Reply to: Am I likely to need/gain anything from using a mortgage broker?

[TheCyclingProgrammer]

That would be my worry - would you need to tell the mortgage company that you are already borrowing to get the deposit? I can't remember all the questions on the form I completed for my last mortgage, but I'd be surprised if they didn't ask what your current loans were.

Possibly. I'd be happy to factor the monthly repayment of the loan into my affordability calculations. They may just ask to see proof of my deposit (e.g. bank statements). We're talking about < 15% of the overall deposit being sourced from the loan.

That said, I have a backup plan which is...take the almost £6k I have sitting in my ISA and use that instead, then take the directors loan and just use it as a lump sum overpayment. The way I see it, I'll get a much better return on my £6k by adding it to our deposit than I will in 2 years having it sit in the ISA and as it's saving interest rather than earning interest, still works out tax free.

[DirtyDog]

There is a question over whether some lenders would be happy with any part of a deposit being funded by a loan of any kind, but I'll cross that bridge when I come to it (I have a backup plan).

That would be my worry - would you need to tell the mortgage company that you are already borrowing to get the deposit? I can't remember all the questions on the form I completed for my last mortgage, but I'd be surprised if they didn't ask what your current loans were.

[TheCyclingProgrammer]

Some feedback from my accountant on using a small (< £10k) directors loan to either increase deposit or make lump sum overpayment and then repay on a monthly basis.

He thinks there is absolutely nothing wrong with the idea, especially if it saves us interest (directly or indirectly by getting us a better deal with a bigger deposit) as long as I do pay it back within 9 months of the company year end. No BIK/interest issues as loan is below £10k (assuming I take this in the new tax year).

He also thinks there should be no problems with repeating the process 3 months after repaying the original loan, especially as there is a proper repayment plan in place and a genuine intention to repay the loan within 9 months of the company end (and he thinks I should document this) and that bed and breakfasting rules aren't intended to catch these kind of genuine arrangements.

Further to that, my understanding of the most recent legislation on bed and breakfasting rules is that if the loan is < £15k and you wait at least 30 days, you're fine either way.

There is a question over whether some lenders would be happy with any part of a deposit being funded by a loan of any kind, but I'll cross that bridge when I come to it (I have a backup plan).

[TheCyclingProgrammer]

Hi CP,

Whilst I couldn't comment on the accountancy side of that setup, you're absolutely right that at 80% LTV you'd open up a really good range of products etc for the mortgage, although my initial thoughts would be that the Post Office might not be the most understanding of a contractor's routine etc.

Best wishes for your mortgage,

Mark

Thanks Mark. Don't worry, I'm sure one of our native accountants will be along shortly to tell me why it's a terrible idea (although in all honestly I think its a sound idea).

I've heard that the Post Office have quite strict lending criteria. I didn't intend to present myself as a typical contractor as it's not quite how I operate; I do more freelance/consultancy project work and don't take long on-site contracts so wouldn't be trying to get a mortgage based on my day rate or anything like that. I'd be looking at approaching them as a director of a small business with 5 years worth of accounts under my belt.

[Mark McBurney@CMME]

OK, so I've decided I am going to contact a few brokers to see if I can get a better deal.

It's also just occurred to me that instead of making £400 overpayments each month on a 2 year deal, it would be much more cost effective to take an equivalent loan from MyCo as a directors loan (within the beneficial loan cap which handily goes up to £10k in April), such that I could repay the directors loan back at the same rate instead of overpaying on the mortgage and ensuring it is paid off before the CT charge hits.

Not only would this save some money on interest up front by reducing our loan amount, it would probably be enough to get our initial LTV down to 80% which opens us up to some even better deals (e.g. Post Office currently offer 2.38% for 80% LTV), saving even more in interest. My calculations are that this could save at least £2k over the first two years.

I don't know why I didn't think of this in the first place.

Hi CP,

Whilst I couldn't comment on the accountancy side of that setup, you're absolutely right that at 80% LTV you'd open up a really good range of products etc for the mortgage, although my initial thoughts would be that the Post Office might not be the most understanding of a contractor's routine etc.

Best wishes for your mortgage,

Mark

[TheCyclingProgrammer]

OK, so I've decided I am going to contact a few brokers to see if I can get a better deal.

It's also just occurred to me that instead of making £400 overpayments each month on a 2 year deal, it would be much more cost effective to take an equivalent loan from MyCo as a directors loan (within the beneficial loan cap which handily goes up to £10k in April), such that I could repay the directors loan back at the same rate instead of overpaying on the mortgage and ensuring it is paid off before the CT charge hits.

Not only would this save some money on interest up front by reducing our loan amount, it would probably be enough to get our initial LTV down to 80% which opens us up to some even better deals (e.g. Post Office currently offer 2.38% for 80% LTV), saving even more in interest. My calculations are that this could save at least £2k over the first two years.

I don't know why I didn't think of this in the first place.

[Power Mortgages Ltd]

Other things to consider are the relationships that brokers have with the mortgage vendors. They'll also have a good feel based on your initial discussion as to who the most suitable lenders for your circumstances are, conversely knowing who to avoid.

Power Mortgages recently managed to secure me an 85% repayment and a 75% IO mortgage at the same time with offers within two days for one and two weeks for the other. As my time scales were very tight two different vendors were picked (similar costs), one of which may not have been selected under different circumstances.

For this reason I would say, yes, use a broker, and based on my recent experience I recommend Ashley from Power Mortgages.

Thank you for your kind words Convict

[convict]

Sorry if this isn't the best sub-forum to post this in, but I have a relatively straightforward query.

<snip>

So, on the basis of the above, is it worth me going through a broker? Am I likely to get a better deal? It seems like they would be a last resort if for some reason I'm struggling to get an AIP.

EDIT: Forgot to mention, I've been in business since 2009 so have 5 years worth of accounts.

Other things to consider are the relationships that brokers have with the mortgage vendors. They'll also have a good feel based on your initial discussion as to who the most suitable lenders for your circumstances are, conversely knowing who to avoid.

Power Mortgages recently managed to secure me an 85% repayment and a 75% IO mortgage at the same time with offers within two days for one and two weeks for the other. As my time scales were very tight two different vendors were picked (similar costs), one of which may not have been selected under different circumstances.

For this reason I would say, yes, use a broker, and based on my recent experience I recommend Ashley from Power Mortgages.

[Power Mortgages Ltd]

I would more be gambling that they don't go up by more than about 1% over two years. Current predictions seem to indicate that's a reasonably safe bet.

Yes, I know anything could happen.

Playing devils advocate a little here but you shouldn't just go on the Bank of England Base Rate predictions for what lenders will do with the rates (like fixed rates) that they offer.

Tracker rates that directly correspond to the Bank of England are the only rates guaranteed to change if base rate does. Nearly 100% of the time, lenders will shift their fixed rates up/down accordingly when this happens anyway but there are so many other considerations which can effect the rates lenders offer, especially fixed rates.

'Funding for mortgages' which is a scheme the government brought in a while ago to help boost the mortgage market and get lenders lending again finishes shortly. This scheme was basically the government giving banks and building societies large loans at a low interest rate with the provision of going forward and lending it on at cheap rates in the form of mortgages. This means banks and building societies didn't have to rely on the 'wholesale rates' which they had been using previously to borrow funds to then lend on. This is why rates have been driven down over the last couple of years but as mentioned, this is due to stop shortly.

Now whilst predicting when rates will rise and by how much is very crystal ball stuff, my personal opinion is that when funding for mortgages ceases, lenders (who have targets of how much they need/want to lend still) will have to go back to wholesale rates and this will cause interest rate increases - not in the Bank of England base rate but the rates which lenders offer. I have already seen an email recently from Natwest advising they are pulling their most competitive 5 year fixed rates due to a rise in the wholesale rates.

Interest rates have moved significantly over the last couple of years and it is possible to get rates at the same loan to value over 1% cheaper now than they were back then, meanwhile the BoE base rate hasn't changed.

So I would just be a little careful in basing your predictions of rate increases exclusively on the Bank of England Base rate predictions as the two are not linked as closely as most people are led to believe.

Hope that helps?

[DirtyDog]

Personally, I wouldn't feel inclined gamble on rates not going up. There is only one way they can go atm.

That could be painful and leave you with a nasty taste in the mouth.

[d000hg]

Yes that too. It also puts us in a position (we aim) that not only is our our mortgage LTV below 75%, but the total amount borrowed is within 5X the wife's permanent teacher salary, meaning we have the whole market open to us rather than needing to muck about with contractor mortgages.

[TheCyclingProgrammer]

Indeed - we went fixed so that we could try to overpay a fair chunk in those two years, in case rates increase by then.

This is exactly my plan. Increasing our equity from 17 to 25% over 2 years through affordable overpayments puts us in a much better position when negotiating a new deal, even if there has been a small increase in the base rate.

[TheCyclingProgrammer]

Personally, I wouldn't feel inclined gamble on rates not going up. There is only one way they can go atm.

I would more be gambling that they don't go up by more than about 1% over two years. Current predictions seem to indicate that's a reasonably safe bet.

Yes, I know anything could happen.

[Epiphone]

I'm sure one of the regular mortgage brokers who post on here will give their opinion shortly as to whether or not you could get a better deal than the above.

My personal experience of this is that First Direct are excellent to deal with directly (I use them for both personal banking and my current mortgage) and having gone through a couple of deal changes with them they have been excellent on all occasions. So much so that I stayed with them last change even though I could have got a slightly better rate elsewhere!

Martin
Contratax Ltd

Out of interest, what did FD do that was so good to make you turn away a better rate?

[d000hg]

Indeed - we went fixed so that we could try to overpay a fair chunk in those two years, in case rates increase by then.