Help for First Time Buyers

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1   The Credit Crunch and UK housing Forecasts - Autumn 2007

There's been a lot to be said about the ‘credit crunch' in recent months. Effectively it's the consequence of problems in the American subprime mortgage market. Many low income mortgage holders defaulted after years of steady interest rate rises, combined with a tailing off of housing prices, meaning banks had to write off subprime loans.

So how does this effect Britain?

The problem in Britain is that many banks had bought these subprime loans, often through collateralised debt obligations, and now they're proving rather difficult to sell. With bankers now wanting to hold onto cash, there's been a squeeze in the financial system, making it more difficult for banks to borrow money from each other. This is why it's being labelled the credit crunch – put simply, credit has become less available. All of this has also had a significant effect on share prices over the last six months, with market volatility being governed by confidence. With the banks this has been particularly bad, with Northern Rock seeing as much as 85% wiped from its share price after it needed an emergency loan from the Bank of England.

What about the future?

There's been an awful lot of storm mongering in the press of late about what consequences the credit crunch might be. One thing a lot of speculators seem to agree on is that they don't actually know the full extent of the problem – no one does! Even the banks don't know exactly how much their most risky asset types will fall in value; estimates range the losses to the banking system of between £40 billion - £500 billion, so there's quite a large margin of error to say the least.
There's been a lot of talk that the problems are soon to affect the world economy, and with £1,300 billion of consumer debt in the UK (more than the entire national output) there's quite a feeling that we could be in trouble. One area where there may be problems is in the UK housing market, which is slowing down for the first time in years. Ian Perry, a spokesman from the Royal Institute of Chartered Surveyors has said, "Interest rate rises, the recent credit crunch and the subsequent tightening of lending conditions have all had an impact upon demand." Mortgage prices have also steadily risen with the buy to let boom, which is now looking like it may well deflate. This, combined with interest rate rises, has meant rising costs for first time buyers looking to get onto the property ladder.
However, interest rates may be set to drop in the new year, coming hand in hand with the slowdown in prices. It could well be a brighter time for first time buyers. If you're looking to get on the property ladder, then it still is a good idea to compare possible mortgage lenders, and see if their rates go down next year. Take a look at the current rates from some of the high street lenders on the table below.

Despite the recent rise in interest rates and the continual increase in house prices, property is still the most popular form of long-term investment in the UK today. Indeed, so popular is it that many are seeing it as a valuable tool to finance their retirement and their pension, by investing in buy-to-let property – especially as it is a lot easier for the layman to understand than the wheeling world of stocks and shares.

There is plenty of demand for rental accommodation for a number of reasons, including the rise of the general population and growing numbers of students. With interest rates as they are, buy-to-let mortgages offer access to an attractive and alternative form of investment. There is the added bonus that mortgage lenders are now in fierce competition with each other to attract new customers, offering specifically-designed and accessible mortgages for would-be landlords.

The Council of Mortgage Lenders (CML) released figures showing that the number of landlords taking out mortgages increased by almost 50% in 2006 – and have been predicted to rise again this year. Michael Coogan, the Director General of the CML said that "the buy-to-let market has performed even more strongly than the wider market over the course of 2006. With evidence from other sources of strong tenant demand, rising rents and falling void periods, buy-to-let looks set to continue to remain popular and successful."

However, the venture into this world does require careful planning and research. The main priority is the location of the property; its proximity to local schools, transport links, night-life, universities and any planned developments in the area. The internet can also give you an insight into any competition you might face, using sites such as Right Move and Prime Location; these can tell you the average rate for rental in certain areas and get an idea of where rental takes longest to achieve.

You will also need to shop around for a mortgage lender. The competition amongst mortgages is strong at the moment and there are various deals available. Mehrdad Yousefi, Head of Intermediary Mortgages at A&L said that "There was a 20% increase in buy-to-let in the second half of 2006 compared with the first half, which would have been helped by attractive pricing and flexible lending policies in the market…"

Once you have found a mortgage lender that suits your particular needs, it is still worth balancing the figures on an online mortgage calculator, most lenders are likely to have one on their website or a more impartial site like Motley Fool's Mortgage Centre.

The type of tenant you are aiming at will also inform the type of property you buy; students will require only basic accommodation to match the parameters of their Student Loan. They may require a transport system that operates to their campus and a range of local shops, whereas a young executive may be after something more stylish with road and rail links and, perhaps, access to local night-life. A family, however, will need more space and have a school in the locality.

3   Releasing Equity in your Home with a Secured Loan - Autumn 2007

Whilst many borrowers stay away from secured loans, favouring unsecured debt under all circumstances, some borrowers are more aware that it can pay to choose a secured loan. For example, where interest rates have gone up suddenly, and credit cards APRs have shot up, consolidation of existing debt into a single monthly repayment using a secured loan can make very good sense.

However, whether or not this is the case depends on the precise maths used by banks to calculate your repayments. The rapid rise in house prices, though making it increasingly difficult for the first time buyer to get on the property ladder does have some benefits. It has left most home owners in the south east with a considerable amount of equity locked up in their homes, which if cleverly managed or released through a secured loan, could save them thousands of bounds in interest payments over 10-25 years due to secured loans typically having a far lower interest rate than credit cards and a significantly lower rate than other unsecured debt. Naturally your home is at risk if you do not keep up the repayments, but if the lender and the borrower do their homework, there should me no risk of this eventuality.

A number of factors are considered by the lender when calculating the rate at which they will lend to an individual. This is true for both secured and unsecured credit. The interest rate awarded to the applicant makes up the bulk of the money earned by the lender and is calculated based on how risky a prospect the borrower is deemed to be. This is achieved by inspecting the individual's credit rating.

Generally speaking the more credit agreements the borrower has historically defaulted on, the better their credit rating and hence the better the rate that they will be awarded on their secured or unsecured loan. Secured loans are generally taken out over longer periods that unsecured loans and have lower interest rates. However, they are secured on the home and application procedure can take several weeks as the lender will need to liaise with your mortgage company in order to ensure that everything is in order. While it is possible that due to the length of the loans, you can end up paying back as much as you would do with an unsecured loans, these repayments can be more manageable to the longer loan term.

The information presented below shows a selection of lenders and the rates they were charging when this article was written:

If you want to see the current rates you can try fool.co.uk loans.

4   Mortgages and the Current Property Climate - Autumn 2007

A mortgage is likely to be the single biggest financial commitment that anyone makes in their lifetime and, as such, it is better to be informed that wander into it without any information at all.

 A mortgage is, in essence, a loan; however, it is a loan defined by two specifics. The first is that the money borrowed is designed to be paid back, with interest, over a fixed period of time. In general, this period is 25 years. The second is that the loan is ‘secured'. This means that the bank off-set their risk in lending you the money, by using your property as security and, if you are unable to make the repayments, they then have the legal right to sell your home to recover the money you borrowed.

There are many mortgages available and, although the banks offering them will have their own deals to offer you, they generally come into the following categories:

The Standard Variable Rate mortgage follows the Bank of England's interest rate, but not at an exact level. This means that as the interest rate increases or decreases, the SVR follows suit.

Tracker mortgages follow the Bank of England's interest rate absolutely. This means that if the interest rate rises, so does the mortgage, but you can reap the benefits of any fall in the interest rate, as the Tracker rate will fall with it.

Fixed mortgages set a specific rate of repayment, effectively protecting you against any rises in interest rates. However, if the interest rates fall, your repayments will not follow, but remain at the agreed rate.

A Discount mortgage will offer you a temporary discount from the lender's Standard Variable Rate.

There are further variations on these themes: the Capped Mortgage that has an upper limit set against the Bank of England's interest rate, Cashback mortgages, Current Account mortgages and Offset mortgages.

The important thing to do is your research. Different banks offer different incentives within these categories and it can be possible, with a little homework, to find the mortgage that suits your needs, whether you are a first-time buyer or someone who wants to re-mortgage. There can even be benefits from banking with your lender; Natwest Mortgages, for example, offer Advantage Mortgages that has offers exclusive to its private banking customers. Alliance & Leicester Mortgages operate a similar scheme tying in their Premier Current Accounts with their Premier Mortgages.

While each of the banks will have pages devoted to their mortgages on their websites, it can seem a little daunting at first; there are ‘Comparison sites', such as Motley Fool Mortgage comparison centre, that will compare financial products for you, including types of mortgage. While these sites offer a quick guide as to what may be best for you, personal research and a ‘trawl' through the banks' websites can help you decide on the mortgage that is most pertinent to your situation.

Finding a mortgage need not be a difficult task. Indeed, with the current competition between banks to attract new customers, there has rarely been a better time to shop around as the list of offers, deals and incentives show little sign of abating.

5   Interest Rate Rises Rattle Mortgage Holders - Autumn 2007

Alliance and Leicester recently released their latest borrowing monitor reports showing that the consecutive interest rate rises have started to have an effect on the finances of families with mortgages.

Having increased 1.25%, to 5.75%, since July 2006 people with mortgages are becoming hesitant when it comes to taking on further unsecured debts. Also being observed at this time is a noticeable widening in spending between mortgage holders and those without.

The gap has been observed to be increasing ever since the first rate rises in 2006, with the difference in spending becoming more noticeable. Secured loan borrowers are quickly tightening their budgets as they are pushed to their financial limits, which in turn is likely to lead to less consumer spending in future.

The past year's financial events have led to a decrease in the numbers of people taking on personal loans with homeowners who have mortgages becoming more frugal than the rest.

The 2nd quarter of this year sustained a fall in the number of unsecured loans for homeowners, however the market was stable and observed a slight growth overall. Far from being a temporary problem, research from A&L shows that homeowners with mortgages are 50% more likely to reduce their unsecured debts than general.

The research also showed that mortgage holders paid back £351 on their credit cards while amongst non mortgage holders an average of £52 on credit card borrowing was observed. Another effect of the rate rises is that savings have been hit. In the first quarter this year the general population was saving on average only 2.1% of their income.

Considering the ten year average is 6% even a rise to 3.1% since then is only a very slight improvement. The decline in savings has been observed most for mortgage holders as can be expected in the current financial climate.

Sean Murphy, Director of Strategic Planning at Alliance & Leicester said:  "Families are cutting back on their borrowing and their saving to help ensure they can afford higher mortgage and other household bills. 

"Even though average interest rates on unsecured borrowings have actually fallen over the last 12 months that has not been enough to tempt mortgage borrowers to take on more unsecured debt.  Their family budgets have been under pressure and they have cut their cloth accordingly."

For further information go to Alliance & Leicester Mortgages, Loans or Savings.

6   How to Thrive in a Depressed Property Market - Autumn 2007

It seems that the tide has finally turned; we're in a buyers market.

Whilst there is unlikely to be a crash on the same scale as has been seen the US, there will inevitably be repercussions for the UK economy and it's very likely, as we're already seeing, that these effects will be felt most acutely and by a more people in the property market.

This doesn't have to be all bad news however, if you're canny and know how to negotiate the market it's perfectly possible that you can survive and prosper in the property market even as the economy struggles. Here's a few pointers:

• First of all check your credit rating. It's imperative if you want to get a decent mortgage deal that lenders see you as a safe bet. We've already seen lenders starting to apply slightly tighter lending criteria and there's every chance that this is a trend set to continue. With interest rates on rising its more important than ever to make sure you qualify for the best deals going. You can check your credit report and if necessary contest anything that you feel may be unreasonable with the likes of Experian and Equifax. Try to be on the ball with anything that might negatively affect your rating, this means making sure you're not missing credit card bills not applying for too many financial products in a short space of time.

• Now may be a good time to improve your home; if there's potential for boosting the value of your home then it's a worthwhile investment. Given the way the market appears to be going upselling is likely to become an increasingly less viable possibility. Extensions and conversions will ultimately add value so that when the market does improve you'll be in a great position to make a quick and profitable sale.        

• If you're selling your house shunning the estate agent could be a good move. Let's face it, no one relishes shelling out on expensive estate agent fees and it needn't involve too much extra hassle to avoid this extra expense altogether. In the internet age its becoming increasingly feasible to market your house yourself, you could submit your details to sites like housesimple.co.uk for a relatively small fee and your house will be advertised on a host of popular property search sites.

• Keep your eyes peeled for cut price property, with the market downturn there are going to be plenty of sellers having to lower their expectations, in some cases to the tune of up to 40% less than the original listed price. According to some predictions we could well be heading towards nationwide price falls – even in the recently buoyant South. Like I said, it's a buyers market.        

• Try to anticipate regeneration. There are still plenty of good investment opportunities around, it's just a case of knowing where to look; areas where significant new regeneration projects are happening. In London for instance areas like Bethnal Green and even further east towards Bow and Hackney as well previously depressed areas of South London like Peckham are beginning to see the affects of gentrification and are worth investigating.

• You may have read about the increasing number of repossessions lately, another unfortunate indicator that higher interest rates are increasing the financial strain on mortgage holders. Without wanting to sound too predatory about it, the majority of these repossessed houses will end up going to auction and in all likelihood be sold off on the cheap. If you fancy trying the auction rout, and there are undoubtedly bargains to be had, you'll need to know what you're doing; the process is quite different to buying a property in the conventional way. It's particularly important that you go to the auction fully prepared with funds in place and ideally having already carried out a survey and conducted a bit of research – Once the hammers come down that's it, there's no going back. You can find auction listings on property search sites like findaproperty.com.

Here's an overview of some of the leading 2 year fixed rate mortgage deals out there at the moment:

Figures correct at time of writing (15/11/2007), for up-to-date rates and mortgage comparison visit Motley Fool Mortgages

7   Counting the Costs of Your Mortgage - Autumn 2007

There are few issues that have attracted so much ongoing media speculation in recent years as mortgages. As I write this the Northern Rock debacle is inspiring more news headlines than almost any other story and shows no sign of abating. I suppose the reason for our ongoing obsession with housing booms and busts is that we all have a staked interest, whether we're already homeowners or are considering our first cagey step onto the property ladder the state of the housing market is something that affects all of us.

Away from all the blather and speculation that surrounds the wider housing market, useful advice relating to the actual process of purchasing a house is surprisingly difficult to come by and there are few more fundamental issues, particularly for first time buyers, than the simple question of how much you can realistically afford to pay: How big a mortgage can you reasonably stretch to?

Buying a property is inevitably going to be pricey, costly. It goes without saying then that the importance of getting it right is not something any of us should underestimate, be willing to invest lots of time and precaution into establishing exactly how much you can afford to pay.  The first thing to consider is how much you earn: The majority of mortgage providers will be willing to offer you around three or four times your gross annual earnings. If you're buying with a partner then lenders will probably add their annual earnings on top of what they are willing to offer you. So, if you're on £30,000 you should probably be able to borrow £120,000, if you're partner is earning £20,000 you should be looking at £140,000. Alternatively you may be offered a deal of 3 times your salaries combined - in this case that would make £150,000, a slightly larger mortgage. 

Lenders may be willing to offer you a bigger mortgage if, as is increasingly common practice, they assess your financial track record in addition to basic salary multiples. This would involve a lender assessing at your statements and outgoings and using this as the basis of their calculations. Lenders with a good track record thus stand a better chance of being offered a bigger mortgage than might otherwise have been the case. Conversely, borrowers with a less impressive credit history could be offered less.

It would be naive to imagine that having agreed on the amount you'll be borrowing and the size of your deposit (remember that the more you manage to put down as a deposit the lower you're interest rates are likely to be - so it's worth scraping together any savings you can muster and, if possible, a parental contribution) this is the last of you're spending. Unfortunately there are numerous extra costs to consider and budget for

Aside from the many niggling extra costs including valuation, survey and legal fees (at a rough estimate you should probably budget something like £1,500 for these) the largest single additional cost will probably be stamp duty. This works on a sliding scale as follows: if the property value is under £125,000 then there will be no stamp duty fee, £125,001 and £250,000 will be a 1% fee, £250,001 and £500,000 will be 3% and over £500,001 will be 4%. Of course, for sellers there is also now the added extra cost of a Home Information Pack to factor in, you can probably expect to spend between £400 and £700 on a HIP.

It's also prudent to assess your finances for yourself, don't assume that because a lender is prepared to give you a substantial mortgage you can actually afford to pay it. Look at your monthly income and expenditure and consider realistically what you can afford. It's important to be honest with yourself and don't commit yourself to something that will significantly stretch your finances - a dream home is not worth bankrupting yourself over.  Take a look at one of the many mortgage calculators out there, most big lenders will have one on there website (You can find a Mortgage Calculator at A&L Mortgages or the BBC property site for example). In addition you can save money and time by checking out a Mortgage comparison site like the award winning fool.co.uk mortgages center or Moneysupermarket and keeping up to date with the most competitive deals.

8   A Borrower's Guide to Charging Orders - Autumn 2007

Going into debt can mean that we occasionally might need to borrow funds. When a consumer borrows funds from a financial company, such as a bank or building society, this is termed an 'unsecured loan'. An ‘unsecured loan' is referred to as such because the loan isn't secured against a property that may be owned by the borrower.

With a ‘secured loan' the lender can press for the sale of the borrower's home if they fail to provide the required payments or they default on the loan. For consumers it is favourable to get an unsecured loan over a secured loan for obvious reasons.

However, it is possible for the lender of an unsecured loan to be given a charging order against the residence, in order to safeguard their funds. To get a charging order is not in the lender's interests as it can take a long time to do so. When it does happen and the borrower fails to make payments repossession of property is often the outcome after recourse to the law.

It is not only property that a charging order or 'charge' can extend to. If the borrower has other funds or perhaps owns stocks and shares, a court can reclaim the owed sum through these funds as well as the property itself. While there is a charge against a borrower they can only recover any finances from the sale of a property after any remaining money owed is paid back to the lender.

Effectively, the charge puts the borrower further back in the 'queue' regarding receipt of funds for the sale of the property. The order of payment is usually as follows; first comes any remaining cash owed on a mortgage followed by the charging order, solicitor's fees and any estate agent fees. Following this there is also stamp duty to take into account so there can be a big loss of finance when it comes to the borrower's turn to receive payment.

To get a charging order the loan company must be given permission for one through the law courts. Lenders are likely to only apply if agreed payments or a succession of payments are not made as this will be a breach of the terms in the contract. Charging orders are enforced using hearings in a county court.

During this process, the court has to take many factors into account, such as: personal situation of the borrower, how the charging order will influence other creditors and additionally whether the borrower is disabled or suffers from a health problem.

The borrower can ask that the court create a payment plan that takes into account their current and future financial situation, if the court has decided to enforce the order. Or, if the borrower is in employment, the payments can be taken directly from his or her wages - assuming that the method does not affect their employment.

If you are searching for a personal loan or unsecured loan it's a great idea to check an online loan comparison site such as the one offered by Motley Fool in their Loans comparison centre. Two of the better deals out there at the time of writing were the Alliance and Leicester personal loan with a rate of 6.5% APR and the Moneyback Bank personal loan with and APR of 6.3%. Good deals for those looking for a secured loan are the A&L secured loan and Firstplus, both at 7.9% APR.