IT’S said that a cynic knows the cost of everything and the value of nothing. Or, as one other friend of mine once put it - ‘we want Swedish services for American prices’.
With inflation soaring it’s easy to focus on the actual cost of an item but not the value.
Let me show you some examples of that when looking at your own mortgage and the benefits of using an independent mortgage broker to navigate the issues. I’ll cover rates next week, but some of those can be a £4,000 extra cost over just five years.
When we walk into the high street lender, you are a captive audience. They know that and they know their pricing doesn’t need to be as competitive. In the past we went to the bank because we banked with them and so did our parents, so we expected an arm around the shoulder, and a deal.
Today, most of that relationship is faceless and in a call centre where the time and frustration spent queueing alone, is as expensive as the fees.
When you use a high street lender, you miss out on thousands of available rates, flexibilities and competitive fees available to a mortgage broker, that are just not available as you pop into the local bank.
Don’t worry too much about adverts in windows with ‘no fees’. Product fees range from £1,495 to zero, but the actual overall deal you get is what matters. The cheapest five-year fixed mortgage with no fee will still cost you £1,752 more over five years than the best five-year rate with a fee of £995 up front. You can of course just add that to the loan although you will pay interest on it over the term of the lending.
Most mortgage lenders offer income multiples of 4.5 times a customer’s gross salary, whereas others lend up to 6.5 times earnings, particularly for professionals.
If you have an adverse credit history, some banks will ignore you completely, others will be fine if you have three years clear behind you, and others are just open to talk.
Some lenders have a maximum mortgage term of 35 years, but, with others, it’s 40.
If you decide you want to have an interest only mortgage, you’ll find the door shut in many high street lenders, but those available to the broker allow interest only mortgages with joint incomes of £100,000 minimum, or £75,000 joint applicant. The loan to value for interest only loans also depends, ranging from 50 per cent to as high as 75 per cent elsewhere.
Some lenders are also inflexible with the amount of equity you need to have available in the home if you want an interest only mortgage, with some looking to keep a minimum of £300,000.
When comparing your loan to value options (the percentage you owe on a mortgage against your house value) there are wild variations. Most lenders offer around 95 per cent LTV, but some lenders have a maximum loan of £600,000 and others £400,000 when borrowing at that level. Remember the lower your loan to value the greater loan you can apply for.
There are also maximum loan amounts, with one lender at £10,000,000, and another at £750,000.
Much of this is very relevant when you apply for a loan because of the footprint you leave behind which could jeopardise future lending.
Each time you apply, a full credit search is made which leaves a permanent record on your credit rating. Lenders do not like to see this. They wonder why you have been applying and not achieving your loan, so naturally your score, and then ability to borrow is lowered.
An independent mortgage broker will ask all the relevant questions and then research intensely and only apply to the lender that will accept you, and also to the lender with the very best rates. This is called a decision in principle, and they make no stain on your credit score. You can then go look for the house you want.
They then pick up the application, deal with the lenders direct, and avoid you having to sit in queues. While the time and frustration saved is obvious, from the research I have in front of me for next week’s column from Pat my mortgage director, the savings are also colossal. Less work for more gain is always a bonus.
Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a mortgage query, please email my mortgage director Pat Greene on email@example.com or call 028 6863 2692