Things often cost more than you think, especially when it is a first-time experience.
For me, the most notable first-time experience was my wedding day. The last-minute incidentals such as place names for the tables and plants to decorate the reception hall skyrocket the cost way beyond the more obvious elements of the day you’ve paid for in advance.
For aspiring buyers, ploughing money into their first property is a similarly daunting and costly experience. Mortgage brokers and IFAs imparting their experience to first-time buyers is probably one of most worthwhile meetings they’ll ever have.
It could well be the first time the couple have ever spoken to each other about money. As for budgeting, many are asking ‘what is it all about?
Rookie errors
A novice will think about one cost only when they walk through the adviser’s door – the price of the house. For instance, they may not have even heard of accident, sickness and unemployment insurance, or accounted for life assurance, utility bills and removal fees.
After the stark reality check and realignment of expectations, parents then kick in with their list of practicalities – what are you going to sit on dear?
Sure, the house or flat looks a lot different without furniture. Suddenly the holes in the carpet and mould under the sink are more prevalent. Then there are the leaky gutters and wonky tiles which unveil themselves after the first downpour. The honeymoon period is definitely over.
While many first-time buyers will have accumulated some form of savings, these will have been challenged to say the least. They were looking healthy until the legal fees, Stamp Duty and the 5 per cent deposit were realised at the last moment.
Slum it? Not likely in this day and age. Anyhow we have to have a forty-eight hour bender of a house-warming party, and need hip decor to keep up with the Joneses.
With or without?
This is where the iconic ‘Together’ product from Northern Rock came into its own. Either the government was unable to withhold the heat or too weak to explain this 95 per cent loan-to-value (LTV) mortgage had a pre-agreed unsecured loan at a very reasonable rate.
What will happen now? Will aspiring buyers do without? More likely a credit card at 17 per cent APR or 10 per cent personal loan.
Sure house price inflation is flat and any offer of a product that provides over 100 per cent lending should be scrutinised, but ‘Together’ is a hybrid product: a combination of mortgage and unsecured loan.
For instance, you could have an 85 per cent mortgage and six unsecured loans with various providers – what’s the LTV then? The answer, of course, is 85 per cent; with ‘Together’, the answer was 95 per cent.
Is it affordable?
The question is, is it affordable? Is it cheaper than other alternatives?
We now live in a world of bundles perpetuated by the advancement of systems. For instance, you can combine your television, phone line and broadband and hey presto, produce a saving. The packaged holiday has existed for years.
I believe the sensitivity around the ‘Together’ mortgage is the borrowing happens at once. I would be amazed if Northern Rock would refuse a personal loan to someone who bought a house with one of their mortgages six months ago. I would also be surprised that if the applicant did it this way, it would not work out more expensive.
Northern Rock lent one in eight mortgages in Q1 2007, with a very heavy percentage of them on ‘Together’. Three other lenders, including HBOS, tried to replicate its success.
Sure it was a good retention product, so lenders liked it – but let’s not forget it is the advisers that sell mortgages, and we liked it too, because it prepared our first-time buyers for the unexpected.
Mainstream
Cheltenham & Gloucester and RBS have pulled out of the 100 per cent LTV market. RBS in particular is a shock as it has been a mainstay market for it down the years.
Northern Rock, BM Solutions, Godiva Mortgages and Alliance and Leicester have stopped lending 125 per cent LTV.
The Co-Operative has pulled its fixed rates without replacing them.
Buy-to-let
BM Solutions has adjusted its rental calculation to 110 per cent.
Leeds BS now insists on applicants earning at least £20,000 per annum. It has also reduced the LTV from 90 per cent on family tenant transactions (which fall under the Financial Services Authority) to 80 per cent LTV in keeping with its standard buy-to-let policy.
Cheltenham & Gloucester has altered the nominal interest rate for its calculation to 6.5 per cent.
Self-cert
Accord Mortgages has capped its LTV at 75 per cent for prime cases and withdrawn self-cert on adverse altogether.
BM Solutions withdrew from 90 per cent LTV self-cert without any prior notice.
The Mortgage Works has increased its minimum trading period to 12 months.
Adverse
BM Solutions has removed its free valuation offer.
Most 1 March London Inter Bank Offered Rate resets were under 5.75 per cent, a drop of around 0.75 per cent.
The Mortgage Works has reduced its LTVs further on extra light and light adverse. The maximum is now a punitive 65 per cent.
Accord Mortgages has withdrawn its heavy adverse category.
Mortgages plc has distanced itself from all family or builder gifted deposits.
