Even a global pandemic couldn’t keep the UK’s housing market closed for long and now it’s very much back in business. In fact, it’s moving into peak house-buying season. This means that both buyers and sellers need to think about what they need to do to make their moves happen. For most buyers, that means getting a mortgage. In fact, it means getting the right mortgage.
Getting the right mortgage can make such a huge difference to the overall state of your finances, that it’s worth taking expert advice to get the very best match for your situation. It may save time if you consider the following points before your appointment.
Do you want a fixed rate?
Currently, this is likely to be a major issue for many (potential) borrowers so it’s worth thinking about carefully. The key point to understand is that the major benefit of a fixed rate is stability. You will know exactly how much you are going to pay each month over the payment term.
There is, however, a cost to this stability. Lenders know that they are the ones shouldering the risk of interest-rate rises and they factor this risk into the cost of their products. In other words, a fixed-rate mortgage may end up costing you more than a competitive floating-rate product.
What’s more, fixed-rates are offered for set periods (again to mitigate risk). This means that you need to think about what you will do once the fixed period ends. If you simply drop onto your lender’s standard variable rate, you may well end up finding yourself getting a very poor deal for your money. You could ask your lender to switch you to a new product. If, however, they won’t, or you don’t like their other offers, then you’re looking at paying the more expensive rate or remortgaging with all that implies.
A note on negative interest rates
There has been some speculation in the media that the Bank of England could end up implementing negative interest rates. This may leave borrowers wondering what it could mean for them. The first point to note is that, at present, the issue of negative interest rates is pure speculation. The second point to note is that, even if it does, there is absolutely no guarantee that it’s going to result in a bonanza for borrowers.
Those on a fixed rate are not going to see any change. That’s exactly what a fixed rate means. It doesn’t change no matter what happens. Those on variable rates could, in theory, see themselves being paid to borrow. In practice, however, they may find that there is a clause in their contract which says that their rate will never drop below a certain amount no matter what happens.
Obviously, borrowers are free to remortgage (assuming they meet the relevant eligibility criteria) but it’s hard to see UK lenders falling over themselves to issue mortgages which effectively cost them money. That’s before you get into the issue of assessing affordability and thinking about how borrowers would cope when life returned to normal.
Is a traditional repayment mortgage right for you?
For many people, a traditional repayment mortgage is exactly the right way to go. You pay off the capital and interest over the life of the mortgage and at the end of the term, you own your house outright.
There is, however, a difference between many people and everyone. For some people, interest-only mortgages are the most sensible option, even in the residential market. For others, offset mortgages could offer welcome flexibility in uncertain times.
Even buyers who do want a traditional repayment mortgage may prefer one with more modern options, such as the ability to take payment holidays or to drawdown equity (both within agreed limits).
Your property may be repossessed if you do not keep up repayments on your mortgage.
Equity release refers to home reversion plans and lifetime mortgages. To understand the features and risks ask for a personalised illustration