ESPC Property Show: Mortgages Update

Paul
Welcome to the ESPC property show. And today, we're going to be talking to Paul and David from ESPC Mortgages. Everything you need to know about mortgages. Since the last time we told you everything you need to know about mortgages.

Megan
Yeah, exactly. It's a nice, quite a brisk episode and we cover a lot of points. And it's really just an update on what's happening in the mortgages market. And shining a bit more of a light on what is bringing a lot of doom and gloom in the media, and I think we just lift that ever so slightly.

Paul
Yeah, we dispel some myths. I think there was some really good points made. But the thing I took home from it was two things. One, lenders are very much open for business. And it's never been a better time in some ways, because they've got more time to service these inquiries and give you quick decisions, which I thought was a real plus, and there was the point that was really well made is that that when you put aside for the premium, you're going to have to pay on the property potentially now you can put towards your deposit so you can get your payments down.

Megan
Yeah. So without further ado, we'll pass it on to our chat with Paul and David.

Okay, so we're here with Paul DeMarco and David Lauder from ESPC Mortgages who have been on the podcast before. So hi, guys, I don't know if you want to do a little intro to yourselves.

David
Am I'm Hi, I'm David Lauder, one of the mortgage buyers ESPC. Been here for 18 years for my sins. And yeah, just deal with all the main clients that we deal with for mortgages and protection.

Paul DeMarco
Perfect. Yeah. Likewise, I've been around for 18 years as well, another mortgage advisor working alongside David, and see all the clients that require a mortgage and protection.

Megan
So just to kick off, obviously a lots been going on in terms of mortgages over the last year. And so what is the current market like?

David
The current market at the moment is a bit quieter. I think, though, to be fair, that traditional when people are on summer holidays, school holidays, we've always found that to be a bit quieter. But it's probably a little bit more quieter than normal. What we don't know is when and how much that will pick up. And we're still getting plenty inquiries. And obviously, we're dealing with a lot of our own clients that the mortgages are due to end and we're trying to review those as quick as that as early as possible.

Paul
Yeah, we'll come to that, that's a timing thing isn't it?

David
Yeah, and some lenders are more sympathetic to that than others. So we're dealing a lot with that and obviously still dealing with clients that are looking to buy houses but admittedly that is a slower and less active process.

Paul
Yes, yes, and probably more than ever before. People are interested in what the Bank of England's got to say it used to just pass by but now everyone's there on the on the day they're reviewed to see them. I'm sure those are the days that you're busy. Okay, shall we talk about the type of mortgages that are available right now then in the mortgage marketplace? We did a podcast just the other week, didn't we Megan? We were talking about the difference between the market in 2009, you guys will remember that, and the market now is there is availability of mortgages, we don't have a credit crunch, we have higher rates than we've been used to, but we don't really have a credit crunch at the moment, do we?

Paul DeMarco
No, we certainly don't have a credit crunch. However, obviously, interest rates are very high just now. And it's been like a little bit of a roller coaster. Because if you look at the rates, you know, at the beginning of October or September, they went up quite substantially and then around about January time, they went down again and now they're kind of back up. And I'm hopeful that they've peaked at this point, the fixed rates I'm referring to here, you're looking at probably on average about 6% for a two year fixed rate and maybe 5.7/5.6% for a five year fixed rate. So it has been a bit of a roller coaster with the interest rates.

Paul
Okay, because we were talking about sub 4%, I remember having that discussion around the start of the year. But both those rates have gone at the moment?

David
Yeah, I don't think you'll see 4s for quite a long time. The rates that Paul's talking about it is right. But some of those are even higher if you've got higher loan to value. I think this slight small green shoot at the moment is that they have stabilized. And we have actually seen lenders (not frequently) offer reductions in mortgages slightly, which we weren't even seeing those for the last six months. What we hope is that that will be a trend that will continue, might be slow and sure. But hopefully it will continue. But the flip side of that is the Bank of England, as you mentioned Paul, that the base rate, which probably, I think it'd be fair to assume that there'll be at least one more rise this year but that doesn't always have a direct corrolation with the mortgage rates, it's more swap rates, the mortgage lenders work from but obviously, we're not going to lie a base rate rise is not a good trend for interest rates.

Megan
Absolutely. And so if somebody is coming maybe to the end of their fixed term and looking, how far ahead should they be considering their next mortgage?

Paul DeMarco
Yeah, well, most lenders are now six months, some are still three, believe it or not. But it does vary between three and six months. So that's kind of what you're looking at. And we are actively now approaching the clients whose mortgages are about to expire six months from now to explain the circumstances to them. And if they want us to look at the mortgage, it just now, and obviously, the good thing about the product, what we call a product transfer, if you stay with this existing lender, what the majority of lenders will do, and this is the majority, not them all, is that if you lock into a fixed rate just now for and it's got six months to run on the mortgage, we keep an eye on the rate in case it does decrease. So let's say we're four months down the line, and the rate has dropped, we can then get a reoffer on a mortgage, if the rate does decrease, that's not what everyone did. But that's with the majority of them.

Paul
Okay, that's interesting. And I think there's this, which is a good point, then when you talk about every lender, and you know, you sit here is two mortgage advisors, it's probably a valid question to ask you, why should somebody come to yourselves, as opposed to simply just doing a remortgage through their existing lender?

David
Well, we're independent, which is a big selling point, which means you can deal with all the main banks and building societies and everybody that they speak to, it's not one size fits all, it's a solution very much tailored towards your circumstances. So what I mean is that there will be different lenders will be suited to different people's circumstances. And we've got the ability to basically go down like a funnel, and at the bottom, you get you get the answer. But what you're getting is you're getting the best solution suited to your circumstances, if you're just going to your own bank, trying to arrange it yourself, the chances are, that it wouldn't be absolutely the most competitive and it's - to use a football league analogy - it might be halfway down the league, as opposed to at the top of the league. So the other thing as well, is you're actually dealing with people, professionals that actually do this day to day, and can be aware of a number of things, because there is a lot of them things that you need to be aware of. Maybe if if you don't have a full knowledge can be quite tricky. So it's just trying to get peace of mind, I guess,

Paul
Would you say lenders are asking? So if you're with an existing lender, is it straightforward? Or are they now saying okay, well, your income was that then what's your income now? Are we almost starting again these days?

David
No, going back to Paul's point, on what we call a product transfer, where you've got a mortgage already, but your deals coming to an end and you're wanting another next fixed rate. If you're choosing to stay with your same lender. Then to be fair, there is no real assessment, it's not a given. The client has to give us basic information. So we are doing our due diligence and duty of care to the mortgage lender, but the mortgage lender is not doing any assessment, if you're not changing the amount of the mortgage or the term of the mortgage. So from a hassle point of view, peace of mind, it's a good journey for the client. If they want to change something or go to another lender, then it's a full assessment.

Paul
And there might be a good reason for doing that.

David
Yeah, absolutely.

Paul DeMarco
Absolutely. There is another point I want to make with regards to why you should use a mortgage broker. With a mortgage broker it's usually one or two points of contact, easy access to the broker itself, where if you went direct to say, a bank, or a build society, nobody likes calling help desks, because of press one, press two, press three. And sometimes you don't get through, whereas at ESPC Mortgages anyway you will get right through to the individual person and that's a big, big plus in my opinion.

Paul
Yeah, you are press one, aren't you?

Paul DeMarco
Yes, I'm press one!

Megan
And like you said, Paul, if you work with a mortgage advisor, then they can see when your mortgage is coming to an end and you guys get in touch with them, so it's kind of that ongoing support. It's not just once you sign your mortgage.

Paul DeMarco
It's not missed, I mean we contact all our clients, when their deal is coming to an end to offer them the best deal whether it's our what we call, as David alluded to earlier, a product transfer or even a remortgage as well.

David
And what I'll also say, I think what you were alluding to Megan is that we don't just do that once, so mortgages are in tranches and once you take a tranche, which is like a two year fixed rate, three year fixed rate, five year fixed rate, when that deal is coming to the end, it's getting reviewed again by ourselves. So you're basically building a relationship, but you're also finding the best mortgages during the whole term of the mortgage. Because it's not just the best mortgage for the first three years, it's maybe the best mortgages over the next 20/25 years.

Paul
Okay, Megan and I are huge champions of first time buyers, shall we talk about first time buyers?

Megan
Yeah, so it's obviously a very difficult time to get on on the ladder. I don't know if you guys want to talk about what the options are for first time buyers right now?

Paul
And give us some good news stories?

David
Well, there is good news stories, because, for example, in Edinburgh, particularly, you are getting probably more house for your money. So there is not as much money to bid over the valuation, fixed prices, offers around the valuation. And it means that 20 to 30,000 pounds is not just being used just to get the house. So okay, the monthly repayments may be a little bit more, but they need to think about the amount of money they've actually saved to get the house and which will probably in my opinion, probably be more than what they're actually have to pay per month. The other thing I would say as well, which probably not a lot of people realize is that the lenders because of the interest rates are nowhere near as busy as what they normally are. And what that means is they've got an appetite for business, they've got their own fingers to hit, which they have to hit at the end of the year. And they will, you know, be competitive, but also their service levels for placing cases - getting a quick yes, or getting a quick no, it's a lot quicker, because cases are being looked at a lot quicker as well. So when the busy times of a year to two years ago, from application to mortgage offer, it was a lot longer process. In terms of their strictness, although the rates have gone up, the strictness isn't any different, for any other times what's just changed is the stress test of affordability has just gone up because we're stress tested against higher interest rates.

Paul DeMarco
Yeah, another point to make as well is that a lot of lenders are now increasing their maximum term to 40 years. So the reason for that is, for affordability reasons and to assist the client as well. I mean, if you're 30 years of age or under, it's, it's an option you can have, as most lenders will take your mortgage to 70. And some take it to 75. So you could be 35 as well. But that's to help the clients as well and I've noticed more and more lenders are offering this facility to 40 years.

Paul
And are you, when you're talking to a client, because back in the day is 20/25 years was standard. Are you offering 30/35/40? Or do you do you show them the differences? Because whilst it's longer, it means you are paying this thing back over a longer period of time.

David
I think what you do Paul and it's part of giving advice is that, Paul's very right to mention that, but I don't think I would champion it, if that makes sense? Because the amount of interest you end up paying back is a lot. I think the way I focus on is I want the client to pay back their mortgage as quickly as possible, but affordable. And if you can avoid 40 years, then yes, you want to avoid it. But equally, if it's the difference between getting the house and not getting the house and getting on the market and getting to pay towards it, then it's a good option to have.

Paul
As you said, it's tailored, isn't it? Every case is going to be different. Every client is going to be different. Yeah, absolutely.

Megan
So there is also obviously the new 100% mortgage that is available. It was reintroduced by Skipton, wasn't it? Is it available anywhere else, is it still just Skipton?

Paul DeMarco
My understanding just now is that it's still Skipton. It does have stipulations with it. One of them is that you have to be renting, you can't live with parents. And I think you've got to be renting for a year.

David
12-18 months

Paul DeMarco
12-18 months you need to be renting for, it's to prove you can actually afford to pay rent. So hopefully you can afford to pay a mortgage. So you can show some sort of history of affordability. I mean, it is only Skipton just now and the credit check for that will be quite tight as well. I haven't done any personally so far. But it is a good facility for someone who doesn't have a deposit or maybe just has enough for lawyers fees. And maybe, I don't know, has to pay a little bit of stamp duty as well. So it's good for that point.

David
There's a lot of common sense to it because your mortgage payments cannot be more than what you're paying in rent. Okay, so this is showing already a track record, you've already done that. And you've got to be 12 to 18 months, as Paul says, but it's available to a wide array of levels of income because (please forgive me if I'm wrong) but I think you can actually borrow up to £600,000.

Paul DeMarco
Yeah, you can.

David
It can help a lot of people. It's not just for lower income people. It's for it's for a lot of people Yeah,

Paul
The interest rate isn't cheap, though, is it? Let's be honest here.

David
The interest rates not cheap. The interest rate for any mortgage is based on loan to value and loan to value is how much money deposit you can bring down. So yes, it wouldn't be cheap, it will be definitely in excess of 6%, maybe even closer to 7%.

Paul DeMarco
Yes, it's actually slightly higher than 95%. But not much, there's not much in it. So that's what a 5% deposit.

Paul
So you're putting down 5%, your interest rate is lower, you put down 20% or 25%.

Paul DeMarco
Up to generally up to 40%. Is your kind of pretty much your lowest interest rate, you can get.

Paul
In terms of first time buyers? Again, we talked about the things being tailored, but what's the common deposit that you find in common? Is some of that money coming from Bank of mum and dad, and can you have some deposit coming from the first time buyers? And some coming from mum and dad? So you put two into the same pot? Has that caused any issues?

Paul DeMarco
No, not really. And you can have family gifts, blood relation. Gifted deposits can cause an issue if they're not generally from a blood relation.

Paul
Blood relation sounds quite... no one has to do a blood test do they

Paul DeMarco
No, no, no. Like mum or dad, or brother or sister. Each lender has its own criteria, but in general, the answer to your question is you can have some savings and some gifted deposits as well.

David
What I would say to you is that I think they're absolutely fine with gifts. And it's a very common thing, bank Mum and Dad, I think what they do look to do is they also want to see a commitment from the clients themselves. And what I mean by that is that they've been able to build up some savings. And it's not just all that way been done. So you can have a bit of a mix and match your case will be stronger if it's coming for your own savings. But certainly gifts from mum and dad are perfectly acceptable.

Paul DeMarco
Yeah. And sorry, you did mention the loan to values. And in general, the majority of clients that we see, I'd say, are definitely not 95% or 100% mortgages that the mainly 90 And down. And they do a lot of them do come from mum or dad, but a lot of good savers as well.

Paul
Good. Yeah. That's good to hear. What about a situation where maybe someone's credit worthiness - maybe they've had late payments on a credit card or anything worse than that, where there's been a judgment against them? Are they difficult to place right now? Is there any hope for somebody in those situations?

Paul DeMarco
They are difficult to place to be really honest with you and-

David
It comes down to the overall profile of the case.

Paul DeMarco
It does. To be to be perfectly honest with you there are specific brokers that can specifically deal with cases like that. And I mean, the majority of mortgage brokers, probably, I'm not saying they don't like people with CCJs, or defaults or anything like that. But there are specific brokers...

Paul
It's quite specialized?

Paul DeMarco
Yeah - specialized who can. So we can we can help them, we can refer them on through to individual companies like this and try and find a home for that. But they are quite difficult to place with a mainstream lender.

David
The only thing I would say is, sorry to interrupt, is I would say it depends on what the CCJ is. So if it's under £500, and if it happened for like a month, and then it was satisfied, and there was a valid reason, like a lack of communication with a potential provider, or like there was a family situation, then it can as a one off be looked at sympathetically. But if it's something that has a track record, and it's happened more than once and there's a number of things, and there's a trend happening, then yes, it will be a challenge. And in many ways, it's quite right there to challenge as well, because they'll take the view that well, if it's happened here, who's to say it's not going to happen to the mortgage.

Paul
And in some ways, they need to be responsible lender and equally as a borrower, you need to ensure that you can afford these things. So I suppose the message there, is to talk to you guys early, but be completely transparent, because it will come out, won't it? These things will be found out.

Paul DeMarco
It definitely will, but there are certain lenders, obviously that have got a more pragmatic view towards that. And so I mean, as David said, small arrears, maybe late payments, you know, you sometimes have to just get a credit report. And if they haven't already paid the small debt, say it's £50/£60 on a mobile phone, then they maybe switched contracts, and you know, maybe one of the mobile phone contracts didn't write to their new address, that kind of thing as long as you pay off is usually okay.

Paul
Okay, good. Thank you.

Megan
And in terms of people who currently have a mortgage, if they're struggling with repayments or anything like that, what kind of advice would you give anyone in that kind of situation?

Paul DeMarco
Well, with the new charter the lender is a little bit more sympathetic. They can do things like they can transfer your mortgage - not ideal by the way, these things that I'm going to talk about are pretty much last resort. But they obviously have to contact the lender. If you feel you're ever in trouble with your mortgage, you don't hide you don't put your head in the sand, you've got to call your lender immediately. Obviously, the advice we would give is the same as what I'm going to tell you now where is that the lender would try and help you and maybe put you on interest only payments to start with. And that's just one of the things they can do to sort of assist you, increase the term to keep the payments down and keep on repayment is another one. And I think some lenders now, David? Are offering payment holidays for six months?

Paul
And that means?

Paul DeMarco
Not paying it, but the debt is added on to the loan secured against the loan. But then again, then hopefully that helps someone who's maybe been meet unemployed or something like that. So these are things lenders can do. And my advice to you as if you're really struggling to pay your mortgage. You have to speak to your lender. It's very important.

David
Yeah. Basically, there was a government charter that came out with all these interest rates where almost all lenders more or less committed to and the type of things that Paul's talking about is what they've committed so you would contact your lender and it is in their interest act sypathetically - lenders don't want to repossess house.

Paul
Nobody wins in that situation.

David
They will act as sympathetically as possible.

Paul
But I think this is the difference between what we saw in 2009, where there was a lot of repossessions - but in saying that beforehand, there'd been a lot of reckless lending. Now, we've not seen reckless lending, because you guys for all those mortgages, you've signed up in the last 13/14 years, there's been stress tests, and there's been things done. So it's been responsible lending. So we shouldn't be seeing the levels, I mean we're not seeing those levels of repossessions. But it's a good question. Yeah, absolutely. Okay, well, we should I think we reached crystal ball time really quickly!

Megan
I'm sure you're both very excited. Yeah, we were gonna ask what the outlook is for the months and maybe years ahead?

Paul
Not financial advice, we might add.

David
I mean, it depends what you read, doesn't it? I mean, it's the last four or five months have been so turbulent. I don't think we'd have predicted it would be where we are at the moment. And I think there'll be at least one base rate rise between now and the end of the year, I wouldn't rule out two. And I think after that there'll be a period of stability. And I'd like to think in 2024, we'll see a gradual decline in terms of base rate and interest rates. And I think there's still a good appetite for lenders to lend business. I think what we're doing, the unhidden part for 2024 is basically consumer confidence. And what I mean by that is, do they feel like all this bad news has sort of put them off, but what I think they've got to bear in mind is that there's also a potential window of opportunity. And the window of opportunity is what I alluded to earlier is getting more house for your money because it could turn from always been a seller's market, it could slowly start to swing to a buyers market. And I think that's long term that could be a good thing for people in Edinburgh, because how Edinburgh prices traditionally always do really well.

Paul
I think you're right, I mean, we've spoken for a while now, but a more balanced market, which is what we're seeing between buyers and sellers. And it's a really interesting point that you make about that opportunity for buyers to go out now and find themselves not paying the premium they were last year. So and we know there's no bell that ever goes off at the bottom of the market or the top. So it's about when it's right for you isn't?

David
I mean, the other thing to bear in mind, particularly for first time buyers, is that if they're paying £800 a month in rent, they're paying somebody else's mortgage. Yeah, so at least if they're on the property ladder, regardless of the interest rate, the £800 is going towards their future and tackling their mortgage debt.

Paul
Yeah, I remember seeing this calculation, I can't do it off the top of my head. But as you say, at that level, it's £9600 a year. Yeah, that's £96,000 over 10 years. That's £192,000 over 20 years that you're paying to somebody else when you could...

Paul DeMarco
Yeah, despite range being slightly less than the average mortgage now, it's still better to buy because, as you rightly said, Paul, that you're paying the landlord a lot of money over the next so many years, so definitely best to buy.

Paul
Yeah, but again, it's circumstances in it, you know, if you're gonna be in a city for two years, but at some you're paid LBTT and everything else, you might be better rent and so it's taking the view.

Paul DeMarco
It's not one size fits all. It's horses for courses. Yeah, absolutely.

Paul
You've got to look at over a period of time. Yeah. And what's your timeline for that? I'm sure it's the same with fixed rates, you know, do you want to lock somebody in for two years or five years or 10? Or can you get lifetime fixed rates these days?

Paul DeMarco
You can actually yeah, you can now, you can even get flexible fixed rates as well which means you've not got any penalties. There's not very many of them on the marketplace. But I'm going to be doing one.

David
Lifetime fixed rate?

Paul DeMarco
No, not lifetime fixed rate, flexible fixed rate

Paul
So with a flexible, it's never more than that but it can be less?

Paul DeMarco
No it's a fixed rate with a specific lenders, not many do it so say it's a fixed rate 6% for two years. But you can actually pay off all the mortgage at any point and offer if the rate goes down, or say you only want you think you're gonna inherit money in a year, or you've got another house to sell, but you're not going to sell it for a year, lenders are fine with that - the ones that do these flexible fixed rates, and that's kind of pretty much why they do them. And then you can just pay the whole mortgage off or drop it down by half.

Paul
Okay, good. Yeah, I think the lenders have suddenly become a little bit more flexibility. And so there's a lot more creative-

David
There is creativity. A lot of it is down to more, I think I always simplify it by saying it's down to the life intention of the person and their attitude towards risk. And like what they also can afford and what they might be wanting to do in the house in the next two, three years time. And also like, how much they need stability against willing to take a risk with with interest rates, etc.

Paul DeMarco
Yeah, I mean, a good example of what I see someone who has like a £400,000 mortgage. Okay. Now, currently, it's been like this since October time, five year fixed rates are cheaper than two year fixed ratesd. Okay. And that's across the board. Okay. So as David said, it depends on the person's attitude to mortgage risk. So do you want to really lock into a two year fixed rate? Because it's higher, although peace of mind? Or do you want to go five years when you know, you're definitely paying is less to start with? How much less is it? And what's the chances of the mortgage rate coming down in two years, as opposed to not, so you've got to take all these factors into consideration before you make the recommendation?

Paul
Yeah, very wise.

Megan
Just to wrap up, I was just gonna ask, is there any questions you're getting asked frequently? And you want to answer no, and you can direct people to this podcast?

Paul DeMarco
We get a lot of people who have just either moved here recently, where they came from the UK originally, but they've just come back. And so these people we can get mortgages for but it depends on their credit score and their credit rating. And but we do get a lot of people from different countries throughout the world and they are more difficult to actually get a mortgage for right away because of different circumstances. The majority of them do have to have a bigger deposit. So we get a lot of these inquiries just now. But to be honest with you, some we can help, some it can't, it just depends.

David
The most questions I guess which I think we've covered today is people want to know what's happening with interest rates. Wanting to know, like how they see the future? And also, I think as well though, they get pleasantly surprised when they speak to us about how eligible they may be for a mortgage. The one thing that's came out of this is that the press have definitely jumped on bad news.

Paul
And as you say don't write yourself off. I think there's probably people, I'm sure in rented accommodation now who think they can never get a mortgage. And they will be pleasantly surprised.

David
There definitely will be. It's just a 10-15 minute chat to find out if that's possible.

Paul
That's a great place to leave it.

Megan
We'll leave all your contact details in the notes for the show, if anyone wants to get in touch with you guys, but I'm sure we will see you again on the podcast at some point.

Paul
Well, thank you. Thanks for coming, guys.

So there we go. That was that was the mortgage update. I found that really useful.

Megan
Yeah, it was really good. If you are looking for any mortgage advice, please do not hesitate to get in touch with the guys at ESPC mortgages. We've got a great team that are in our property information center. And so you can head to our website espc.com/mortgages to find out more and how to get in touch with them. And yeah, we would encourage you to do so if you're looking for good advice.

Paul
Absolutely. Go early, I think is what we heard today. And yeah, have a chat. You may well be surprised and those that maybe don't think they could get a mortgage might get a nice surprise, but thanks for listening again as ever, and we will see you soon.