This blog comes from Oportfolio Mortgage’s Senior Mortgage and Protection Advisor Jade Pinkerton.
I had an appointment yesterday with some clients and it was an interesting conversation to say the least. We discussed many things, but one thing in particular was quite prominent in the discussion and it made me wonder if a lot of clients are thinking similar things or getting mixed messages.
Media / Martin Lewis:
- My clients were quite cautious about any discussion of mortgages and wanted to keep abreast of everything that is happening with the rising cost of living and rates etc.
- They watch the news regularly and follow Martin Lewis and his regular appearances on daytime TV, as they view him as an easily digestible and an easily available ‘fountain of knowledge’.
- They had written down things he had mentioned or things they’d seen in the news and wanted to discuss these with a professional advisor (the right choice) It is a good job we did discuss it though as lots of the options suggested by Lewis would have caused long term problems for them, or wouldn’t even be available to them.
Martin Lewis has commented a lot on Good Morning Britain about changing your mortgage to interest only for a few years.
The idea being:
- The borrower can benefit from lower monthly payments, and this should help them cope with the other costs that have risen such as food and utilities.
- Lewis/Good morning Britain have suggested doing this for a couple of years and changing back to repayment once rates have gone down again (a short term solution)
However there are massive pitfalls with this – it is terrible advice in our opinion.
Why Interest Only Might Be A Bad Idea Right Now
- Most indicators of rates and the markets suggest that we will have a ‘new normal’. Rates may not continue to rise, but many expect them to settle at 3% or 4%, rather than the 1- 2% that people got used to. Therefore if clients go onto interest only for 2 years it just means they are further behind on their repayments. When they change back to repayment they will not be used to the rates like everyone else will be, and they will have more to pay back – so it can end up more expensive as they may have to extend their term to make it affordable and therefore pay more interest overall.
- Banks have INTEREST ONLY CRITERIA – generally, most people would not qualify for an interest only mortgage, the banks often require minimum income requirements (which vary from lender to lender but are roughly £75k – £150k), most banks also insist on only 50% of property value being on I/O, and they also want minimum equity in the property (usually £300k).
- The banks have been told to be more considerate and offer interest only AS AN EMERGENCY – for those clients that cannot afford their current payments, so if you really are struggling to make the payments it is potentially possible to agree with the bank to change to interest only so that you still make monthly payments, but they aren’t as high, and it doesn’t ruin your credit score by having ‘missed payments’. HOWEVER, again I would recommend speaking to an adviser before speaking to your bank. They can provide you with many options and advice. It isn’t always a great thing for the bank to make a note on your file saying you cant afford your mortgage!
- The other issue is that when people go onto interest only mortgages, they get used to those payments. So they never want to change back to repayment. Or when they do, they have high monthly payments as they have a much shorter term available to pay it down. If they stay on interest only, when they are near to retirement age they haven’t built up the equity in the property they hoped and also need to suddenly find a lot of money to pay off the mortgage before their term ends – so feel forced to sell and downsize. This can be very stressful to clients. It also means that those that really don’t want to move home have to take expensive equity release mortgages.
Forget Martin Lewis, get mortgage broker advice tips from Oportfolio Mortgages!
- Get in touch with your adviser 6 months before your rate is due to expire
Most people who have remortgaged before know that they need to do this 3 months in advance, but the issue is that a lot of people are unsure what to do and so simply stalling or doing nothing at all – this is the worst solution. Starting the conversation at 6 months gives you plenty of time to get organised with your plans/ preferences / documents. It also allows plenty of time for the banks and legal team to conduct the work.
It allows you to secure the most competitive rate available at that moment, but do not worry, you are not tied in at this stage – you are just securing the rate. Over the next 6 months your adviser will keep an eye on rates for you, if rates rise then you will be pleased that you secured your lower rate when you did. If rates fall then it can be a relatively simple process for your adviser to change you to the lower rates available while also keeping your case in the same stage of the process (i.e. you wont have to start the application again).
I have one client who had used a very well known national broker originally (2 years ago), then they wanted to remortgage so contacted them again. They were told their options and not given much advice or ability to talk things through. They ‘just did the same again’ – with regards to a 2 year fixed. Then the markets and rates all changed and the clients asked if they still have the best thing secured – The broker told them they did – but they weren’t convinced because of what they had seen in the media.
They contacted me, I gave them a second opinion, lots of advice with regards to rates, fixed, trackers, discount etc, and I was able to get a much more competitive rate than the other big broker did. We secured this for them, then when rates went down again, we told the clients and then secured the lower rate. Meanwhile, the other broker was not willing to amend their previous application – it just seemed that they didn’t want to do the work again or even care about the clients.
Dealing With An Expert Mortgage Adviser Like Oportfolio Mortgages
A good adviser will be able to help you and advise on the market, the rates and options most suitable to your objectives, preferences and future plans. A sub par or bad broker won’t care about what is best for you, they will only care about the commission. It isn’t just about considering the mortgage as a one off transaction, it’s a long commitment that needs to be handled with the utmost care. My clients don’t just get advice and guidance on their mortgage, they will also receive advice on protecting their financial stability with insurances – which is more important than ever now.
If you or anyone you know has had a nightmare with other mortgage brokers and are looking for a high quality, experienced, and professional mortgage adviser, call our team today for a free initial consultation. We are here to help.