Offsetting or Overpayments – Which is Best?

In the space of a week I’ve had two work colleagues ask me whether offsetting or making overpayments would be best when trying to save money on their mortgage.

After looking at their individual financial situations each was given a different answer.

Looking into the decision raised an interesting question; when is best to offset, when is best to overpay and when is best to do both or neither.

I’ll be analysing these options in future posts as the topic through up some incredibly useful insights.

In the meantime I feel it important to stress one point.

Even though the people in question were unsure which option was best they did realise two important things…

1) That the opportunity to make savings on the overall cost of their mortgage does exist

2) That it’s vital to take advantage of these opportunities wherever possible as they can drastically reduce your overall repayment figure (and allow you to be mortgage free more quickly!!)

If you too have ever sat there wanting to pay your mortgage off cheaper and more quickly my advice would be to act as soon as possible to take full advantage of any opportunities that exist.

An expert advisor can always proved the information you need at a personal level. For general advice on how best to use offsetting and overpayments keep an eye out for upcoming posts!

Mortgage Rejections On The Up – How Are You Affected?

According to findings by comparison website moneyexpert.com the number of mortgage applications being rejected by lenders has increased by a staggering 60 percent in the last six months.

So, how will this affect you? Well, if you’re looking to take out a new mortgage you are going to find it yet more difficult to find a competitive offer and have your application accepted. If you are a first time buyer the problem could be even worse.

The reason for mortgage rejections increasing is a combination of recent interest rate rises and many mortgage lenders reducing their lending risk. When you factor in the credit crunch brought about by the problems in America’s sub-prime market and the recent Northern Rock “crisis” it is little wonder mortgage lenders are being more cautious.

Consumer debt in the UK is well past the £1trillion mark and with more and more people struggling to meet repayments on their debts the banks have taken the obvious and logical steps to protect themselves.

In the long term this could well be a blessing in disguise. It is generally agreed that one of the main factors that has led to so many people having unmanageable debt levels is irresponsible lending by banks and other financial institutions. If that stops we, as a nation, can hopefully start on the road to recovery.

But what if you are looking for a mortgage? How can you avoid the problem of mortgage rejection? One step that is certainly advisable is to use a reputable broker. Most mortgage rejections result from people applying for unsuitable mortgages. A competent broker is able to avoid this by applying their market knowledge to your individual needs.

If you choose to apply for a mortgage without a broker be extremely careful. Two or three mortgage rejections on your credit history can cause a lot of damage. By all means use price comparison sites to compare UK mortgages but be sure to do your homework and learn about the mortgage process before committing to an application (there's plenty of mortgage guides, tips and information out there) . As always, seek the advice of an IFA if you are unsure of anything.

If you have already experienced a rejection the first thing you should do is not panic. Don’t assume that because you were rejected you will now only quality for the sub-prime mortgages that have courted so much controversy over the last few months. There are still many relatively competitive mortgages on offer and securing one is well within reach if you approach your application in the correct manner.

Are Interest Rate Rises Finally Dampening The Mortgage Market?

It appears we are seeing the first signs that the five recent rate rises are starting to have an impact on the UK mortgage market.

According to an article at Times Online the number of mortgage applications fell by 8 percent in July, down from just over 100,000 to 94,000. With rate rises and continued high property prices putting house purchasing out of reach for many people the figures are of no great surprise.

What is interesting is the continued debate you will see on many prominent forums, blogs and newspaper sites as to whether this is an indication that house prices could be reaching a peak.

Personally I don’t think it does, the demand for housing is still not being met by supply and new properties are not being built quickly enough. These factors will continue to prop up house prices and squeeze buyers to the max.

We may well see house price growth slow down for the rest of the year (but then they always do in the winter months), Come 2008 however I feel we will see a return to the now excepted norm of soaring house prices, people struggling with affordability and continued preaching from certain sectors that prices are set to crash.

It just won’t happen.

Fixed Rate Mortgages Back In Vogue

In contradiction to recent finding by mform The Council of Mortgage Lenders has just announced an upturn in the number of UK mortgage customers taking out fixed rate mortgages in June.

According to findings by CML 90 percent of first time buyers opted for the fixed rate option, up from 83 percent in June of the previous year.

The figure rose from 76 percent to 63 percent for people moving home.

This raises two questions how reliable are these figures, and is a fixed rate deal the right option?

The answer to the first question is; not very. We shouldn’t be surprised at this, different companies have access to different data and have their own ways of measuring change. As such these figures should be taken with a pinch of salt and used only as an indication of the market.

So, is a fixed rate deal the right choice? It makes sense that people want some security in knowing what their repayment will be every month but that doesn’t necessarily mean a fixed rate mortgage offers the best value.

Many people involved in the mortgage industry expect interest rates to peak at 6 percent, there is even discussion going on that rates might already have peak at 5.75 percent as inflation has unexpected dropped to 1.9 percent, below the Government’s 2 percent target.

Taking out a fixed rate deal now could see people tying themselves into high rates while a flexible option such as a discount or tracker rate mortgage could give you the option to benefit from future falls in interest rates.

While we’ve already mentioned that mortgage data should be taken with a pinch of salt the fall in inflation is a more reliable measure of how likely the Bank of England is to raise rates further.

We can never tell what’s round the corner but in my opinion rushing to the alleged safety of fixed rates could leave many people with many regrets in the coming 12 months.

Homeowners Turn to Discount Mortgages

The number of mortgage applicants choosing discount mortgages over fixed rate deals is on the up.

While interest rates have been increasing rapidly many UK mortgage customers have been opting for fixed rate deals. Quite understandably people have been after a level of certainty in what is an uncertain market.

Research from mform suggests the number of applicants selecting fixed rate deals has fallen from around 70% to 48% in the last month. The data also showed that of the near 60% of applicants plumping for variable deals discount mortgage offers were increasingly popular.

With fixed mortgages deals (including the fees) becoming evermore expensive it would seem people are prepared to move away from the ‘safety’ of fixed rates and take a chance on variable alternatives.

With many industry experts tipping interest rates to peak at 6 percent before falling back this could well be a wise move. Other than the initial ‘discount’ the main benefit of a discounted rate is that it reduces in line with falls in the base rate of interest.

The main point being interest rates have risen to the point where a fixed rate deal is not necessarily the most competitive option and fixing your rate should no longer be an automatic decision.

The tides may be about to turn and deeper analysis of the rate type you select is now a vital necessity.

Rate Rise Increases Mortgage Pressure

The latest base rate increase by the Banks of England’s Monetary Policy Committee is set to put additional strain on the UK mortgage market. The latest quarter point raise takes the base rate to 5.75% with many experts tipping rates to top 6% by the end of the year.

Of course this spells more bad news for first time buyers, according to figures from The Council of Mortgage Lenders first time buyers are taking on record levels of debts to finance their first mortgage. Figures suggest the average first time buyer now takes out a mortgage nearly three and a half times their salary.

As well as increased problems for first time buyers there are also more than two million households whose fixed rate mortgages are due to end over the next 18 months. These fixed rate deals were taken out when interest rates were at record lows.

When homeowners on these fixed rate mortgages come to renew a nasty shock awaits with recent rate hikes likely to add between 1 and 2% to the typical fixed rate mortgage offer.

This will add greatly to the mortgage repayments of many people and will be the first big test to rising house prices for over a decade.

If your fixed rate deal is due to end soon it is time to face reality. Your repayments are going to be higher than they have ever been and with the cost of utilities and council tax also at record levels the pressure on your finances will increase.

While it will be hugely important to shop around for the best deal when the time comes it is equally important to start planning for the higher costs now. By putting some money aside each month you can prepare for the larger mortgage repayments you will inevitably have to make and help to ease the burden.

UK Mortgage Customers Still Not Shopping Around

Despite 8 out of 10 homeowners saying a low interest rate is the most important factor when choosing a mortgage 40% do not compare the market before taking out a mortgage.

The latest research from soon to float comparison website moneysupermarket.com reveals only 20% of people look at several options before making a decision on which mortgage is best for them.

With nearly half of those surveyed also saying low fees were an important factor the results are staggering.
Interest rates are tipped to rise again this month to 5.75%. If you are looking for a mortgage take advantage of free comparison services, a quick Google search will find some top sites you can use.

Ignore the headline rates and focus on deals that offer long term value and reasonable fees. Failing to do so increases the probability you will miss out on the best mortgages available. This could cost you thousands in extra fees and higher repayments.

Check multiple comparison sites and weigh up all the best offers, if any doubt still remains get in touch with an independent financial advisor to discuss the options.

Mortgages can get desperately expensive if you settle for the easy option.