Credit crunch effect on mortgages

Financial Services News

23 April, 2008

"The so called "Credit Crunch" is making borrowers pay more attention to their mortgage" advises Peter Toner of Forbes Solicitors Financial Services Department.

Here he offers some useful tips to borrowers who are looking to find a good deal.

1. Build Up A Deposit

The days of 125% loans are now behind us. There is also a limited amount of lenders who will consider 100% mortgages and the number of lenders offering such a service is likely to decrease.

First time buyers should look to have a deposit of at least 5%. With some lenders the interest rate offered is dependant on the amount of deposit. Re-mortgagers should check if they have enough equity in their home to secure a new deal.

2. Once you have found a new deal act fast

At present there could be almost no notice from lenders before a deal is withdrawn.

3. Consider all costs

Before moving to another lender make sure that all costs are calculated for the period of your deal. Arrangement fees, solicitors fees and valuation fees all need to be considered not just the interest rate.

4. Independent Advice

Always make an appointment to see your mortgage adviser to see what deals your current lender can offer you. Then, armed with this offer, consult an Independent Financial Adviser to see if the deal can be improved on.

5. Make sure you can prove your income

Self-employed workers will need to provide certified accounts or will have to go for a higher self-certified deal. Employed people should take care as the earnings they quote will be verified by their employer. The lenders policy on things like overtime and bonus payments need to be checked out because if these are not included it could mean that a higher rate may apply. Or worst still the mortgage application could be declined resulting in all non-refundable items being lost.

6. Do a Credit Rating Check

Before applying for a mortgage it is always advisable to pay a small fee to check your credit file. You could have a black mark against you for something like one missed payment from years ago.

7. Consider the Term

In order to reduce monthly payments it is sometimes attractive to increase the term of the mortgage. Increasing the term will mean that you pay more interest on the amount borrowed. One trick that most people miss is to consider reducing the term. This increases the monthly cost but means that the cost per pound borrowed is less because the mortgage will finish sooner.

8. Standard Variable Rate

When there is uncertainty in the mortgage market some borrowers gravitate towards the SVR as a "wait and see option". It is important not to be permanently in a "wait and see" position because your mortgage has slipped down your list of priorities.

9. A Wait and See Option

A better wait-and-see option could be a Tracker with no early redemption charges.

10. Consider fixing your offset

Offset loans are more popular than ever and are handy for those who keep large savings balances. Recently some lenders have increased their variable rate offsets and some borrowers could now benefit from getting quotes for Fixed Rate Offsets.

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