Beware of Mortgage Lenders Advice - It may Cost You

I read in the Daily Telegraph, 3 great quotes from Warren Buffet, the “Sage of Omaha” and one of the world’s most brilliant stock market investors.
He was talking about stock market investments, but his comments could equally apply to buy to let – and the way that many novice investors have bought the wrong kind of property, egged on by property companies / agents masquerading as property experts.
Here are the quotes:
On investing generally - “Never invest in something you don’t understand” and “Seek only to be fearful when others are brave and brave when others are fearful” (I kept that quote in mind when I bought Barclays stock last week!)
On the credit crunch – “You only find out who was swimming naked when the tide goes out”
Great stuff isn’t it.
Of course, readers of this column will already know my opinions of those robbers – the mortgage lenders.
On this subject, I see brokers and lenders are now cashing in again. David Whittaker of Mortgages for Business was quoted by the Residential Landlords Association. He pointed out that nervous investors were buying short-term fixed-rate mortgages that may be inappropriate.
This is because whilst many buy-to-let lenders are offering extremely competitive headline rates, they are gaining their margin through massive arrangement fees of up to 3% that can be added to the mortgage - and hence repayments.
Of course, those with savvy will know that finding the most competitive mortgage means looking at the fees as well as the mortgage headline rate so you can see whether it is a good deal overall.
As a long term finance strategy for those holding on to property short term fixes are rarely appropriate.
Surely, the only reason for brokers and lenders offering these mortgage deals to buy-to-let investors is the potential re-mortgage business in 12 months’ time -i.e. another chance to get more commission for the broker and another juicy “arrangement fee” for the lender.
If you need more advice on buy to let mortgages or property investment in general, please ask me. I’m David Lawrenson from property investment mentoring firm www.lettingFocus.com
I’m the author of the buy to let book “Successful Property Letting - How to Make Money in Buy to Let” the UK’s top selling property title.
I’m an expert on buy to let and a well known property speaker and I contribute to newspapers and a host of property websites, write a property investment blog and run a property mentoring service
My business is now increasingly focused on providing consulting help to banks, building societies, housing associations and web portals to help them with their buy to let and property products and services.
You can read more of my property investment blog and details of my networking, advice, property seminar programme at my website www.lettingfocus.com.
My next London property invesment networking meeting is on November 14th. Click here for details: Property Investment Seminar
What’s unique about lettingfocus.com is that we offer independent property investment help 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. Permission must be sought before using the material in the blog.

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
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Mortgage Rates Could Go Up Even Without An Increase in the Base Rate

The recent contagion in the US sub prime mortgage market has led some commentators to think the BOE will probably hold base rates at 5.75% to help the credit markets out. Normally this would mean that mortgage rates will not rise further.
However, there is a nasty side effect to the credit crunch which means that if you have a mortgage with Northern Rock or another lender which is heavily reliant on the wholesale markets to raise funds, its still likely that you could see an increase in your mortgage rate even in the absence of any base rate change.
To a greater or lesser extent all mortgage lenders are suffering as liquidity levels in the credit markets have been squeezed. Rising wholesale funding costs mean that lenders will have to tighten up their own lending criteria, particularly those lenders dependent on wholesale funding. The credit crisis means that the cost of funding is increasing and as most lenders can’t cut margins any more, so the pricing of mortgage products - i.e. the rate they charge you - could be affected.
According to the FT, Mortgage PLC, a subsidiary of Merrill Lynch, has increased rates by around 0.75 percentage points, while Kensington is about to increase rates too. Other centralised lenders with no access to retail (savers) funds have also closed for new mortgage business. Accrding to the FT, DB Mortgages, Infinity Mortgages and Unity Mortgages all withdrew their subprime mortgage ranges last week.
The problems are less likely to affect those lenders who use funds on their balance sheet rather than securitise their loans and sell them into the wholesale market.
So, shop around. If you are a good risk, there should still be some good deals around.
To find out more about buy to met mortgages ask me. I’m David Lawrenson from property investment consultancy 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 speaker, I contribute to newspapers and a host of property websites, write a property investment blog and media commentator on the residential property market
You can read more of my property expert insights and details of my networking, advice, property and buy to let seminar programme and property consulting at my website www.lettingfocus.com.
My next London seminar is on 10th September 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.
Copyright: David Lawrenson 2007. This blog is updated at least twice a week