H: Murray Norton, Host
D: David Stuart, Abbey

Hello and welcome to the show my name is Murray Norton. Today’s show, today’s chat is brought to you by Abbey and we’re talking about house buying. Now if you’re one of those people who is trying to get on the property ladder you’ll find it increasingly difficult, mostly because house prices are rising at a rate much higher than the average income. That makes it more and more difficult to get on board, and some people are so desperate to get on board that they’ll do anything, or at least they said they’d do anything to do that. Imagine something as important as your sex life, one in ten people said they’d give that up completely if it meant they could get on the property ladder. One in five said they’d move back in with their folks rather than renting, if it meant getting on the property ladder. Well it’s a difficult enough job to get on the property ladder and we can cut through a lot of that jargon today, so we’ll get you through some of the pointers of buying a house, and joining me from Abbey I’m delighted to say we’ve got David Stuart with us, David thanks for coming along

D: Pleasure

H: Good to have you with us. This whole thing of getting on the property ladder, it’s the first big challenge after university really isn’t it?

D: Yes it’s going to be one of the most expensive things you’ll ever do, it’s one of the biggest purchases certainly that you’ll ever do. Most people it’s for the next step, you know you come out of university, you’ve now got a good job, that’s a big challenge in itself

H: Sure

D: And then you move on and the next step is to find that house and ultimately you know get some assets behind you.

H: Right. Finding the house is one thing, trying to catch up if you like it’s almost as if you’ve got to start saving from the age of ten now in order to buy your first house because it’s a moving thing isn’t it, it’s moving quicker than you’re moving?

D: Yes in a way it’s where do you start, how much do you need, can I afford it? All these questions going through people’s minds – yes it’s a difficult time

H: In terms of moving that forward, presumably people can come in before they’re ready to buy, before they’ve spotted the house? It’s a good time to go and talk to someone and say what can I afford?

D: Definitely, never too early to actually go in and talk to someone, or at least do your research, going on the web is always a good start and the viewers here have already done that, you know they’ve come on the website and they’re looking to find out more, that’s always a good start. You can also go to – into any branch and they’ll be - in most branches anyway - there’ll be a mortgage expert there to help somebody out. Yes definitely, never too early to start, you don’t need to be ready to buy a house, just go in and see what you can afford, see what people are willing to offer you to get on that property ladder

H: And I guess that people then can see what they need to do in the next couple of years to get on that property ladder as well?

D: Yes I mean to be honest it may take a little time, but if you’re looking at it, if you genuinely want to explore that avenue then yes there’s no reason why you shouldn’t start early, but yes it may take a little time

H: Now what’s this about one in ten giving up their sex life in order to get on the property ladder? I wouldn’t have thought how much sex they have is going to have much bearing at all –

D: No well I mean that’s slightly a media spin on it, what we were talking about there is more the whole dating concept, you know when you start as you, you know you come out of university and you’re looking to get on the property ladder, but there’s so much more still of your life that you want to live –

H: Sure

D: You want to go travelling, you like to go out with your friends, you like to date and that’s where we’re coming, talking about the sex life there, it’s more about the dating –

H: Some people are saying do you know what, I’m not going to date for two years, I’m going to stay single so I can save the money

D: That’s it and some people are willing to do that, the bad – well not the bad side, the unlucky side for them is that the truth now is that almost five – it takes almost five years now to earn about 5% of the deposit that you need for a house, and in doing so people are going to be – well they’re going to be giving up a lot for a long time

H: They’re either going to be not dating or they’re going to be a cheap date. Why are you looking at me? While you are looking at me actually, let me just tell you, you can send your questions in right now, there’s a little box at the bottom, all you’ve got to do is fill that out and send it to us, it will pop up on my screen here and we can put that to David. So anything that you’re not quite understanding about mortgages, any of that jargon that you really don’t understand, send it into us now, it will be good to have your question and we’ll take some of those questions in a little while. The other interesting thing I thought from the report that came in, not only were people saying ok sex life, dating they’re going to give that up, but one in five said they might even go back to their folks. The parents aren’t playing the same sort of role that they used to play though are they?

D: No I think the role’s changing. Obviously to save money, going back to the folks, if your parents are supportive, then – and they understand the goals that you’re aiming to get, and they’re willing to help you out, moving back into the parent’s house is an option, you know you’re going to cut back on rent, if any, if you have to pay any rent at all, and obviously they’re going to give you other support, not least hopefully mum’s going to do your laundry, but it’s not going to necessarily going to get you everything you need in one go. Also parents, what parents are doing a lot more now is offering up the deposit, that’s a large amount of money but because parents more often than not have secured their home already, because you know they’ve thought about savings and put it away, then they have the money to offer their children and they’re doing that a lot. Not as much as they used to, funnily enough, 6 months ago when we conducted a survey of first time buyers it was one in five parents willing to offer this service to their children, now it’s one in ten, I think because of the way the industry’s developing there’s more options out there to first time buyers which is a positive thing

H: So they’ve got a chance of getting on that ladder more than they probably had before?

D: Yes we hope so, I mean that’s what providers such as Abbey are striving to do, yes

H: Ok let’s go through some of that jargon, because if you’re a first time buyer you’re not used to this whole new language, and of course the people that work in that industry are banding it around left, right and centre, and it does take a bit of getting to grips with, because people do start using an acronym straight away don’t they? APR to start off with, that’s the annual percentage rate, so let’s get that one out the way first of all. That’s something that everyone who is a homeowner looks at very closely

D: It is the first thing on the list, it’s the rate you pay effectively. That’s really as much as it is. I mean as far as people put these little acronyms in and it can confuse you, it’s the rate you pay on your mortgage per year

H: And that’s, if you like, the interest you’re paying back on, the percentage -

D: Absolutely the percentage –

H: In order to get the money from Abbey you’ve got to give them some money back

D: Absolutely yes unfortunately nothing really comes for free, and yes when you go looking for a mortgage there will be an interest rate that you have to pay on the amount you buy. It’s going to be slightly higher or slightly lower depending on how much you borrow from the bank, but effectively it will always be there, and that is what we call the APR and that varies from provider to provider

H: And you can go from fixed rate, there’s flexible, there’s all sorts of things

D: Yes and depending on your circumstances, where do you start? So many people out there say where do I start? Go and see a mortgage provider because there are several different kinds of mortgages you can get, you can get the fixed rate where that APR will stay at a level all the way through the lifetime of the mortgage, or you can get a flexible, where that will go up and down depending on the way the interest rates are going according to the bank of England

H: Sure

D: And they vary that each month, so you could probably save more or you could possibly pay more so

H: And there’s also first time buyer rates as well sometimes that you know some places are offering those -

D: Absolutely

H: Where you can get a deal for the first couple of years to soften the blow

D: Yes, yes there’s more and more, providers are doing more and more to help first time buyers now, and it’s a positive thing

H: What about a – how important is a credit history?

D: Credit histories a tricky thing, because it’s definitely – a while ago – basically – let’s start at the beginning, what is credit history? Credit history, everything that you do financially is recorded by a company such as Equifax or Experian, and this company will log everything you’ve done, so if you’ve borrowed money on a loan to go on holiday three years ago, that will be on there. If you’ve got a credit card, the way you use that will be on there, and they’re very tricky things because in the first instance you think oh well I shouldn’t try and borrow anything because my credit history will be affected, but that’s not quite true, to have a history with a credit company is actually a good thing

H: I guess that shows that someone else has trusted you in the past?

D: Absolutely, and that you’re reliable enough to pay it back. That credit history will be with you for quite some time and so when you go to apply for a mortgage, it will be something that banks and building societies will want to check on. But that’s not always been the case because historically it used to be that if you had a bad credit history then it would almost be an instant no-no and many banks would just walk away and say they don’t trust you. However more and more banks are becoming a bit more well, when you’re younger not so – and then now as you come in they’re looking at you as an individual, they’re understanding your incomings and outgoings, are you still in debt? Did you come through it? How did you handle things now? Can you afford it?

H: Basically you’ve grown up a bit

D: Correct

H: Ok. Stamp duty, never quite understood stamp duty, what is stamp duty?

D: Long and complicated, it really is, but essentially in the simplest terms

H: Please

D: I’ll try! It is the amount of tax you have to pay the government for buying a property, and it’s one of those hidden costs that you’d always advise a first time buyer to look at because it’s not just about the house you’re buying, there are so many different hurdles that you have to overcome as well, and it’s not just about the money that you need for the deposit, it’s the additional extras, we like to call them, that you have to look out for as well and stamp duty is one of them

H: Ok so it’s one that will cost you some money, so build it into the budgeting early?

D: Correct

H: Alright. That’s stamp duty out of the way. One that stumped me when I first looked at these three letters - SVR?

D: SVR, standard variable rate. Essentially and let’s take a fixed rate mortgage, as an example – when you have a fixed rate mortgage, you’ll have a rate on your APR ok so this will be the rate that you pay throughout the term of the mortgage. Now when you take out this mortgage, you normally have what’s called an introductory period. This can last anywhere from two years to five years let’s say, and more and less and everything in between. Now when you take this out there’ll be a rate that you are offered and let’s say for instance it will be 8% - just off the top of my head, why not. Afterwards, after – and that will be 8% for two (that’s very high by the way) but 8% for two years. At the end of that, where that rate will change after that is called the SVR and it’s the standard rate. Once the introductory offer has finished then you go onto that rate, and this is something you’ve got to be careful of, any mortgage, and mortgage owner has to be careful of. Nobody really wants to go onto that SVR because it’s a much higher rate. What you want to do is stay with your fixed rate for however long it is, the two years, then move your mortgage because you can get another rate at that introductory rate, and keep on going that way. If you go onto the SVR you’re going to be paying back a lot more and you really want to avoid that

H: Ok. Switching your mortgage around can be a little bit difficult though because what you’re going to end up is paying lots of penalty clauses, there are clauses in there aren’t there?

D: There are and it’s something that you’ve got to look out for. Again ask your mortgage provider

H: How much you can borrow, what is that worked out on these days?

D: Again complicated. Each bank has a – each bank and building society has their own ways of doing this, using Abbey as an example we’ll judge everything on affordability. It used to be very much on income. If you have x amount of income we’ll give you x amount to buy your house

H: It used to be a multiple of 3 or 4 or whatever

D: Yes on average it used to be a multiple of 3 of 4. Now things have changed, it comes down to what we like to call affordability and hopefully you’ll see a lot more of this, this phrase banded around. It basically means we look at you as an individual. We work out how much is coming into your account, we work out how much is going out of your account, and then at the end how much can you reasonably afford, and that’s not just how much you can afford and then you’re eating baked beans for the next 9 years, it’s how much you can genuinely afford and then we’ll say right well this is how much we’ll lend you because this is how much without putting you through a bad state of affairs, this is how much you can buy a house

H: So it’s got to be fair, fair for the buyer and fair for the lender as well?

D: Yes and it’s a bit of both, I mean the bank will look and see how much they can lend you, but you’ve got to look at yourself as well and decide how much you can afford to pay out each month, so there’s a bit of a balance between both of them

H: Let’s take a question at this point, we’ve got plenty of questions coming in and if you want to put a question in, little box at the bottom is all you need to fill out and we’ll quite happily ask your question. Question on this very subject from John, he says he wants to know “will I be checked if I inflate my salary on a self cert mortgage?” I need to find out from you what that means – “and can I afford the repayments?” So first of all if he inflates his salary, what he’s doing, he’s saying I’ll tell you what I earn £50,000 a year when he earns £20,000

D: Yes. It’s not a wise move, it’s not a wise move – it will catch you. Not only are you lying to the bank which is very very bad, but essentially you’re lying to yourself and you’re asking for more money than you can afford to repay, and where’s the good come from that? You know you maybe have the house of your dreams but then the repayments are going to break you, possibly which is why you’ve got to be careful on those sorts of things, don’t just cheat the system, or think you can cheat the system because it will come back to get you in the end

H: It is a complicated minefield as we were saying there. Are there booklets available? Zanthia’s asked a question just on that, do you have a book with top tips in it?

D: Not so much a book, but as we say there’s plenty of stuff on the websites you can go and look, the Abbey website has a tip section

H: Right

D: Has a calculator, there’s plenty of what we call calculators out there where you can type in how much you earn, how much you know, how long you would like to pay the mortgage back over and it’ll give you a rough figure. There’s also one of the things Abbey’s helped set up is a website called www.thewordonyourstreet.co.uk, now that is where people who have bought homes, first time buyers who have bought homes can come onto the website and just listen to their experiences and write their experiences, listen to others, find out the little tips that maybe you’re not always going to read, you know, from a magazine or your mortgage broker may have forgotten to tell you, but there’s little tips to look out for, and it’s quite a helpful website

H: And it’s come from people who have been there already?

D: Absolutely

H: Perfect. Louise with a question, and I guess this is one that a lot of people are going to be worried about. If you’re making this commitment for 20, 25, 30 years, whatever it happens to be in loan repayments, it’s going to be pretty scary and you’ve got to then make a commitment to carry on working. Louise’s question “what happens if I lose my job and I can’t make the mortgage repayments?”

D: Yes it is one of those things and you’ve got to be honest about it straight out, if you were to approach, if you were to approach a lender for starters there’s always something that they can do, nobody wants to see each other get into debt, we don’t want to see, you know providers don’t want to see, you know, a customer defaulting on their payment, you know they want to see the money come in, but at the same time you know something’s got to happen. So go and talk to people, talk to people straight away, go and see a lender

H: Don’t put your head in the sand

D: Don’t put your head in the sand, it’s the worst thing you can do. There are ways that you can get payment holidays, the banks will work out how to cut back, how much you have to pay monthly, all kinds of things can be worked out, just don’t bury your head in the sand

H: Can you take the protection of losing your job against redundancy, that sort of thing, before you take the mortgage?

D: You can, I would look into that very carefully and I would seek proper advice about that, there is what – there is a protection insurance against that kind of thing, but it’s something that needs to be considered very carefully, that needs to be sought after from proper advisors

H: Alright, having got that one out of the way, more questions coming from you, thank you very much indeed for them. Well over halfway through the show by the way, Joan wants to know “how can I persuade my parents to help me get on the property ladder?” If we all knew the secret of that one!

D: Absolutely. I wouldn’t say persuade, I mean I can’t offer advice on how to persuade them, but there are obviously, parents are keen to help most of the time and they are a good source for a first time buyer. The reason that a lot of parents have said why they will help out their children do this is because ultimately if they should pass on, and it’s a tricky subject obviously so I’ll tread carefully

H: It’s an inevitability

D: When they pass on, their money will be taxed by the government in inheritance tax, now this has become a bit of an issue as it is, but most parents would rather see their children set up in their house and spend the money then, knowing that they’re going to have the money at the end of the day anyway, but this way maybe the government doesn’t get their hands on it

H: So there’s a way forward for parents to be thinking about quite honestly

D: But I wouldn’t use that – I’m sorry I forgot her name – I wouldn’t use that as an excuse

H: It’s Louise

D: I don’t want you to walk up and Louise to say Abbey recommends that before you die you give me all your money, that would be a bad thing

H: But maybe there’s something for them to look into anyway

D: Absolutely

H: In terms of avoidance of death duties on tax. Ok, questions coming in, David Stuart from Abbey is with us and there is a web address and we’ll give you that one again right at the very end. Chloe with a good question here, it’s about friends, friends getting together – “a friend and I are talking about buying together” says Chloe “can we get separate mortgages or is there a particular mortgage for friends to get?”

D: Well there’s lots of options out there. There are providers, including Abbey that actually offer 3 or 4 times, 3 or 4 people to come in together

H: Sure

D: And rent – it’s a good idea, lots of people do it and it’s one of those little things that mortgage providers are doing to help people get on the property ladder

H: I guess what it means is you get a better standard of house if 3 or 4 of you are putting into that -

D: Possibly, not always depending on the circumstances

H: Sure

D: What I would advise is that you always be careful when you enter into these things, because you’re jointly liable and with – I mean if you were to, as our previous person asked, if you were to lose your job, then you know you’re going to be in difficulty. Now if one of the four lose their jobs you’re all jointly liable to cover them. Now that’s always something that’s going to be a little bit tricky so I’d consider it very carefully, but having said that, it is a good way of doing it, it’s a good way of getting an asset behind you and if you can’t make that full jump into owning a house on your own, it’s not a bad way to start off

H: Big question from John coming up next so brace yourself for this one, he wants to know “can you please explain the different types of mortgages and which one would you recommend?” The show isn’t that long -

D: Absolutely

H: But there are pretty common mortgages, there’s the repayment mortgage which is the -

D: Well I think the 3 main ones we’d probably focus on would be the fixed rate mortgage, the variable mortgage and there’s the capped mortgage. I think these are you know as we said there’s so much to go through and again going into a bank and having a sit down with a proper mortgage expert would you know, for a good hour and a half and ask them all the questions you want, would sort you out, but the first mortgage would be a fixed rate, and as I said this is one rate over a certain period and it doesn’t move. The flexible rate, that will move depending on what the Bank of England says the interest rates are

H: Right

D: So it will almost track that, so if they rise, the amount you pay back on interest will rise, if they fall, they fall, so whereas one fixed rate is going steadily along, the tracker could go up or down along that. And then there’s the capped rate, the capped rate is where it can, like the tracker it can go up and down, but like the fixed rate it’s stuck between certain levels

H: You’ve got a band that protects

D: That’s right a band, so you’ll never pay too much or you’ll never save too much but it will travel between that, so you have a bit of flexibility between them both

H: Ok

D: Which one I’d recommend, he did ask – each to their own, each to their own situation, go and see a mortgage provider and they’ll advise you how best

H: Does anyone talk about interest only mortgages these days or does that not happen any more?

D: Well they do, and they’re out there. It’s again it’s down to a personal situation, this is where interest only is where you only pay the interest each month on the money that you borrow, what you then have to do and it’s on your own back, this is sometimes where it causes a problem is that you have to invest whereas with other mortgages you pay off the interest and you’d pay off the actual money that you borrowed, instead on interest only mortgages you pay off the interest and then instead of paying off the money that you actually borrowed, you take what you would have paid into that and put it into an investment. That is a very tricky subject and where you invest it, like I said is up to you and how you do it, and it can be very complicated. Go and see a, if you’re considering that, go and see an advisor and have a good long chat about it

H: Alright. Sarah with a question, some of her friends have taken out 100% mortgages – seen them advertised where do you stand on them, do you think it’s a good idea or not, are their payments higher if they’re on 100% mortgages? That way they don’t need a deposit to get in there do they?

D: Yes well I think I touched on it briefly before, 100% mortgages means that you don’t need a deposit as you said, you can just go in and depending on your repayments get the amount to buy your house. Where I stand on them and where Abbey stands on them, well we don’t offer any mortgages at the moment below 97%, so at least you have to have a 3% deposit. The reason being is because we’d like to see that you’ve made an effort as well. Where we stand, where people stand on them, they are out there, are they advisable? Possibly into your circumstances, I’m not sure, I don’t know where they all come in

H: Chances are you’d be paying more back though?

D: Absolutely, this is the point is the less deposit you have, the higher the rate you’re going to pay because, as it stands on 100% mortgage you’re quite a risk, because you haven’t shown any way of putting some money aside, so you become quite a risk, so consequently you’re actually going to pay the higher rate

H: Ok. When you go to get a mortgage from a bank

D: Yes

H: You walk into one of the Abbey places and you go in there and you sit yourself down, what should you know, for example there’s a question in from James, is there a set deposit I should have, should I have lots of answers up my sleeve already?

D: Never worry about having too many answers, have the questions for sure, make sure you know what you want to ask, how much for the deposit? That’s up to you, how much can you get together? The more, as I said before, the more you have you know the better rate you are, and the more you’re probably going to be lent, and that’s a good, you know a good thing. Where you decide that borderline comes I don’t know, that’s up to your individual circumstance, how much you want to save before you approach, again individual circumstance, however go and have a chat any time you like, and they’ll advise you, they’ll say well with this much deposit you can get this much, and this much and you can do this, and they’ll explain and if you’re not happy, sit back and wait, save a bit more up and then go back again and it’s – take your time, there’s no need to rush into it, I think there’s a big media hype at the moment, you have to be on the property ladder and you know you have to work so hard and do all these things, it doesn’t need to be done that way, stay calm, take your time, seek advice

H: Stay calm, seek advice. You see it’s all so easy

D: I hope I’m making it sound easy because -

H: You’re making it sound a lot easier

D: It’s one of the most exciting times of your life and it shouldn’t be, it shouldn’t be stressful. I know it is but -

H: You’re here to make sure it isn’t as stressful as it should be

D: I hope I am yes

H: Good. In terms of, what happens if someone gets lucky, they’re paying, I don’t know £500, 6, £700 a month, I don’t know, whatever it happens to be, on their mortgage, and then they get lucky, they win something, or they get left some money or they get a lump sum, can they pay that off, can they reduce their mortgage down so that later in life they don’t have to worry about it so much?

D: It depends on the kind of mortgage that they have, some people like, some providers will make sure that it’s paid off over that certain period, many others will say yes, pay it off, we’ll reduce the amount you pay back each month, keep the length of time you do it the same but the amount you pay each month back. Different providers have different options, explore those options, and if you’re not happy with the one they’re offering you, wait until the end and you know change over. You don’t need to be stuck with the same mortgage provider for however long the term is, you can move. There may be a small charge to that, but it’s a way of keeping your overall rates and the overall repayments low

H: I’m not sure if it’s just, if it’s just written but it does seem we are a nation that loves to own our own place, I mean you see in other parts of the world, particularly America I think for example, people lease and they rent and they don’t ever own their own property, yet over here it’s always been instilled in us to own your own castle. It’s a very British thing isn’t it?

D: Yes I think so and the pressure is there at the moment and it’s a very hot topic in the press so you can imagine how people are saying “I’ve got to be there, I want my castle, I want to say this is my ground”

H: Sure. And in terms of going and seeing something, does that – let’s just talk about surveys for a moment, very briefly because this is an area where you fall in love with a wonderful property, then the bank go and have a look at it and say oh no no no you can’t have that, it’s falling down, because you do look at properties through rose-tinted glasses don’t you, whereas the lender, you guys, can look at it pretty coldly and say actually this is going to be a bad buy for you?

D: I mean they’re there to help you, they’re not there to say well don’t do this or – they’re there to give you an honest opinion because as you say rose-tinted glasses you know you look at these places and you just want to, as you say, again Englishman’s castle, you just want that place to lay down your hat and call it your home, but they’re there for a reason, you know they’re there to make sure you actually get the best for your money and you don’t want to go into a home, as one couple I recently met did, and found out that there’s mass subsidence which you know the survey should have picked up on but because they didn’t get the top survey they could, they didn’t pick up on it, and so you’ve got to – these are the things, these are the additional extras we talk about which are necessary, and also should be taken you know taken into consideration, not just going into the cheapest version to minimise cost, but make sure you do it properly, because it is the biggest purchase you’re ever going to make and so do not rush into it

H: Take your time on it. This is the final question that’s come in from Hayley and I think it’s where we more or less started David, which is “is it a good idea to go to an advisor before you start out with anything else so you know what you’re in for, or do you go looking first and then go and see an advisor when you’ve got some questions for them?”

D: There’s no harm in doing both, I would always say go to an advisor so that you don’t go off looking at properties, see somewhere you love and you want to go and move in straight away but there’s no chance that you’ll ever be able to afford it

H: Is this the almost getting an in-principle agreement, an in-principle -

D: You don’t even have to go that far, you can just go and ask the questions. If I was to do this, if I was to give you this much deposit, if I was looking to buy this house, what would happen. That’s the key, do your research first, have a look at houses you like, say oh (but don’t get too hung up on it in the early stages) just go and say oh well that’s a house I would like, let me see if it would be possible to afford it, don’t pin all your hopes on the one house, there’s plenty of houses out there, you know the market is booming and you shouldn’t just be drawn into something, take your time, seek advice, no one’s going to kick you out of the door for you know asking a simple question, go and ask your question and ultimately yes look – and then sit back and enjoy it as well, I mean it’s got to be an enjoyable experience, looking round houses, choosing the one you like, it’s got to be good fun

H: It’s got to be good fun, let’s hope it stays that way. David thank you for answering so many questions, and for breaking down some of the jargon and hopefully making things a little bit more simple. That web address once again because people can go and relive if you like other people’s experiences

D: That’s right yes www.thewordonyourstreet.co.uk

H: It’s as simple as that. Thank you very much indeed for joining us today, thank you for your questions and we hope we’ve broken down some of the jargon from David Stuart here at Abbey, and we hope you’ll join us next time, goodbye