We are often asked by clients if they would be eligible for a mortgage, the questions tend to be ‘could I get a mortgage?’ and if so ‘what is the maximum mortgage I can get?’ or how they should ‘go about applying for a mortgage to see how much we can borrow’. All of these are valid concerns and in the current market there are several factors which favour buyers.
When we talk about property and mortgages we tend to avoid the use of the word ‘affordability’ and it is important to understand that affordability is banking talk for ‘how much debt can we put you in’. The way that affordability is calculated is by looking at rates and then looking at property prices, because prices have come down and rates are doing the same the ‘affordability’ has increased, however, it is the underlying price of property that we urge our clients to focus on because rates change and market cycle interpretation using things like affordability are impressive to hear but they don’t give you a clear picture of what you are transacting in hence our belief that it shouldn’t be in the vocabulary of professional advisers.
The one thing we will see however is a deep rate cut, in a Bloomberg survey of 54 economists every single one of them said they expect to see a rate cut this Thursday of about 50 basis points. Even after this there is scope for rates to go further. The fiscal and monetary moves by Governments and Central Banks will have an effect in the future – inflation. So if you are considering a loan an important question is ‘should I get a fixed rate or variable rate?’.
When inflation comes (and it will come eventually) a good fixed rate will be a valuable commodity and the time to do that may be early in 09′ because that is likely the time when rates will bottom out, experience already tells us that any time the rate goes below 3% it is not going to stay there forever, if I saw a ten year fixed rate for less than 4% I would fix into that straight away even if the prevailing rate was 3.5% because rates will go up to battle inflation at some stage in the future (this is an example in which the base rate goes to 2 or 2.5%) and that is why in the period of late 2009 to 2011 we may see a time where inflation runs into the high single digits.
The important thing to remember in financial planning is to focus on where we are going, not on where we are, inflation is being priced into the pips market, and that would mean that we can expect a future where inflation will cause some serious frustration for those who are unprepared. We spend our day trying to look three years and more into the future and for that reason the advice we give at times may seem ridiculous today, for instance, my belief in precious metals remains strong despite a more than 30% fall off in prices in 2008, however, had you bought when we first talked about this in early 2007 you would be sitting on more than 100% gains even with that loss factored in.
In order to find out how much of a mortgage you qualify for there are different ways of finding out, you can call all of the banks and talk to each one, then if you qualify you can research the separate products each of them offer, or you can use an independent broker. We use various calculations to determine what each bank will lend on, some use multipliers others will use net income calculators or debt/income ratios etc.
We are happy to meet with you and discuss this further, or you can call us on 01 6790990 and talk to one of our qualified advisers.