With interest rates rises looming, it is tempting to believe that the only sensible course of action is to fix your mortgage – and preferably for as long as possible. But this may not be the right option, mortgage experts warn.
A five year fix is attractive in terms of guarding against future interest rate rises, but their recent increase in cost means they are beginning to look expensive, according to some experts.
And with some analysts predicting that the Bank of England will not increase interest rates until later than expected, are variable rates now coming back into the frame?
Ray Boulger, of mortgage brokers John Charcol, exclusively told Zoopla that if the cost of five year fixes rises much further, a two year tracker or other variable rate would be preferable.
But the deals would require no early redemption fees in order to look competitive or a droplock option so that fixing is an option during the term of the initial deal.
“This would offer the best of both worlds in that the borrower starts off with a very cheap rate, but buys time to decide if and when to switch to a fix,” he said.
He recommends a two year tracker at Bank Rate, plus 1.29 per cent, from Santander. The mortgage is available to those looking to borrow up to 60 per cent of the value of a property.
It follows the first anniversary this week of the Bank of England keeping the Bank Rate at 0.5 per cent.
Give your car the home it deserves…
1. Perfect for space saving in London – a double garage for your multiple sports cars.
5 bed in London, £11M – Hamptons
2. How would you like to live in the previous home of a car legend…Top Gear presenter Jeremy Clarkson grew up here!
4 bed in Doncaster, £595K – Jackson-Stops & Staff
3. This unique home comes with a spectacular two-storey 13, 000 sq ft contemporary vintage car museum – what more could you want?
7 bed in West Yorkshire , £4.5M – Beadnall & Copley
4. The sheer size of this church conversion allows ample space for showcasing car and motorbike collections.
4 bed in Uxbridge, POA – Chewton Rose
5. This central London home includes a garage large enough for not one but four limousines. However, it is also the most expensive property on the market in the UK.
21 bed in London, £90M – Messila Residential
7. A garage your car deserves…and no walking in the rain to get to the house.
4 bed in London, £19.8M – Charles McDowell
8. Something more appropriate for the countryside…we love this open-bay double car port in Tunbridge Wells.
5 bed in Kent, £2.75M – Knight Frank
9. Every car fan deserves a driveway with a view and this truly grand house also offers an underground garage to keep your beloved safe.
12 bed in Aberdeenshire, £2M – Savills
10. A true luxury for your car…it’s very own home in the highly sought after area of Kensington.
Garage in Kensington, £300,000 – Foxtons
Fears are growing that the credit crisis is about to happen all over again after it was revealed borrowers are able to overstretch themselves financially due to the Help to Buy scheme.
The Help to Buy scheme was introduced too quickly by the Government last year and has been allowing buyers to purchase a property with a deposit of less than 5 per cent, the public spending watchdog has revealed.
The National Audit Office said “buyers are purchasing homes with a deposit contribution of less than 5 per cent” and is now calling on the Government to take further action.
It suggested buyers with a deposit of less than 5 per cent were still slipping through the net.
And it claimed that that the mortgage plus the 20 per cent equity loan available under the scheme was allowing almost a third of buyers to borrow five or more times their annual salary.
Experts warned it was laying the conditions for another credit crisis if households were allowed to borrow more than they could afford.
The financial collapse occurred after banks stopped lending money almost overnight in August 2007.
Home buyers who had previously been able to borrow more than the value of the property were suddenly left unable to meet their mortgage commitments and had no equity to repay their loan.
Jonathan Harris, director of mortgage broker Anderson Harris, says: “It is very important that buyers have an equity stake in a property; one of the indicators that the booming housing market had got out of hand was that people were borrowing more than the purchase price and not investing anything themselves.
“Prices can go down as well as up, and if you have little or nothing invested in your home, you are already in negative equity and will be trapped in the property, unable to move until prices recover.
“Having hardly any deposit is also a sign that a buyer is overstretched: it might make more sense to wait a while and save until you are in a stronger financial position before taking the plunge.”
The scheme has proved popular, with almost 13,000 buyers using it during the first nine months.
The average value of a home in England is just over £250,000, but what type of property does this amount of money buy in different corners of the country?
1. London: Studio flat in Maida Vale for £275,000
2. Torquay: Two bedroom flat for £250,000
3. Dover: Three bedroom detached house for £250,000
4. Isle of Mull: Five bedroom detached house for £265,000
5. Hartlepool: Eight bedroom detached house for offers over £250,000
6. North Yorkshire: Three bedroom terraced house for £275,000
7. Somerset: Three bedroom house for £250,000
8. Alnwick: Four bedroom detached house for £275,000
9. Romford: Two bedroom flat for £275,000
10. Isle of Wight: Two bedroom bungalow for £250,000
Are you applying for a mortgage? New rules being introduced next month mean that the application process could get a lot tougher.
If you thought applying for a new mortgage was difficult following the credit crunch, it is about to get a whole lot harder, according to the Council of Mortgage Lenders.
Banks and building societies tightened their lending criteria after the financial crisis to help prevent borrowers overstretching themselves financially. But as the economic recovery began, many lenders loosened their requirements – a move demonstrated by the greater availability in recent months of mortgage deals for those with smaller deposits of as little as 5 per cent of the value of a property.
However, today, the CML issued five warnings to borrowers ahead of strict regulation – Mortgage Market Review – coming into effect on April 26. They included a warning that the new rules will affect how much buyers can borrow.
The warnings came amid mortgage brokers suggesting the new rules would create a greater number of so-called ‘mortgage prisoners’ – borrowers who are trapped in their homes and unable to move because they cannot afford to remortgage.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Making sure that borrowers do not over-exert themselves and that the borrowing they take on is affordable is no bad thing but processing times for mortgage applications are likely to increase, while existing borrowers could find it more difficult to remortgage, leading to mortgage prisoners.”
The CML warned:
1. Taking out a mortgage could take longer than before. This is because most mortgages are sold on an ‘advised’ basis and the new rules are very prescriptive about giving advice, with an advised sale possibly taking up to two hours.
2. You will need to provide more details about your income and expenditure. The new rules require a detailed assessment of where your mortgage is affordable both now and in the future
3. The new rules could affect how much you can borrow. Lenders will be required to ask detailed questions about your spending, including what you spend on utilities, council tax, telephones, ground rent, insurance and running a car. They will also have to make a realistic estimate of other living costs, including clothing, household goods and childcare costs.
4. You will be able to apply for a mortgage on an “execution-only” basis, but there are strict rules to make sure that you understand the process. You will need to show you have researched the market and understand the features of the mortgage you want to take out.
5. It will still be possible for you take out an interest-only mortgage – but this will remain a niche offering. Lenders continuing to offer interest-only mortgages will need to ensure that you have a credible strategy for repaying the loan when it matures.