Is now a good time to buy a house or remortgage?
This blog might be helpful to you if you are any of the following:
• Not currently tied into a fixed rate on your mortgage.
• Coming to the end of your current mortgage deal.
• On your lender's standard variable rate.
• Thinking about moving or buying your first home.
This might well be the very best time to look at a longer-term fixed rate.
Where are we now and what is happening.
In my working life which began in 1977, I have never seen mortgage rates at this level before. From the high point in the late 1980s and early 1990s when rates were around 15% to right now when the base rate is 0.1%, interest rates have simply never been as good.
In fact, some 5-year fixed rates are now below 1%. Lenders have been cutting rates and are in close competition for your mortgage lending. With the Bank of England base rate at this super low level for 18 months or more now, lenders have continued to cut margins at lower loan-to-values to attract the best borrowers and almost all borrowers are benefiting from this competition.
With that in mind, now might well be the best time to try and grab a historically low rate! Locking into a super low rate and building a strategy to focus on reducing the size of your mortgage could give you some long-term benefits never before seen.
Remember most lenders will allow overpayments of up to 10% per year without a penalty. making a slightly bigger payment now can have a big impact in later years.
The property market does look like it is settling down after the gold rush that was stoked by the market stimulus the UK government applied to the housing market, so while prices have increased for property, the cost of borrowing is really great value.
Why is this happening? Well during the pandemic there has been an enormous focus on moving home or buying for the first time and there are lots of stories about prices rising or people moving to a better space, making it better and easier to work from home. These changes have been forced on us because of the pandemic.
The government know that the housing market is crucial to the long-term prospects for the UK economy and when people move, they invest and spend money during the process.
Because of this, there has been a range of new incentives to join the party which has driven the market to levels of transaction never seen before. So much so the legal process groaned under the weight of home working and the sheer volume of demand.
Transaction times have gone from approximately 12 to 18 weeks as an average over the last 18 months. Hopefully, these time scales will come down again as case volumes reduce. But now the incentives for buyers have ended and the stamp duty holiday is over, we are waiting to see what will happen going forward to property prices.
In some respects, the Stamp duty holiday has done 2 things which are very positive depending on your viewpoint. It has driven up prices and it has also collected a great deal of revenue for the government. These outcomes seem to be rather odd; on the one hand, while buyers have received a discount on the stamp duty which they would have paid, the price of property in some areas has increased by 10% or more far more than the saving on the stamp duty.
On the other hand, the government has cut stamp duty, but has collected more tax as a result! If you were already on the property ladder this seems good news but not if you are a first-time buyer. It looks like good news for the government trying to pay for the pandemic response but not for those who missed the deadline or were buying high-value housing, or second homes.
It seems that the structure and application of Stamp duty is something that should be reviewed going forward. It is also true that as the market settles down there are more opportunities both in terms of new property coming on to the market and lower interest rates meaning loans are more affordable.
This also means that, if you can, it's a good time to increase the rate at which you are repaying your mortgage. Additionally, Banks have cash and want to lend, and they are now competing for your mortgage at a level never seen before.
All of this makes it a great time to look at what you are paying and the terms of your current mortgage deal and see if there is something better that will suit you.
Why are some people still missing out?
Logic demands that when faced with an opportunity of a better rate or doing nothing and taking what is given to you, people will pick the opportunity, but that doesn't always happen - why?
Well, there is a perception among some that;-
• They are already on a good rate, a broker won't be able to do any better.
If the mortgage hasn't been reviewed for a couple of years or more, this may not be true, and even so, it won't cost you a penny to find out.
• It's just too much to deal with and the process is too complicated.
They don’t realise that a broker should be doing all the hard work for them and it’s not that difficult to get an improved deal.
• Their bank turned them down so no one else will lend to them.
Banks all have different lending policies and affordability models, this means that even if your bank doesn't want to lend to you, someone else just might.
• They have had bad credit in the past, so they're not eligible for a good rate.
Bad credit can be caused by many different reasons and each case is unique, the first thing to do is to check your credit score, here is a handy link to a free trial so you can check (Check my score link).
Log in, get your file and take it to a mortgage adviser, they will be able to tell you what the issues are, if there is something you can do to fix things, and what’s available to you.
(Remember staying with the same lender often means they are not going to look at your credit file because they already have your mortgage).
• The bank is not going to be interested in them because they have had a difficult time during the Pandemic.
Again, don’t write yourself off as a bad lending prospect - it is always worth checking with a professional.
• They are too old and won't be able to get a mortgage now.
Mortgages are available in all sorts of forms now, from retirement interest only to equity release or standard log dated mortgage loan, available to any age if you need one.
This market has grown substantially over the last 3 or 4 years as products have evolved into something the market really needs and that people can trust and believe in.
Lastly, and this one should ring a bell in the back of your head.
• Their friend or family member told them something that looks like the above and now won't even try - what’s the point.
The main point is that if you don’t work in the mortgage market then you don’t know. We go to a dentist to check our teeth, a mechanic to fix our car, and a doctor to see what is wrong with us, so why would you go anywhere else but a mortgage adviser to get the best and most suitable advice for your mortgage needs.
So to recap, the likelihood is most if not all of these sentiments are based on a poor understanding of the process and what is available, or an experience that isn't representative of how things could be.
Someone said to me only yesterday there had been over 10,000 changes in rates, lending policy and processes among lenders since the pandemic broke.
How could anyone not working full time as a mortgage adviser know a fraction of these changes or what they mean?
Lenders do want to lend that’s why there is so much competition and rates are so low.
Even if you cannot switch lenders because of your position during the pandemic, Lenders often offer deals for existing customers and they are often very good deals.
Lenders have product transfer rates available, and your mortgage adviser will be able to tell you if you are better to take the rate from your existing lender or move to a new one. Don’t just take what your current lender or bank offers you without a comparison.
Many of the mortgages on offer from your existing lender are at rates approaching or as good as what is on offer in the market and this in many cases makes it very attractive to stay put but not always.
Your age is a factor but not a showstopper when it comes to having a mortgage.
Overpaying your mortgage now when rates are low is a good way of putting yourself in a great position tomorrow without it hurting much today.
To get tailored advice, unique to your situation, give us a call and talk to one of our advisers completely free of charge.