The recent report from the Financial Services Association (published 13.07.10) made the point that the share of interest only mortgages has been increasing.

It said that at the peak of the market, over 30% of all mortgages taken out were interest only.

And what worries the Financial Services Association, is that many people taking out interest only mortgages do not have a suitable financial vehicle to pay them off once they are due. A large number of people rely on house inflation, or other plans (such as a windfall, or hoped for inheritance) to see them through at the end of the mortgage term.

These findings were part of a larger report which made a number of observations. Most worryingly was that nearly half of all households with a mortgage had either no money left, or indeed had a shortfall, every month after the payment of the mortgage and living costs.

This has encouraged the Financial Services Association to enforce lenders to ensure that people can actually afford the mortgage they are thinking of signing-up, has signalled the virtual ending of the self-cert mortgage (where people verify their own income) and told financial institutions to be more aware of possible problems with their borrowers should they start falling behind on payments. It stated that those borrowers with a damaged credit history were very vulnerable.

As for arrears charges for those that fall behind on their mortgage payments, the Financial Services Association conducted a review, as part of their report, and discovered that there was a wide variation in penalty fees across the market.

The Financial Services Association reminded lenders that mortgage rules exist which state that arrears charges should be based on reasonable costs incurred by the lender as a result of their customers being behind, rather than linked to punishing penalty charges. In other words, the charges should mainly cover the administrative cost of being in arrears.

The Financial Services Association is asking the mortgage industry and consumers for further views on interest only mortgages and the state of the industry in general. Responses should be completed by 16 November, 2010.

Guest Article by Neil Camp

In a move which many see as the ending of self certification mortgages, the Financial Services Authority has just outlined tough new proposals on mortgage lending.

The Financial Services Authority has said that it intends to ensure that all borrowers can afford to pay back a new mortgage.

In its new super role as consumer protector and day-to-day supervisor of the financial services sector, the Financial Services Authority is overseeing mortgage companies to make sure that responsible lending is once again the order of the day.

Observers see this as a direct attack on self certification mortgages which helped fuel the economic downturn. Many people taking out new mortgages were effectively encouraged to borrow too much by being able to quantify their own earnings. This resulted in inevitable abuse as borrowers were over generous in assessing their own income levels and some actually fabricated their own figures to gain a mortgage.

The Financial Services Authority, FSA director responsible for the mortgage market, Lesley Titcomb, said:
“There is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford to pay it back.

“While it is clear the mortgage market has worked well for many, we need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers.”

The Financial Services Authority main proposals are:

• imposition of affordability tests for all mortgages;
• enforce lenders to be ultimately responsible for assessing a customer’s ability to pay;
• insist on verifying the income of the borrower on every mortgage application, which will prevent self-certification abuse and reduce opportunities for fraud;
• create increased protection for customers who are vulnerable and suffering from poor credit histories.

Industry experts say that the Financial Services Authority is a little behind the times, as most lenders have either voluntarily tightened their lending rules, or have been forced into doing so because of the new economic realities.

The age of the self-certification mortgage is over.

Guest Article by Neil Camp

The best mortgage deals are often found online. Although, current interest rates are low at the moment the best mortgage deals go to people with the cleanest credit history and largest deposits. As if this was not enough the current mortgage market now forces lenders to look more closely at affordability taking into account outgoings such as HP agreements, loans and other bills. The latest budget was recently announced with around 40% of the nations properties mortgaged, many waited eagerly for the results of the budget and welcomed the outcome. The recession has hit young families and couples hard and repaying mortgages has proved tricky for many, so now more than ever it is essential you find the best mortgage deal possible. One of the best ways to do this is to take some time doing your own research, get as many online mortgage quotes as possible and match them against your requirements.

Guest Article by Carlan Li

Finding the best current mortgage deal can be tricky. Lenders are strict on lending criteria and in most cases a hefty deposit is required. However there are things you can do to ensure you get approved and are able to find the best current mortgage deals.

How to find the best current mortgage deals?

Before applying for a mortgage check out your credit report online. Many companies like Experian and Equifax run promotions where you can obtain your report for free. By doing this you can see if there are any discrepancies which may affect your ability to obtain a mortgage.

If you see a deal with a low rate it may have a high arrangement fee, typically these can range from £1,000 to £2,500. Some of the cheapest mortgage deals also advertise very low rates for marketing purposes so they can get you through the door. Make sure you take into account all associated costs over the entire term before making your mind up. This includes charges for additional payments and switching lenders.

Researching and comparing current mortgage deals on Buyability is very easy all you have to do is fill out a short form and you can compare the best current mortgage deals. Using our comparison tool will save you time and money.

Mortgage lenders currently give the best deals to people who put down large deposits. If you really want to secure a great deal put as much down as possible.

In some cases current mortgage deals offer tied in products. This could include buildings or mortgage protection insurance in return for low rates. In this situation look at the associated costs, you could end up paying more and being tied into an agreement which is not financially beneficial.

Fixed, Trackers and Discounted Mortgages

Fixed Rate Mortgage – Payments are fixed for a set amount of time

Tracker Mortgages – The amount you pay back each month is tied to the Bank of England’s base rate.

Discounted Mortgages – The mortgage lender will provide a discount on their standard variable rate for a set amount of time usually two years and then usually increase it after the agreed time expires.

Standard Variable Rate Mortgage – The amount you pay back each month will fluctuate in line with the lenders own standard rate.

Find the best current mortgage deals

When you are looking at current mortgage deals you have a choice between repayment and interest only. A repayment mortgage means you pay back the capital borrowed as well as the interest. As a result at the end of the term of the mortgage you should have paid back the total amount borrowed. In contrast and as the name suggests an interest only mortgage means you only pay back the interest and not the capital borrowed.

It is quite common for first time buyers to take out an interest only mortgage for the first to two years and convert to a repayment mortgage later to initially keep payments low. Also lots of homeowners who take out an interest only also pay money into a savings or investment plan, which is may be connected to their mortgages so they can hopefully use the money earned to pay off a large proportion of the mortgage at a later date.   

In these uncertain times people like to feel financially secure, which is why fixed rate mortgages are currently so popular. There is uncertainty in the economy at the moment so it is not totally clear where interest rates will go. If you are not fazed by this sort of risk and are looking for a current mortgage deal you can obtain a low rate tracker. However whenever you take out a mortgage you should think mid to long term and be aware that should you miss any payments your house may be at risk.

The best way to start looking for a mortgage is to use our comparison tool so you can compare the best mortgage deals.