By Jill Rickson, Principal Mortgage Adviser at Pembroke Financial Services.
Mortgage rates are just rising off all-time lows and Mark Carney, the Bank of England governor, is predicting that UK rates will rise at the turn of the year, although the City expects the first rise to come in 2016.
The number of home-owners remortgaging jumped by 30% in June, as borrowers locked in to new deals ahead of a rise in interest rates.
The last time interest rates went up was eight years ago, in July 2007.As a result, more than a million homeowners have no experience of a rise in rates.
While no one can tell you whether this is the perfect moment, but, it’s certainly plausible that if you don’t act now, you may miss the boat. Those not on fixed mortgage deals may see payments increase when base rates rise.
So when SHOULD you consider fixing your mortgage rate?
Rather than trying to predict where interest rates are heading, make a decision based on the risks you can afford to take.
If you’re budgeting carefully and can’t accommodate an increase in regular outgoings, then consider taking out a fixed-rate deal. With your mortgage costs guaranteed at a set level every month, you’re then free to allocate spending elsewhere.
But taking on fixed-rate mortgages can limit your flexibility. “Long-term fixes of five or more years tie you in to your lender,” warns Jill. “If you need to borrow more, for example, you’ll have to go to your provider. And again if you want to move home, you’ll be beholden to your existing lender to let you take the loan with you.”
For buy-to-let investors, fixed rates are possibly more attractive. Because landlords often intend to hold the same property for many years, it can help to fix the cost of finance over a longer period in order to generate steady returns.
Anyone with a mortgage should urgently check to see if it’s the best possible deal as the potential savings are huge. We can help you find the right mortgage solution. firstname.lastname@example.org
Jill’s top tips …
- Know your mortgage rate and details – your mortgage is the biggest expenditure most of you have, so I’m always slightly surprised that when asked, not everyone knows their rate and details. So check that you know- your current rate; monthly repayment; amount outstanding; Is it a fix, tracker, discount or Standard Variable Rate (SVR); Deal deadline: If it’s a short-term deal, such as a two-year fix, when does it end?; Term: How long is it, for example 25 years, and when must it be fully repaid by?; Penalties: Are there any penalties if you repay or leave early? ; Your loan-to-value (LTV): The proportion of your home’s current value you are borrowing. As an example, £80,000 on a £100,000 property means an 80% LTV. The lower the LTV, the better the deal you can get, so if your home has increased in value you may gain, even without other changes.
- Benchmark your cheapest deal at speed – Recently we’ve seen two-year fixed deals (for those with low LTVs) plummet to almost 1%. This is incredibly cheap. Longer fixes and variable deals are at or near historic lows too. For every 1% interest you can cut per £100,000 repayment mortgage, you can save £60/month. A host of factors affect what your personal cheapest deal is.
- Factor in the fees – The smaller your mortgage, the bigger the impact fees have, especially for mortgages under £100,000. You should always incorporate the cost of fees – do this by spreading them over the fixed or tracker period (as after you may shift again to another deal). For example, £1,000 of fees over two years is £1,000 / 24 = £42 a month.
- Check your credit score. These days it’s not just about getting the best mortgage, but the best that’ll accept you. Credit scoring plays a huge part of that, and managing your credit-worthiness months in advance is part of the task.
- Use a professional, independent Mortgage adviser to help boost acceptance – You can, and really should, use a broker to help you find the right deal. They have information unavailable to consumers, such as lenders’ credit and affordability criteria. A good broker can ease acceptance by matching you to the right deal – and the mortgage interview’s quicker too.
Let us help you find the right mortgage solution. email@example.com