Any mortgage brokers online

dunstonh

I'm a little worried about how 'rate chasing' is becoming more important than 'risk profile'.

Spot on. Although perhaps I would be using more than 1% as a guide to affordability.

The way advice and compliance (regarding upheld complaints) has been going, you need to document the eventualities in the key areas and for mortgages, the interest rate going up is a key issue (in the same way as value going down is for investments).

People are encouraged to complain when judgement calls dont pay off. This site encourages it just like many others.

Look at endowments. They were a judgement call. Cheaper monthly payments than repayment, potential for lump and had for decades never failed to pay big surpluses. Even Which? promoted them as best buys (and now they tell you to complain). Then the short term boom/bust period ends, inflation comes down and that doesnt work well for endowments and they start to fail (despite everyone doing financially better overall) and the complaints about endowments start.

What is generally not as well known about complaints is that most are not upheld. Out of a typical 1000 complaints, only 25 complaints are upheld. However, a further 225 complaints have to have to have redress paid on them because the documentation was not up to scratch, gone missing or doesnt cover key points (that should have been in there and may have been discussed but because its not on paper, it didnt happen).

So, ditch the fix and switch to tracker is, for a broker, a judgement call and they better make sure they document it well and ensure affordability is there for a much higher rate for readiness for when the rates start to increase again next year.

jrs101

dunstonh wrote: »

for when the rates start to increase again next year.

Thats a bold statement - what makes you think rates will increase next year ???

dunstonh

jrs101 wrote: »

Thats a bold statement - what makes you think rates will increase next year ???

It was written as a bold statement but it is more of a potential scenario.

There is an increasing number of economists that feel inflation will begin to rise again towards the end of next year (mainly due to fuel going back up again) and that interest rates will be able to rise again as the recession begins to ease.

no-one actually knows what is going to happen but people expect advisers to guess right every time and when they dont they complain. That is unless they cover themselves and correctly discuss and document the risks.

As I said above, Which? used to recommend endowments (standard life was their best buy for most of the period yet Prudential has turned out best so far). Yet Which? ignore that and now have template letters to complain against advisers. Yet you cannot complain if you followed Which?'s advice.

So, if the interest rate rise scenario comes about next year or the year after, there is a risk of people who have paid thousands of pounds in fees to get out of one product find themselves worse off than the product they were on in the first place.

There are some precedents going on regarding switching/transferring out of guaranteed products into variable and how the FOS will react. At this time the FOS are upholding virtually all complaints about transfers from defined benefit pensions to money purchase (the defined benefits scheme being fixed and money purchase being variable). This is even when the critical yield (the interest rate) is favourable to transfer. Another one is where there are guaranteed annuity rates (a fixed income but not usually the best rate of return on the investment) and coming out of that into an investment with better potential but no fixed income rate. Again, the guaranteed option is considered better. These may be a different product class but the principle is the same. If you are getting a client to pay thousands of pounds in fees to go into a nother product which may involve the removal of guarnatees then you are asking for trouble unless you have a damned good reason.

HelpWhereIcan

jrs101 wrote: »

Thats a bold statement - what makes you think rates will increase next year ???

Has been the feeling given by many industry commentators, Bristol & West one of them

http://www.bristolandwest4brokers.com/brokersupport-experti.aspx#2

Bristol & West Mortgages Predictions


Base Rate

End 2008 2%

End 2009 4%

Having said that, their crystal ball is no better than anyone else's and you need to make your own decision based on research and advice and opinion you receive.

This is one of the reasons why I think ditching fixes is not a great idea for most people and most will lose in the long term.

Ditching the fix has an element of chasing the market and risks people losing out not just by "buying high and selling low" but also by paying fees to do so. All this goes against the sense of getting a fixed for security despite the potential to pay slightly more IMHO.

However, it is mathematically possible to be better off, even if that puts you in the minority.

The one calculation I would add that needs to be done is to look at the total cost over the full term of the mortgage as this takes into account and illustrates 2 very important things:

1. The effect of paying and adding the early repayment charges to the mortgage balance.
2. The effect that may be seen by switching to a lender with a less competetive standard variable rate - important as shown by the fact that many people are being forced to stay on SVR at the moment and likely to be so for 3 years or more IMHO.

I would also add that people should consider and compare their current and proposed lenders based on the following rather than just the headline rate/short term deal:

1. Retention policy - will the lender offer a new deal at the end of the short term deal - very important to those of us (the majority) who risk losing a lot of equity/their jobs/good credit history over the next few years. If times are tough and you are unable to remortgage you will kick yourself for leaving a lender who would have offered a retention deal for on that does not (the opposite could also happen and could be an argument to ditch even if the figures are borderline in favour).

2. Whether the lender's SVR is a traditional one or Tracker based (trackers likely to be a thing of the past for the next few years).

3. Whether the new Tracker/Variable deal (if that is what people plan to switch to rather than just getting a better fixed rate) offers a 'drop lock' or 'switch & fix' style option.#

I would also suggest that Martin actually advises people to pay a fee to a broker to do the calculations and comparison - that is the only way they can be sure that the temptation of commission does not factor into the broker's thinking meaning they 'make the figures fit' whether through manipulation or selective explanation.

I would suggest a fee of around £150 - £250 as being fair (and not just cos it's what I would charge:D )

Other than that a good idea that people at least look.