Rebel against the mortgage moguls

The mortgage industry taught us a rude lesson in the last couple of years.  They cannot lend more than 80% of their mortgage.  You cannot have a home until you save a down payment.  These rules were written in stone for years, until the mortgage companies wanted to make bigger profits.  Then it was ‘anything goes.’  Now we have 130% mortgages, 40 year mortgages, no down payment mortgages, and anything else the mortgage companies could think of.  In fact, there are now 4000 different mortgage products in the UK.

Remember about 20 years ago when people started to use mortgage brokers.  Foreign banks were lending mortgage money to UK first-time homebuyers for less than UK banks.  Some homeowners were saving ₤50 - ₤75 a month, a lot of money back then.  The foreign banks offered lower interest, and more competitive rates, so they could break into the UK mortgage market.

These people were scoffed and ridiculed, and now, the rest of us wish we’d followed suit. Now, with brokers opening up a variety of mortgage products from both UK and off shore companies, first-time homebuyers are swamped with options.

Many people are rebelling against the traditional mortgage products and getting their home, by not playing by the bank’s rules. Especially after the bank’s underhanded move when they pulled their best fixed rate deals because they wouldn’t make enough profit from them.

Mortgage Insurance

Research published by the UK’s Post Office found that consumers paying £1 billion too much for their home insurance, because they go with the insurance offered by their mortgage provider instead of shopping around for the best deal.

The survey found that one in twenty fear that not taking insurance with their mortgage provider puts them at risk of loosing their mortgage or their home.  Another 12 per cent report that they believed it was compulsory – a myth.

The Post Office state that 60 per cent of homeowners can save £90 if they switch their insurance provider, and ten percent can save £150.  A good move is to shop around before you need a mortgage. This gives you confidence, and some knowledge, before dealing with the mortgage lender.

Mortgage Broker

A mortgage broker can save you money and get a good deal. However, like every type of consultant, there are good ones, and bad ones.  Not all mortgage brokers are equal. Some aggressively hunt for the best deals. Others stay with their tried and trusted mortgage lenders. 

Remember that a mortgage broker is an advisor, not an instructor.  They will not teach you how to avoid high closing fees, or twists in calculating interest rates.  It is also smart to learn what the broker’s fee is. Some brokers earn ₤300 -  ₤1500 commissions in addition to the fees they charge for their services.   The word ‘independent’ does not mean better.

Let your broker know that you are willing to explore alternatives to traditional mortgages.  Online brokers do not have a wide list of lenders, only about 100.  However, use an online service  like Money Back Brokers and you’ll receive the same deal you’d receive from most small brokers, and they will share their commission with you.  This may equal ₤100 to ₤300 on a ₤100 000 mortgage.

Investigate the Market 

There are some companies that don’t make the broker list including Yorkshire and Britannia Building Societies, HSBC, ING Direct and Egg. These may offer a good deal, but they don’t pay commissions to brokers, so even the ‘whole market’ brokers avoid them.

Many potential homeowners are unaware that they can often pitch one broker against another. However, make sure they are not checking your credit rating.  Tell them not to until you decide to go with them.  Find out what your credit rating is yourself, and give them the numbers.  If you let them check for you then you’ll hurt your credit rating, meaning that any deal you may have qualified for are now obsolete.

There are several ways to do your own investigating.  The first is to participate in financial advice forums. Another way is to visit the debt charities and ask them for advice.  While their advice may be conservative, they can help potential homeowners avoid pitfalls.

Government Help

We all know that there are government programs designed to put council tenants, keyworker, or first-time home buyers into a home.  If the debt charity did not help you find a programme  then go to http://www.direct.gov.uk . This site has more than ten programmes for potential homeowners.

The right to buy will even help people who are going through bankruptcy land in their own home.  This programme is similar to their ‘right to buy’ program, that works to put part of the rent toward home ownership.

The biggest mistake most people make is thinking that they make too much money, are too far in debt, or do not qualify.

A little knowledge, and willingness to step out of the box, can save you thousands of pounds and years of struggle.