Rebekah Commane begins a regular column sharing her thoughts on the mortgage world. And what better way to start off by asking, what is a mortgage?
Mortgage: An old French term meaning ‘death contract’….
Is it any wonder that the word strikes fear and trepidation into the hearts of many? It’s not the cheeriest of thoughts, suggesting that you’ll be gone from this life before you can escape the terms of the deal.
Yet the phrase simply means that the contract will ‘die’ when the loan has been paid off, or if payments are not met and the property is repossessed.
We survived the Mayan predicted end of the world to see in the start of 2013, so securing a mortgage shouldn’t be too daunting.
In its most basic form, a mortgage is simply a loan that enables those who wish to purchase a property, to do so, making repayments at a specified interest rate over a certain period of time. The reality is that very few of us would ever own our own home without the assistance of the ‘death loan’ so, despite the many negative connotations that have become associated with mortgages; they are essentially a good thing.
It’s undeniable that there have been plenty of incidents where consumers have had negative experiences; possibly ill-advised as to what mortgage would best suit their needs and ability to make repayments, or mis-sold products, such as the villain of the industry that was PPI (payment protection insurance).
However, the trade is coming under increasing regulation, particularly with the introduction of the potential hero for consumers that is the Mortgage Market Review (MMR), striding in to save the day as of April next year.
Some of the main changes that the MMR will affect include the need for customers to satisfy lenders that they can afford the mortgage, providing evidence of income in all cases.
This sounds like a harsh measure for consumers, but in reality it’s protecting them against themselves and the possibility of taking out a loan they cannot afford that could lead to debts piling up, bad credit or negative equity.
Chiefly, the MMR is clamping down on lenders, some of whom handed out mortgages like sweets at Halloween, landing borrowers in financial strife. And with the advent of the regulation, mortgage advisers will have to be fully qualified, which was often not the case in the past.
Since the recession, lenders have become much more cautious at dishing out loans, and criteria for securing a mortgage can be complex and, sometimes, baffling.
For example, at a recent What Mortgage round table an industry expert recalled the story of a young man with a reasonable income, a current account with no overdraft and a credit card that he hardly ever used.
An objective observer would deduce that this man would be a promising candidate for a mortgage. However, he could not secure one as he had no recorded credit rating, good or bad. A very frustrating position to be in and one of the unsolved issues in the industry that has led the average age for first-time buyers to increase to 35, as reported in September last, with the age projected to increase further to 40 by the end of the decade.
On the bright side there are many affordable housing schemes out there specifically targeted at first-time buyers. There is also a lot of advice to be had, if you go looking for it.
Once you meet the criteria for a mortgage, the process is surprisingly simple. The fear surrounding them seems to stem, predominantly, from a lack of knowledge or ease of access to uncomplicated information, as fear of the unknown always does.
The industry is overwhelmingly full of jargon, which can make it seem like a secret society to which only an elite few have the access code.
It’s little wonder that newcomers don’t know their LTV from their SVR, their equity from their forbearance.
Lenders have reported being approached by first-time buyers with heavy hearts, preparing for what they expect to be a long and arduous process, rather than the start of the path to homeownership. Don’t let a lack of knowledge hamper the experience of purchasing your new home; a period that should be recognised as a key achievement in life.
Focus on the positive. There are so many products out there and new, low rates are being introduced to the market constantly. Remember that you don’t have to get your mortgage from the bank or building society you currently use. Put some time and effort in to the process and it will pay off. Remember, like Rome, no home was built in a day! wm
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