Pensions Advice, Retirement Planning - Investment Financial Adviser Dunfermline, Fife, Scotland UK

Posted by William on October 5th, 2007 in Mortgage Advice

Current News!

Most of you will be aware of current problems in the banking sector, especially with the recent publicity surrounding Northern Rock. Although in many ways Northern Rock’s difficulties were unique to that particular lender there can be little doubt that it was also related to a lack of confidence in the lending sector as a whole.

The problem emanates from the US where the sub-prime market accounts for 20% of the whole market, making lenders somewhat exposed when people default on their loans. Whilst most analysts are maintaining that we do not have the same problems (the sub-prime market here in UK only accounts for 5% of all mortgages), and that our economy remains robust, there is no doubt that in an increasingly global market, a lot of nervousness is lying dormant just under the surface of many peoples thoughts, layman and professional alike.

A very clear, succinct and encouraging snapshot of just what the Northern Rock crisis means across the industry here in the UK is given by the guys over at the excellent http://www.financialdirector.co.uk though. Their hype free analysis is particularly welcome and deserves wider exposure to help prevent the type of underlying fear which can so easily spark widespread panic such as we’ve just witnessed at Northern Rock.

However, because of the recent volativity we are seeing an abnormal number of rate changes from our lenders, which makes sourcing of loans particularly hazardous. Thankfully the super technology I use now at Integrity and our network partnerships enable me to receive up-date alerts instantly when they are published each day. It’s important to monitor these rate/product updates constantly to help ensure that the deal you choose is still current when your application is submitted.

Trying to manually keep an eye on so many rapid changes within such a sector without specialised software, is time consuming and can be pretty confusing. It’s the fine print which can be the most tricky and can easily be missed, yet is one of the most important aspects of these type of mortgages and you need to read it carefully.

So What Exactly Is a Sub-prime mortgage?

A sub-prime loan is one taken out by someone who has had credit problems in the past and has probably been turned down by the more traditional High Street lending institutions. Traditionally these loans are more expensive to repay as the lenders consider people with bad credit history as a greater risk. If you’ve recently been turned down by one of the main banks or building societies then one of these loans could be something for you to consider.

How do I find out about them?

Using the latest sourcing technology I referred to above enables us to find the most suitable loan for applicants. There are now dozens of sub-prime lenders in the market place and they all have their own lending criteria, which can make finding the most suitable product a potential minefield, so it’s wise to tread carefully. Rates are related to the extent of your credit problems so it is vital to ensure that for example, if you only have slight adverse credit that you don’t end up paying too high a rate.

What are the pitfalls with a Sub-prime Mortgage?

One potential problem with Sub-prime loans is that they can have heavy redemption penalties for paying off your loan early if you wish to refinance and take advantage of an improved credit rating. The fees can also be quite prohibitive with some products/lenders and some companies out there may try to take advantage of the fact that your choices are limited. Remember that you will probably want to re-mortgage once the initial tie-in period has expired, especially if you’ve repaired your damaged credit so it’s important that you don’t end up in a deal that has heavy penalties for a longer tie-in.

Conclusions

Whilst we can see sub-prime rates rising the near future at least, we still think there are some pretty decent deals out there for those who want to buy or re-mortgage who may have had a few credit problems in the past or who may even just have difficulty proving their incomes.

Therefore despite recent market volatility and primarily due to the beneficial difference between the UK & US Sub-prime market I covered earlier it’s still relatively easy to access the funds you want for the home you wish to buy – just keep an eye on the fine print I mentioned above.