Mortgage Lender Inefficiency and Housing Market Failure
One of the curious aspects of landlord behaviour is a failure to look beyond the initial mortgage rate deal terms. And comparison sites don’t help as they rarely say what the follow on rate is once the initial attractive deal period ends.
I have seen many mortgage deals recently where you will see some great headline rate – but it’s only valid for a year or two.
But take time to contact the lender and look behind the headline and you may see the “follow on rate” after the first year or two is 5% or 6% above Bank of England (BOE) base rate or, potentially even worse, “our standard variable rate” (which is, of course, whatever the lender feels like it should be and is usually not linked to BOE base rates.)
So I always advise landlords who buy and let property for the long term to look at the “follow on rate” on any mortgage they are taking out.
By doing this, they will often find they are actually better off paying a higher initial rate if the follow on rate for the rest of the mortgage’s life is much cheaper as they will have the benefit of that for the long term as soon as the initial special term of the deal has ended.
This is particularly the case in these days of high application fees and exit fees – which makes switching a mortgage an expensive business.
Is Your Mortgage Company Efficient?
But there is another issue to consider – the efficiency of the mortgage company. And this is still hard to get a feel for.
I have recently taken out a great buy to let mortgage tracker deal in which the follow on lifetime rate is very competitive, but the turnaround time of this lender has been absolutely appalling. It is far and away the worst I have ever experienced.
Alas, too many mortgage lenders are far too slow at turning around mortgage applications. This was a point I made in the first edition of my book very forcefully. And it is still true today and is made as forcefully as ever in the new edition of the book.
In the book I say, “It never matters how quiet the mortgage market is, many lenders just don’t have enough people to service mortgage applications or other aspects of service.”
With this lender, I have now been waiting 43 days since a survey and valuation was done on the property I wish to buy with their mortgage funds. The lender has had all my documentation now for a whopping 50 days.
Naturally, the vendor is getting very cross and is threatening to put the property back on the market. I don’t blame them.
The lender says the reason for the delay is because they are inundated with applications because their mortgage rate is so attractive.
Well, if that is the case, they should have stopped marketing the mortgage (they haven’t) and dealt with the backlog of applications.
Sometimes mortgage brokers will know which lenders are relatively fast, which are slow and which are turkeys.
So, this can be an argument to go through a big broker – and they may possibly have clout to speed things up too. (With this particular lender readers will be interested to know that it seems to matter not that I am a well known buy to let blogger and columnist in terms of how I am treated. I am waiting in the queue with everyone else.)
There are many awards for best mortgage lender. There ought to be awards for the turkeys too – those with appalling service.
The award could be awarded by say 20 brokers who all vote secretly a la Fifa. That way the lender would never know who voted for which lender and would be unable to punish any broker with retaliatory loss of business.
Housing Market Failure – the Costs
What is the total cost of housing market failure?
What do I mean by failure? Is it the number of people sleeping homeless on the streets? No, I suggest it is much more than that.
The total cost would include anything that is done by anyone to help people get a house to live in.
So, for example, if there were more than enough of the right type of houses in the right locations for everyone on any budget – including yes, social housing and private accommodation – then there would be no need for the myriad of conferences on housing that exist. Also, there would be no need for lots of salaried executives and staff working in housing in local authorities, housing associations, charities and bodies like the CIH.
So, do I know the cost of housing failure?
Well, I don’t know the figure, and I’m not sure anyone else has done the maths either, but add it all up and it does not come cheap – and of course, it has kind of just “crept up on us” as the governments of different hues attempt to deal with what is a market failure in housing.
Suppose you went back in time to the end of the era of council house building. And you said to the government then, that we would, in the future, stop building new council housing. And the total cost of the sticking plasters to fix the problems that resulted from this decision would be £X million or billions per annum.
What would the decision makers of the past have thought? I think they would change track and maybe have done things differently.
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