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Mortgage or cash?

Date online: 23/06/2015

It’s an interesting one to ponder, especially in light of recent research from Nationwide Building Society which suggested that four out of 10 homes were sold without the need for a mortgage during the first quarter of this year.

The mantra ‘Cash is king’ has long been used within business but particularly in the agency world the cache of a ‘cash buyer’ has become a bartering tool and a way to hasten the completion of a transaction. Cash buyers have the ability to move quickly without any of the delays that those who require mortgage finance might face and therefore vendors (and agents) can put great stock in such purchasers.

Back in the day the cash buyer might have been something of a rarity however it’s clear that those with the necessary cash reserves to complete a purchase outright are growing in number. This will have much to do with the huge surges in house prices we have seen in the past couple of decades – with some notable drops along the way – and will be especially evident where, for example, buyers are selling up in prime London areas and moving out of the Capital where their increased equity can do the job all by itself. It will also however have much to do with the availability of mortgage finance – an option which might be less readily available in certain regions of the country and for certain demographics.

That said, the majority of purchasers will still need to use mortgage finance in order to get into these properties and therefore agents need to continually mindful of the mortgage marketplace. So, what of the mortgage market, particularly since the General Election, just over a month ago? Well, on the face of it, lenders appear to be trying to make up for lost time, or rather push on from the subdued marketplace that confronted us all in the first few months of the year.

Certainly, within some LTV bands and across various terms, lenders still appear to be falling over themselves with a rush to the bottom price strategy. Each week, the 60% LTV two-year fix best buy inches close to 1% (currently 1.07%) and, at this rate, it seems a matter of time before we will see one player (and probably others) beating their collective chests with a sub-1% deal. In other areas of the market, the downward pressure on pricing is also evident with some incredibly competitive three and five-year fixed rates.

Indeed, many of the mortgage brokerages are continually on record urging clients to secure these longer-term rates now suggesting that the market will never see their like again. The problem being of course – as with two-year deals – that competition continues to be fierce and rates may still have further to fall. However, in the overall scheme of things, despite a tendency to opt for two-year deals, it really is a case for borrowers that ‘they’ve never had it so good’.

However, there are caveats with this point because we have a market which is only good for ‘quality’ borrowers, i.e., for those with clean credit records and those who can fulfil the much more stringent affordability criteria brought in by the Mortgage Market Review. It’s a simple fact that for every potential purchaser that walks into your office without their finance sorted, there are no guarantees that they will be able to secure the mortgage they need.

This is particularly true for first-time buyers perhaps seeking a high LTV mortgage – the number of which appear to be dwindling again – but it is also the case for those even in their 40s and 50s who might want to borrow into what traditionally would be their retirement. There are countless stories around of the latter group being refused finance because of their inability to prove just how they’ll pay for their loans in retirement.

So while on the surface all might be rosy – for example, it was recently announced that the total number of mortgage products available had reached a post-recesssion high of 13,539 in April – where are the preponderance of these products and which borrowers are able to access them? As mentioned above, it’s my view that a lot of products are available in lower-risk borrower areas or in ‘boom’ areas of the market such as buy-to-let which has seen considerable lender and product growth recently.

The important point for agents is to keep an eye on the mortgage market at all times, to certainly have a relationship with a local adviser to keep informed and to share introductions, but also to engage frankly with those who may simple see the headlines and not be fully aware of the potential obstacle path that lays out before them if they want a mortgage. As we know all too readily, despite an increase in cash buyers, not all are this fortunate and if agents want to keep their stock and pipeline moving they are going to need informed and mortgage-worthy buyers to do this.

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