What’s the key to mortgage peace of mind?
HARVEY JONES ON HOW TO TAKE THE STRESS OUT OF PAYING FOR A HOME
HOMEOWNERS have benefited from more than a decade of record low interest rates but the good times will not last for ever.
If inflation continues to rise, the Bank of England could be forced to increase interest rates after holding them close to zero for 13 years.
That would come as a major shock to many borrowers who have loaded up on hundreds of thousands of pounds of debt to climb the property ladder.
Younger buyers will be particularly shaken, as many will never have known higher rates.
Low interest rates have helped drive up house prices to a record average of £261,743, up £22,000 in a year, Halifax figures show.
If inflation proves more than a blip and the Bank is forced to hike interest rates, it could spell bad news for mortgage repayments and house prices.
So what should we be doing?
KEEP ONE STEP AHEAD
Nobody knows what will happen next, says head of lending at Mortgage Advice Bureau, Brian Murphy, so “it pays to keep one step ahead and get the right deal for you.”
He says every homeowner who has yet to pay off their mortgage should ponder the following...
Lock into a fixed rate
Millions are on their lender’s standard variable rate (SVR), which means if base rates rise, so will their monthly interest repayments. First Direct offers a two-year fixed mortgage at just 1.14%, with a £490 fee, while NatWest charges 1.21% fixed for five years, with a £995 fee.
Both deals are available up to 60% loan-to-value (LTV).
Those with less equity in the property will pay more.
Brian says fixed rates offer borrowers a safe haven against interest rate hikes. “Be sure you can commit for the full term, as you could face exit fees or early repayment charges,” he warns.
Don’t waste time
Lenders are currently competing to offer deals charging less than 1%, with HSBC and Nationwide the latest to join in.
Brian says: “Many are on offer for a limited time, so the sooner you act, the better your chance of getting a record low deal.
Find the best deal
Whether you’re a new buyer or looking to re-mortgage, shop around.
“A mortgage broker can help you find the most suitable deal for your circumstances and factor in all the costs,” Brian advises
He also warns: “Don’t only think about headline rates, beware of additional fees too.”
Work out what is affordable
To avoid borrowing more than you can afford, draw up a budget based on monthly income and outgoings.
“This will help identify areas where you can cut back and make savings to boost your deposit or overpay your mortgage,” Brian says.
Overpay if you can manage it
If you can afford to overpay your mortgage, then you should clear it a lot faster. This would also save you interest in the longer run.
If you have a £100,000 mortgage at 4% over a 25-year term, and overpay by £100 a month, you could clear it six years early and save a thumping £15,534 in interest too.
Brian advises that it is important check for early repayment charges, though.
“Most mortgages allow you to overpay by up to 10% a year without any penalty but you should always check, as if you have to pay a penalty, then this could wipe out the savings you make from overpaying.”
Great rate
Mark Harris, chief executive of mortgage broker SPF Private Clients, agrees that this is a good time to look for a new mortgage or remortgage.
“Lenders remain keen to lend, with rates continuing to look extremely competitive, while the choice of products at high LTVs continues to grow,” he adds.
Things can change very quickly in today’s uncertain world, so it pays to make the most of the opportunity while you can.