www.mortgagestrategy.co.uk COMMENT
Preparing your clients for the future
For some lucky borrowers out there the one-penny mortgage is
really happening. In a bizarre twist of fortune the credit crunch
has led to some lucky borrowers on tracker rates paying a
nominal payment of 1p per month.
And only because lenders’ software systems can’t calculate what they
should be paying, which is nothing. In some cases the lender should be
paying borrowers.
The couple with the 1p mortgage are Ben Cameron and his pregnant
wife Nicola, from London. They took out a two-year tracker from
Cheltenham & Gloucester priced at 1.01% when they bought their
‘‘
Lenders are not going to
want those clients that
have little or no equity in
their property
ROBYNHALL
Fighting for the Intermediary
£400,000 Richmond
home in December
2007. They have a
£330,000 mortgage
and have only been
paying off the
interest since the
Bank of England dropped rates to 1% in February. That effectively puts
them on a free loan, with an estimated 30,000 other borrowers in similar
situations.
For your clients on fixed rates stories this will make them feel like the
biggest losers in the current climate and only make their teeth grind.
But it could have gone the other way.
It’s worth remembering that fixed rate mortgages offer security
We ain’t seen nothing yet...
Lord Adair Turner’s recent review, a regulatory response to the global
banking crisis, was according to the Conservatives, both a “devastating
critique of the last 10 years of economic policy and financial regulation”
and a “withering critique of its failings”.
The City was spared an expected banking revolution but what it and
the mortgage market got was perhaps more a stay of execution.
The regulator knows more stringent lending rules could reduce the
chances of borrowers falling foul of repossession and protect banks
against defaults.
But it also understands the flipside, that tighter lending criteria only
makes it harder for first-time buyers and then the whole market suffers.
With the Financial Services Authority’s review of the mortgage market
expected in September, the Turner review made me think of
Canadian rock band Bachman Turner Overdrive’s classic 1975 hit You
ain’t seen nothing yet.
Just check out the lyrics:
“I met a devil woman, She took my heart away, She said I had it coming
to me, But I wanted it that way, I think that any love is good lovin', So I
took what I could get, She looked at me with big brown eyes, and said…
You ain't seen nothing yet, B-B-B-Baby you just ain't seen n-n-n-nothing
yet, Here's something that your never gonna forget.”
And we will never forget. The devil woman in this instance being the
incredibly lax banking system that brought about the crisis and with
September just six months away, it’s a fair bet to say we ain’t seen nothing
yet. Life might be about to get a whole lot tougher.
whereas trackers will always offer an element of risk that interest rates
can go up, as well as down.
For struggling borrowers, fixed rates can still be the order of the day,
allowing clients to fix monthly outgoings, adding an element of certainty
in otherwise uncertain times.
With current tracker rates between 2.5% and 3.5% over base rate,
when interest rates do rise, these products will quickly become
unaffordable and your clients could soon find themselves saddled with
interest rates of 7% and 8%.
There is another problem here too. For those paying interest only, the
capital is not reducing and in a falling market that can be exasperated
and clients could even end up in negative equity.
Yet it’s problems like these where you can really show your worth to
both new and existing clients.
As tempting as it is for clients finding themselves with reduced
mortgage payments to splash their extra cash on that all-inclusive dream
holiday or a brand new car, when it comes to remortgaging, lenders are
not going to want those clients that have little or no equity in their
property.
The Camerons have praised their
adviser for putting them on the
C&G deal.
“Our financial advisers
told us to go for a tracker
at the time. There’s a
risk in any
investment but this
time it’s paid off.
We have
continuously
paid our
mortgage
payments
into a
savings
account.
We’re
saving
what we
were
paying
when the
interest
rate was
5.5%.”
It is
sensible advice
and makes now
the perfect time to
revisit existing
clients and make sure
that not only are they
preparing for their future,
you are also preparing for
yours.
Mutuals
must operator
in the interest of
their members
So the Dunfermline has a few problems. It seems
Scotland’s biggest building society, which also
happens to be practically in Prime Minister Gordon
Brown and the chancellor Alistair Darling’s backyard,
is on the rocks.
This is not good news but this probably won’t be the
only casualty in the mutual sector over the next three
months. Rumours are rife that another society is also
suffering and doing everything that it possibly can to
delay the publication of its financial results while it
battles to keep its head above water.
It too has allegedly suffered through buying up
loans that have since turned toxic, as well as being
heavily exposed to the collapse of the Icelandic banks
where it had invested heavily.
It’s a sorry state of affairs and after already witnessing
the demise of several societies in the last
12 months, we don’t want to see any more go
down the pan.
Other society chief executives would be
wise to take note. Chasing profit should
never be done at the expense of your
members. As a mutual you operate
for the benefit of them, not
your own hefty pay
packets.
MORTGAGE STRATEGY March 30, 2009 27
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