What is next for mortgage rates: to fix or not to fix?
Mortgages have been in the press a lot recently, for a lot of reasons.
On one side, there’s the scaremongers, saying no one will ever get a mortgage now given the tightening of affordability rules. On the other, there’s the bargain hunters, telling us how “cheap” mortgages are right now. So who’s right?
In simple terms, that will depend on your personal circumstances.
With low inflation, slowing economic growth and a slump in oil prices, the prospects of an interest rate rise seem ever less likely. The knock on effect of this is that mortgage rates are at an all-time low. Add to this the Government’s £80bn Funding for Lending Scheme which was launched in 2013, and you can see just how much cheap finance there is up for grabs.
At the time of writing, borrowers with at least 40% equity could secure fixed rates of just 1.19% fixed over two years or 2.99% fixed over 10 years. Not much to pay for peace of mind you might say…
That said, you need to check that the arrangement fees for these headline deals justify the savings you may make. With the average arrangement fee at £750-£1,000, if you don’t have a big mortgage you might be better off with a slightly higher rate and a lower fee. Dependent on your circumstances, a fixed rate may not be the most suitable product for you, so make sure that you fully explore the options available before you commit.
Furthermore, the banks and building societies are now up to speed on the tougher mortgage rules introduced last April and you may find that they are willing to lend you less, or indeed lend you the same, but at a much less favourable rate than they have previously. Contrary to popular rumour, lending at 95% of a property’s value is still possible, but you should expect to pay handsomely for the privilege.
It’s also a good idea to think carefully about your longer term plans. Most mortgages are portable so you can take them with you to a new property, but it’s never a given and the new property will still need to be assessed by your lender should you move. If you to do decide to tie in for a longer-term fixed rate, make sure you familiarise yourself with the terms and conditions, as the best deals will usually cost you upfront to get in and many levy hefty penalties should you want to get out early.
Finally, if you are considering a mortgage move, make sure your finances are in order. Whatever your circumstances, you should expect to be questioned in detail on your sources of income, financial commitments and discretionary expenditure. In most cases the lender will also look to see hard evidence of these in the form of payslips and bank statements.
If you are considering a move but don’t want to do it alone, Moore and Smalley have a team of qualified mortgage specialists who can help you find the best mortgage to suit you. We can also advice on more specialist mortgages including buy to let, guarantor and equity release.
For more details see our Mortgage Services Brochure or contact the Financial Planning department on 01772 821021.