Hello, and welcome to another of my sites which provides free help and advice, this time on the best mortgage deals and perhaps more importantly, to understand all the various types of mortgages available, not all of which will be suitable for you. I will also be explaining how the property market works in cycles, which should give you an idea of the best time to invest, as well as overseas currency mortgages. In short everything you need to know about mortgages and property!
As many of you will already know, I am a full time currency trader and investor in the financial markets, so some of you may be wondering what on earth I know about the mortgage market. The answer is actually a great deal, as in addition to trading I have bought and invested in property in many different parts of the world, both personally, professionally and as investments. So whether you are a private buyer looking for the most competitive mortgage product, or an investor looking at the buy to let market, I hope you will find some useful information on this site. In many ways the mortgage industry is very similar to the financial industry in that it is full of jargon and many of the terms used are meaningless and incomprehensible to us, mere mortals. So all the information you find here will be clear, concise and easy to understand ( I hope) and if you have any questions you are more than welcome to drop me a line via email at the top of each page. As I'm not selling anything all the information is free and impartial. So if you are going to look for the best mortgage deals available, I would suggest you understand how the market works first, and then go looking!
The closest many of us come to the market, is signing the paperwork to confirm our agreement to the terms of the loan. However the mortgage market is far more complex than many of us realise, and even in these turbulent times few people understand exactly what goes on, once the ink is dry. So let me try to explain, before you rush off to look for the best mortgage deals available.
Most developed countries, particularly the US, UK and Europe, have a sophisticated and complex secondary market, which most of us never see. However it is this market that has been responsible for the problems of the last few years. Traditionally banks would offer you a mortgage, which would then be serviced by the same bank for the duration of the mortgage. It was therefore in the bank's interest to ensure that you would provide a sound financial risk, and much of the banking world ran on personal client relationships. With the increase in property ownership the growth of investing opportunities in the letting market, and the subsequent demand for money, it rapidly became impossible for banks to continue to hold these loans for the period of the mortgage, as funds were increasingly tied up for the long term. In order to overcome this problem and to provide fresh funds, and to satisfy the increasing demand for larger mortgages as house prices rose, the secondary market was developed. In simple terms, each mortgage was bundled up with several others, and then sold on the open market in much the same way as stocks or shares. Typically these 'bundles' of mortgage backed securities were then sold to the large institutional investors such as pension funds and trust funds, as these products now offered a secure long term income stream, backed by bricks and mortar.
With the secondary market ever willing to pay higher and higher prices for these securities, the original lenders became less rigorous in their lending checks, knowing that in a few months the mortgages would have been sold on in the secondary market. As a result, mortgage lenders in both the UK and the States continued to extend loans to ever more marginal borrowers, because there was a ready party in the secondary market willing to pay a high price for those loans. The debt rating agencies responsible for control and regulation of the markets, increasingly relied on false information provided by borrowers, which caused them to incorrectly rate packages of mortgage loans. Now in some cases banks actually funded their mortgages not by selling them in the secondary markets, but by borrowing from other institutions. Such was the case with Northern Rock! The whole system failed as banks were simply too aggressive and too lax in their lending practices. Consumers who should not have been able to qualify for loans, were approved, but were subsequently unable to meet their monthly payments. This caused a spike in the default rate on loans, which coincided with a fall in property markets worldwide, and an increase in interest rates due to inflationary pressures. The rest is history and the above is a simple explanation of the sub prime ( sub prime simply means poor credit history) crisis, largely created by the secondary market.
OK, having explained how the mortgage market works, now let's look at the the various property markets, both for personal use and as investments. In the current environment it is not just important to find the best mortgage deals available, but also to ensure that the contract meets all your requirements for the longer term. Many buyers simply opt for the best mortgage deals in terms of lowest set up charges and minimum monthly repayments. This can be a false economy - remember if the deal looks too good to be true, then it probably is! There is s reason lenders waive set up costs, or charge reduced rates in the early years, there is always a sting in the tail. I will cover this later in more detail, but now let's look at how the property market moves in cycles in much the same way as the financial markets. Remember, finding the best mortgage deals is easy, the hard part is timing your buying decisions!