Blog Archives

Need an interest-only mortgage? Try a private bank

17.02.2012

With Santander and Lloyds Banking Group tightening their terms on interest-only borrowing in the past week, those who require such a loan may be worried about their prospects of finding one.

Over the past year, many lenders have reduced the maximum loan-to-value (LTV) on interest only to 75 per cent, and required that borrowers provide proof of how they intend to repay the loan from a limited number of acceptable methods. This crackdown followed an early draft of the Financial Services Authority’s Mortgage Market Review, which revealed plans to make lenders monitor the ability of borrowers to find a suitable plan to repay the capital. This will push up costs and is now deterring lenders from offering interest-only mortgages in the first place.

But private banks behave differently. All of the private banks are comfortable with interest only, particularly as their usual terms are five years with a reviewable facility, rather than a 25-year repayment commitment. This means they can review the loan after this time and satisfy themselves that the client will be able to repay the capital.

While high-street banks need to see evidence of a repayment vehicle, private banks are more likely to take a view, especially as they will have more details about the client’s assets and liabilities. High-street lenders, on the other hand, do not usually look at assets and liabilities as they mainly focus on income to service the debt and still presume that the client will take out an ISA or similar to repay the capital.

Interest only suits many of our clients as their income streams mean they rely on dividends and bonuses, which can be used to pay lump sums off their mortgage. If you are in this position and are not sure what to do, speak to Anderson Harris, as we understand the private banks and their criteria.

Jonathan Harris
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Jonathan Harris

Fixing your mortgage for the long term: why you should proceed with caution

02.02.2012

While a number of lenders have been busy raising their rates this week at very short notice (thank you Nationwide), there are others that have been moving in the opposite direction, with quite startling results.

Over the past week, we’ve seen the cheapest ten-year fix – ever – at 3.99 per cent, from Norwich & Peterborough. And we’ve also seen the cheapest five-year fix – ever – at 3.19 per cent from Chelsea Building Society. So what is going on? Why are some lenders raising their rates while others are offering the best deals we have ever seen? And, more importantly, should you be opting for a fixed rate?

Cheap Swap rates (the rate banks pay to borrow from each other) are enabling these lenders to offer such impressive deals. When the price of fixes falls, it means interest rates are unlikely to rise anytime soon. We wouldn’t be at all surprised if there was no movement in interest rates in the next couple of years. But while that weakens the arguments in favour of a two-year fix, a longer-term fix might make sense. If you qualify for one of these deals (you need a 25 per cent deposit for the ten-year fix and a 30 per cent deposit for the five-year version), and don’t plan on moving during the fixed-rate period, they could be a very good option indeed.

Let’s be frank; these are brilliant rates. But if you don’t know for absolute certain that you will be in the same property five or ten years from now, you should avoid like the plague. You might be able to port your mortgage to a new property if you move during the fixed term but this will depend on various conditions being met at the time. There are hefty redemption penalties if you don’t so make sure you only commit yourself if you are certain about not moving.

For those who don’t know and require some flexibility, a base-rate tracker may be a better option than a two-year fix. The initial pricing is better than on fixes and if interest rates don’t rise in the next couple of years, as many economists are predicting, you won’t see increased mortgage payments.

It’s also worth considering that while Base Rate may stay low, lending margins are likely to increase over the year due to the EU banking crisis. These increased costs will be passed onto borrowers – indeed, we are already seeing some lenders do this. It may therefore be worth remortgaging now, rather than waiting, and perhaps opting for a longer-term fix if circumstances allow.

Adrian Anderson
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Adrian Anderson