Could you cope with a mortgage base rate rise to 2%?

These blogs and the information contained in them may no longer be current and therefore much of the information/figures quoted could be out of date and shouldn’t therefore be used as an indication of the current situation. If you require any further clarification please contact Derngate Wealth.

Your home may be repossessed if you do not keep up repayments on your mortgage.

The Bank of England’s rate-setting committee has hinted that homebuyers could see the base rate rise to 2% in the near future. Rate rises will be gradual, so do you know what will happen to your mortgage repayments if there is mortgage rate rise?

At present the base rate is 0.5%, so a rise to 2% means 1.5% percentage points on your annual interest repayments. Although it sounds low, it equates to an additional repayment of £138 a month if you are an average British homebuyer with typical outstanding mortgage of £175,000.

If the base rate rises to 3%, things could get more difficult as it could mean £238 per month more each month for the average homeowner.

Over 55% of borrowers are on a fixed rate deal, which means that monthly repayments will stay the same until the borrower reaches the end of your current mortgage deal. This is when borrowers could be in for a shock as the rise could be difficult to manage as the borrower will automatically move on to the lender’s variable rate.

There are already signs that lenders are increasing their new fixed-rate deals in anticipation of this rate rise.

The Resolution Foundation has found that one in 10 households will be immediately affected by a rate rise because home ownership has declined, and so many of those with mortgages are now on fixed rates.

House prices will also be affected, as a turn in economic confidence will result in a fall in house prices. In fact, house prices have already started to fall in London and parts of the south-east. A rate rises could push the decline further north.

However, it’s good news for savers as the interest paid on savings rates will finally start to rise, although banks do have a habit of delaying passing on any rise in interest rates. 

If you would like advice on how any rate changes could affect you, contact Derngate Wealth today.

https://www.theguardian.com/money/2018/apr/20/what-would-base-rate-rise-mean-average-homebuyer-mortgage-repayment

 

 

May 12, 2018adminBlog

City regulator proposes changes to help borrowers

These blogs and the information contained in them may no longer be current and therefore much of the information/figures quoted could be out of date and shouldn’t therefore be used as an indication of the current situation. If you require any further clarification please contact Derngate Wealth.

Your home may be repossessed if you do not keep up repayments on your mortgage

The Financial Conduct Authority has said that buyers need more help to find cheaper mortgage deals, given that one in three people fail to find the cheapest deal, and these borrowers could save £550 a year.

The FCA is also looking at ways to help mortgage prisoners (those longstanding customers who are trapped in their existing deal) switch to a better deal.

It published an interim report into the mortgage market, and found that competition was working well for many people. However, it also identified ways in which the market could work better. As the UK anticipates a rate rise, it’s important for homeowners to get the best deal they can.

Mortgage debt accounts for over 80% of the UK’s household debt, so according to the FCA it’s really important that borrowers get it right.

Although the regulator said that there was little evidence that lenders were giving lenders the worst deal, there was no easy way for consumers to know what deals they could qualify for. There is a difficulty faced by borrowers in shopping around, with 30% of borrowers failing to find the cheapest deal and as a result paying £550 per year needlessly.

One suggestion by the FCA is that lenders make the relevant eligibility and other qualification criteria available to other market participants consistently at an earlier stage. This will not only help brokers but will also create other opportunities for new online tools. It also suggested that it’s made easier for people to compare mortgage brokers to find the best deal.

The FCA outlined how mortgage prisoners (many of whom took out an interest-only mortgage before the financial crisis) could be better helped, Because of stricter lending practices since the credit crunch, it has been much more difficult to find a cheaper mortgage. The FCA has suggested there could be an industry-wide agreement for all lenders to approve applications for a new mortgage deal from existing customers whose most recent mortgage was taken out before the financial crisis, and who are up to date with their payments.

The FCA is due to publish a report at the end of the year after consulting with lenders.

If you would like advice on how you could find the best mortgage deal for your circumstances, contact Derngate Wealth today.

https://www.theguardian.com/money/2018/may/04/uk-mortgage-buyers-more-help-find-cheaper-deals-fca

 

 

April 12, 2018adminBlog

Do you have an interest only mortgage?

These blogs and the information contained in them may no longer be current and therefore much of the information/figures quoted could be out of date and shouldn’t therefore be used as an indication of the current situation. If you require any further clarification please contact Derngate Wealth.

Your home may be repossessed if you do not keep up repayments on your mortgage.

It is estimated that 600,000 interest-only mortgages are due to expire by 2020, so it’s important to put plans in place tackle the shortfall as soon as possible if you are one of these people.

Interest only mortgages have historically been popular because it has kept monthly repayments to a minimum and enabled buyers to own a larger home or a home in a preferable area. It means that they had lower monthly outgoings given that they aren’t repaying the loan.

Since the credit crunch, interest only mortgages are much less common as lenders have much more stringent lending criteria. Ten years ago, buyers could obtain an interest only mortgage without having to provide evidence of an investment plan to enable them to repay the shortfall at the end of the mortgage term.

The majority of policies were likely to have been sold with mortgage endowments, providing a way for buyers to repay the loan but this could have been underperforming and still leave a shortfall. Others may have relied on an inheritance or other windfalls to cover the final bill.

If you come to the end of an interest only mortgage and cannot repay what is owed you could be at risk of losing your home, and that’s why it’s seen as a ticking time bomb.

The Financial Conduct Authority (FCA) consumer groups are working with those with an interest only mortgage to help them resolve the situation they may find themselves in.

According to Which? buyers need to assess their financial plans to see if they can pay the amount in full. Check how much of your endowment will be available when the policy ends because if you act early enough you may be able to switch to a repayment mortgage or overpay on your repayments.

Remortgaging your property is possible with the same lender, or they may even extend the term of your existing mortgage (although you may need to move to a higher rate). But remember that your existing lender is allowed to offer you a new deal provided it doesn’t involve increasing the amount you borrow, aside from the switching fees.

In some cases, people are unaware that they have not been paying off the capital – for example a window or widower may not know details of the type of mortgage taken out.

If you have an interest only mortgage the key is to get advice as eraly as possible to give you time to plan. Talk to us at to Derngate Wealth today to find out the best course of action.

https://www.theguardian.com/money/2018/mar/19/interest-only-mortgages-payment-shortfall-remortgage-lenders

March 23, 2018adminBlog

What will influence the property market this year?

These blogs and the information contained in them may no longer be current and therefore much of the information/figures quoted could be out of date and shouldn’t therefore be used as an indication of the current situation. If you require any further clarification please contact Derngate Wealth.

Your home may be repossessed if you do not keep up repayments on your mortgage

There are several factors that will influence not only house prices, but the availability of homes for sale this year:

Low interest rates

In late spring it is expected that rates will rise by an additional 0.25%, taking the base rate up to 0.75%. With more than 50% of all borrowers on fixed rate mortgages, most homeowners won’t notice this rise. There aren’t any further rate increases expected and mortgages will remain cheap, although inflation will outpace wage rises.

A rise in house building

Home building has increased; 217,000 new homes were coming on to the market in 2016-17, which is a rise of 20% on the previous year. Although this brings us back to the levels seen before the financial crash, it’s still short of the government’s 300,000 target. If migration numbers continue to fall and there is a continued increase in construction, supply could start to meet the demand for affordable homes.

First time buyers will triumph hover landlords

Buy to let lending is in decline, freeing up homes for first time buyers. In 2015, landlords bought almost 120,000 houses with buy to let finance but this is expected to fall below 80,000 this year. A rise in taxes and tougher lending criteria has tipped the balance in favour of homeowners.

Stamp duty cuts and Help To Buy

Stamp duty has been abolished for all properties up to 300,000 bought by first time buyers. This could save 20% of first time buyers up to £5,000. The Help To Buy scheme has also been given a boost of £10bn providing financing until 2021.

Relief for tenants

For many years landlords have been consistently increasing rents, but they are finding that they can longer push up prices. The average UK rents rose by less than 1% in 2017, and actually fell in London. Salaries are under pressure from inflation and therefore it is expected that rents will remain the same throughout 2018. There is also a new ban on letting agency fees, which will also help to keep rents down, although there is still no fixed date for the ban to be introduced, although it is expected to be this year.

If you are thinking of buying a property, whether it’s a first property or you wish to move up the property ladder, contact Derngate Wealth today.

https://www.theguardian.com/business/2017/dec/26/six-factors-influencing-the-property-market-in-2018

 

February 23, 2018adminBlog

When will interest rates rise?

These blogs and the information contained in them may no longer be current and therefore much of the information/figures quoted could be out of date and shouldn’t therefore be used as an indication of the current situation. If you require any further clarification please contact Derngate Wealth.

Your home may be repossessed if you do not keep up repayments on your mortgage.

It looks like there will be an interest rate rise in May, after the Bank of England announced in February that it will need to raise rates in order to tackle high inflation, which remained at three per cent in January 2017.

We have enjoyed historically cheap mortgages for almost ten years, but this could be coming to an end given that over the last 18 months, mortgage lending has been propped up with over £100bn from the Term Funding Scheme and this will end very soon.

Some banks have already increased some rates on some of their mortgages but this doesn’t mean that the market isn’t still extremely competitive. This is stopping rates from rising too sharply.

A rise in rates will be a shock to many people; especially those who have never experienced a rate rise before. However, a rate rise will have been factored in when they bought their first home in the past ten years given that new rules were introduced four years ago to curtail high risk lending.

In terms of how it will stack up, if you have a mortgage of £200,000 you will need to find an extra £300 per year if rates rose by 0.25 per cent. Borrowers need to understand that we have had an exceptional period of low interest rates and many now believe this is the norm, and that before the financial crisis in 2008 the Bank of England Bank rate was five per cent and average mortgage rates well over six per cent.

Mortgage rates are very unlikely to return to five or six per cent again, even if rates go up a few times a year. Many experts believe that it will settle at two per cent given that the economy is still recovering and Brexit is causing further uncertainty.

Those with a fixed term rate will be unaffected for the term of their mortgage (usually around two to five years). As rates are expected to rise rather than fall, a fixed rate could be a safer bet for those seeking mortgage products especially for those with limited income.

If you are nearing the end of your mortgage term, you need to consider remortgaging to avoid paying the lender’s variable rate. In fact, you should really get advice around six months before your current rate expires.

Talk to Derngate Wealth today to find the best mortgage deal for your own circumstances.

https://www.theguardian.com/money/2017/aug/08/mortgage-rates-rise-borrowing-costs-bills