Are you looking at buying a new home – Your mortgage questions answered by HSBC Bermuda
Propertyskipper.com had the pleasure of sitting down with Yanni Delvalle, Assistant Product Manager in HSBC’s Retail Banking Wealth Management division and Stephen Caines, a Relationship Manager at HSBC Premier to discuss the mortgage market and process in Bermuda. We asked some key questions on what potential buyers should do before they start their house hunting process, what they will require from the bank and also what costs to expect when arranging a mortgage.
Firstly, How has HSBC seen the Bermuda property market over the last year? HSBC has had a solid year for mortgage lending in Bermuda and is very much open for mortgage business. Despite the interest rate hikes in the U.S.A., which has seen some local banks increase their base rate for mortgages, HSBC has held their local Base Rate at 3.5% to date. This has enabled HSBC to currently offer some of the most competitive mortgage rates on the island and has launched a ‘Switch & Save’ campaign – homeowners should give HSBC a call and see how much they could save on their current mortgage if it is currently held at another banking institution in Bermuda.
Is it best to get pre-approved for a mortgage before the customer starts house hunting or if they have already seen somewhere they like - is a mortgage application going to hold up the process? Absolutely – it will put you in a much stronger position with home sellers if you have your pre-approval documentation. Real Estate Agents will also have the confidence that you are looking at properties that are within your price range. Of course everyone dreams of living in a $5m home but if the bank will only pre-approve you for say $1m it is an important process for the buyer to realize what properties they should be looking at. HSBC also offers same day mortgage pre-approval and it is free to apply. So if you are thinking of buying a home it really is a worthwhile process.
What is the standard interest rates that HSBC charge on a mortgage and how long is the term of Payment? HSBC offers both Fixed Rate and Variable Rate mortgages. If you wish to lock in your rate for payments over a five year period to give peace of mind, the following rates currently apply: Premier – 5.74%, Advance, 6% and Personal Banking 6.25%. The current variable rates are: Premier – 5.99%, Advance – 6.25% and Personal Banking – 6.5%. Maximum mortgage term is 30 years. HSBC also offers USD$ mortgages to customers that qualify. The usual requirement for USD$ mortgages is evidence that the bulk of their income is in USD$ - contact your Relationship Manager for further details. If your mortgage is $1m or more you will automatically qualify to become a Premier customer with the benefits of the lower rate and a dedicated Relationship Manager. Any customer that takes an HSBC mortgage will automatically become an Advance customer.
What are the usual qualifying guidelines for a mortgage and how much can a customer borrow? Customers will certainly need to prove they have a deposit and will also require proof of income. The deposit required will vary - HSBC will currently lend up to 80% of the home’s value. On properties over $1.5m this falls to 75%, on properties between $2m and $5m 70% and over $5m HSBC will lend 60%. Proof of income will be required for all named parties on the mortgage – HSBC checks your income and expenditure to fully verify you can comfortably meet the mortgage repayments the customer is committing to. If you currently bank at HSBC this is easy enough to verify but copies of pay slips and proof of any other income will be required. If your salary is not deposited into an HSBC account currently, the bank will require a proof of employment letter.
What documentation do you require to apply for a mortgage with HSBC? There are a number of documents customers will require – depending also if they are Bermudian or non-Bermudian – but they should expect HSBC will require their Passport, verification of current address, any work permit or PRC document, proof of income (i.e. 3 months’ pay slips) – both employment and other (such as if you have rental income – a lease agreement). If you have already seen a property you are considering purchasing then also the bank will require details/particulars of the property. HSBC will also require your lawyer’s contact details and those of your Real Estate Agent (if applicable).
If the borrower is self-employed with variable income - can they still get a mortgage? The process is the same for self-employed as employed customers. However, they will have to provide proof of 12 months regular pay into their bank accounts as well as their Payroll Tax returns to verify their income. 2 years financial statements from their business will also be required – particularly if their income is not always the same every month.
Are there any other costs the borrower should consider before applying for a mortgage - are these included in the mortgage or do they need to have this put to one side? Moving house can be a costly exercise and buyers should ensure (aside from their deposit) they have available funds for the other associated costs of moving. There is a Mortgage arrangement fee that HSBC will charge which is 0.8% for Premier customers, 0.9% for Advance and 1% for Personal Banking. There is government Stamp Duty on the purchase, Legal fees, Property Appraisal fees as well as the usual moving costs. Customers should check the HSBC mortgage Calculator on the HSBC site and it is also available on every sales listing on propertyskipper.com so they are fully aware of the interest and repayment costs they are committing to on a monthly basis.
How long does the whole process take? There are variables here – if the customer banks with HSBC, and their income is paid into their HSBC account it can be as quick as 1 month. The average is 6 weeks depending on the speed in which the lawyers are able to complete the transaction. Approval at HSBC is usually very quick. Non-Bermudian customers will also require documentation (such as immigration documents) so they should expect for the process to take longer than the usual period.
If the borrower receives a bonus / pay rise / inheritance a few years down the line can they make a lump sum payment to pay down some mortgage? For fixed rate mortgages, balloon payments are not possible until the end of the 5 year fixed period. For variable mortgages HSBC requires a standard 3 month notice period for a balloon payment. When you apply for your mortgage make sure you discuss with HSBC your forward financial expectations – if you know you may get big bonuses some years let HSBC know so you can ensure you are on a mortgage plan that allows you flexibility.
The property the customer is interested in purchasing has an apartment underneath they wish to rent out - do you take into account that rental income into your calculations on what they can borrow? Rental income from the property can be considered but the customer will need proof of an existing tenant and lease. Typically rental income is reduced to 50% of the real paid rent in the mortgage calculations – HSBC does this to ensure if rents were to suddenly fall or your rental unit was unoccupied for a longer period the customer can still comfortably make their mortgage repayments.
Do you offer mortgages on investment properties? HSBC does lend against investment properties. As above, the rent will be considered as 50% of actual rental income in mortgage calculations so customers have to demonstrate they have the ability to repay the mortgage in down periods. As with all mortgages your total financial commitments, income & expenditure will be considered on all properties including standalone investment properties.
Are there any other benefits of applying for a mortgage through HSBC? You mean other than the market leading rates and fantastic service? Yes! HSBC has teamed up with BF&M to offer customers a preferred rate in mortgage insurance, which gives customers peace of mind in case of unemployment, sickness or rapid changes in their financial circumstances. HSBC, also through BF&M, can offer customers preferred rates on buildings insurance, which is a requirement of the mortgage once the property has been purchased.
Should you have any further questions on the HSBC mortgage process or would like to apply for a mortgage with HSBC you can visit their website www.hsbc.bm or call +1 441 299 5959 and arrange an appointment to meet with a mortgage advisor.
Many thanks to Stephen and Yanni for this interview with www.propertyskipper.com