Franz Muehlthaler, mortgage adviser, Holroyd Miller Properties
Q: I’m thinking of buying but have no idea when might be the best time, have you any advice?
A: Kate Faulkner, one of the UK’s leading property experts recently spoke to Mortgage Advice Bureau about this topic and raised a very good point “can mortgage rates ever go any lower”?
Mortgage rates are influenced by many things, including how much the lender has to pay to borrow the funds they lend to you; their perceived risk of lending through to the overall cost of providing the mortgage product such as fees charged and, of course, the level of competition for specific consumers.
She raises this point because one of the biggest questions she is asked is “when is a good time to buy?”
In the main, most people think it’s when property prices are at their lowest. However, another consideration is being able to lock into low cost borrowing as this can substantially reduce the amount it costs to run an investment property, fund your first home or trade up to a property you have always dreamed of living in, and interest rates have dropped substantially.
Back in 2012, mortgage rates for high loan to values of 90-95 per cent were around six per cent and for 60 per cent loan to value, around three per cent. Now both of these average rates have dropped by half.
This means, for every £100,000 you borrow, at six per cent over 25 years using a repayment mortgage, your monthly cost would be £651.88, whereas today it will have dropped to just £478.56. This represents a saving of over £173.32 a month or over £2,000 a year. Alternatively, it means you could potentially borrow more money within the confines of the current affordability rules.
In addition to these great rates, we are also seeing long-term fixed rates of 10 years which can be under three per cent (subject to terms and conditions) meaning if you are 56 and planning to retire at 66, you can now lock in your mortgage to a set rate and hopefully pay it off before you retire, without potentially having to worry about the rate or payments varying at all.
So if you aren’t on the ladder yet or you haven’t re-mortgaged over the last 12 months, then it is really worth reviewing your mortgage rate now and in the future, and considering whether to lock in a good deal now as it may well be difficult for rates to go much lower.
If you’ve yet to buy be sure to start saving not only will you have a sizeable deposit when you come to buying your house, you will also be able to demonstrate to lenders that you are able to budget and save and are therefore more likely to meet your monthly mortgage repayments.
While it may feel impossible to save for a deposit, budgeting and cutting back can help. Control your income against your outgoings, change energy provider, reduce the amount of times you eat out. These are just some of the things you can do to ensure you get on the property ladder sooner than you think.
Brian Murphy, head of lending for Mortgage Advice Bureau, says: “Now is a good time to look at longer term mortgage opportunities. Not only have the rates come down substantially, but some lenders will lend for 10 years with a five year break clause, meaning if things do change, you are not locked in for too long.”
With so many changes to the mortgage market, it is worth contacting your broker to make sure your current mortgage is delivering the best for you.
*Franz Muehlthaler is a mortgage adviser with Holroyd Miller Properties in association with Reach 4 Mortgage Solutions and the Mortgage Advice Bureau.