Are You At Risk? A Free Ebook Report By Stephen Pierce

Are You At Risk? A Free Ebook Report By Stephen Pierce

Good time to re-mortgage for those who can do it

Stricter guidelines, but good deals now available for some

By Paul Delean, Canwest News ServiceMarch 9, 2009



Six months ago, before the credit crunch bit and risk became a cutting four-letter word, obtaining or renegotiating a mortgage was pretty much a formality.

It's harder now. Financial institutions haven't necessarily changed their lending criteria for mortgages, but they do apply them more strictly. "Grey-area" borrowers who would have received the benefit of the doubt a year or two ago might need to apply several places now before finding a taker.

The doors are still wide open, though, for clients with steady income, significant assets and/or a solid credit history. They are, in fact, the object of keen competition between lenders, and as such are in an excellent bargaining position in what is normally the biggest month of the year for mortgage transactions.

With interest rates near historic lows, housing prices plateauing, and both provincial and federal governments offering tax incentives for renovation and higher RRSP withdrawals for home purchases (now a maximum of $25,000 per person), a compelling case can be made for buying, or converting existing home equity into cash now.

That's provided you feel secure enough about your own situation, the overall economy and resiliency of the real-estate market to take the plunge.

Apparently, many people still do. In RBC's annual home-ownership survey, conducted in January and made public this week, 22% of Quebec respondents said they intend to purchase a home over the next two years, up from 21% in 2008 and 19% in 2007.

Though the housing market has cooled in recent months as consumer confidence waned, there's been a noticeable surge in refinancing because of the low rates. Christine Lemieux, assistant vice-president of sales at Multi-Prets, said it started in October and has become more pronounced in 2009.

With low rates expected to linger through the end of the year, "we expect this trend to continue for at least six more months," CIBC World Markets senior economist Benjamin Tal commented this week.

Even with penalties (typically about three months' interest), it can make sense to switch lenders or refinance mortgages at the lower rates, Lemieux said. It all depends on the specific terms of your mortgage agreement.

More than half of Multi-Prets' clients still opt for a five-year fixed term because they'd rather get it over with, have peace of mind and not preoccupy themselves with interest-rate fluctuations, Lemieux said. "It's a question of risk tolerance. They have to be able to sleep at night."

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Help! We need to remortgage but are in negative equity

Q My partner and I took out a fixed-rate 100% mortgage for £123,250 in July 2007, which ends in March 2010. We then revert to the lender's standard variable rate (SVR). Ideally, we would like to remortgage to another fixed-rate as we are not earning enough to cope with big hikes in interest rates. The problem is our house is now only valued at around £115,000. How do we stand in terms of remortgaging? I know it is a year away, but it's already starting to worry me. LF

A The time to start worrying is about three months before your current fixed-rate deal comes to an end. At that point you should find out what fixed-rate deals are available, both from your current lender and other lenders.

However, sticking with your current lender may be the only option. When you apply for a new mortgage a new lender will want to value your property. So if your house is worth less than the amount you need to borrow to repay your current mortgage – which is what you need to do when remortgaging – a new lender may not be prepared to offer you a loan.

Your current lender, on the other hand, is unlikely to require a new valuation and so you should be able to get a new fixed-rate deal from them. However, to guard against the possibility that 100% mortgages are no longer available in March 2010, if you can possibly afford it try to put money aside so you can put down a deposit for the new loan.

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Low interest rates 'offer incentive to remortgage'

Current low interest on standard variable rate (SVR) mortgages could provide "a little incentive" for those considering remortgaging, according to a spokesman from Moneyfacts.

He explained that while historically, standard variables used to be around two per cent higher than other rates on offer, the current rate cuts have made these products "a good, reasonable deal".

Furthermore, he said that while previously customers were inclined to shop around for a better deal when their two-year fixed-rate deal came to an end, current rates mean that individuals may actually revert to a rate lower than their original deal.

"Some people are coming off deal rates of 4.5 per cent and reverting to an SVR of 2.5 [per cent] - bargain," he said.

The spokesman added that while mortgage rates cannot go lower than their current value, they represent an affordable deal for consumers.

A further base rate cut to 0.5 per cent on March 5th represents the lowest rate set by the Bank of England since it was established in 1694.

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Remortgaging rises as homeowners look to tracker deals

The number of homeowners remortgaging has risen, with many turning to tracker products, new statistics have revealed

The number of homeowners being granted remortgages has risen, new statistics have revealed, despite the overall level of home loan lending plummeting over the last year.

Figures disclosed by the Council of Mortgage Lenders (CML) show that the number of remortgage loans being awarded rose by eight per cent in January this year over the previous month - a trend which could bring about a similar rise in the number of individuals disposing of unwanted investments they took out alongside their initial loan.

What is more, the council also discovered that the volume of tracker deals has increased to 38 per cent of the total market for homeowner loans, suggesting that lenders are increasingly looking to remortgage onto cheaper deals.

Remortgaging has been the catalyst for people looking to dispose of an investment such as an unwanted endowment to realise more cash.

A senior marketing executive for aap noted that the majority of their customers have used them to buy their endowment off them following a remortgage.

If they make an offer, aap, Britain’s biggest endowment buyer will always pay more than the surrender value for an endowment.

According to a prominent financial advice website, opting to change mortgage arrangements now could come with a number of advantages.

"Your mortgage deal may have been the best deal at the time you got it, but lenders often limit their special rates to a fixed-term, leaving you with increasing interest rates and diminishing benefits," wrote a spokesperson for Fool.co.uk.

"Remortgages allow homeowners to access great introductory lending rates again."

Statistics published by CML showed that overall mortgage lending declined by 51 per cent during the last 12 months, with the number of new loans being granted plummeting to less than 9,000.

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Have Your Mortgage Cake and Eat It

It’s inevitable interest rates will start to rise at some stage, but when and how quickly is something even the experts can’t agree on.

Fixed rate mortgages are low, particularly for those with at least 25% equity, but will they/can they get any cheaper?

Tracker mortgage rates mirror any change in bank rate, but with mortgage lenders increasing tracking margins, and with bank rate at 0.5%, have you missed the boat?

Unusually, standard variable rates may also look attractive, but are lenders passing on any change in interest rates, as they struggle to retain savers?

If you are unsure what to choose, here are some L&C tips on how you could hedge your bets.

A mix and match mortgage is where you take part on a variable rate and part on a fixed rate. This gives you some security but will also mean you don’t completely miss out if rates fall again. The downside is that you’re likely to pay an arrangement fee for both schemes.

Drop lock mortgages, offered by lenders such as Halifax, Nationwide and C&G, allow you to take a tracker deal, but switch to a fixed rate in the future without penalty.

This might seem the perfect solution but timing your switch will be tricky, and is likely to involve your home being revalued. With house prices continuing to fall, a revaluation could see you move into a higher loan to value band with higher rates, so even if fixed rates generally fall, you could end up paying more. Any switch is also likely to mean a new arrangement fee.

You could also consider a capped tracker mortgage. The tracker means you don’t miss out on interest rate cuts, and adding a cap means there is a maximum rate you can pay, so if rates rise above the cap, you don’t need to worry.

The Coventry and Yorkshire Building Societies and Woolwich have all recently launched capped trackers.

www.lcplc.co.uk/best-buys section of the L&C website.

Whatever you do, L&C’s advice is don’t delay. With lenders reserving their best deals for those with up to 40% equity, and falling house prices eroding your equity, any delay could cost you dear.

For more information and no-fee advice, borrowers should call free on 0800 373300.

-Ends-

Notes to Editor:
London & Country (L&C) is the UK’s leading no-fee mortgage broker. Based in Bath, it provides whole of market advice via telephone and post to clients nationwide. As well as residential mortgages, it also specialises in the Buy-to-Let and adverse-credit sectors.

L&C is a Climate Neutral company and for the last seven years has invested in climate friendly projects and tree-planting to help offset its emissions and those of its customers. For more information, go to www.lcplc.co.uk/green

L&C has won numerous awards including:

Best Mortgage IFA/Adviser of the Year – Money Marketing, 2004, 2005, 2006 and 2008
Best Technology Adviser – Money Marketing 2007
Best Mortgage Broker outside London – Mortgage Strategy, 2004 and 2005
Best National Broker – Mortgage Introducer 2005, 2006 and 2007
Best Overall Broker – Mortgage Introducer 2005
Overall broker of the year – Pink Home Loans, 2006 and 2007
Top 100 company in the Sunday Times Fast Track 100 for 2004 and 2005
Business of the Year – The Bath Business Awards 2005
Growth Strategy of the Year – National Business Awards (Wales and West) 2008
Business Leader (Broker) – British Mortgage Awards - 2008
Online Mortgage IFA of the Year – Financial Adviser - 2008

Press Contacts:

Richard Morea,
Office: 01225 341312
Mobile: 07970 885168

David Hollingworth, Head of Communications
Office: 01225 341211
Mobile: 07710 634044

www.lcplc.co.uk

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How monetary policy influences mortgage decisions

Variable or fixed? It's the question homeowners and homebuyers ask most often and inevitably elicits an unsatisfying answer.

Whether it's worth paying the penalty to terminate a fixed-rate mortgage to obtain the lower rates available on variable-rate mortgages is a calculation that forces assumptions about future monetary policy even the Bank of Canada is hedging its bets on.

Over the past few years, the focus of monetary policy has been inflation control. What this has to do with mortgages is that the principal tool for controlling inflation is the interest rate lever. The bank has set an inflation target of two per cent and interest rates are raised or lowered to increase or reduce borrowing, which in turn stimulates or depresses demand. In this way, the bank ensures demand doesn't overwhelm the economy's capacity to satisfy it and inflation is held in check.

Since December 2007, as the economy has slid into recession, the central bank, in concert with other industrialized nations, has cut its overnight lending rate by 400 basis points to 0.5 per cent in an effort to bolster demand. Clearly, it can't go much lower.

The bank has also been trying to encourage lending by injecting liquidity into the financial system. There has been concern that this infusion of money will be inflationary, raising the threat of stagflation -- inflation with no economic growth.

However, the bank is not "printing money" to carry out this task. Rather, it is purchasing assets, such as commercial paper and bankers' acceptances, from financial institutions that have been unable to trade them because of tight credit markets and replacing them with cash or more liquid government securities.

These purchase and resale agreements are temporary and unwound after 28 days so they are, in effect, simply exchanges of assets with no increase in the monetary base.

Similarly, the federal government's infrastructure spending program should have no significant impact on inflation since government demand is replacing private sector demand. In other words, there is no increase in aggregate demand.

For inflation watchers, this should be good news. And it gets even better. In January, the bank said it expected inflation to return to the two-per-cent target in the first half of 2011 as the economy returns to its potential. It has since hinted that it might be later, sometime after mid-2011.

Variable rate mortgage rates are derived from the prime rate, which financial institutions usually, but not always, set in accordance with Bank of Canada interest rate adjustments. But negotiations on mortgage rates are getting tougher. Lenders are beginning to set variable rates at a premium over prime instead of the past practice of a discount to prime.

Fixed-rate mortgages are based on bond yields, which are market driven and largely independent of central bank moves. Higher yields increase funding costs for financial institutions which raise fixed mortgage rates in response.

As it happens, bond yields have been bumping record lows in a slumping economy, making fixed rate mortgages a better deal than they've been for decades.

So, variable or fixed? It's up to you.

henchin@vancouversun.com

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