First-time buyers entering the mortgage market come up against a bewildering array of options and quickly become confused. Two brokers give their views on the right road to take.
A young couple decide to set up home together. Life is full of great opportunities and many new experiences.
They will have a choice of flats and houses with or without gardens and with or without garages in a wide range of locations. Lots of choices, lots of big decisions.
Then there is the question of paying forthe property. They have saved some moneyfor a deposit but there are the legal fees, sur-veys, etc, not to mention the huge expenseof the furniture and furnishings.
They look for a mortgage. There are more than 4,000 to choose from. They look for a mortgage provider – more than 50 to choose from. They look for an adviser – more than 12,000 to choose from. They want to make the right decision because it is likely to be one of the biggest financial decision they have ever made and they are too tight for money to make an expensive mistake. Have you got a solution for them?
Going direct is a time-consuming business. Searching using the word mortgages on the internet brings up more than 23,000 sites. Let's say they select half a dozen, either on size, familiarity or ease of access. What happens next? Well, they find out that there is a range of loan types available.
Variable rates, fixed rates, capped rates, flexible, repayment, interest only, the list gets longer and longer. Then there are discounts, cashbacks, redemption charges. They are getting confused and you can hardly blame them.
On the one hand, they can opt for a higher rate with a cashback on completion plus a redemption charge. On the other hand, they could select the lowest rate on the market, fixed for five years, and save themselves the worry of an interest rate rise.
They are mystified. They cannot decide on the best deal for them from one provider, let alone several. They decide to ask for independent advice. They soon realise that the choice of mortgage brokers and advisers is equally daunting. How do you choose one adviser from another? We asked two brokers to suggest their best choice.
Simon Tyler, Chase de Vere
“First-time buyers are no different to anybody else in that they usually stretch themselves to the limit. The difference is that they have no experience of the implications of paying off a mortgage every month.
“We would always advise first-time buyers to go for a fixed-rate mortgage. It might not give the lowest cashflow but that is not as important as knowing what you have left to spend each month. It is much better than going for a discount looking for the lowest possible rate on day one and then realising you cannot keep up payments when the rate goes up.
“We try to ensure people are prepared for the long term with a five-year fixed-rate mortgage. Then we try and find a product with no penal-ties if possible so that people are free to change if they want to.”
Mark Harris, Savills
“We would advise first-time buyers of the importance of seeing an independent broker, who can talk them through their options. It is also important for first-time buyers to get advice on the different methods of paying back a mortgage.
“It is especially important for first-time buyers to work their costs out carefully. A 10 per cent deposit is not always best if borrowers then end up in debt paying for legal fees, stamp duty and valuations, etc. It is sometimes cheaper to add these costs to the mortgage and only put down a 5 per cent deposit instead.
“Fee-free products can be good for first-time buyers as the amount saved is more significant with a lower mortgage. There is often a catch with cashback products, though.
“It is normally better to go for a fixed-cost mortgage so you have the peace of mind of knowing what you will be paying every month, holding back some money to spend on the things that a cashback would be used for.”
Perhaps unsurprisingly, these are all mortgages you would find right up there in the best rate tables. Faced with so much choice, many borrowers head for these tables.
The danger is that the initial best rate becomes a quick and easy way to shortlist options when there may be other costs hidden in the whole contract.
If the new wave of customer relationship management is to be believed, then both providers and advisers should be trying hard to make a good impression on these new entrants to the property market as, in the final analysis, brand loyalty will play a much greater part in future mortgage decisions.
It is a sharp reminder that those focusing on their headline rates should be paying equal, if not greater, attention to levels of post-completion service and communication.
Caroline Whitehead PR manager, Bristol and West