Why are you increasing banks profits so much?

publication date: Jun 8, 2015
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Why are you increasing banks profits so much?

One of the reasons banks and building societies make more money from you than you need to pay them is because of the mortgage on your property.

Why do you pay more for your mortgage than you need to?
Mainly because it’s not reviewed on a regular basis – or at times when better deals may come along.

How many people are paying more than they should for their mortgage?
I have done property shows and run clinics in Colchester, Ashford, Reading, Southampton, St Ives, London and am amazed that when I ask:-

How many people have reviewed their mortgage since September 2014 to June 2015?’

less than 5% of hands go up.

That’s astonishing, especially considering for landlords, buyers and property owners, your mortgage is probably your biggest monthly cost.

Mortgage costs can be from 20% to 70% of your monthly costs
In fact for landlords, as opposed to then ‘pocketing money from tenants’ most of the rent they earn – approximately 70% of it if they have a loan to value of 75% - goes straight back out into the economy in the form of:-

Mortgage
Safety certificates
Insurance costs
Repairs
Letting agent fees
For some, licensing costs, service charges for flats
etc

And of course paying all the costs for the average 2.8 weeks (ARLA BTL report) when the property is empty.

When should you review your mortgage?
There are certain events that will cause mortgage lenders to review their rates, these include:-

Changes in interest rates (0.5% as of June 2015)
Suggested changes in interest rates
Changes in the economy eg increased unemployment
Increased competition eg a competitor changes their rates

Fortunately the national news often picks up that things are changing, so it’s essential to listen out for what they are saying – and if they say rates are falling or about to rise, it is in your interest to go and talk to a professional.

In addition, you should review your mortgage when:-

  1. A ‘deal’ you are on is about to end – for example three months or more before it ends

  2. Your property equity increases as this may mean you have access to cheaper mortgage rates

For an example of how much you can save when re-mortgaging visit the Money Advice Service.

Mortgage savings can add up to tens of thousands of pounds!
I was doing some work for a letting agent presenting on this very subject and the amount you can save is astonishing.

And this is where people don’t quite realise that a 0.25% difference in your mortgage rate can mean savings of thousands even though it doesn’t seem a big change.

For example:-

If you have borrowed £100,000 for a mortgage and at a 5% rate, that would cost you £416 a month.

If you re-mortgage and secure a rate of 4%, you would be spending £333 and that might not seem much of a saving on a monthly basis but:-

Annually that’s: £996 saving
And over 15 years: £14,940 saving
And over 20 years: £19,920 saving

Alternatively if you move from 5% to 3% the savings then become huge:-

Annually that’s: 2 x £996 saving
And over 15 years: £29,880 saving
And over 20 years: £39,840 saving

This just shows how much you could miss out saving if you don’t review your mortgage on a regular basis.

So, if you haven’t reviewed your mortgage since September 2014, here are the headlines that suggest you do:-

Sky News
“Best fixed rate mortgage ever: New home loan war as HSBC offers five-year deal under 2%”

Which?
Cheapest-ever 10-year fixed-rate mortgage launched”

So even if you haven’t reviewed your mortgage yet, do, please visit a mortgage broker and ask the following questions:-

  1. What is your mortgage rate now?

  2. How long will the deal last for?

  3. Can you switch to a deal that will save you money now and in the future?

Don’t know who to talk to?
Here’s the mortgage brokers we work with – all will be happy to help you!

Mortgage Advice Bureau

Coreco

Buy to Let Business

Brooklands for specialist mortgage such as home improvement, Houses in Multiple Occupation and Bridging Loans.

 


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Which? Property books and one of the UK's top property experts.
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