Could now be the time to find the best mortgage and buy?
Q: I feel like committing to a mortgage is a bit of a gamble. Fix, twist or buy – what is the best? A: The best thing to do depends on your personal circumstances and your financial situation. However, a broad view of the mortgage market may help you reach a decision that works for you.
You may have heard the Bank of England has announced that it is to adopt a policy of forward guidance on interest rates. This means that any change in interest rates will be tied to the unemployment rate and interest rates will not go up until the unemployment rate falls to below 7.0 per cent.
The Bank of England Governor, Mark Carney, was reported as saying the cost of borrowing is not going to rise any time soon. I have read that the rate is currently 7.8 per cent and it is not expected to fall to 7.0 per cent until 2016. How much more security do we need? Looks like the signal to goahead, doesn’t it?
There is a caveat. The bank will “knock out” the link between interest rates and unemployment if the record low interest rates pose a threat to the UK’s financial stability. To summarise, there is no offer of security.
Committing to a mortgage wouldn’t be such a bad thing, especially if you were able to make a generous deposit and reduce the LTV rate.
Nationwide Building Society has recently launched a fixed rate mortgage for five years at 2.99 per cent switching to Standard Variable Rate, which is currently 3.99 per cent for the remaining term of the loan. The rate on offer is for 60 per cent LTV and the reservation fee is £900 with a booking fee of £99. The Skipton Building Society has cut the interest rates on a range of two, three and five-year fixed mortgages, two-year trackers and a range of Buy-to-Let fixes by up to 0.2 per cent with the ability to make overpayments of up to ten per cent per year without being penalised.
The West Brom Building Society is offering a two-year fixed rate mortgage at 2.39 per cent on a LTV of 80 per cent which reverts to 3.99 per cent variable on the remaining term of the loan. The fees are favourable at £99 for booking and £200 for completion. With LTV like this you can see your deposit would work hard for you and save you money.
Variable rate deals are low too. HSBC is offering a variable rate, currently 1.99 per cent for the term of the mortgage on a LTV of 60 per cent with a booking fee of just £99. NatWest is even lower with a 1.79 per cent variable rate until March 2016 with a booking fee of £995. The rate reverts to a variable rate, currently 4.00 per cent, for the remainder of the mortgage term.
You may be thinking that given the Bank of England’s forward guidance policy a variable rate would be a much better prospect. But regardless of interest rate increases or decreases your lender can alter its Standard Variable Rate at any time. The rate you pay on an SVR mortgage will be determined by your lender not the Bank of England. But if you are able to handle any variation this type of loan could work well for you as in most cases you are free to repay the mortgage without penalty and transfer to another lender on a fixed rate if you become concerned about rate speculation.
My recommendation is be sensible. There are low-rate deals out there but would they provide you with the security you need? For instance, would they give you payment security? If rates fluctuate where would that leave you financially? Also beware of low rates hiding high fees. I mention this time and time again but it’s still where consumers get caught out. A low rate with extortionate fees is not a good deal when you consider the actually repayment figure after adding your fees to your loan and the implication of the added interest. As always, speak to a professional independent mortgage broker to help you with your enquiries.
Franz Muehlthaler is a mortgage advisor at Holroyd Miller, www.holroydmiller.co.uk