Brokers' High APRs

matheo44

Hi everyone,

This is my first post here.

Although, before I start, I wanted to send a massive THANKS to the MSE community for all the interesting topics posted here!


I am looking into buying a flat and I have compared tons of mortgages online.

Also, as per the MSE's mortgage guide suggests, I got in touch with two mortgage brokers to compare their deals.

Interestingly, they both got back to me with an Halifax 4.29% APR deal.
I find 4.29% too high for today's market.

Using the same numbers (same LTV, etc.), I get much better deals on FirstDirect or Co-op Bank. Also, FirstDirect is much more flexible on overpayments, etc.

Edit 30/11/12 2:30pm:
It's a shared equity 80% - 20%.
There is also a 5% incentive from the builder.

What do I risk trying with FirstDirect... direct?

If my application is rejected, I can always get back to the broker - but would my Credit History (which apparently is Excellent) get so badly affected by the first application that it would a deal breaker through the broker too?

Dave_Ham

Far too high may be a bit excessive, but to be honest if they all came back with the same deal then there may be a reason.

You will get a better rate at the lenders you have listed, but obviously these are more selective.

If there is anything in your 6 year payment history, unusual or unpredictable income or employment or a slighty different type of property then this is why Halifax may have been recommended.

1 credit score fail on your file will not be a showstopper to going back to Halifax.

Good luck

kingstreet

As things stand, squeaky clean borrowers with spotless credit history, three years in the same job, living in the same property and needing lowish income multiples don't need a broker and will not get the best deal if they approach one.

It wasn't always like this and it won't remain like this for ever. Things go in cycles and when lenders once again realise brokers are the cheapest distribution channel they have, getting new business applications keyed-in, packaged and completed for 0.3% of the mortgage advance, they will change their emphasis. The MMR means mortgages will require an advice process they currently avoid and that will impact the lenders' costs.

While funds are tight, the direct lenders, such as those mentioned, will use the money they save on not paying brokers, on loss-leader mortgage products to get borrowers through the door. Once inside, they will attempt to sell their usually poor quality and often over-priced insurance cover as the profit "shot in the arm."

Brokers are best-placed to help those who won't be offered a mortgage by the lenders mentioned. Those who aren't the round peg fitting snugly in the lender's round hole.

Get the best deal you need now, from the best place you can. If you don't need a broker, don't use one.

GMS

Is it a new build flat? What is the LTV?

JimmyTheWig

matheo44 wrote: »

Interestingly, they all got back to me with an Halifax 4.29% APR deal.
I find 4.29% far too high for today's market.

If you mean APR then that may explain why it seems high.

APR is generally a good way to compare rates when borrowing money. For the short term (e.g. payday loans) and the long term (where rates change and don't tie you in - such as mortgages) they are pretty much useless.

Consider the following mortgage...
5 year fixed rate of 2.99% followed by (for the remaining 20 years of the 25 year mortgage term) a standard variable rate of 10%. No fees. Tied in, with early repayment charges, for the 5 years of the fix.
The 10% SVR for 20 years is going to over-power the low rate for the first 5 years. The APR, which is calculated over the whole length of the loan, is going to be around 7 or 8%.

What would you do if you had this mortgage product? Remortgage after the 5 year fix was up. The follow on rate is important (e.g. what happens if you can't remortgage at that time due to change in circumstances, you will stay on the SVR if you are planning on moving shortly after the fix ends and it's not worth getting a new deal, etc) but not so important as the APR makes out.

If you are planning on keeping the same mortgage for 25 years then compare the APRs. If not, look at the rate you are being offered during the tie-in period and any fees you have to pay to get that rate.

Note that the smaller the mortgage the more relevant fees are in comparison to the interest rate.

matheo44

Dave_Ham wrote: »

if they all came back with the same deal then there may be a reason

Maybe it is me being paranoid but what if the reason was that they get a better referral fee from Halifax? (broker makes £376 on this).

GMS wrote: »

Is it a new build flat? What is the LTV?

Yes it is a new build.

LTV is 70%

JimmyTheWig wrote: »

If you mean APR then that may explain why it seems high.

What would you do if you had this mortgage product? Remortgage after the 5 year fix was up.

You're absolutely right.

My previous message was a bit confusing.

• initial rate until 2015 (2 years fix) is 4.29%;
• reverts to 3.99% (which is today's rate, so God know what it will revert to then!)

Admin fees are £770.99

APR = 4.20% in total

Dave_Ham

matheo44 wrote: »

Maybe it is me being paranoid but what if the reason was that they get a better referral fee from Halifax? (broker makes £376 on this).

Well £376 would be more than nothing, but that would definitely not be the motivation. Nearly all lenders pay within a few £'s of each other

New build will restrict some lenders at this loan to value

kingstreet

matheo44 wrote: »

Yes it is a new build. LTV is 70%

The 30% deposit is all from you, not a shared equity loan or similar?

Are you buying it for your main residence, or as a property to let?

Halifax product fees are nil, or £999 or more, so I suspect this is a two year fix on one of the two "affordable housing" products, FRT038 or FAC279, both 4.29% fixed until 28/02/2015. No product fee, available upto 75%.

Presumably, the mortgage is around £110k? If it is, you may be better off going for a product with a product fee as the rate may be better and save you more than the fee over the fixed period.

Many lenders have a limit on a newbuild flat of 65% and don't lend on shared equity. Make sure the lenders you approach directly know the full story.

matheo44

kingstreet wrote: »

The 30% deposit is all from you, not a shared equity loan or similar?

Sorry I didn't write that earlier...
It's a shared equity 80% - 20%.
There is also a 5% incentive from the builder.

Do you reckon this is why most brokers tend to go towards Halifax?
Are there any other banks known to lend under these conditions?

kingstreet wrote: »

Are you buying it for your main residence, or as a property to let?

It will be my main residence.

kingstreet wrote: »

Presumably, the mortgage is around £110k? If it is, you may be better off going for a product with a product fee as the rate may be better and save you more than the fee over the fixed period.

Exactly, yes!

kingstreet wrote: »

Many lenders have a limit on a newbuild flat of 65% and don't lend on shared equity. Make sure the lenders you approach directly know the full story.

The flat has been built 3 years ago and is the last one to be sold within the development. No one has lived in there before.

Why do banks seem to be more reluctant to lend money for new homes? It seemed to me like they were more energy efficient, less maintenance, etc.

Dave_Ham

Big shout to Kingstreet who called it.

Where is the apology to all those poor brokers you thought were money grabbing over £1.50 extra commission.

You would be a nightmare client, serious. You come across nicely on here, but the fact you are constantly checking what you are being told by multiple people would tip me over the edge.

Given you have already highlighted the commission (and that is gross if under a network) you are pushing the parameters.

Assuming this is a First Buy or akin, this is a really good product from Halifax. Given you are only putting down 5% yourself and getting the other 20% from local council/developer with a 5 year amnesty, the actual saving to you even if you knocked an unlikely 0.5% off this Halifax product would be pennies, just pennies.

Take the professional advice from the broker you liked and can talk to and enjoy your new home...

All the best

matheo44

Dear Dave Ham,

Like many people who buy their first homes, I know very little about mortgages. Therefore, I was looking for advice.

I should probably have highlighted those facts in the first place. If I didn't mention them though, it was a pure mistake and not intentional.

kingstreet was nice, patient, understood my needs and asked me the rights questions. You didn't.

I've asked 2 different brokers so I could compare deals and get two different pieces of advice on this.
A mortgage is important and I would never go for the first option that is presented to me without comparing.

£750.00 arrangement fees represent a decent price considering the price of the property I'm about to buy.
I would actually be happy to pay them to brokers like kingstreet who took time to understand the situation and helped me.

Finally, this is MSE. I don't think I would be the first person here to look for the best deals :money: