This Hallowe'en, we take a furtive peek at some spine-chilling financial facts about your future mortgage costs.
Double, double, Base Rate trouble
The Base Rate is at its lowest ever level -- a miniscule 0.5% -- and this has meant that many borrowers have seen their mortgage payments fall. So despite the country being in recession it's possible you could actually feel better off.
But complacency is madness when the only way is up for Base Rate. Be afraid (be very afraid) of rate rises that could see your monthly repayments increase by £100, £200 or even £500 a month. Those on a variable rate mortgage should beware.
The creep of percentage fees
The rise of the mortgage arrangement percentage fee means it's harder than ever for borrowers to really compare mortgages on a like-for-like basis, and what initially looks like a good deal can have a nasty surprise when you work out the total costs. Percentage fees of up to 3% are in evidence across the market, totalling £6,000 on a £200,000 mortgage. Scary stuff indeed.
Self-cert faces grim reaper
Last week the financial watchdog announced proposals to clean up the mortgage market, including banning all self-cert mortgages. These products, which allow borrowers to declare their own income without it being checked by the lender, have proved invaluable to many business owners, sole traders and seasonal workers.
However, some borrowers used the mortgages to inflate their own income and over-borrow. Now self-cert mortgages have been held up by the regulator as the root of all evil and it wants to axe the products, which will ultimately make life difficult for many law-abiding, solvent, self-employed borrowers, as I explained last week in Why mortgage borrowers could be left high and dry.
The ghost of recessions past
Those who lived, and owned property, through the last recession will get a chill down their spine at the mere mention of negative equity -- where your property's value drops to less than your outstanding mortgage debt.
It's not such a worrying thought at the moment because lenders' default rates are so low, but wait until they rise. Not being able to refinance could be a very scary prospect indeed.
Frightening rates for FTBs
The mortgage market is loosening up a little -- there's no question about that. But one area where the freeze has yet to significantly thaw is the high loan-to-value end of the market for those who need to borrow 90% of a property's value.
So first-time buyers with a 10% deposit can look to pay a scary 2 percentage points more than borrowers with 25% or more as a deposit. And such expensive deals could mean the difference between being able to buy, or not.
Locked into a fix
Fixed rates are safe, secure and nothing to be scared about, aren't they? Well, yes if you accept that you will be paying the agreed amount for the fixed duration. But what if you have a joint mortgage and you split up with your partner one year into a five-year fixed rate (a horrible thought but it happens). Or you need to switch your mortgage because you want to move to a bigger house and get a bigger loan. How will you get out of your existing deal?
The only premature escape from a fix is often to pay an Early Repayment Charge and these can cost a terrifying amount of money. Some ERCs can be 4% of your outstanding loan (some even higher) -- a gruesome £8,000 on a £200,000 mortgage. As you can imagine this is not going to make a relationship breakdown any easier, or be a welcome expense when you are about to commit to a larger mortgage and home. Oh, and of course there will also be an exit fee on top of that.
Costs hidden in dark corners
Make no mistake, all lenders will detail their costs and charges somewhere on their website or on the mortgage documentation that you sign before completing your deal. They, and their lawyers, are clever like that. But the costs can still be hidden in dark corners, cloaked in jargon and ghost-like in their near-invisibility.
As boring as it sounds, you really need to read every page of the jargon, and call your lender for an explanation of anything that looks peculiar. Tricky costs to watch out for are valuation fees and accompanying application fees (which are sometimes listed separately), higher lending charges, early repayment charges and exit fees.
Trick or treat
Super-low rates are enough to turn any borrower's head -- especially those below 2% or 3%.
Unfortunately, these are all variable rates. Ask yourself: can you handle the fear of potentially rising rates? If so, have a look at Woolwich's one-year tracker at 1.98% with a £999 fee, available up to 60% LTV or Northern Rock's two-year tracker at 2.69% with a nice £595 fee. If you want the safety of a fix Northern Rock's two-year deal at 3.69% with a £595 fee is a best buy.
Get help from lovemoney.com
Fearing the worst for your finances now? If you need help getting the best mortgage, don't despair - lovemoney.com can help in a myraid of different ways.
First, register on the site (if you haven't already) and then adopt this goal: Cut the cost of your mortgage and pay it off early.
Next, watch this video: How to...slash the cost of your mortgage payments
Use lovemoney.com's innovative new mortgage tool to find the best mortgage for you online
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