As the Bank of England interest rate continues at an almost rock bottom level with no change since March 2009 – the longest period of unchanged rates since World War II – this is an excellent time to review your home loan to see if a better deal can be secured.
It is an appealing economic situation for most home owners with rising salaries, falling unemployment and negative inflation. Gross mortgage lending jumped to £20bn in September, 12 per cent higher than the same time a year ago, according to the Council of Mortgage Lenders.
This was the fourth month in a row for year-on-year increased lending.
Hampton International’s ability-to-buy index records the best opportunity in the north-east since the index was created in 1997.
Property inflation continues with prices on average rising by 5.2 per cent to £284,000 in the year to August, the highest value ever recorded by the Office for National Statistics.
The rate was even higher in England at 5.6 per cent. If you have not investigated rates for some time, the effect of markedly higher price values – and therefore your equity proportion – means that keen interest levels will be available.
There is a gap currently of around 2.5 per cent between a two-year fixed and an average variable rate which should be an incentive to opt for the former.
The temptation is to take on more debt but this should only be accepted if your savings and prospects will allow for far higher interest rates. An experienced broker can not only assist with the calculations but also advise mortgage providers who will accept given ratios.
One way to lock in rates for budgeting is to opt for a long term – such as 10 or 20 years – but such periods are unpopular in the UK unlike most of the advanced world. The comparison researcher Moneyfacts shows 74 repayment deals running 10 years. They include:
Nationwide Building Society 3.14 per cent, 70 per cent loan to value (LTV), £70 fee
Woolwich from Barclays 3.25 per cent, 80 per cent LTV, £80 fee
TSB 3.34 per cent, 80 per cent LTV, £60 fee
Leeds Building Society 3.39 per cent, 75 per cent LTV, £199 fee
For longer than a decade, look at ‘lifetime’ mortgages, says Ray Boulger, senior technical manager at broker John Charcol, who stresses that these are only available on an age basis – typically over 55 years – and with a high equity already, requiring to borrow around 30 per cent.
For remortgaging, some of the most competitive deals ever are now available, particularly if opting for higher loan to value. Those opting for a fixed rather than a variable rate are not only obtaining low monthly payments but securing the protection of a buffer against future rate rises.
Average fixed rates have fallen quite dramatically. Moneyfacts show the average two-year rate has dropped from 3.51 per cent a year ago to 2.75 per cent today whilst five-year fixed have fallen from 4.08 to 3.29 per cent over the same period.
Yet first timers have had noticeable increases despite no change in the official bank rate. They paid 3.8 per cent more in August than just one year earlier. On average, a starter home costs £215,000. With a 10 per cent deposit, an annual salary of £45,000 is necessary.
When considering a home loan, take into account the whole package and not just the headline interest rate. In addition to alternative deals from the same provider but on other loan to value ratios, look at five other expenses: reservation fee, valuation, legal costs, redemption fee if closed early and deeds-release charge.
Look also at flexibility, both in terms of permitted annual repayments (usually up to 10 per cent) and for transferability to another property.
Tougher lending regulations were introduced last year which may make it difficult to either obtain a first loan or remortgage. Since April 2014 mortgage providers have had to take greater responsibility for the ability of borrowers to repay.
At one level, this has meant questioning borrowers over their expenditure – even the cost of gym membership – which can be annoying for those who have shown no problems over paying interest or capital in the past.
The least likely to now obtain a home loan are the elderly, notably when payments have to come from a pension, and those planning to start a family, take a career break or facing divorce or redundancy.
Leeds Building Society is praised by brokers for its non-ageist approach in lending to those in retirement. Comparison website uSwitch says one in four women aged 25 to 45 has failed to inform a lender that they are pregnant or plan to start a family.
With a lower LTV, lenders usually rely on automated valuations but carry out personal ones at higher ratios. The valuation will help to determine the LTV which is grouped in scales of five per cent, such as 80, 85 or 90 per cent.
Those seeking a high LTV will also need to score well in a credit check.
To make property more affordable for first timers, the Government offers a Help to Buy scheme which means a home up to £600,000 can be accessed for just five per cent deposit.
The Prime Minister has pledged 200,000 starter homes will be built by the end of this Parliament. The price, after the discount has been applied, will be capped at £250,000.
The regulators are concerned about loans to landlords. The rapid growth in the buy-to-let market is likely to push up property prices, forcing owner-occupiers to stretch themselves for larger loans and whilst also reducing the stock for first timers.
Letting for buy-to-let is up a staggering 40 per cent since 2008, which is double the rate to owner-occupiers.
Family funds can certainly help with first timers receiving £24,000 on average, according to Lloyds. Yet the bank says such financial aid is not confined to this group with 14 per cent of those seeking a mortgage for their second move requesting £22,480 on average, up from £21,080 last year and £21,273 in 2013.
Whilst no change from the Bank of England is expected until at least spring next year, bag a good mortgage now.
Halifax, HSBC, Lloyds and Yorkshire will honour an agreement for up to six months forward but the period is cut to three months with NatWest, Royal Bank of Scotland and Virgin Money.
Woolwich, the mortgage of Barclays, quotes six months for new borrowers and three for existing ones. At current low rates, it could be one of the best financial decisions of your life.
Broker helped to find the perfect deal for Adam
Adam Craik, a 32-year-old learning technologist at Hull University Business School, contacted Callum Marsden of Opal Mortgage Services in Beverley to find a mortgage provider for an end-of-terrace house in Hull.
Adam previously rented and found his broker “absolutely helpful” with a comprehensive range of offers. With a 10 per cent deposit, he selected a fixed five-year loan from Nationwide Building Society at 4.09 per cent interest (4.1 per cent APR) and paid £99,950. As a first-time borrower at Nationwide, he received £500 cashback and the society paid commission directly to the broker.
“Four out of five first timers used a mortgage broker,” says Jill Parsons of Nationwide.