Wednesday 29th July 2009

Fixated with rate?

Fixated with rate? I would like a pound for every time when asked to help a Client says:” I’m just looking for the best rate”.

Lets imagine the ‘best’ (lowest) rate was actually 1.99%. The conversation might go something like this: “There is a two year fix starting at 1.99% but it does have a £4000 arrangement fee. You also need to know the lender only lends in Cambridgeshire, he only lends 2.5 times income and he doesn’t open on a Saturday if you want to apply direct” Suddenly a whole host of issues other than rate emerge. The Client doesn’t want to pay a high arrangement fee because he did that last time and he has just spent most of the last two years repaying the fees and not paying down his mortgage. The client lives in Bedfordshire and couldn’t have it anyway. The Client needs to borrow 3.5 times income. Still couldn’t have it! The Client is happy to go ‘direct’ but doesn’t want to upset the boss and take time off work.

Suppose the ‘market rate’ for this client was around 5%. Also imagine that the client could have either a 4.7% deal or a 4.9% deal. The fees are the same. The higher rate allows the client the possibility of taking a six month payment holiday and the cheaper one doesn’t. Suppose the client is concerned that half way through his product term there could be redundancies at work? Is he likely now to choose the product with the higher rate? Suddenly ‘rate’ ceases to become the main focus – a product that permits payment holidays is now the focus. So the Client didn’t want the ‘best rate’ after all!! What a client really means when he says he wants the best rate is the best rate for his circumstances. This is a different question.

What is the point of trawling comparison site after comparison site only to identify a product you cant have? Unbelievably this is what a lot of the public do. More worrying for professionals in this business is the amount of people who think they can sort their own deal but ultimately fail on a technicality. This is exposing the public to damaged credit files at just the time they don’t need it! It was reported recently that a major High Street lender is rejecting up to 80% of applications in a certain category. To make matters worse we hear of people applying to lenders and losing money in upfront charges. Just when you need to conserve cash.

The problem with mortgages is they look easy to do. The reality especially in today’s market is they are actually very hard to do. Even professionals can struggle with the increasingly onerous and ever changing demands of the lenders. The average guy in the street has got far less chance of success than he imagines. The time taken, frustration and stress are far higher than Joe Public believes. I have watched a bricklayer building a wall. That looks easy as well. Ever tried it? I did once. Disaster! Had to get a pro in to sort out my botched attempt!! (“Gonna cost a lot to put that right guv.”)

Can I suggest you call your friendly local financial adviser at the outset and do the job properly from the beginning? I can promise you two things: 1) He hasnt got green horns 2) He wont bite your head off.  Well if you find one that does please let this site know so we can publish a warning.

Ray Batchelor

Alpine financial solutions

07765 545259

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