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  • Mortgages & Finance

    What makes a Good Mortgage Deal in the current climate:

    Good, as far as mortgages are concerned, can be defined as Desireable, Better than the current range of mortgages or a More Attractive mortgage product.
    Halifax have recently announced a mortgage package for First Time Buyers. The mortgage is nothing special, in fact the rate is slightly higher than most First Time Buyer Mortgages.
    The Halifax rate is 7.49% with a £999 fee fixed for 5 years and a max LTV of 90%.
    The best of the current crop of First Time Buyer mortgages (like for like) is C&G’s rate is 6.59% fixed for 5years fees are £995. Redemption penalties are the same as well. They do not pay your Stamp Duty. This extra incentive from the Halifax means that a First Time Buyer would be saving atleast £1,750 on their legal costs.
    The added benefit is that there is appears to be no overhang of redemption penalties as is usually the case with some sort of financial incentive from a lender.
    Yes over 5 years the higher rate will mean that you will end up paying more than the Stamp Duty the lender gives you, but this product is designed with the FTB in mind, who does not want to spend money on a Tax and would rather the funds go towards their deposit.
    Regards
    Wasim
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    Wasim,
    Thanks for kicking off the conversations. It should be educational for all.
    Lets pick the concept apart just a bit.
    1st. The fact that the lender is paying the fees up front is the same as borrowing a bit more and paying the lower rate. In other words the true interest costs can be computed. In the US we call this the APR rate and it includes the fees, etc. so you get a real sense of what one is paying in interest.
    2nd. It does not seem to be common knowledge that a 5 year fixed or a fixed for longer can still be a good idea for a borrower even if the short term rate is lower. In the US we have 30 years fixed products. about 50% of the loans taken out are 30 year fixed. Granted most have no overhang periods so people are not locked in if rates were to drop further.
    Back to the my point about the UK. Too much focus is on the starting position and not enough attention is paid to the future impact. As you note a 5 year fixed provides peace of mind for 5 years. The odd part about 2 year deals is how people just assume their credit will be good, they will have income, the value of the house will be stable or rise and the lenders will want to lend when it comes time to get a new loan in 24 months. As we have seen over the last 12 months there is no guarantee that a borrower will be able to find a new solution even when they are only locking in for 2 years.
    The forum is mostly for investors. My perspective is a person should lock in the rate for a long while (or use a conservative tracker). We make most of our money when we buy and from holding long term. Cash flow and rental management is mostly a damage control exercise in that the best you can do is limit your expenses. You rarely make money from the cash flow side. You get the market rate and there is little you can do to make the property perform any better than the average (voids, maintenance, income). Hence the secret sauce is buying smart and then holding long term.
    What sort of fixed products are out there for investors? 5 to 10 year fixed products is mostly what I wan to hear about. What are the best tracker products on the market for an investor?
    Tangent. Locking in with a pre-payment penalty might be a problem when prices are rising 10% to 20% a year as investors commonly want to refinance to pull out equity. I suspect most investors would say they do not expect prices to rise much at all in 5 years so being locked in will have little impact to the buy and hold investor.
    John Corey
    https://www.ChelseaPrivateEquity.com/blog
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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

    Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.

    Hi
    You really do need to look at the total cost, not just the lower rates being offered
    I am just sorting a mortgage now – (mortgage val being done tomorrow) and this is with The Mortgage Works for £100k at 5.89% fixed for 3 years with 0.75 arrangement fee.
    Funny thing is – if I had applied 1 day earlier the rate was at 5.69% and just went up in last week or so – so missed that one but back to the point
    They do have a lower rate fixed for 3 years but arrangement fees at 2.5% or even 3.5%.
    The 3.5% arrangement fee is tied to a 4.99% rate so fee of £3500
    My 0.75% arrangement fee is tied to a 5.89% rate so fee of £750
    Yes this can be added to the loan but you are kidding yourself if you think this absolved you from paying it – it still needs to be paid – either by selling the prop or remortgage the prop (which may get harder if you keep loaded the loan with fees)
    To complete the picture, the monthly mortgage cost on the 4.99% would be £430 and the monthly cost on the 5.89% is £494
    So– the difference in interest in month is around £64 or in total over 3 years, my higher rate is costing an additional £2,308.
    However - This means the 3 year total cost with arrangement fee for 4.99% is £18,994 and for the higher rate of 5.89% with arrangement fee is £18,553 – So overall I still make a £440 gain by going for the higher rate.
    Now the most important part in this for me are the facts that:
    1 – I have not loaded my mortgage with fees so at the end of 3 years I have a £100,7500 mortgage not a £103,500 mortgage. – all of a sudden in real terms I am better of far more than the £440 difference
    2 – As this place will rent for min of £850 pcm – the additional £64 per month in interest is best covered by my tenant – not me. I would much rather have them make up this payment each month and have less taxable profit on this than have an arrangement fee of £3500 added to a loan that I have to pay. I always prefer someone else to pay my bills
    So the point behind all this is that you need to always look at the big picture – not just the low rates
    And finally - if the above numbers do not make any sense to you – you should not be investing in property
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    Great Post Mark
    Total Cost Of Ownership is what is important..I get a lot of Rate Whores (lol) in the office, who seem to think that the rate is the only thing that matters...Then when they get there KFI/Mortgage Offer, they wonder why the Arrangement fee is so high...and as the figures no longer stack the deal sometimes falls out of bed. TMW as you pointed out charge 2.5% Arrangement Fee on their best rates.
    When we source mortgage products via Trigold we can look at Total Cost, and 99% of the time the Best Rates are no where to be seen.
    Regards
    Wasim
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