The Euro turmoil is starting to affect the biggest countries in the EU now, and for the first time in around a decade the UK is now able to borrow on cheaper terms than Germany. German 10 year government debt rates increased to 2.21% whilst the UK, relishing it’s new found “safe-haven” status, sits at a mere 2.16%.

This is hugely significant, and will up the pressure on Merkel et al to sort it all out once and for all. With the markets becoming more and more convinced of an EU zone break up of some description, the politicians seem to be stuck in a holding pattern of indecision.

Back on our fair Isle, however, although there is a growing movement against austerity cuts, there is a general acceptance that, hard as it is, these things need to be done to chart a safe passage through stormy times.

Today UK growth was confirmed at 0.5% in the 3rd quarter of this year and earlier this week the Government launched its much anticipated Housing Strategy, pulling together a range of announcements with a couple of new ones to try to stimulate growth and return some confidence back to the house building industry.

Whether you agree with the content of this or not, the point is that at last the Government is trying to do something to help stop a housing issue become a full blown crises. Having been fortunate enough to discuss the report over lunch with the Rt. Hon Grant Shapps MP yesterday at the House of Commons, it was refreshing to see the passion behind the policies.

In the meantime more lenders have increased their rates further, with at least one other lender also increasing their variable rate. We are beginning to see the expected increase in remortgage business as a result.

With rates available from just 2.29% on a tracker basis (The overall cost for comparison is 3.80% APR), or 2.58% fixed until 31/01/2014 (The overall cost for comparison is 4.70% APR), 2.94% fixed until 28/02/2015 (The overall cost for comparison is 3.50% APR) and 3.39% fixed until 31/01/2017 (The overall cost for comparison is 4.00% APR), all with free legals and free valuations, it is an excellent time to reserve some outstanding products.

My first reaction was if that was the best idea he can come up with then we are all up the proverbial creek without a you know what. In reverting back to an oft tried and never achieved call for 30 year mortgages we suddenly saw that actually, no one in power at least, seems to really get the issues.

Alastair Darling said much the same thing in 2007 and was duly obliged by a couple of lenders offering 25 year fixes at the 6.39% level. Of course there was not much take up due to the onerous penalties in the first 10 years and the additional cost, but for those that did, well it’s looking a tad expensive now.

But still, Grant Shapps said to the Building Societies Association that “Longer-term mortgages – possibly as long as 30 years – could help families on tight budgets know exactly where they stand when they are buying a home, by giving them greater certainty over how much they will be paying for their home in years to come.”

As with any advice, the problem is that for most real clients, a 30 year fix is probably not the best advice. Budgeting is all very well, but as those tied in to the previous offerings will no doubt tell you, it sometimes isn’t all it’s cracked up to be.

In today’s ever-changing times with a transient work-force, births, divorces and the like, some kind of flexibility is required and having a long-term fix with expensive tie-ins means that those who are looking to move are tied to the lender they took the product with. This may not be the best lender when they need to move or borrow more.

Mr Shapps also suggested that to get over the redemption penalty issue, lenders should cost them in to the interest rate. Ok in theory, but in practice this just makes the differential more expensive. Just a quick glance at 10 year fixes available at present, (and there are only 4 lenders I can see offering 7 such products), there is only one Skipton, who offers this at 85% LTV at a rate of 5.85%. Penalties are a massive 6% in the first 5 years.

The challenge for lenders, as always, would be to produce a cost-effective very long term fixed rate, with flexibility built in. Then you may see demand for such products rise, although not by a great deal.

So when you actually sit in front of a client and explain the pros and cons then go through the cost differentials, the majority, although not all, will opt for a cheaper and less onerous 5 year product.

My final question is what exactly, by calling for the introduction of such products, does Mr Shapps hope to actually achieve? It will not cure the issues we have in the property markets; it will not mean more homes are being built; it will not help a workforce that may need to move to where the jobs are and it most definitely help increase flexibility to deal with whatever life throws at you.

If anything it could stagnate the market further and mean that those who are on a tight budget end up paying more than they actually need to.

Whilst a healthy market undoubtedly needs a good mix of products to cater for every aspect of personal choice, there are surely more important matters to be concentrating on. Overhauling Stamp Duty, for example, would be a much better place to start.

Ha ha ha ha ha ha ha ha ha ha ha ha ha ha, (stop it, ha, my, ha, sides hurt, ha).

Actually maybe that’s a little disingenuous, as to be fair at least they are giving the impression of supporting the average mortgage borrower and their rates have been consistently attractive. However, in making this comment whilst trying to put the proverbial boot in to mortgage brokers who they clearly see as an irritant, (who needs independent advice pah, advice is for wimps), they are opening themselves up to closer inspection.

So, if 9 out of 10 people who go through their door genuinely go on to get a mortgage offer then that is brilliant. It is so brilliant because it means that there is no mortgage issue at all and I would urge everyone who needs a mortgage, first-time buyers, foreign nationals, the self-employed, those at high loan-to-values, those whose income is from multiple sources, who need a guarantor, who may have a little credit blip, who are on a Visa, who need to stretch beyond the published 4.5 times income multiples, etc, to get down to a branch pronto before the queues get too long. You get my drift.

I have no issue with the fact that HSBC do not deal with brokers, seriously I don’t. Of course I would love them to and even sent a cheeky email to them recently asking them for a pilot, but I don’t like the fact that a 1st time buyer or anytime buyer for that matter, can take out the biggest debt they are ever going to have without getting any advice.

I also have an issue with blind stats like 9 out of 10 blah blah. The reality is probably this :-

“Of the people we see that come through our door for a mortgage, who, after speaking to our mortgage “specialist” to confirm they fit our published mortgage criteria and can demonstrate their affordability and have a clean credit score, who we then allow to actually complete a mortgage application form, around 9 out of 10 receive an offer, perhaps not the exact offer they asked for, but an offer nonetheless.”

In truth, that is still pretty good given the market at the moment, but to give a blurred message without the full explanation when criticising others, is perhaps a little off.

So, dear HSBC, what percentage of the people who walk through the door, go online or phone up wanting a mortgage actually get the mortgage offer they asked for? I do not believe it is 90% – sorry, I just don’t. Also, how many clients accept that offer and go on to complete?

If it is true then why do, as the very wise Ben Thompson, managing director at Legal & General mortgage club, said: “…direct to consumer only mortgage products make up just 19% of all the mortgage products available in the UK and HSBC’s direct only offering represents 2% of this direct only market.”

The statement from HSBC also said that “The bank’s strategy is that it believes it is best placed to sell its own mortgages” (fair point) … “and that lender and borrower need to deal with each other during the sale process to make the best lending and borrowing decisions.”  (Well, if the lender is providing independent advice then ok, but what if the best option for the borrower is a 3 year fix and the lender only has a 2 or a 5 year?).

Even more intriguingly, Peter Dockar, head of mortgages at HSBC, said: “Mortgage customers used to rely on brokers for the best deals but this is no longer the case”.

Unfortunately this shows a misunderstanding of what brokers do. There have always been direct lenders who sometimes offer the “cheapest” headline rates, (when I started it was always Britannia). Then the pendulum swung to brokers because lenders needed the volume and quality they provided, but that is still not the point.

The point is that mortgage customers have always relied on brokers to obtain the right deal for their circumstances.

If it was just always about the lowest headline rate, well then you don’t need me. Don’t worry about the fees, penalties, flexibility, portability, suitability, potential lifestyle changes, timescale, deadlines, service etc..

In fact, if HSBC really offer a mortgage to 9 out of 10 who walk through the door, within the required timescale to secure the property, then I humbly apologise and well, to be honest you don’t need me either then.

Anyway, never mind that I’m off there now to remortgage my 90% interest only loan…er, sorry, what do you mean 2 years full accounts…?

This is especially important, as I am sure you all know, in the 2^nd Law of Thermodynamics that crudely speaking suggests that time moves on in one direction and change is inevitable. These processes reduce the state of order of the initial systems, and therefore entropy is an expression of disorder or randomness.

The universe generally, it follows, by its very nature has a tendency to increased entropy which means in the end everything will break down and through chaos return to the same state. This explains why time always moves in one direction.

As this is all inevitable, human beings have only a speck of time, (in the grand scheme of things), to make their mark.

So what has this possibly got to do with anything? Well, one cursory glance at the housing and financial markets, certainly recently, shows this seems to hold more than a grain a truth.

We have been through some extraordinary changes and, by all reports, it looks as though the mortgage market, (especially the broker market), is set to change further over the coming weeks. When change happens it is time to think carefully about how you can make your mark.

Many brokers have already adapted to the new environment, some exceedingly well, some disastrously, but for the rest of this year there is still work to be done for the majority.

This year was always going to be key year, a time for deals to be done and processes to be refined before the inevitable recovery of 2012 and beyond. As I have said before, most of those who really make money in the boom times, learnt and prepared during the previous slump.

Take the housing market. The Institute of Public Policy Research reported that by 2025 there is likely to be a shortfall of 750,000 homes across England, with London bearing the brunt with a shortage of almost half this figure.

Unless the Government and  house-builders respond with a dramatic rebuilding campaign, which looks unlikely, the issue looks set to be exacerbated each year. As the economy improves and the aging population continues demand will further outstrip supply and of course prices will continue to rise.

The crude, yet simple message this leaves us with is that those that buy now will be in a much better position in the future to maintain their footing on the housing ladder.

Whether or not change is good or bad is really just a matter of perception. All change is inevitable and therefore must be viewed as an opportunity. Wasting time complaining about it gets you absolutely nowhere.

If this means finally making that move, trying something new and taking a chance rather than sticking with the same old routine, then all the better.

So as we all seem to be exhibiting increasing entropy, the next few months and years promise to be a hell of a ride.

Still confused? – well maybe I should have just left it to Prof. Cox below :-

http://www.bbc.co.uk/programmes/p00fflcs

As predicted, the first major release of the year in this sector already looks like a beauty, coming from the company that were synonymous with professional landlords before the credit crunch, Paragon.

Paragon has launched three two-year tracker products, with rates starting from 3.30%, and a three-year tracker mortgage at 3.60%. In addition, the buy-to-let mortgage specialist has introduced three two-year fixed rate mortgage products with rates starting from 4.25%.

Loan-to-values, (LTV’s) across the new products range from 60% to 75% and all products have a 2% fee, which is importantly CAPPED at a maximum of £2,000 where many other lenders have high percentage fees.

Together with a realistic rental calculation based on 125% at a nominal interest rate of 5%, this is especially useful for large mortgage loans up to £1,000,000 on High Net Worth properties.

The products are available for single, self-contained properties and applicants are required to have a minimum income of £40,000 per annum. Applications must be received by 31 March 2011 and the mortgages have to be completed by 31 May 2011.

With other lenders looking to re-enter the buy-to-let market over the coming months this is a good start to what will be an interesting year for those looking to invest in property.

The question we have been asked most lately is whether to fix or not and I have for a long time now stated that I believe more people should be seeking the sanctuary of fixed rates than actually have done.

Evening Standard at the centre of the media storm

So in a rational and calm way, whilst I believe rates will rise sooner than many they will not go to 5% by the end of the year, here are my views together with some examples of the fixed rates available at present.

I cannot believe that the MPC will be able to “ignore” inflation, which is the only job they are actually detailed to do, for too much longer. Unless things really do get much worse due to deepening Euro issues or some other unforeseen circumstance, just for cyclical reasons I believe as we get closer to 2012 and certainly by mid 2012 and 2013 we will be into a period of sustainable growth.

I suspect that because of the current economic environment rates will creep up rather than shoot up, with the first rise coming by May and ending the year 1% higher than it is now. Remember, the Monetary Policy Committee can always reduce rates again if they need to.

As the markets work ahead of any actual changes it is likely that rates will have to begin rising soon to peg inflation and we will head towards a more “normal” Bank Base of between 4% and 6% over the next 3 years or so. If things overshoot and inflation proves to be even stronger, bolstered by the unknown effects of QE, as an example, then the downside could be even higher interest rates.

We have seen both SWAP rates and therefore lenders fixed rates steadily edge up over the past couple of months and I think this may continue unless something changes in the economic outlook, probably for the worse, that makes everyone believe the recovery really is not coming yet. The best 5 year rate was 3.69% a couple of months ago as an example, now that same lender offers 4.09%.

Those lenders that have not yet increased their fixed rates look set to do so soon. Increased competition from lenders is still muted so unlikely to have an effect of driving down fixes again. There could always be one or two who break the mould to gain market share but they have no need to go too low in this market.

In general the closer we get to a rate rise the higher fixed rates tend to creep, so waiting until an actual rise takes place may be too late for the best products.

Taking a 2 year product, unless you need the flexibility to repay a vast chunk in 2 years time, means that you could be looking to remortgage again relatively quickly in a higher, rising interest rate environment where a 5% or even 6% fix may look competitive!

In other words the risk of losing on a tracker over the next 5 years, as well as the potential downside cost (as there is an unlimited loss), seems to be much greater than the risk of taking a fixed and losing out if rates stay low (as there is a smaller defined loss). Especially, if the difference is only 1% to 2%.

I can only say what I would do myself, and if I could take 5 years fixed at around 4% now I would bite your hand off for it, sit back and relax, overpaying when I could.

Those who managed to get on the 3.69% are likely to be feeling pretty smug!

In terms of products the following are a guide to what is currently available :-

2 year fixed – 2.65% fixed until 02/03/2013, (4.24% APR)

3 year fixed – 3.29% fixed until 28/02/2014, (5.30% APR)

5 year fixed – 3.95% fixed until 30/04/2016, (4.10% APR)

Alternatively Coventry have an interesting tracker rate product starting at 2.25%, (4.30% APR) which is capped at 3.49% until 31/03/2013.

In terms of it’s actual content, (I must admit I am still reading it), there are a few headlines that were pulled out on the initial press release:-

* Replacing the obligation to issue an Initial Disclosure Document to the customer with requirements to clearly and prominently disclose key information about how the intermediary will be paid and the service they offer
* Changing the trigger points for providing the Key Facts Illustration to minimise information overload on consumers and reduce burdens on firms
* A requirement for all individuals that sell mortgages to hold a relevant mortgage qualification ensuring appropriate professional standards across all sales
* Replacing the existing labels used to describe the firm’s service with the Retail Distribution Review’s ‘independent’ and ‘restricted’ labels
* Requiring firms to disclose to customers whether they will consider deals that can only be obtained directly from a lender

To be honest there is not alot wrong with any of this and it is important to make sure that consumers are in no doubt whatsoever as to who is giving the advice and whether they are truly independent or not, in fact whether they are actually getting advice at all.

More on this to come so watch this space…

However, even more worrying is that only 26% of existing mortgage borrowers said they really understood the difference between fixed, variable and tracker rate mortgage types!

To be honest, as far as direct only business lenders are concerned, whilst this is incredibly worrying, it is of no real surprise.

First Direct, whilst continuously praised by account holders as a wonderful bank to, er, bank with, are of course a division of HSBC Bank. We all know that many who go direct to HSBC, and indeed many other banks, do not actually receive any advice, but are instead invited to choose what rate they fancy.

Now call me stupid, but if only 26% of existing borrowers understand something as simple as the different types of mortgages then *(reaches for calculator)* that means 74% of people may have taken a rate that does not do what they think it does!

If ever there was a self-damning piece of research then surely this is it! Mortgage borrowers are crying out for advice, whether they want it or not, it is obviously needed.

What is more, lenders themselves realise this, but until we have exactly the same rules and controls that apply to independent brokers also applicable to bank staff this is unlikely to change.

So lenders such as HSBC will continue to advertise low products to get the hordes through the door, many of whom may not take the advice they actually need and end up with a product that may look good, but is wholly unsuitable, ( I went out with a girl like that once). It’s a bit like wearing a dinner suit to go paintballing!

And when those on a discounted rate see their payments rise when they did not realise that they would so quickly, or try to pay off a lump sum and get hit with large penalties, who can they turn to? Not the bank because they chose not to get advice – caveat emptor and all that!

Now you may say I am just bitter because HSBC do not deal with brokers, but it is honestly not for that reason, (I remain convinced within the next couple of years that will change anyway as most lenders are finding they cannot sustain the market share they need without the help of brokers, even with low rate offerings).

People these days are not generally mugs and know the value of even a little bit of advice when faced with the biggest debt they are ever going to take out. In any case, whether good or bad, there is a whole generation of borrowers who will never understand the need to see the inside of a bank.

I just find it shameful that in this day and age, after the monumental issues we have faced, a first-time buyer can still get a mortgage at a highish loan-to-value and not receive advice. It should be compulsory.

What all lenders actually need to do is much the same as the broker community and embrace it. Embrace the fact that the whole industry needs to be, for want of a better word, professionalised. Embrace the up skilling of all their “mortgage specialists” to become advisers. The first bank to come out and say we will not let anyone take out a mortgage without having taken advice, especially given recent events, will surely win some great PR as well as more customers.

Richard Tolchard, senior mortgage product manager at First Direct, said about this research that, “This highlights a worrying trend. It’s really important that people do their research into which is the best mortgage product for them, taking into consideration their stage in life and current financial circumstances. They should always try to compare like for like and bear in mind that fees can play a large part in how a mortgage stacks up against the competition.”

Quite right. So why don’t HSBC lead the way if so many of their own borrowers do not really understand what the hell they have got?

Embrace advice, embrace brokers, what is the point of barring a whole section of people who want to take independent advice, still be recommended to come to you, but more well informed and knowledgeable, from taking your products?

There is room for both independent advice and direct to lender advice. Just don’t skimp on the advice bit because that is important and it proves you actually give a toss about your borrowers.

It is of course no surprise that in recent times the popularity of the fixed rate product has waned as people come to terms with the financial environment. The “as cheap as possible please” line has been even more popular than usual as not only have many clients expected that Bank Base will stay low, but also that low tracker rates now are a shot in the arm to many, helping to keep the wolf from the door.

It is however, easy to become blasé about this status quo and get sucked into the cheapest is best vacuum. The reality is rates are going to rise and margins on tracker products are higher than ever. The conversation with those clients in these times perhaps should not just be around can you afford a 1% rise, rather over the next few years, can you afford a 2%, 3% or even more rise?

I suspect as we get closer to the time that it looks like rates will finally rise again we will see a growth in the number of fixed rate products being taken. We are at least starting to see more enquiries from those who see a fixed rate as their next logical move.

Of course it all depends on your interest rate point of view, but I do worry that actually more fixed rates should be being taken now, especially by those who have been enjoying a prolonged “holiday” on a lenders low variable rate.

The good news is that with some competition returning to the market fixed rate products are becoming more attractive, so the difference between a tracker and the security of a fixed is becoming more blurred. Once that first change in Bank Base occurs no doubt there will be a panic rush to the sanctuary of a fixed by many, but as ever, it all comes down to obtaining sensible advice.

It is not all about whether a tracker rate “beats” a fixed rate, it is about what is good for each individual client, and for many, even if they do end up paying a little more, the knowledge of security is priceless.

Most lenders seem to have got in on the act with some competitive tracker products and fixes as well as more higher loan-to-value products making an appearance.

This is of course good news for consumers and mortgage brokers alike as more choice comes back into the market. The one thing to watch, however, is the continuance of not just some strict underwriting policy, which is hard to really argue against, but some more “unfair” policies if that is the right word.

As usual it seems that the self-employed often bear the brunt of this, and one particular rule adopted by a couple of lenders is that of the effect a reduction in net profits have. For example, take an equity partner in a leading law or accountancy firm who earns a share of net profit. They earn six figures and the net profit of the main multinational firm runs into millions. Obviously we have just been through one mother of a crunch, just emerging from recession so many businesses have had a down turn in figures.

So, this firm has a slight downturn in net profits which means the partner’s share of equity reduces by no more than a few thousand, i.e. less than £10k. At least one lender stated they would not lend because net profits had reduced! Of course they have, is this not expected given the financial turmoil of the time?

It seems unfair to say to self-employed people if you have a good established business and you have just had a dip due to world events that you would not lend at all. Many employed people have agreed to take a cut in wages or bonuses to see themselves through and keep a job, but they are not told they cannot get a loan at all.

At least base it on the reduced figure, as you would on an employed person’s current salary, rather than having a broad stick approach of we can’t lend! Am I wrong to think that? Surely this downturn is all expected and does not mean that every self-employed persons business is going down the tube? Many of these people are safer bets than an employee who could be shed at any time, and I am not talking about those in a new business with no accounts, but long standing businesses that can show years of audited accounts!

I also understand why some lenders still seem to be carefully cherry picking those clients they want to lend to, but would rather see sensible reasons written into a policy rather than making more random excuses.

It is all very well to have tighter criteria, but there does need to be some common sense attached rather than a computer says no approach. It is a shame that some good people are struggling to take advantage of the low rates at present, whether trying to buy their dream home or trying to remortgage onto a fixed rate in the face of a potentially rising rate environment.

While no-one wants a return to the lax policies of the past when a passport and a smile got you a large mortgage loan, there is still room surely for a sensible middle ground.

I would say, however, that this does mean many more people seem to be coming to Professional Mortgage Brokers for proper advice after having had issues direct with lenders; so as they say, every cloud…