Property News

1. Buyer's remorse

 

One recent study found that the majority of homeowners experience some level of buyer's regret after sealing the deal on a property. Reasons varied, encompassing everything from a feeling that they'd overpaid (this was especially common where sold property prices had dropped between having an offer accepted and completing the transaction) to wishing they'd never moved at all. However, most regrets are rooted in financial concerns, and, after feeling that they'd overpaid, one of the most common is concern over their mortgage interest rate. With fixed term rates often "locked in" months before the sale completes, there's often a lot of time for second-guessing and "if onlys".

 

2. No shopping around for the best rates

 

You might think that Mortgage 101 tells anyone looking for a mortgage not to accept the first deal they stumble across. Unfortunately, at least for a certain proportion of mortgage holders, that's exactly what they've done. Insufficient financial literacy, lack of confidence in interpreting the market, being in a hurry (whether that's to secure a particular property or to secure a mortgage before a possible change in circumstances) and insufficiently rigorous advice all lead people to sign up for mortgage deals that aren't really right for them.

 

3. The wrong length fix

 

A fixed term mortgage has a couple of key advantages. One is its certainty: the mortgage holder knows exactly how much they'll be paying for the duration of the mortgage term. Another, closely linked to this, is a degree of insulation from external financial stressors. Of course, rising interest rates affect finances beyond a mortgage and, equally, a job loss can have a profound effect on someone's ability to make their monthly repayments. Overall, however, someone on a fixed term mortgage is usually in a better position than someone on a different type.

 

On the other hand, a fixed term mortgage may fall short in a situation in which someone wants to exit the mortgage early and finds themselves faced with hefty exit fees. These exit fees are fairly standard with most fixed term mortgage products, and borrowers are always alerted to them before signing up. However, in reality, they're easy to overlook, and it's common for someone to assume they won't come into play.

 

Now, imagine you need to sell in a hurry, for whatever reason, and your fixed term mortgage isn't portable (i.e. can't be transferred to a new property), or you're not planning on buying a new property. What then? Do you just have to sustain the exit fee, which is likely to run into thousands? Sadly, for the borrower in this situation, the answer is almost invariably yes. Equally frustratingly, the buyer will have to live with the knowledge that a shorter fix might have circumvented some of the problem.

 

In a different scenario, another buyer might regret not having taken a longer fix if they're approaching the end of their mortgage deal and interest rates have risen substantially. Of course, guessing what interest rates will do is akin to consulting a crystal ball. Moreover, opting for a longer term fix has the inherent disadvantage that monthly repayments are usually higher than they would be for shorter terms.

 

4. Not being financially ready

 

Although given the emphasis placed on financial stress tests and credit checks, this is one trap it should be harder to fall into, it still catches some mortgage holders unaware. Should it do so? That's a tricky one to answer, and, moreover, one where the answer will vary according to circumstances. For example, one mortgage holder might have been financially ready, with debt paid down, income always higher than expenditure, no attempt to overstretch on the mortgage, etc., but somewhere down the line could find themselves blindsided by one of life's unexpected events. An unplanned pregnancy, a serious illnesss, a bereavement, a job loss: these are just some of the events with the potential to pull the financial rug out from beneath someone.

 

Another mortgage holder might have been less than candid with their lender: perhaps they suspected a workplace restructuring might lead to a redundancy and a new, lower-paid job. Or perhaps they knew they planned to pay for private education for a child and thought they could absorb the cost.

 

5. Not getting in good enough shape from a credit perspective

 

When it comes to applying for a mortgage, creditworthiness is everything. Those applicants with the best credit record are the ones who'll almost certainly be offered the best deals. If this seems counterintuitive, it is in a way: after all, those who can least afford it are being told they must pay more for their mortgage. Of course, from the lender's perspective, this all makes perfect sense: everything boils down to risk. Someone with a low credit score is more likely to have problems making their mortgage repayments than someone with a higher score.

 

Clearly, this is a kind of algorithm that doesn't always translate well into real life. However, the "good credit score = preferential mortgage rate" equation represents one of the key rules by which mortgage applicants must play. As a result, getting their credit score as high as possible in advance of applying for a mortgage is one of the most important things a would-be mortgage applicant can do.

 

6. Insufficient deposit / equity from previous property

 

Particularly when sold property prices are high, mortgage borrowers can insulate themselves somewhat by ensuring that their deposit is as high a percentage of the purchase price as possible. Clearly, this is much easier said than done. However, it's always worth seeking expert advice on the point.

 

Final points

To reduce the risk of falling into any of these pitfalls, it's sensible:

 

- to take it slowly

- conduct a vigorous health check of your finances and credit record

- do your research (there's a wealth of information on the internet; for a good launchpad, explore https://www.onedome.com/mortgages/mortgages-explained/)

- seek professional advice from an independent mortgage broker such as CMME before committing

 

OneDome is a referrer to CMME Mortgages, a whole of market mortgage broker, authorised and regulated by the Financial Conduct Authority.

 

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