We are doing a mortgage for a client who agreed the deal a few months ago; the deal was done on a five year fixed rate, to give the client some security.
These days most funding takes time, a lot more than previously, this is due to higher regulation both from a money laundering perspective and underwriting as well. I remember one case we submitted pre credit crunch era, from submission to actual offer took less than three days! This was a mainstream lender, who used an automated valuation, and the income was based on self certification; so, as long as the client had good credit this case would be passed.
Currently, even bridging loans take longer than this. The industry should have speeded up, instead it’s been weighed down further.
We got to offer stage for this client, however during this time although the base rates haven’t dropped the product rates have, especially the long term ones.
His is a modest mortgage, a first time buyer, and bottom end of the scale. When we did the calculations the difference between the two products was about £6,000. This is a significant enough sum to justify a parallel application. The current application will stay in place; this will now serve as an insurance policy, in case the main application does not proceed.
With two mortgage offers in place, it’s important to ensure the solicitor does not draw down on the wrong one. This sounds like an obvious point, but I have seen it happen in practice.
A client who was in the habit of shopping around, applied for a product with no early redemption charges, then he went somewhere else and applied again, this time for a product with a ten year tie in with an overdraft facility, which he did not want to draw upon. However, it transpired his lawyer drew down upon the wrong deal, and he was committed for a decade with the product, unless of course he’s prepared to pay for the penalty. A silly situation, but it happened.
If offered everyone would be happy to gain a £6K discount on the purchase of their property. However, most do not consider the impact a rate drop has; they would not quantify a reduction of say 0.5% as a present value.
There is a method to lock into a mortgage rate in advance, there is often little or no downside to doing this. If the rates rise you have saved money by having an offer in place, if they happen to decrease you can reapply at the current prevailing rates. This obviously has a bigger effect on long term fixed rates. This would be generally applicable for remortgage purposes. If your current product is expiring say in the next 8 months, it’s worth locking in a product now, the offer generally has a validity period of 6 months, this can be drawn down upon on the expiration of the existing mortgage.