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Mortgage Matters
Monday, November 8, 2021
The coronavirus pandemic has affected every aspect of the UK economy, in so many ways, including the housing market and finance. As we learn to live with the virus and head towards a new normal, here is how the pandemic may have changed things for you in terms of your mortgage options.
Lockdown affected the mortgage market in several ways. Initially mortgage approvals decreased dramatically as social distancing regulations prevented lenders from carrying out physical valuations of property. In an uncertain environment, with consecutive lockdowns, lenders then made lending criteria stricter to minimise risk. This included increasing the deposit required to secure a mortgage. Some mortgage products were removed from the market altogether, with fewer options available to consumers.
During the pandemic, as personal finances became tighter due to changes in employment circumstances, over 1.6m homeowners in the UK arranged with their lender to take a “mortgage holiday” or break in payments to offset loss of income. This had to be pre-arranged to avoid late payment penalties and subsequent adverse effect on credit rating. If you took a mortgage holiday which was pre-arranged, your credit rating should not be affected. The Financial Conduct Authority (FCA) directed that such temporary measures during the pandemic should not impact credit reports and scores.
The Bank of England cut its base rate to a record low of 0.1% so mortgage interest rates have fallen with lower interest mortgage deals on offer. If you have a variable rate mortgage or tracker mortgage, your monthly repayments may have fallen due to the Bank of England base rate cut. But if you have a fixed-rate mortgage, you won’t have seen any change to your mortgage repayments until your fixed rate deal ends. You may then be able to get a favourable rate when you decide to re-mortgage and is something worth investigating.
Mortgage rates for first-time buyers have fallen, and it’s now possible for first time buyers to get a 90% mortgage with a rate of less than 2%, or a 95% mortgage at below 3%. The 95% mortgage guarantee scheme was launched by the government in April this year and has resulted in more 95% mortgage products coming to the market with the government taking on some of the risks involved, such as a buyer defaulting on their loan. Over two hundred fixed-rate 95% deals are now available, and rates have fallen steadily as lenders vie for business.
How much you can borrow with a low-deposit mortgage varies depending on the lender. If you want to know how much you can borrow, or which lenders offer the best rates, it’s worth seeking advice from an independent mortgage adviser. Getting the right mortgage advice is a critical stage in the buying process. The Frost Partnership has an established relationship with Mortgage Advice Bureau, one of the UK’s leading independent mortgage brokers - voted Best Mortgage Broker at the British Mortgage Awards for three consecutive years. MAB advisers are truly independent and are therefore able to search 1,000s of mortgage deals to find the one that suits you best.
Landlords looking for a new buy-to-let (BTL) mortgage may be encouraged by falling average rates on 2 and 5 year fixed deals recently. Not only that, but competition within the mortgage market has increased, with many more deals now on offer. This may be a good time for landlords to consider an option to remortgage. Falling interest rates on BTL mortgages, rising house prices and low savings interest rates, may make investing in BTL property more attractive now especially as the rental market continues to grow. Obviously, landlords thinking about BTL investment need to weigh up the financial and tax considerations of BTL, as well as the legal implications and time commitments. If you are considering a BTL investment but are unsure whether it is right for you or where to start, click here for our Lettings Guide and more information about becoming a landlord.
Whilst the Bank of England base rate has remained at an all-time low of 0.1% since March 2020 and fixed mortgage rates have fallen to record low levels, there is speculation that the Bank of England will increase its base rate early next year, with the associated possibility of lenders increasing mortgage rates. Homeowners looking for a degree of certainty in their finances may consider a new fixed rate deal ahead of this to secure the most competitive rates. If you are already in a fixed rate mortgage deal however, early exit fee charges could make it more economical to stay with your existing deal. There are many issues to consider when buying, selling, or letting your home and financing those decisions is a critical part of the process. Whether you are a first-time buyer or a long-standing landlord, looking for professional advice on all property matters, please contact your local Frost office and we can put you in touch with our trusted independent advisers, Mortgage Advice Bureau.
