There are a multitude of options to consider when looking to take out either a mortgage or to remortgage. We set out below some of the key issues…
Fixed or tracker deals
With regard to the total amount of outstanding residential mortgage borrowing, fixed rate deals account for over a half (see box right). In recent times it really has been the product of choice, accounting for a massive 90.5% of all new loans taken out in Q1 2018.
(Source: Bank of England, June 2018 release)
The current popularity of fixed rates is partly influenced by concerns over rate rises, and that they provide the peace of mind of knowing the interest rate will remain the same across the deal period.
Additionally, be mindful that irrespective of any Base Rate move, fixed rare mortgages are influenced by SWAP rates (the interest rate charged between banks for lending to each other). In recent months, SWAPs have been on a broadly upward cycle.
Although, we’re also conscious that some lenders might be keen to build their market share, and offer better deals to generate more business.
The other main option is a tracker rate where the initial rate signed up to may vary dependent on what it’s tracking. It’s important to do the maths, as some tracker deals could be a better option, even if rates did rise slightly.
Standard Variable Rate (SVR)
Any future increase in the cost of mortgages would be a concern for the 2.8m or so who currently sit on an SVR with their lender.
(Source: *which.co.uk, May 2018)
Albeit, some of those on an SVR may feel they wouldn’t be able to secure a new deal due to the more stringent requirements in place. That may be the case, but just as easily it might not. If nothing else, it makes sense to have a chat.
Alternatively, you may be on an interest-only deal that’s reverted to the SVR rate; but unsure if you could remortgage onto a better deal, or perhaps want to switch to a repayment scheme. Again do talk to us.
The rapid growth of self-employment has been pronounced feature of the UK labour market in recent years. Back in 2001, there were 3.3m self-employed people (12% of all workers), by 2017 this had increased to 4.8m (15.1%).
(Source: Office for National Statistics, Trends in Self-Employment, February 2018 release)
Even though this group accounts for almost one in six of all workers, the options for seeking a mortgage have been fairly limited. This is partly due to the fact that there’s likely to be an irregular income stream, as some months may show a decent income, whilst others require a bit of belt-tightening. Lenders tend to prefer a stable income stream. However, the tide may be turning, so there could now be more options to consider.
The First-Time Buyer
Much has been done over the last few years to make it easier and cheaper for the first-time buyer to gain a foothold in the property marketplace, and do talk to us to find out more.
Meeting the criteria
We could also help navigate you through the raft of tighter rules, which now apply to evidencing of income and affordability measures. This is in place to ensure that borrowers are stress-tested to see if they can, not only meet current payments, but are also able to cope should the interest rate rise.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Borrower Facts (Residential)
Outstanding Residential Mortgage Borrowing at end of 2017
- Fixed Rate = 4.7m borrowers
- Tracker Rate = 1.3m borrowers
- Standard Variable Rate (SVR) = 1.8m borrowers
- Largely on SVR = 1.3m
(Source: UK Finance)
Average Findings Home Mover First-Time Buyer
Property Price £245,232 £167,197
Loan-to-Value 73.4% 84.9%
Loan Size £180,000 £141,950
As an Income Multiple 3.41 3.62
% of Monthly Gross 17.5% 17.2%
(to service capital
& interest repayments)
Age 39 30
(Source: UK Finance, April 2018 figures for type of borrower, released June 2018)