack - with so few mortgages available it’s much easier to get a 60% mortgage than a 70% one say. We can wave goodbye forever to the 100% and 110% deals that were on the table until recently. Further, the more you put down, the less your risk of getting into negative equity.
But you probably don’t want to hear ALL that … especially if you’ve been renting for years, watching your first time buy recede ever further out of sight. And anyway, providing you’re happy to swallow a further drop after you’ve purchased you can nab a very good deal. After all, if the flat was £200,000 last year and you get it for £150k, who cares if it drops another £10k … long term the market will rise again.
The two things you need TO MAKE A PURCHASE OF COURSE, are a property to buy and a mortgage to fund it.
The good news is that this is definitely a buyer’s market and the one group that unequivocally benefits in such a market is the first time buyer … because they don’t have a depreciating asset of their own to sell. And there are mortgages out there - current standard variable rates are around 6% (that’s 1% over the Bank of England base), while you can get slightly under if you’re prepared to tie yourself to a fixed rate for 2, 3 or even 5 years.
This is the time to drive very hard bargains. Make a silly offer for the property you want … they can only say no. And if they say no, remember there are plenty more properties on the market. NEVER make the mistake of getting too attached to a property you haven’t bought yet. I’d stop short of gazundering … which is a nasty trick to play on anyone, but never be embarrassed at paying as little as you can.
And if you have understanding parents, then this is a good time to borrow. No, not in order to pay over the odds, but to snaffle some of the great current bargains around. The bigger the deposit you can put down, the better your chance of getting the best deal mortgage.
And always remember. There isn’t a single property market, there are dozens. Think laterally again … which are the parts of the market that are REALLY distressed. It’s not lovely Victorian conversions that always hold their value, it’s the by the thousand city centre one and two bed new builds. Builders cannot get them off their hands quickly enough. But they’re not going to knock them down, they HAVE to sell them. Find a development that you think has potential - in a good site, near a station and shops (all the fundamentals in fact) and put in a silly offer.
Now how to get the mortgage best deals. Forget the brokers … I would always have advised a borrower to go to a broker, as these guys could cut through the thousands of mortgage products on the market, finding the best deal for YOUR situation. The chances of you finding the lowest interest rate were a needle in a haystack job.
But the number of mortgage products on the market has dropped by more than half over the past year (a huge number being withdrawn from the market in the last couple of months alone). And banks simply aren’t putting their best deals through brokers any more.
As the banks themselves are finding it hard to borrow cash on the wholesale markets, which means they haven’t got enough mortgage cash to supply customer demand, then why would they pay commission to a broker to hook in new customers?
Instead, they’d rather customers walked through their doors and THEY kept the commission. They also figure they can sell you all the add-ons that make them the REAL money if they’ve got you in the branch.
By all means go to a broker to see what he can come up with, then use that figure as a baseline to shop around.
There are LOADS of good finance sites with the latest and best mortgage deals, but start your search for the best rates with moneyfacts.co.uk. You WILL have to spend more time than previously on researching a deal, but that’s no bad thing.
Brokers will tell you that you should use them because they can offer expert advice. But … how much advice do you need?
You DO need to assess the full cost of the mortgage after lock-ins, arrangement fees, early redemption penalties and the rest are factored in, but then educating yourself about this stuff isn’t a bad idea anyway … If only MORE of us had educated ourselves about the real cost of our credit, Britain might not be in such a financial mess now.
In summary then … get a big deposit, hammer the seller on price, and ideally don’t have a property of your own to sell. Happy hunting!
Link: Mortgage Compare, Mortgage deals
