Friday, June 28, 2013

The Importance of Proper Mortgage Advice

With the UK property market continuing to show little sign of any major recovery in the near future (perhaps with the exception of the prime London property sector) it is more important than ever that any investment you make in the residential property market is a sound one; backed up by good advice. Long gone are the heady days when you could buy just about any type of property in any area of the UK and make a profit within a few years simply due to rising house prices. For those who refurbished a property the returns were even greater and in an even shorter space of time but reality has now hit home.
Or, at least, it should have. Worryingly though there are still substantial numbers of borrowers taking out bridging loans in order to secure the house they want to buy but before they have completed the sale of their old home, or even secured a buyer. In an uncertain market like the one we are currently in people should be very cautious about any sort of loan they take out but particularly one such as a bridging loan where the costs of borrowing can soon spiral out of control.
It is important that buyers view any house purchase with a long term view and do not assume that it is easy to secure a buyer for any home. Even a highly desirable home in a good location still needs to find the one buyer who is actually ready to buy and can secure the appropriate level of borrowing. Large numbers of house sales are falling through because lending criteria or personal circumstances change between an offer being accepted and a sale being completed. A reassurance that a buyer will complete is not a completed sale and only when contracts are signed can you have some certainty of the sale being finalised (although even then it is not unheard of for the transaction to fall through).
So with all this uncertainty in the market it is surprising that the Financial Services Authority (FSA) reports an increase in the number of bridging loans and the FSA is urging consumers to seek proper advice from a regulated mortgage broker to be certain they are receiving the right advice.
While the FSA is spot checking brokers arranging bridging loans many of these are for buy-to-let properties or development opportunities and as such are viewed as being commercial rather than residential lending, making it difficult for them to regulate. And, of course, there are circumstances such as investing in a buy-to-let property where a bridging loan is a useful solution to help an individual investor to complete a purchase.
Anyone considering a bridging loan should be aware of the risks involved and the potential cost implications should the period of the loan have to be extended. A typical interest rate on a bridging loan is 1 per cent per month and a typical administration fee is also 1 per cent. So, for example, on a £1 million pound mortgage the administration fee would be £10,000 and the interest payments would be £10,000 per month so every month beyond what was budgeted for could have a significant impact on overall costs of a large mortgage. Some lenders can charge up to double these typical rates and fees.

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