Tag Archives: affordability

How To Get The Best Remortgage Deals

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fb - How To Get The Best Remortgage DealsIn the next twelve months an increase in the base rate of interest is highly likely. Rising house prices caused by the government’s Help To Buy scheme have reached levels that are causing alarm at the Bank of England and a rate rise is the only measure that can slow them down.

Home owners may be considering remortgaging in the coming year before rates rise, and this article is a quick guide to help borrowers think about how to get the best deals they can.

One motivation for getting a new mortgage is for locking in a low fixed rate for the next five years. The best deals twelve months ago were at an astonishing low of 2.5 percent.

Deals like that are unlikely to come round again soon as interest rates eventually start to rise, but offers of around 3 percent are currently available.

Loan to Value

The rate you are offered will be based on the degree of risk your home loan presents to the lender, amongst other criteria.

Lenders calculate the degree of risk based on the size of the loan compared to the size of the mortgage.

If you are buying a £100,000 property and you can cover the first £50,000 yourself or with help from family members, you will need to borrow £50,000.

This means your Loan To Value (LTV) ratio is 0.5, and the closer the LTV is to one, the higher the risk and the rate of interest will rise accordingly.

Everything you can possibly do to bring the LTV down will help as it will make you more attractive to lenders, save you money in the long run, and put you on a much more stable financial footing in your new home.

The New Lending World

If you haven’t been to see a mortgage advisor in a few years, you’ll notice a big difference as the rules surrounding borrowing have become far stricter since April this year.

The horror stories of irresponsible lending before the 2008 crash, combined with the government’s massive help to home owners with Help To Buy have led regulators to impose stringent new borrowing rules.

Expect your mortgage advisor to want to see your entire financial history, bank records, confirmation of employment, savings, credit reports and more.

Pay off any outstanding debt, even if it’s just £50 on a store card, any black marks on your credit score could be potentially fatal when it comes to securing a lending decision.

Rates

In Britain there are, in general, three types of mortgage deal commonly available, and these are fixed rate, variable rate and tracker mortgages.

A fixed rate mortgage offers borrowers a degree of security, it means that if the base rate of interest rises in the future, the lender will continue to offer the rate that was set and that offer will typically run for five years. It is a way of future-proofing your mortgage against sudden and unexpected mortgage rises and typically most people choose them.

Variable rates have been popular in the last five years. Whereas fixed rates are ‘fixed’ at higher levels to enable the lender to get as much out of the deal as the borrower (arguably more), a variable rate simply responds to the Bank of England’s base rate of interest.

When the base rate is low your mortgage is cheap, and when the rate is high, it’s more expensive. Rates have been half of one percent for six years but this is likely to end soon, leaving many variable rate borrowers seeking fixed rates.

A tracker mortgage is similar to a variable rate mortgage, as it follows the base rate set by the Bank of England but at agreed set margin (perhaps one percent), meaning that a one percent rise in the base rate will not result in a three or four percent rise from your high street lender.

Financial Planning

If you’ve already got a mortgage and you are thinking about protecting your wealth against future changes in the economy it is important to see this as part of your long term financial strategy.

If you are unsure about what next steps to take with your remortgage then contact us.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

 

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Could You Afford Your Mortgage If Interest Rates Doubled?

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Stress testing isn’t just for banks Mortgage rates can go up as well as down, and home owners need to be prepared for this. High interest rates are good news for those looking at savings. They are bad news for borrowers. The skill of money management is creating a financial plan which ensures that your personal money will realise its’ best potential in either case.

Mortgage Rates Can And Do Rise

Over recent years interest rates have been held at low levels, but this has not always been the case. Interest rates started rising around the mid-1950s. They rose dramatically around the early-1970s. In the mid-1980s they dipped noticeably but then climbed again to the early-1990s.

Since the mid-1990s, overall, interest rates have been on a downward trend to today’s record lows – please see the attached chart. Nobody knows for sure how long they can stay that way. Therefore it makes sense to think now about how to cope with a future rise in interest rates.

Make Sure You Can Cope With Rate Rises Before You Commit

Mortgages may come in varying lengths, but they are all long-term commitments.

New rules are intended to make sure that prospective buyers only take out mortgages they can afford over an extended period. These rules came into force on 26th April 2014. In short, the goal of these rules is to oblige lenders to move away from formulas and to look at buyers as individuals.

Traditionally loan amounts have been decided primarily on multiples of income. According to the new rules, lenders will have to analyse an individual borrower’s overall situation. This will include any other borrowing. It will also include day-to-day expenses. Lenders are now expected to be very thorough in checking the accuracy of applications.

Previously mortgage applicants could self-certify in certain cases. Unfortunately, this lead to self-certification mortgages being known as “liars’ loans. With this in mind, lenders now look for supporting paperwork, such as bank statements. Failing to provide these and having them checked can increase the length of time required to be accepted.

In terms of the actual application, buyers should ensure that they are on the electoral role and that their credit record is accurate. Both of these are sure to be checked by lenders. Buyers should also do everything possible to show a stable history of financial responsibility.

This means ideally maintaining a solid track record of employment and also of paying debts appropriately.

Be Prepared To Be A Good Borrower

It’s often a good idea to get advice before taking any major financial decision. In terms of taking out a mortgage, prospective borrowers will need to look at the overall cost. They will need to be fully confident that they can meet repayments even if interest rates rise. It’s also wise to look at how individual circumstances may change. For example life’s challenges such as redundancy, unemployment, accident, illness and death should be planned for. It’s best not to trust to luck with regard to the family home.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.