They could be "good for one person and bad for another"
Social media has given a platform for a lot of people claiming or making it appear that they are ‘experts’ on certain subjects, including mortgages. People can watch them anytime and anywhere, so the potential to reach a lot of clueless homebuyers is enormous.
It might seem like good advice, but people must be careful in following these generic financial and mortgage tips, Tom Collier (pictured), director at Bristol-based mortgage brokerage Advantage FS, told Mortgage Introducer.
“When it comes to health, give me all the blanket advice you want, don’t smoke, great advice!” Collier remarked. “When it comes to finance, it’s simply too nuanced to apply a single piece of advice to everyone. Other than some high level ‘pay your bills on time’ guff, the same piece of advice could be good for one person and bad for another.
“Social media and good old-fashioned media seem to keep giving us tips and ‘hacks’ on how best to prepare for homeownership. While the ‘advice’ ultimately derives from a good place, I have found myself cringing on more than one occasion lately. Some of the suggestions and ‘advice’ being given online are simply incorrect or far too vague.”
Collier went on to mention a few of the common pieces of advice that people should think twice about before making any rash decision.
Pay off your debts. This is one particular piece of advice which keeps rearing its ugly head over and over, according to Collier.
“In practice, the vast majority of lenders calculate the maximum you can afford to borrow based on a surplus at the end of the month,” he pointed out. “It’s that surplus that matters, not the unsecured debt.”
He cited as an example a first-time buyer with a 25% deposit earning £30,000 who can borrow £148,500 on a five-year fixed rate with NatWest over 35 years. If this same person, he said, has a personal loan with a payment of £195 per month, they can still borrow £148,500 with NatWest. Depending on their cashflow, paying the loan off could be very bad advice.
Find out the rates of NatWest Group offers for first time buyers here.
Take a variable mortgage product because rates are coming down. Collier stressed the importance of mortgage advisers clearly defining their role.
“As an adviser, my job is to help people make informed decisions,” he said. “This is based on what I have learned about my client after a fact find has occurred. Variable products are suitable for some people and unsuitable for others, it’s entirely down to the individual circumstances.”
He added that no adviser should be basing their advice entirely on their personal opinions, and general statements like these are “dangerous and should not be made.”
Take out a credit card to increase your score. Collier suggested that in relatively few scenarios, this is necessary.
“I have seen this posted many times in various first-time buyer guides online,” he shared. “Advising anyone to take out unsecured credit for the sake of enhancing their creditworthiness is something that should only be done after the adviser has determined it to be absolutely necessary.
“In practice, at Advantage FS, we typically only find this to be necessary for individuals who have moved to the UK relatively recently. Most first-time buyers that have lived in the UK since birth have a mature enough credit profile to qualify for a mortgage with most lenders. By the time we reach our mid-20s, chances are we have taken the odd phone contract or have been given an overdraft by our bank.”
He added that lenders do not expect applicants to have a mature and detailed credit past if it is their first mortgage.
“Their systems have rules engines in place to account for this,” he noted. “It’s very important to seek advice from a broker before you apply for a ‘credit builder’ card simply because you ‘read a thing’ online.”
Collier said that while it was completely understandable that people seeking a mortgage need guidance on what to do, the general public would be best served by facts and the majority of mortgage brokers would even offer a fee free consultation.
“There’s no such thing as a stupid question, we’re here to help and offer tailored advice based on you as an individual, because there’s no ‘one size fits all’ when it comes to the world of mortgages,” he reiterated.
“I have helped victims of poor guidance more times than I care to remember, this has to stop.”
Do you know a commonly given piece of mortgage ‘advice’ that you think must be only offered on a case-to-case basis? Share your thoughts with us by leaving a comment in the discussion box at the bottom of the page.
