Don't play the waiting game
18th September 2008
Many Contractors currently looking to remortgage are waiting for mortgage rates and schemes to become cheaper before they make any firm decisions to apply.
Although rates have recently started to move down, this activity has mainly been at lower loans to value where there is at least 25% equity within the property, and the trend may be short-lived.
As property prices continue to decrease and surveyors become more and more conservative in their valuations, the equity within mortgaged property is being eroded at a significant rate. According to the Nationwide House price Index, the average price of a house fell by 1.9% in August.
Therefore the amount of equity you have in your property has a substantial affect on the kind of mortgage scheme and rate that can be secured. Although rates have improved in recent weeks, property values are coming down quickly, and this has a much greater affect on the rate you can secure than any small improvements in the Lenders’ offerings.
* On a typical mortgage balance of £250,000, Lloyds TSB offer a two year fixed rate at 5.58% up to 75% loan to value. If the loan to value is above 75%, this rate becomes 6.13% - an increase of 0.55%. This is an increase of £114 per month, or £2,750 over the two year fixed rate!
The current trend of rates coming down may also be coming to an end based upon recent events. Michelle Slade of Moneyfacts said this may well be because of the crash of the US investment bank Lehman Brothers, and fears that other banks may be pushed into a weaker financial position. "The number of cuts to mortgage rates has slowed in the last week," she said. "Lenders are likely to be playing a wait and see game at the moment to see how things pan out in the money markets before they make their next moves," she added.
Taj Kang – Senior Mortgage Consultant of Contractor Mortgages Made Easy added the following: ‘Complacency can cost significant amounts of money due to declining property values and an uncertain financial market. If you add the forced merger of the HBOS group into this picture, a deferred decision could well be a very expensive one. With particular regard to Contractors many mortgages have historically been secured on a self-certified basis and this is an area of the market place that has been amongst the worst hit. New schemes are virtually non existent. Lender’s have no renewal options apart from expensive standard variable rates. We have bespoke underwriting terms for Contractors that can secure competitive High Street rates and consequently can save contractors a great deal of time, effort and money over the long term.’
* Source: Lloyds TSB website – 18/09/08