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Your Money > Mortgages Articles > Beat the crunch...
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By Richard Evans
If you need to remortgage soon, here are two key words of advice: don't panic. Yes, it will be harder than before the credit crisis came along, when lenders would fight for your business. But there are still plenty of deals on offer; the vital thing is to start looking early and prepare thoroughly. "Three things have changed since the crunch hit," says Richard Morea of London & Country, the mortgage broker. "Firstly, lenders are being more thorough and restrictive when scrutinising applications, so you need to start the whole process earlier, say four to five months before your current deal expires. "Then, when you find the right mortgage, act quickly: get your application in right away." This is because good deals do not remain available for long, he explains. "Before the crunch, particular mortgages might be around for a month or two and you'd get a week's notice of withdrawal," says Mr Morea. "Now they are around for less time and may be withdrawn without notice." The third change is that interest rates will be higher than on your current loan, especially if you're coming off a two-year or three-year fix, while fees have also gone up. "There are plenty of deals available though - it's a question of shopping around," says Mr Morea. So how should you go about finding your next home loan? The best place to start, say mortgage experts, is to give your existing lender a call. This is for two reasons. Firstly, you need to know exactly when your existing deal ends and your outstanding balance, as well as any fees payable to close your loan. In particular, check that there will be no "early repayment" charges; on some loans these fees are payable even after the end of any special rates. The second reason is that your lender may make you a good offer of a follow-on mortgage in order to retain your business. Otherwise, it's time to start researching the market. But should you do this yourself or enlist the help of a mortgage broker? "I recommend a bit of both," says David Black of Defaqto, the financial data provider. "Look at some comparison websites and talk to a couple of brokers. Make sure you check that they have every loan available to them and ask about their fees." Some charge borrowers nothing as they receive commission from the lender. One reason why it's worth doing your own research as well as using a broker is that some lenders have recently stopped accepting business through intermediaries, says Defaqto. "This is because lenders have only limited amounts of funding available and are therefore concentrating on lending to borrowers of higher credit quality than in the past," the company adds. "There's nothing to stop brokers recommending a 'direct only' mortgage but the broker would have to charge the borrower an advice fee, otherwise they won't earn any commission," says Mr Black. Some brokers will still bring "direct only" loans to borrowers' attention or charge a fee to help with the application; others are able to actually submit the "direct" application on behalf of the homeowner. Among the lenders not supplying mortgages via intermediaries are Yorkshire and Derbyshire building societies, ING, Egg and HSBC, whose offer to match certain borrowers' existing fixed rates as low as 4.54 per cent is attracting a lot of interest.
Mr Black says: "The reduction in supply of mortgages generally will mean that people seeking home loans will have to carry out more extensive research into what is available. Before the credit crunch, mortgage lenders sought out borrowers; now the boot is on the other foot. Unless people are prepared to go to considerable effort to secure a mortgage, they may not find the best deal." When comparing mortgages, be sure to look at the total cost of the loan (ideally over the period you expect to have it, such as the length of the fixed rate) rather than just the headline rate of interest. "Watch out for mortgage fees, as some can be very high," says Mr Black. "And some lenders offer as many as eight combinations of fees and interest rates for one mortgage." A low rate means a high fee and vice versa. "You also need to consider any early repayment penalties, valuation fees etc. Working out which combination is best for you is a difficult calculation, but a broker would do the sums for you," he adds. Using a broker is almost essential in certain circumstances. If, for example, your credit history is not perfect, asking a broker is probably your only hope of being accepted for a mortgage as the criteria for these "credit impaired" borrowers are very complicated, says Mr Black. "Brokers will know how to present your case," says Richard Angliss of Home Buyers Systems, a company that supplies mortgage brokers with their software. "If you have some minor county court judgements against you, for example, a lender you approach directly might just say 'no chance'. But a broker may be able to explain all the circumstances to good effect." Mortgage brokers are also experienced at handling the application process and can help to ensure that you switch to your new loan at exactly the right time. They are less likely to be caught out by sudden withdrawals of particular home loans and sometimes have access to exclusive mortgage deals. It's a good idea to check your credit history before you start applying for mortgages so that you don't leave a "footprint" by asking for loans you are unlikely to be accepted for. If you check your credit file early enough, you will have time to correct any mistakes and get a flawless record before lenders start to look at it. "Lenders can cherrypick more now, so a good credit history is more important than it used to be," says Mr Morea. Another part of your preparation for getting the best mortgage deal is to work out roughly how much you will need to borrow as a percentage of the value of your home. Your existing lender can give you your outstanding balance, so you just need to find out what your home is worth to calculate this percentage, which is also called the "loan to value" (LTV). There are certain levels of LTV where lenders tend to start charging higher rates of interest - typically 75, 90 and 95 per cent, according to Mr Morea. If you calculate your LTV and it turns out to be, say, 91 per cent, it may be worth while to bring your mortgage balance down - assuming you have some spare cash - to below 90 per cent, potentially making you eligible for some more competitive home loans. On a typical property worth £200,000, for example, this may involve transferring roughly £2,000 to your mortgage account. There is one final possible pitfall. When you apply for a remortgage, the new lender will usually get a valuation. If the valuer puts a significantly lower value on your property than you were counting on, it could increase your LTV and make you ineligible for the deal you were applying for. So Mr Morea recommends taking the usual steps that sellers use to impress potential buyers when the valuer calls, such as making the house and garden tidy and getting rid of any unsightly junk. However, some lenders keep the cost of valuing low by using computerised records of property values or by commissioning a "drive-by" valuation. If you think either of these methods might result in your home being undervalued - if, for example, you have recently added an extension that cannot be seen from the road - it is worth while giving details on your mortgage application form. So start early, check your credit file and research the market thoroughly and you can beat the credit crunch and walk away with an affordable mortgage deal. Useful links: |
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