Banks, Building Societies
and Mortgage lenders
At the end of the day don't forget you are buying a house
Before we get too deeply into this article on mortgage lenders we would say that the buying of a house should be a pleasurable process but often becomes difficult at best and very difficult at worst. Do not forget you are buying a house and you do need to get advice on the quality of the house as it is such a large investment. We recommend you use independent chartered surveyors.
Free phone 0800 298 5424
Is your estate agent really a bank, building society, mortgage company or insurance company in disguise? The answer is yes
Many people are surprised when they learn that the majority of estate agents sales carried out in this country are carried out by estate agents that are banks, building society, mortgage company or insurance company owned either directly or indirectly or have very strong relationships with them often known as panels.
This is because mortgage business is such good business that the banks, building society, mortgage companies and insurance companies need to make sure that they do not miss out.
Why is Mortgage work such good work?
Mortgage companies make money by lending money; they borrow it at a lower rate from you and others via a saving plan of one sort or another and lend it at a higher rate to you and many others for your mortgage. You then pay them every month for many, many years to pay off the mortgage so they have a regular income throughout this time. This is passive income because apart from having to put rates up and down they have to do very little else to keep having your business every month.
When you have a passive income you can get busy with other things such as credit cards and the stocks and shares market.
Banks, Building Societies and Mortgage Companies are in mortgages to lend as much money as possible
Whilst it may seem that both finding a house and getting a mortgage are quite difficult at times, in theory it should be very easy to get a mortgage because banks, building societies, mortgage companies and insurance companies are in the business to lend you as much money as possible. They are looking at ways to lend you money at minimum risk of course.
Over the years what they do and don't lend you varies considerably but we would say it has always been pushed to a maximum risk level the market will allow and beyond and of course what regulations will allow. We are sure that greed plays a part too.
Percentage of property that the mortgage companies will lend on or who needs a deposit?
Depending upon when you have or haven't bought a property over the years also depends upon the percentage of money that the mortgage company has lent you. In the very good years we remember seeing that mortgage companies would lend you 125% of the value of the property that is 25% over and above what the property is worth. We are sure there were caveats and regulations and requirements with regard to this but as we never applied for them personally we cannot advise you further other than 125% mortgages were definitely available. It is much more normal to have a deposit and the mortgage make up the remaining 70%, 80%, 90% of the mortgage, also known as loan to value.
What multiple of your salary can you borrow?
The multiples of what the banks, building societies, mortgage companies and insurance companies will lend has changed considerably:
|4 x salary, possibly more|
|3 x salary|
In the 1980's it was more typical to have three and a half times a single person's salary and two and a half times a joint salary. In the boom time of 2006-2007 it was said a multiplier of 7.1 would have bought you the average house. It could be argued that the multiple of your salary is not that relevant in some ways as if interest rates increase from say above or below the more typical five percent then you could find it harder or easier to get a mortgage and of course it does not consider at all the factor that you may be made redundant.
Can't afford the mortgage! The answer is to extend the number of years of the mortgage?
Another way that lenders have of lending you money is to move from a 25 year mortgage (which we would say is the typical in the UK ) to more years. This does make the property more affordable but it does mean it makes it more expensive. For example let us consider a £150,000 repayment mortgage over various mortgage lengths:
|Repayment mortgage length||Rate||Interest||Monthly payment|
Increasing the mortgage length to 40 years will of course mean you have to buy fairly young with the maximum age for a mortgage being 70 to 75.
Are house prices driven by supply and demand or the availability that lenders give to mortgages?
At one point in time we very much thought that houses were on a supply and demand basis. By this we mean that if there is a high demand in an area then house prices went up. If there was a low demand then house prices went down. This is a very simplistic view, however we now think this is far more complex and one of the major factors that you have to consider is the availability of money. This either limits the number of transactions in the market as houses hold their price or if mortgage finance is very limited, and remember most people buy using a mortgage, then it can result in a lowering of the price.
Finally our attitude to Banks, Building Societies and Mortgage Lenders
This is not based on any scientific research whatsoever but we do feel the days are gone of bank mangers being a trusted member of society and a well respected figure for example like Captain Mannering in the comedy Dad's Army (for those of you that can think that far back).
Today you would have trouble finding a local bank manager if you bank with the same company as us. There has been a movement very much towards computerised banking where you have to meet various criteria in set ways. There is no longer a human element being carried out.
We treat everyone as an individual
Just to complete the article with an advert for independent chartered surveyors, all our clients are treated individually. We are happy to meet you at the property and we are happy to go through the report until you are happy with it.
Independent Chartered Surveyors reports and surveys are not all the same
This article is written to stimulate interest in this subject area and we are more than happy to discuss it further.
Chartered surveyors will meet you at the survey
We would reiterate that we would always recommend that you meet your chartered surveyor at the property as it is best that the chartered surveyor gets to understand your needs and requirements first hand. Our surveyors are happy to walk you around the property during the course of the survey.
Free phone 0800 298 5424 for a friendly chat
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