Stamp Duty Holiday – Survival of the quickest

Now is a good time to sell your property.

Houses and even flats are flying off of the market like hot cakes.

Now that buyers with as little as 5% deposit are in the mix, they have more choice and are competing with first time buyers and home movers for properties that would have previously been unaffordable and out of their budget.

In terms of applying for a mortgage, the same affordability factors apply (i.e annual salary, debt to income ratio and stress testing).

This new initiative means that those who can generally afford a £200,000.00 property, but just didn’t have £20,000.00 for a 10% deposit, can now buy a property within that price range with a 5% £10,000.00 deposit.

It’s important to note that nothing is ever done as a good will gesture. This kind of lending does present risks to lenders which is why you’ll find that interest rates are a lot higher when a buyer is presenting less deposit and borrowing more (loan to value).

Before the pandemic and the 5% deposit initiate, a 90% mortgage which meant the borrower would of been presenting 10% deposit, had interest rates in and around the 1.89% region. Now for the similar kind of mortgage, you’re looking at 3.49% interest rates. Shocking! That’s almost double!

  1. Find out how much a bank is willing to lend you & get a decision in principle (known as a DIP or AIP)
  2. Look for properties within your budget. See it, view it & make an Offer on the property within 24 hours.

“I called the Estate Agent to arrange a viewing as soon as the property came on the market and within minutes it was gone!“

You snooze, you loose

Remember, it’s survival of the quickest!

Mortgage Payment Holidays: What happens after the 3 months are up…

Mortgage Payment Holidays – You do not get to miss 3 months worth of Mortgage Payments and then continue with your usual payments there after. 

The Mortgage payments that you miss during the holiday period are added to the overall balance of your Mortgage. 

Once the holiday period is over, your new monthly Mortgage payments are higher as your Mortgage balance would have increased due to the 3 months of missed payments being added. 

Your new monthly payments will increase by £10 – £100 or so. This is dependent on your current monthly payment amounts, current interest rate and overall outstanding mortgage balance. 

Find out the facts. Know how much your monthly payments will increase by before committing to a Mortgage payment Holiday… 

The 3 month break is great, especially if you’ve lost your job, have been placed on furlough or are going through financial difficulty, however once that time has passed, your monthly outgoings will increase and won’t be what they once were. 

Some people have panicked and taken a Mortgage holiday because the option is there, it was all over the news and they thought, “why not?”. However in 3 months time, these people will be less pleased when their monthly payments increase by £80 and disrupt their monthly outgoings. 

During the holiday period, save as much as you can so that you are prepared for any further rainy days.

Alternatively, if you can, plough on, cut back a little and avoid the payment holiday all together. 

Does having bad credit mean that I can’t get a Mortgage to assist in the purchase of a property?

No.

Great news. Bad credit doesn’t mean that you can’t obtain a mortgage, nor does it mean that you won’t be accepted for a loan or credit card. 

However, what it does mean is that you will be hit by higher interest rates and less favourable products. 

What is a product and an interest rate?

Interest rate – this is the rate a bank or other lender charges to borrow its money. The current Bank of England base rate is 0.75%

The Bank of England base rate is the UK’s most influential interest rate and its official borrowing rate. It is currently 0.75% – a historically low figure. The base rate impacts all other interest rates. When the rate is low, it costs you less to borrow money, however lenders are free to make their rates as high or low (no lower than 0.75% otherwise they will not make profit – just break even) as they see fit.

Product – lenders bundle their interest rates and incentives in to something called a product. For example a product for a first time buyer with Halifax could mean a 1.68% interest rate over a 2 year fixed period with a 2% early repayment charge and £500 cash back to assist with legal fees. Products vary and can be packaged with multiple or no incentives.

Expanding on the above example, this means that over the 2 year fixed period, your monthly payments will reflect the 1.68% interest rate. If you decide to Remortgage or sell your property earlier than when the 2 year fixed period ends, you will have to pay a 1%+ fee (% depends on the terms) of your remaining mortgage to do so. 

Interest Rates & Products – These are things you need to take in to consideration. Some people would rather go with a lender that has a product with a slightly higher interest rate which allows them to exit the deal early without a penalty. 

These kind of products are good for those that are Remortgaging due to their current product expiring, but wanting to keep their options open and not be fixed in to a lengthy deal as they have the intentions of selling/moving in the near future – within the year or so. 

Does having bad credit mean that I can’t get a Mortgage to assist in the purchase of a property?

No.

Having good credit means that your options are limitless. You can get favourable deals from high street lenders with low interest rates and great package deals.

Having bad credit, defaults and missed payments means your options are limited. You are limited to specialist lenders who lend to people with a less favourable credit file. Due to this, the interest rates are high, come with a product fee and little, but mostly, no incentives. An example of this kind of Lender is Pepper Money.

Someone with “bad credit” will be offered a Mortgage with a 5% interest rate at a specialist lender opposed to someone with “good credit” who has more options and can get a Mortgage from a high street lender with an interest rate as low as 1.42%.

Why do specialist lenders have such high interest rates?

This is because they’re offering something that you can’t get anywhere else – they can take advantage. Having “Bad credit”, you are also a liability. How do they know you are going to pay? How do they know that you aren’t going to continue with the same behaviour pattern seen on your credit file? Interest rates that are 3x higher than their high street competitors mean that a specialist lender reclaims like for like funds 3x quicker than said high street lender. Remember the Bank of Englands base rate is 0.75%. Most lenders have accounts with the Bank of England so benefit from a low base rate whilst also benefiting from the profits of a high interest rate when lending to others.

Bad Credit: County Court Judgement, missed payment, default, settlement of unpaid debt within the last 6 years etc.

Good Credit: Active credit card with less than 20% limit in use, none of the above.

Exception: Sometimes a high street lender will want an explanation for a negative marker on your credit file.

For example, “Why did Mr X miss a payment on his mobile phone bill 2 years ago twice?”

Reasonable explanation would be: There was confusion with the Direct Debit dates and account the funds should be retrieved from. This was resolved with the mobile phone company and won’t happen again.

Be responsible with your credit. Your future house buying self will thank you.

2019 Retrospective

Thank you for your views and engagement from across the globe

August 24th 2018 – TellMeElleCee was born. An introductory post was published and so the journey began!

From August 26th 2018 – Throughout 2019 a variety of posts, Mortgage industry gold and financial hacks were shared. 

The following 18 topics have been dissected and explored:

Here’s to an informative 2020…