How will the Interest Rate cut effect my mortgage?

If I was asked a week ago “Will Coronavirus effect my mortgage?” I would have dismissed it as ridiculous. However this morning the Bank of England have announced a slash of the interest rates by 0.5% to 0.25%. 

These are unusual times as one would not expect the Bank of England to be getting involved in a health crisis. The Chancellor has a lot on his plate when he announces his first budget today. It is widely expected he will announce spending plans as part of Boris Johnson’s election pledges but he also has the backdrop of an economic crisis brought on by the Coronavirus.

Firstly mortgage rates, I expect this cut to be a short term measure and would be surprised if the rate was still 0.25% in the summer. However if the rate remains at this level beyond the summer then there is a reasonable chance we could see headline mortgage rates falling a little. Do bear in mind they are very low already, with five year fixed rates being available from a staggering 1.49% (with the right amount of equity/deposit). 

If you have a tracker mortgage then you can expect your rate to drop from 1st April, do check your T’s and C’s just in case your particular tracker deal has a “floor” beneath which your rate cannot fall.

In the budget later it is expected there will be big spending plans but also there is pressure to reduce the burden on small businesses. I think there might be a reduction in corporation tax and possibly a short term reduction in VAT. The worry for the chancellor must be “how can i cut tax and spend more? Where is the money going to come from ?” I guess he could put an emergency tax on toilet roll and hand gel!

I think for the majority of us the rate cut won’t have a massive effect. If the Coronavirus crisis is short lived then we can all get back to normal and live happily ever after. However if things get worse, as some quarters are predicting, then a reduction in the major household outgoings will be welcomed by the general public and will hopefully mean the UK doesn’t slip into recession.

These are unprecedented times and nobody really knows what will happen. The message I’d like to leave you with is: Wash you hands.

Is now the right time to Remortgage?

In my career as a mortgage broker I have more often than not recommended taking a two year deal out to clients, of course individual circumstances are important to consider but in the main two year deals have been incredibly popular.

If you are someone who fixed their deal two years ago you will have been one of the lucky homeowners taking a deal when the lowest ever average two year fixed rates were available (this was September 2017 according to Moneyfacts, the average two year fixed was 2.17%).

This will mean that in the next month or two if you haven’t already done something about it your mortgage payment is going to jump onto the lender’s standard variable rate. I remember organising some deals with Accord Mortgages a couple of years ago that were at a fantastic fixed rate of 0.99%. I told my clients that they were unlikely to get this sort of deal again. Accord have a standard variable rate of 4.99% so the interest charged to you will be five times higher if you do nothing.

Luckily it is relatively easy to switch mortgage deal these days and more and more lenders are offering competitive deals to their existing customers. Historically this was not the case but lenders are realising the best customers they can get are the ones they already have.

Speak to your broker and have a look at what your existing lender can do. Often I find that the existing lender doesn’t have necessarily the lowest rate available but to save on the hassle factor it can be easier to stick with them rather than change lender and have to involve third party solicitors that can frustrate the process.

Rates are still very competitive but there aren’t any deals at less that 1% fixed today, however there are plenty of deals at around the 1.5% mark for two years and the five year fixed options are being exercised by many people with competition here pushing the five year rates (as long as you have sufficient equity) well below 2%.

Hopefully your broker has been in touch to remind you that your deal is coming to an end, also lenders will usually write to you to let you know so that you have enough time to do something about it. If not then hopefully this article will prompt you into action. Needless to say if you happen to end up on the standard variable rate then when the mortgage payment goes out of your account you’ll probably sit up and notice.

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY  MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. 

YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.

Thinking of Buying a Second Home?

Thinking of Buying a Second Property? Here’s my story:

Last year I wrote about developing my family home with the idea of increasing its value. I was fortunate to be able to add value to my property and now that the building work is all but over (it never really stops does it!) we are ready to embark on another journey.

Every year we holiday as a family in the beautiful Lake District, my wife and I have always said we would love to own a property there but have never really been in a position to do anything other than dream, until now.

It seems that the stars are lined up in our favour at the moment as the house has increased in value and we are now looking to release equity and use that to go towards a second home.

We don’t have a big stash of cash anywhere so we are borrowing money to buy somewhere. It is a risky approach but due to the mortgage offerings in the marketplace I feel it is a calculated risk.

If you are thinking this might be something you want to do then read on. Firstly you need to aim for at least a 25% deposit, in my case this is coming from the equity being released from a remortgage. Yo will also need to account for stamp duty and this carries an extra 3% tag on it as it is not going to be a main residence.

Have a think about what you are going to use the property for. If it is solely for personal use then you may be able to get a standard residential mortgage, these are subject to affordability and the lender will assess your income to ensure you can afford to run two properties. There is an interesting product available from Metro Bank at the moment that allows you to let the property for up to 90 days a year. This could help you making the mortgage payments. Also you will only need a maximum of 15% deposit so you can leverage a little here.

Do you want to let the property? If so there are a couple of approaches you could take. Income from the property will be taxed at your highest tax rate so you need to take advice from an accountant in this regard. Inland revenue rules state that if the property is a furnished holiday let and is let for 105 days per year or more the new income tax rules for rental income do not apply and mortgage interest can be a tax deductible expense. If you are taking up a holiday let product the Furness Building Society have a good product but you need a 25% deposit and the rates are not as competitive as a standard residential mortgage. The good thing about Furness though is that they allow you to use the property yourself as well whereas other holiday let providers do not.

This is not the property I have in mind!

At the moment I’m still looking for the right property so have yet to take the plunge. However whether it is the Lake District, Scotland, Cornwall or Blackpool if you are in the position of having a decent amount of equity to leverage then you don’t necessarily need cash in the bank to get that second property.

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY  MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. 

Home improvement loan vs remortgage: How to finance your renovations

Planning on extending your home or have aspirations to reconfigure your current property? While the prospect is exciting, you may be wondering if you can afford it and what financing routes might be open to you to fund the project.

If you don’t have the funds readily available, the main ways to finance your home improvements will be to secure a home improvement loan or to remortgage. Each have their benefits, and drawbacks, and what suits one project, might not suit the next. In this article, we discuss each financing method to help you understand which route you should take.

Home improvement loan vs remortgage: Which is right for me?

Remortgaging

One way to finance your home improvement project is to remortgage. That means releasing equity from your property to remodel or extend your home. However, that does means you’ll need significant equity in your property to raise the funds required to carry out the project.

For example, if your property has a value of £300,000 and you have an outstanding mortgage of £250,000, you have £50,000 of equity in the property that can be released (although it’s unlikely you’ll be able to release it all).

Usually when you remortgage, your lender will pick up some of the fees, such as the valuation fee and legal fees, so if you think you have enough equity in your home to remortgage, then it can be a really cost effective way of funding your project.

Things to consider when remortgaging

• You will need to inform your lender that you are making alternations to your property and make sure you inform your buildings insurance provider too

• You’ll still be subject to the checks required when securing an ordinary mortgage. Your lender will need to make sure that your income is sufficient and that you can keep making the repayments until the end of the contract

• Your may have to pay redemption charges to your original lender

• By remortgaging, you’ll be increasing the amount of borrowing secured against your home and therefore your monthly repayments might increase

 Home improvement loan

If remortgaging isn’t suitable, then you could finance your home improvements with a home improvement loan.

A home improvement loan works just like any other type of loan. You’ll need to pass a credit check and the lender will assess your income before determining how much you can borrow. Then, over an agreed period (usually up to 5 years) you’ll pay the loan back via monthly direct debits.

With a home improvement loan, you can usually borrow up to £50,000 – but the better interest rates usually come attached to smaller loans of between £5,000 and £25,000.

You can have your home improvement loan secured against your property or not, and although your risk is higher when securing it against your home, your interest rate will usually be better.

Things to consider when choosing a home improvement loan

• Providers can be sneaky with their advertised representative APRs. That’s because only 51% of successful applications need to get that rate for it to be representative and the rate you are offered will be dependant on your income and credit rating

• The best home improvement loan interest rates are usually reserved for borrowers making payments over three to five years. So, if you are looking to pay back your loan in a shorter period than that, your interest rate might be considerably higher

• If you secure the loan against your property, you do risk your home being repossessed if you can’t keep up with the repayments

 Which option should you choose?

The most suitable way for you to finance your home improvements will be dependant on your circumstances. While remortgaging usually comes with cheaper monthly repayments than a home improvement loan, it does require you to have enough equity already in your property.

Alternatively, while you may get an attractive interest rate with a home improvement loan, you might not be able to borrow as much as you had hoped.

In any event, the best option would be to seek the advice of a professional who can talk you through your options and assess your personal circumstances to advise which product would best suit you. You might want to consider talking to your bank, a financial advisor or a mortgage advisor.

If you’d like to talk to a mortgage advisor about raising funds for your home improvement project – why not give The Surrey Mortgage Broker a call? You can find out more about The Surrey Mortgage Broker by visiting us here or you can contact Richard Bousfield on 01252 759233 or info@thesurreymortgagebroker.co.uk.

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY  MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. 

YOU MAY HAVE TO PAY AN EARlY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.