Sub Prime Crisis: Shop Around for the Best Mortgage Rate But Be Prepared to Pay More If You Need To Re-Mortgage

For quite a while now we have known that all was not quite right across the pond in the US mortgage market.
Over zealous brokers and lenders have been recklessly advancing heavily discounted mortgages to people on low incomes and no assets. These loans are known in the market as “sub-prime”.
Once the loans came to the end of their discounted period, many of the borrowers - who it is fair to say, were not among the most financially astute – couldn’t meet their new higher repayments and the lenders who advanced the loans look very shaky.
And it now appears that much of this lousy debt business has been repackaged and sold on as what’s called securitised debt and bought by lots of other financial institutions – cue big falls in the share prices of the banks on this side of the water and around the globe.
Unfortunately, even mainstream interest rates could be set to go up as the credit squeeze really starts to hit. This is because, as a result of the credit crunch, the banks have increased the cost of lending among themselves to the highest rate for nearly nine years. (You can see this from the 3 month LIBOR rate (The London Inter Bank Offer Rate - which is the rate at which banks lend among themselves.))
This now stands at 6.74%, almost 1% above the Bank of England Base rate.
Mortgage lenders with no branches and hence access to retail savings will likely be the most affected in the short term and the most likely to hike rates – indeed some alreay have.
Lenders who use funds from their own balance sheets rather than securitise their loans and sell them into the wholesale market will offer the better deals.
The message is - shop around for the best mortgage rate - and if you have ever missed a loan or card repayment before expect to pay more for your mortgage too because lenders will be tightening up their criteria now.
To find out more about buy to let mortgages and the ideal buy to let financing deal ask me.
I’m David Lawrenson from property investment seminar company Letting Focus. I’m the author of “Successful Property Letting – How to Make Money in Buy to Let” the UK’s top selling buy to let book.
I’m a property investment expert , I contribute to newspapers and a host of property websites, write a property investment blog and run a buy to let consulting service
You can read more of my property blog and details of my networking, advice, property advice and mentoring programme and property consulting at my website www.lettingfocus.com.
My next London property networking meeting is in November. Click here for details: Property Seminar Event and I am also speaking at the property investors show in London on 22nd September. I will also be a panellist at a debate in the afternoon at the show. Details here: http://www.propertyinvestor.co.uk/london/seminar.asp
What’s unique about lettingfocus.com is that we are unbiased and independent, because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from any of these sources.
If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.
Copyright: David Lawrenson 2007. This blog is updated at least twice a week
To read archived blogs select a date from the list at the right. To read recent ones, just page down.

Buy to Let - Where and What to Buy in the UK

Apart from the need to avoid buying flats in Northern English towns like Leeds and Manchester - which are ludicrously over supplied with buy to lets already - people interested in getting into buy to let should in general go for 2 or 3 bed terraced houses with gardens as these will appeal to a wider mix of tenant types. They will rent faster.
In terms of areas, London whilst expensive should continue to do well. Rental demand remains strong here and rents are going up quickly. However, yields are stretched currently – and you would do well to get a net yield over 4% but as more people are renting and as rents continue to go up, this should improve and I don’t see house prices falling heavily here.
I also think that attractive coastal towns in Kent will benefit from improved transport infrastructure and will see prices go up. Just don’t expect great yields here because the rental market in thin due to lack of tenants and low employment levels. However, once discovered by second home owners and commuters (better rail links coming), these places will see house price growth.
On a general level, as ever, the lack of supply of property and the continued unending increase in population due to migration will push rents and house prices up long term. Sadly, lots of novice landlord will still manage to get it wrong by buying flats in areas that are either already or soon will be over-supplied by too much stock trying to chase too few tenants.
At the end of the day it’s about supply and demand!
I’ll be speaking about where to buy and what to buy at my event in London on 16th July. Click here for more information: http://www.lettingfocus.co.uk/enews/enews.html
David Lawrenson is the author of “Successful Property Letting.” Go to the main website at www.lettingfocus.co.uk Copyright: David Lawrenson 2007.

How Can I Find a Good Mortgage Broker? - A Guide to Using Mortgage Brokers Part 3

11th June 2007. In the third and final part of this blog on mortgage brokers, I’ll look at whether the commission fees paid out by mortgage lenders to mortgage brokers could result in a conflict of interest and customers getting offered a less than optimum buy to let mortgage loan. (For parts one and two of this topic, please see the blogs dated 24th May and 5th June.)
It’s worth making it clear that mortgages for business purposes – such as a buy to let mortgage loan – do not get the same degree of protection as a normal residential mortgage does, so there is an inherent enhanced risk that a broker could sell you an unsuitable product.
For example, suppose a mortgage broker has two lenders – both with similar products - but one pays him a higher commission than the other. Clearly, the one with the higher commission is more likely to get the business.
Alternatively, the broker may decide to reduce the fee he charges to the customer from the higher commission paid by the lender. (Most mortgage brokers charge their client a fee as well as getting a commission from the lender)
Of course, a problem exists if the customer is not offered what would have been a better product because of commission differentials paid by the lender.
The risk is all the greater if a broker only gets remuneration from the procuration fee paid by the lender (i.e. say, because he chooses not to charge the client at all).
Clearly, in this case, he is going to be more driven by procuration fees than if he is getting paid from both client and lender and will be most unlikely to recommend a lender that does not pay a fee.
It’s worth knowing too, that most lenders now also pay so called, “repeat fees" to brokers. These are paid to intermediaries by lenders if they advise existing borrowers to remortgage with the same bank or building society.
These types of fee are relatively new but the amounts paid have increased in recent years as each bank and society lender tries to stop the loss of business to other lenders.
Clearly, these payments could mean an intermediary encourages a client to remortgage with the same lender even though a better deal is on offer with another lender.
However, don’t be too worried, because as another broker told me “Our business is based on our reputation, so it is not in our interest to recommend a mortgage loan purely based on commission -especially in the buy let arena where we want landlords to keep coming back as they build up their property businesses.”
At the end of the day, as ever, it always pays to shop around. If you use a mortgage broker to arrange a buy to let mortgage, don’t be afraid to ask him what fee he is getting from the lender. Then check on the net that what he has offered you looks good.
But, be prepared to pay him for the work he has put in on your behalf. In other words, be aware, ask questions – but don’t be mean!
David Lawrenson is the author of “Successful Property Letting.” His website is at www.lettingfocus.co.uk Copyright: David Lawrenson 2007.

How Can I Find a Good Mortgage Broker? - A Guide to Using Mortgage Brokers Part 2

For part one of this guide, please see the blog entry on Thursday 24th May.
Clearly mortgage brokers are doing something right because around two thirds of all mortgages are now taken out via a broker, with the figure for buy to let mortgages thought to be even higher than this.
But mortgage lenders are now paying more to brokers so anyone taking out a mortgage may be worried about whether they are being recommended the best product or just one that pays the highest commission.
The payment that the lender makes to the mortgage broker is sometimes called the "procuration fee" - which is just another word for a commission.
Sometimes this is calculated as a flat rate per case – say anything from £150 to £600, sometimes as a percentage of the amount being borrowed or sometimes whichever of the two ways of calculating it gives the highest amount!
Each mortgage lender uses a different fee structure. The amount paid is usually dependent upon the type of product type, who the broker is (and how much business they have put the way of the lender) and what type of loan it is – with more risky “sub prime” loans paying as much as two or even two and a half per cent.
While charges may look high they can work in favour of the customer by saving the lenders money by in effect doing a lot of their work for them.
The lender saves on the cost of having to train and keep qualified sales staff and all the overheads that entails. Many brokers have the lender’s underwriters in our own office and they can sometimes get special deals that are exclusive to them.
Also, the customer can benefit from a faster service because brokers know how to properly complete the lenders’ application forms so that they are right first time.
Also, a really good mortgage broker can also help a customer get a loan where the strict application of the lender’s underwriting requirements would mean that they would not get a loan if they went direct to the lender.
The mortgage broker’s ability to “bend the ear” of a lender will depend upon the extent to which they have brokered good business (i.e. good clients who don’t default) in the past.
In part three, due soon, we will look at whether the fees paid out by mortgage lenders to compete for business from brokers, could result in a conflict of interest and the customer getting offered a less than optimum mortgage loan. Go to my main website at www.lettingfocus.co.uk Copyright: David Lawrenson 2007.

Being Good to Tenants

One lady who came to one of my recent seminars has this tip for being good to tenants.
If they leave the property it in the same condition as they found it she pays a £100 bonus and interest on their deposit.
She finds this is a nice incentive to them to keep the home in good shape with the view that it will pay off when they leave.
Another thing she does is to send a birthday card on their birthdays and a welcome to their new home on arrival. This would normally be a bottle of wine and a couple of nice but cheap glasses in case they do not have any (as unpacking is not the first thing they wish to do as they enter the house.)
She finds that treating tenants this way leads to few problems with them.
I'd agree. Thanks to Jayne for that tip.

Removing Squatters - Part One

First things first, if your tenant decides not to leave when he should -say after the expiration of a section 21 notice - he’s not a squatter, he’s just a former tenant who won’t leave.
For tenants like this you’ll have to use normal court processes to get them out. You must not rely on your own “self help” measures. If it’s an eviction of an assured shorthold tenant following non-payment of rent or because they have not left at the end of the tenancy and after the appropriate correct notices have been served, you can follow the simple court procedures yourself without having to pay for the services of a solicitor.
Real squatters are people who have no right to be in your property, either because your tenant has let them in (and they are not on the tenancy agreement and there has been no agreement by you to allow them to sub-let), or, they could be a third party who has simply let themselves in, while the property was left empty, unoccupied and unsecured.
In effect they are trespassers. (In fact there is no legal definition of squatter!)
I’ll look at what you can do to get rid of them in part two later this week.
Finally, if you are in London tonight don’t forget to come along to my networking / seminar event. For more details on this event see the main site www.lettingfocus.com or go straight to the Events page. http://www.lettingfocus.co.uk/enews/enews.html
Copyright David Lawrenson 2007