The main reason for switching mortgages is to get a better deal and people should not always think that loyalty to one lender is the best approach, especially with a mortgage that can last 25 years.

A mortgage is a financial product just like any other and they are very susceptible to not only consumer market forces, but also the financial markets. Indeed, they could be seen as a fluctuating financial product that just because maybe they are based on a long term deal, does not mean that they are dormant.

The mortgage market itself is in a constant state of flux as lenders adjust their prices to keep abreast of external financial forces, including interest rate changes, and also to adapt to consumer trends and needs.

It is also a sophisticated market and one which requires a degree of research and care, so as to get the best deal. And with a mortgage switch leading to potentially hundreds of pounds less in payments – especially acted upon when good rates are around – it’s always best to do your homework and if you feel in any way intimidated, get professional advice.

And for people with certain types of mortgages – mostly those with a ‘suppressed’ payment element which have a limited time to run, which then revert back to another rate – the exercise of switching mortgages is more a necessity, rather than a luxury if they want to avoid higher repayments. Thus, standard rate mortgages, known as SVRs, tend to have higher payments, than the incentives types which are known as tracker mortgages, fixed-rate mortgages and variable rate mortgages.

And competitively priced mortgages are used as short-term marketing tools in order to get people signed-up. And once that period ends, often in two years, the rate reverts to the rates offered by the SVRS and this then is the most common time to switch a mortgage. Of course, when taking out a special mortgage deal, it is extremely difficult for the consumer to try and guess where the mortgage market will be once their special price has finished.

The worry in the current recessionary times for many people is that they were on such good deals offered at a time when the market was extremely competitive, but they will be forced into re-mortgaging when the market is in the doldrums and many lenders do not want, or cannot afford, to write new business at low rates. Therefore, for those people, switching mortgages is imperative.

If you’re asking yourself, which mortgage should I switch to, then it all comes down to personal circumstances; it is not a matter of one size fits all. It can be a fast and simple process, but it does require some paperwork. Always bear in mind that the cheapest looking deal is not necessarily the right one for you.

It may be that you fancy a repayment mortgage, because the idea of paying off the mortgage capital and lump sum together appeals to you. It may be that an interest only mortgage, which does not repay the capital, with some other financial vehicle should be in place to do so, might also be appealing. Such things as security and flexibility also play their part.

In practice, most mortgages are switched to a limited number of mortgage types. When you switch to a fixed rate mortgage, it means that, for an agreed period, you will be paying, as the name suggests, a fixed amount of money. On the other end of the scale, a tracker mortgage moves up and down tracking an agreed base rate, so can be a little bit of a gamble, but can, if taken out at the right time, save thousands of pounds. The other two products that people often switch to are discounted rate mortgages (an agreed discounted rate for a certain period of time) and variable rate mortgages (rate moves up and down in line with the rate dictated by the lender).

The actual cost of transferring is of course a consideration, but if completed properly, then these are usually outweighed considerably by the savings of the cheaper mortgage. But expect to pay such things as legal, product, arrangement and valuation fees. Also, some borrowers may charge for a switch, or moving out of a mortgage early. As always, read the small print if you want to avoid heavy penalties.

The simple message is, if you have a mortgage, consider swapping it, as you could save yourself a fortune.

Guest Article by Neil Camp

The Financial Services Authority (FSA) has come up with a number of proposals for major reforms of the UK mortgage market.

Their just published mortgage market review discussion paper is an attempt to make a better market for consumers and one that is more sustainable for the participants.

And the active involvement of the FSA in the mortgage markets reflects a changed approach for the regulator, one that is based on a more intrusive and interventionist style of control.

The key features of the review are as follows:

• introduction of affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay;
• ‘self-cert’ mortgages to be banned, meaning that a verification of income is required;
• removal of products that contain certain ‘toxic combinations’ of characteristics which put borrowers at risk;
• abolition of arrears charges when a borrower is already repaying and making sure that firms do not profit from people in arrears;
• mandatory that all mortgage advisers be personally accountable to FSA;
• wish to see FSA’s brief to cover buy-to-let and all lending secured on a home.

Jon Pain, FSA managing director of supervision, said:

“The mortgage market has seen extraordinary upheaval over the last 18 months and whilst it has worked well for the vast majority of borrowers, some have suffered great financial distress. We recognise that we need to bring about a step change in regulation and we need to act now to address the issues we have identified.

“The paper sets out the main findings of the FSA’s comprehensive analysis of the mortgage market. It clearly shows a rapid explosion in mortgage products; the emergence of high risk lending strategies which typically focused on higher risk borrowers; relaxed credit standards; and a mutual assumption by too many borrowers and lenders that the good times could not end.

“The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms.”

The review has also identified that the irresponsible lending practices seen in the market until recently will be curtailed by the FSA’s existing work on capital and liquidity.

The FSA make the point in their announcement that the proposals are aimed at tackling the current perceived problems with the mortgage market. And the regulator stresses that it has not ruled out further change if the initial proposals do not have sufficient effect, including caps on loan-to-value, loan-to-income or debt-to-income.
The FSA paper will be out for discussion until 30 January, 2010, during which time it will actively seek views from the mortgage industry, consumers and consumer groups. A further statement, outlining intended courses of action, will be issued in March 2010.

Guest Article by Neil Camp

The internet continues to influence people’s buying habits and recent research has shown that although more homeowners than ever want to apply for their next mortgage online, the financial services industry isn’t making things easy for them.

The research comes from Foolproof, the UK’s second largest user experience design company, who found that that 42% of those who currently have a mortgage had used the internet when they originally arranged it.

What’s more, the report stated that the number of people who said they had applied for their current mortgage online had risen considerably from 9% in 2007 to 18% in 2009. And of those questioned about their next mortgage, almost a half said they would expect to go as far as apply and buy online.

Then the problems start though, as the users high expectations are more often than not disappointed by what they find. The research found that the mortgage industry has made very little progress over the last two years in delivering what consumers require from their lenders

Tom Wood, founding partner of Foolproof, said:
“The last two years’ economic problems have focused consumers’ minds on the need for better quality information on financial products before committing themselves to a purchase. For mortgages, consumers are rightly trying to research thoroughly the changed market, product availability and lending conditions but are being hampered by the fact that the mortgage industry has failed to make any noticeable progress in improving its online content. The net result is that in 2009 the online mortgage offering is worse than it was in 2007.

“Because it is such a poor experience for most, they are being forced against their instincts and preferences to contact a mortgage adviser rather than being able to do-it-themselves. Sites such as moneysavingsexpert.com and moneysupermarket.com are proving popular in informing online consumers and Google is making some headway in making mortgage-related search results more relevant and rewarding. But the industry collectively needs to improve its game immensely if it hopes to make the online channel more accessible to mortgage shoppers.”

It seems that the online financial services sector has some way yet to go with offering a complete user friendly experience.

Guest Article by Neil Camp

The cost of home loans will rise steeply in the near future say mortgage experts.

The main lenders are expected to raise the cost of mortgages and brokers expect five-year fixed rates will be the main target, but also three and two year deals won’t be far behind.

The pressure comes as banks are having to pay more for funds and a significant rise in swap rates (which influence fixed rate lending costs). This is despite a low base interest rate.

Brokers are advising customers to sort out their best deals at the moment, before such offers are gone for good. For example, a good five-year fixed rate is currently just below five per cent, but this will increase shortly.

What concerns many financial observers is that the banks could effectively kill the recovery if they try to grab too much money from their customers via increased mortgage rates. With things at such a sensitive stage, banks trying to retain their margins will work against a major step forward in the housing market.

Guest Article by Neil Camp

For a long time parents have helped their offspring get on the housing ladder, but a new mortgage from Lloyds TSB has made such assistance official.

Their new mortgage product called Lend a Hand offers first-time buyers a generous 95% of the property valuation. Such a low deposit of only 5% has been effectively unavailable since the housing crisis started.

Offered at a fixed rate for three years of 4.39%, the catch (or opportunity is, whichever way you look at it) is that the borrowers’ parents deposit a sum of money with Lloyds TSB. The sum required is 20% of the property value and will be lodged in a savings account. Whilst there, it will pay a fixed interest rate of 3.5% and although the parents will retain the ownership of the savings, the bank will have legal charge over the money.

The bank will retain legal charge over the savings until the outstanding mortgage falls below 90% of the property value. This would usually occur with a mixture of monthly payments being made satisfactorily and an increase in property prices.

Once the 90% has been reached, the savings are freed up and the mortgage will operate normally for the three year fixed term, and then the holders would have the opportunity to switch mortgage products, or remortgage.

The arrangement fee for the Lloyds TSB Lend a Hand mortgage is a one-off £995.

Mortgage experts generally welcomed the new mortgage deal, although some did make the obvious point that it would only help those with parents who could afford £20,000 to be locked up in the first place. And if parents have such a some of money, they can always add it as a down payment, although it will not then necessarily making a decent return of 3.5% a year. They also pointed out that the Yorkshire building society also offer a 95% deal, although the interest rate is a lot higher at 6.99%.

On the plus side, it does allow the parents a good chance to get their contribution back, it offers a competitive interest rate and with the deposit, the credit score is not as demanding as a normal 95% mortgage, or even one for 80%.

Guest Article by Neil Camp

As the number of equity loans increase as a desperate way of raising cash as the recession continues, observers are urging those considering such a step to proceed with caution.

A number of consumer groups have warned that taking out equity release mortgages in a falling market can be a recipe for disaster. House prices have already dropped 25% and experts are undecided as to whether the falls will continue, or bottom out.

Equity release mortgages are up nearly 20% and they are popular with mature homeowners who have been trying to get by on depleted savings and pensions.

The equity release market is worth some £1.2 billion a year. Some mortgage advisors stand accused of talking potential clients into taking out bigger loans than they actually need, in order to boost the levels of commissions. And the Financial Services Authority found that in 2005, advisers were not properly warning potential clients about some of the pitfalls, including higher tax rates and the disqualification from certain benefit schemes.

The average amount being released by homeowners is around £50,000 and with falling property prices, there would be less equity around to utilise.

But equity release mortgage advisors have hit back saying that after 15 years of major increases in equity in houses, there is still plenty of flexibility for most householders. They maintain that it remains one of the best ways of utilising money that otherwise cannot be touched.

But consumer groups have warned people contemplating such a move, that they should consider a whole array of products that might be better suited to raising money via bricks and mortar.

Guest Article by Neil Camp