UK mortgage expert: the key things you need to know

26:26And they stay that way. They do it by automating compliance with over 35 security and privacy frameworks like SOC2, ISO 27001, and HIPAA. Yeah, all of them. And this saves businesses so much time and money. According to a recent IDC study, Vanta customers save over half a million dollars a year in costs. Not bad. And they also help you complete security questionnaires up to five times faster, which is great because everybody hates filling out forms. If you're a business that needs to prove security and compliance, visit Vanta.com forward slash making money to sign up for a completely free demo today.

27:00That's Vanta.com forward slash making money. There's a link in the description though, so you can just click that.

27:09you mentioned around fixed rates there and i think something that people might might not think about is they can use them at different times to suit their lives but like for example the nursery example but we lock in for periods of time don't we and we're kind of stuck in the mortgage there or thereabouts through that period how should people think about how long they should secure your mortgage for it's it's your attitude to risk and your perception of what's to come right because you gotta guess some interest rates yeah and i mean you polish your crystal wall and you you place your bet and you hope for the best but um it sounds rather dramatic but it's not that bad but ultimately you will be offered choices all right you can go for a two a three a five year even a 10 year fixed rate um there's only one lender doing 30 35 year um sort of fixed rates, but they're not overly attractive.

28:02Not right now. There's one now. I mean, not attractive right now. They were a couple of years ago. They're at 6.7 percent. So, you know, it's ridiculously expensive, but the, I think you've got to look at it and kind of go, right, I bought a house. What am I going to do with that house? Right. If I'm buying a house and I've got money and I'm going to do a full, you know, loft conversion, rear extension, I'm going to take that house from being 400 ,000 to 500, 600 ,000 pounds. Do I want to be locked in for five years? Yeah, maybe not, because I'm going to increase its value. I can then remortgage that property, maybe pull money out, go and do other investments with it.

28:40Maybe I'll remortgage it and go onto a lower loan to value, therefore a lower interest rate in two years' time because of that uplift in value. That conversation is going to be more directed towards shorter term interest rates, because as long as the belief is that interest rates are going to be going down, which at the moment they are, those people will be able to get in, get the work done, realize the increased value, lower loans of value, cheaper mortgage rates out the door with something cheaper. The flip side is that you have a conversation with someone who's going, right, and I've got a job at the moment.

29:14I want to do this. Buy this house. I'm about to have a kid. I'm about to go self-employed and start a business. We will then have that conversation saying, right, with all these risk factors, maybe going for a five-year fixed rate to give you time to have the child sort your finances out, give yourself the five-year period for your income to be able to appreciate and increase through promotions and salary increases and things like that. Or if you're going self-employed, your first two years might be quite difficult, but then you've got three subsequent years to get your accounts bang on so that when you come to remortgage, you've got all your options.

29:55There's fixed rates and then there's tracker rates and variable rates and all the other bits and pieces. And the tracker rates tend to have no early repayment charges associated with them because they're flexible products, but they're not for everybody because generally they're more expensive than fixed rates by quite some significant margin. And although interest rates are headed downwards, it's about how quickly they go down. You know, are we expected to see them cut 1 % off the interest rates in the next six months? probably not so therefore you know going for a tracker rate you might not be better off if you know they end up do cutting fixed rates you might look back and kind of go it might have been better for me but if it's one percent cheaper to do a fixed rate today than a tracker variable rate you might say well actually over a two-year period i'll win for the first year but then i'll lose maybe for the second year and the average of those two will net out the same how much you think people should worry about all of this because i think it's the kind of stuff that can put people off buying you know they just sit there going oh rates are going to come down i'll i'll wait and well i i think people should always investigate fully what their options are and understand what they're signing up to because if you don't the chances of you making a mistake are far higher is there a time when it's too early to reach out so if i'm thinking about buying a property in two years is now the time to talk to you or like a year before or when you're we have everything in order and you're ready to i can buy like in the next six months or something when when when should people first i think i think when you decide that you want to buy is when you need to sort of start talking to to a mortgage broker um you know if you think oh i'm going to buy in two years time it's too early because you know you look at the landscape and how it's changed you know four years from now two years ago and even now it's and in two years time it's going to be unrecognizable to what it is today.

31:47So, you know, going too early, the advice that you obtain at that point might not be very valid to what you end up with. You know, when we had inflation at its sort of 10 % and we had the cost of living going out of control, all of the lenders were tightening their affordability. But now that we're headed in the opposite direction, they're releasing it again. So a guy who was only able to borrow$200 before might be able to get$215 now, right and that makes a big difference right in certain parts of the world that you know that that's a another bedroom another house another street you know so you know like there's there's always these changes that are happening and at the moment what we're seeing is that there's a hell of a delay you know probably longer than what we used to between hey i put my offer in and I'm going to complete, it's becoming longer and longer and longer because there's so little stock out there that to complete the chain of people all moving subsequently, because to start a chain off, you need someone who buys the property as your first time buyer.

32:51So here's your first link in the chain. And then to complete the chain, you need someone who's going, I'm selling that house. It's either an investment property where I don't need to move to something else, probate to death, or somebody who just goes, I'm prepared to move out of that house and rent something myself that's what starts and finishes those how big do those chains get some of them can be like really big you know i've seen them 15 sort of people and to be honest like that's where the estate agent makes their money trying to keep all of these people moving along so it's all that moving them all from house to house they all want to move on friday the 13th there's a there's a convoy of of trucks that will come and move them from from house to house when you hit when you fell off your bike yeah I fell off my bike on Friday 30 line bike it was not fun oh those things are evil they take off so quickly I was doing speeds I was doing speed what do they pedal themselves no they're electric so they're like they're electric you put your foot down it's like as soon as you this guy's like oh I'm doing my fitness and while I'm alive he didn't tell me they're electric you've got to pedal you've got to pedal a little bit you've got to you've got to rotate your legs that's the best you've got to do shh don't make it sound even worse it's like pretending to be a pianist through one of those playing pianos probably why i didn't see that truck is that probably looking at this point i actually was i was actually going into my pocket to get my phone other hand on the wheel and then i hit a divot and just went over the handlebars hit like a bunk so yeah so i i made a video that was talking about you know the decision between investing and overpaying a mortgage and in there i talked about fixed rates and the video just so happened to catch in america and they were just like, who the hell has a two-year fix?

34:33What is wrong with you people? Lock it in for 30 years. And they just couldn't wrap their head around that our mortgage market tends to be short-term products. You alluded to the fact that there are 30 years, but why is that the case? I mean, I've been doing this 20-odd years and I've never really known lenders to offer anything more than like a 10-year fixed rate. The problem is that all of these rates come with some sort of early repayment charge. In America, my understanding, and I don't know their market, My understanding is that those 30-year mortgage products might come with a short window of early repayment charges, but they expire and then you're just on this fixed rate for the rest of the time and you can exit at any point.

35:10We don't have those products available here. The lenders haven't developed them because the clients haven't really had a desire for them. They make more money out of the… Our average first-time buyer stays in a house for three and a half years. right? So, you know, you think about, you sign up a first-time buyer into a 30-year deal, which has early repayment charges for 30-odd years. That person is going to have to either port that mortgage, which means you take the mortgage from property A to property B, and then maybe increase the borrowing on it or whatever it might be, or pay that mortgage off and take an entirely new one.

35:45Again, earlier we were talking about, you know, whether or not you're going to do works to a property and improve it and things like that. The housing stock in the UK, they generally will allow you to do some sort of extension, some sort of rear loft conversion, make it bigger, make it improved. If you take a 30-year deal, you can't just go back to the lender in a year or two years when that property is done to kind of go, hey, I want you to realize my new valuation. I want you to give me a better deal. And I think it comes down to one of these things where you have to look at it and kind of go, what rate am I getting?

36:18Is it worth me changing to a new product with a new fee? And how much will I save overall compared to what I was on? And I think those 30-year products are too expensive. They aren't popular enough. So we've only got one lender doing it. So therefore there's no competition. There's no, and the market's just not there for it here. And it hasn't ever been, maybe because of the fact that most people in the UK are a little bit more transient in their properties. If we started off with, you know, every lender offering a 30-year product with flexible terms and things like that. Yes, absolutely, some people would have taken that out.

36:54Especially at like 1 % rates. Absolutely, yeah. Why wouldn't you, right? Yeah. And the US market was very fortunate in that. But, you know, those lenders are going to be absolutely hating life. The fact that they've got to carry on their books a 1 % mortgage for 30 years. Our lenders don't have that problem. Don't they lose a lot of money, though, if the rates change? They buy the money in. So, you know, everyone thinks that money is derived from the Bank of England base rate. It isn't. Money is derived from a variety of different sources. So, you know, I'm a bank and I've got a five-year term deposit, all right?

37:31And I'm paying you 2.5 % for your money to come into my bank for that. They can lend it at a margin above 2.5 % in order to make money. You couple that with the Bank of England's rates where that might be 4 % or 5%. You then couple that in with the swap rates where all the various different banks are all trading the money at a slight margin. The swap rates have come right down, which is why we're seeing these sort of drops in the rates that are being offered to clients. The rates that we're getting now, I mean, we're doing five-year fixed rates at 3.77, 3.8, 3.9. The Bank of England base rate is still five.

38:07but we're doing rates at three because inflation has come down to 2.2 which means that we're paying savers on your sort of you know current accounts or whatever maybe two two and a half three percent whatever it might be those lenders can lend a combination of that money and some of the more expensive money combined together and lend it out at a margin which is lower than the bank of england base rate the bank of england base rate controls so much more in the market but not primarily what the banks are lending the money at i think what happened was when interest rates started shooting up the mortgage rates shot up and maybe that led people to think that they're linked but it's more the shock of the increase that led people them to ratchet them up was my understanding and if there's an expectation that rates are going to go down there was uncertainty in the market yeah and when there's uncertainty you price it in um you know and rates shot up to you know six and a half percent or whatever it might be, and then came back down in, well, it's like petrol prices, right?

39:06It goes up in line with real time, but then comes down in sort of incremental stages. I think too many people think the Bank of England controls the rates and the costs of money. It does to a degree, but not really the way that high street banks are using to price their mortgage products okay so how there was a period say when this trust for example then and what happened there and mortgage rates went crazy for a little bit and there would have been people that were just so unlucky at that point that they came off their fixed deals and they maybe they locked in at the highest rates possible at the peak rates or maybe they waited it out is there kind of like a playbook of how people when people come off a fixed rate deal whether they think should i wait or should i leave it or is it more of this kind of when you're six months out contact your broker start talking about what your new finance might be.

39:59We have in those conversations with clients who are on our books, if you're my client now, I'd call you up six months before your fixed rate expires and say, right, what are your plans? What do you want to do? What are your incomes? We can facilitate what you want to do, either remove or remortgage, stay where you are, all these things. But with interest rates starting to incrementally go down, I'm not going to pull the trigger on an application immediately because of the fact that if we wait until we're closer to the point, we might be able to get you a better deal. There is some merit in sort of saying, secure something now, because you don't know what's going to change in the very near future.

40:36And like he's talking about geopolitical issues and what have you, if war kicks off in various parts of the world, it might have a knock-on effect to the way the finances are affected and things like that. So maybe having something locked in where you go, right, that's worst case scenario, and then talk to your broker over the course of the next six months to see whether or not things get better. And if things keep drifting downwards, we only need around about six weeks before your expiry date to switch you to a new lender. If you want to stay with your current lender, we can do it all the way up to the 20th or so of the month before your rate expires.

41:12And that's only because the bank needs to have time to set up your direct debit for the new rate when your next payment comes out. Is it ever beneficial to come off the fixed rate onto the so i've got actually one of your listeners um has got uh in touch with me and we've run a whole scenario they remortgaged at a point where um you know the liz trust budget and rates went up their fixed rates expired you know it's a timing thing they had to remortgage they had to take the product that was available they took a five-year fixed rate for some reason you know maybe thinking things were going to get worse but we've done a sort of cost analysis of all of that versus what we're on now and we can get them a cheaper mortgage product that would make it worthwhile than paying the exit penalty and still save them money on what they're on at the moment the rates are still continuing to drop so they are just holding until we you know hopefully get to a point where they go right it's enough money it's gonna be a better and bad deal for them then yeah so that if it works since now if rates do drop like we You'd anticipate it will get better.

42:13And that's the problem with that is that, you know, we've done all the analysis. We've worked out it's worth doing. But the right advice is actually, I don't want you to pull the trigger just yet because it's likely to get better. But if you're buying a house, you have to pull the trigger. But then if you've got three to four months between your offer being accepted and your mortgage going live or you're drawing down on it, we have got the time to review those rates. and I might even change lender entirely. You know, I've had cases where I've applied to NatWest for, you know, the start of the mortgage.

42:48Halfway through, Barclays has come out with this amazing rate and we've gone to Barclays and we've got another mortgage offer. You know, a lot of mortgage brokers don't like doing that, but, you know, the right advice is to do it and get that in play. Keep the NatWest one live, keep the Barclays one live, and then run them both concurrently and hopefully if either one of those rates improve again, because when you're dealing with a top six lender, they're super competitive. They have to get a certain amount of money in through the door in order to keep their doors open. So they are always looking at where do I need?

43:18And they control their volume of money coming in by the rates and the position on the table that they take. So if you find that NatWest had a bit of a quiet August, you might find that in September they go, we need to do something on this because we need to get more market share. Otherwise, we'll be losing overall. Do you find that loyalty to one lender is a bad choice then? I think you should always review your options. Is it like insurance? You know, car insurance, they just do you over, don't they? Loyalty works against you in the car insurance industry. I think our regulators come down quite hard on them on that one.

43:52The FCA and the PRA have come down and sort of said, guys, you need to treat your customers a little bit more fairly. Don't get me wrong, we've still got dual pricing. But what we see - What does that mean, sorry? Dual pricing is when you've got one price for a purchaser and another one for an existing, or one price for a new customer and a different price. New customer bonuses and stuff. And a different price, which is slightly more expensive for an existing client. Existing customer, yeah. But is it worth looking at remortgaging? Always. Because the other thing that changes is that you might be worth, and I'll come back to Halifax, right?

44:32one of the bugbears that I've got with them as a lender is that they've got, only got fixed rate products and the tracker rate product, but everything's got an early repayment charge on it. So imagine you are getting to a point where you go, I have to remortgage in two years time. I'm a first time buyer, average first time buyer moves in sort of three and a half years. I've had massive improvements in my income of everyone might move in the next year. I need to find a product that works for that client that they might be able to kind of go, actually, I want to be able to pay it off and go and take a totally new mortgage in a year's time when I move.

45:06Or I might be in the process of putting my house on the market. It's probably going to take six months to sell. I want to give that client a flexible mortgage so that we can nice and cleanly break that mortgage deal, move away, go and buy a new house with a new mortgage, totally free to go and choose whatever lender, whatever criteria I need. Whereas if you remortgage with that existing bank and they don't have those products, yes, you might get a decent product, but it might not be the right product for what you're looking to do. So again, speak to the broker, find out, and be honest. Talk about everything that you think could happen.

45:42Because if you don't tell the broker, he's not going to know. And the broker needs to know in order to be able to advise correctly and say, all right, we need to consider this, we need to consider that. Especially changes in employment, changes in expenditure, changes in your personal circumstances. How many times do we have, because of the cost of childcare, a partner has a second child and now we've got two kids under four and it ends up being unaffordable for them to pay for childcare for two of them. And that partner stops working. Most of these people only afforded that mortgage based on the two incomes together.

46:20So there are options available for those people and most of them are to remain with your existing lender, provided of course that they still deem it to be affordable. i remember one of our friends i won't say his name but he was like my mortgage has gone up by two thousand pound a month and he was like we just haven't got it or we've got it he's like luckily enough but it's basically fundamentally changed the way we live our life because it's just annihilated three holidays a year you know it's we've gone from being very comfortable to we now just live to pay this mortgage yeah and it's a big house you know and and this is the thing is that you know we all look at maximizing the amount we can borrow and we go after we chase the dream, but everything comes with an element of risk.

46:59And too many people don't really contemplate the risk factor enough. If I look at on average, mortgage brokers are probably doing four and a half, five times income on the vast majority of mortgages that we do. And that is the very top end of what lenders are willing to lend. And it's only the older generation who are very much within their realm because they've had all these years of paying it down but it's still quite scary for those people because if there's a change in circumstance they'll find it very difficult very quickly that's why we only lend money to people who can 100 tick all the boxes on affordability and why we only give four and a half five maybe five and a half times income because the fact that more than that the lenders can't really sort of take that risk on too much of their book being on that higher multiple the average house is eight times earnings in London it's 12 to 14 in Chelsea it's 34 so you know the average person needs to borrow eight times their income to get the average home so what do they do but then bank of mom and dad slips in and covers the who's mom and dad yeah people say this I'm like who are all these parents just buying them giving them 100 grand 50 grand deposits I mean this is how it used to be this is how it used to be they are out there definitely but I don't think it's as common as it used to be they're not out there for a lot of people as well no and i totally get that but you know if you are looking to try and get on the housing ladder and you're in london and you're in a 34 times average income kind of thing but we're talking average income as far as in the uk right we're not talking average income as in london um you know in london you might find that it's maybe instead of being you know sort of eight times the the person's salary london might be sort of six times that person's salary and i guess it's couples as well isn't it it's eight times it's four and a half times a couple's income which is probably eight times one person's income so you're probably getting less of the a single person buying their own home and then when they get to when they finally married there's two houses and they might rent one out and sell one it's like the first purchase is the couple purchase yeah and and we we have got lenders that'll take four incomes into account right so you can get the kids in the mines we've got you know like you get a group of friends together and they go and buy themselves a property you know so they own the house share basically yeah pretty much yeah but you know it's a it's a way onto the ladder let's get the boys together demo yeah rather than getting you know shared ownership and all these other things where you know you're getting involved with a big corporate you know you're doing it on your own back because the other thing that we've got though you know i say bank mom and dad is we've got this thing called joint borrower sole proprietor, which helps a hell of a lot with people who mom and dad or the kids have got a deposit from an inheritance or savings or whatever it might be, but their income is not high enough to afford the house that they want to buy.

49:51We have got the option of adding either a partner, an unmarried partner, in where both of you are used for affordability. So you both have jobs, both your incomes go towards affordability, but only one person's name is on the title deed. And that's why you have to be an unmarried partner because that works on that basis. But vast majority of this was devised so that mom or dad who have got an income can jump on that mortgage and help that kid afford the property that they want to buy because areas are quite expensive. They can afford that property that they want to buy while they're in their first year of, you know, I mean, you could use a doctor or you could use a lawyer or an accountant or whatever it might be.

50:33An accountant starts off, he earns very little, but his trajectory is quite high. So that person can come in, do joint borrowers or proprietor, mom and dad, help him afford it. Mom and dad are there as guarantors. I was about to say, it's a bit like a guarantor when you go to flat. It replaced the guarantor mortgage because a guarantor mortgage doesn't exist anymore because the lenders really found out the hard way that the paper that it was written on wasn't really worth it. Well, the guarantor was like, I'm not paying when it. No, but I mean, they didn't really have a document behind it they were strong enough to actually force them to pay.

51:03So that's why we've had this change. So we've now got this joint borrower sole proprietor situation. It has pros and cons because, you know, generally the older your parents are, that limits your term that you can have. And that's why a lot of the cases we end up still remortgaging mom and dad's house, giving the money to the kids by way of a gift. I mean, we laugh about bank of mom and dad and there'll be people that have benefited from that. And I don't want them to feel ashamed about that because I'll do that for my son. But I also want to acknowledge the fact that there's a lot of people that don't have that support.

51:33And that's why it's so difficult for them. But those people can still get the same advice. They can still get the same help. They can still know what their options are. And, you know, I'll be honest with you. I think a lot of people just assume that they can't do something. What's the average age of a first buyer in the UK? If you know. 70 by a thousand. From the mortgages that we do personally, Certainly, average first-time buyers are probably in their mid to late 30s. Oh, I'm on time. Let's go. And I think the average first-time buyer for us is probably in the mid 30s. And I think that's primarily because with housing stock being quite expensive overall and incomes varying from region to region, it doesn't matter where you're buying in that region, you generally are needing to be at that age where you've had a bit of experience and a bit of career progression before you can actually jump in and afford it and also have enough money to be able to build up that deposit.

52:29London property market has come off the boil a little bit, but there's still opportunity there. And I think houses in particular at the moment, because of the fact that so many landlords are sort of now thinking about selling up, are probably going to be your best appreciating asset. Flats maybe to a lesser degree, and that's number one because, you know, developers are going to come along and knock down three houses and put 18 flats on it. There'll be more and more flats in supply, whereas no developer is going to come and build more houses, you know, especially not in sort of city center kind of areas.

53:06So I think places where, you know, clients can afford to get onto a house rather than a flat, I'll definitely look at taking that jump rather than going down the flat route. But then, you know, we've got some clients who are kind of going, right, I'm never going to have kids. I work like an absolute mad person. And I'd much rather just stay 10 minutes away from work in a flat where I don't have to do any work. Those flats would obviously have a little bit more of a demand. But your sort of standard new build kind of boxy kind of thing is going to be dime a dozen. And I think those properties will battle to appreciate and value as quickly as houses will in the next 10 years.

53:48You've got any other predictions on the market? Interest rates are going to hopefully get down to sort of three, three and a half percent. I think it gets to three and a half. That probably would be a point where, you know, if I was that client I was talking about earlier, where we're waiting for things to go down. I think three and a half is a safe area for you to kind of go, actually, you know what? I'll get involved because it's probably not going to get too much better. Because I think this two percent inflation rate is going to be a sticky one. you know we've been at 2.2 now for two months it only takes a little change in fuel prices a little change in world position to create problems with that sort of inflation issue and therefore banks are going to have to continue to pay savers more to be able to put their money with them which means that this three and a half percent rate is probably going to be where we settle but three and a half is still a hell of a better than the six six or seven that we're at i mean it's much more normal as well than zero, right?

54:46Yeah. And, you know, like if you look at it before we had the global financial crisis, the Bank of England base rate average was five to five and a half percent. So, you know, historically speaking, we're no different to where we used to be. It's just that we've been spoiled for a prolonged period of time with really, really cheap money.

55:06Please remember, this is not financial advice. Like we say a lot on the podcast, investments can fall and rise. In fact, it's pretty much a guarantee. Past performance is no guarantee of future results, so your money is at risk with investing and other fees may apply. As with everything financial, please do your own research. We really encourage that because no one cares more about your money than you. I'm Damo. Antti. This was an episode of Making Money from Our Company Most. It was filmed and edited by the team at Flowspire, Jack and Ben. It was produced by Ruth Edwards and brought together by Will Stallerman.

55:36What about Ruth and two-thrits a dog. Yeah, shout out them too.