The Bank of England recently increased its base rate for the first time in a decade. This historic interest rate rise to 0.5% may have been expected – but it has raised lots of questions, nonetheless.
What does the rise mean for mortgages? Is now the right time to fix? What does it mean for first-time buyers?
Portico have given their thoughts on the best residential mortgage rates currently on the market, as well as the best ways for first-time buyers to get on the property ladder.
What Does The Interest Rate Rise Mean For Your Mortgage?
Most people’s mortgage deals are either fixed-rate or variable. A fixed rate deal is for a set period, whereas with a variable rate deal, the interest rate can move at the discretion of their lender.
If you have been on the same mortgage deal for quite a few years now, you’re most likely on a variable rate deal. This means that unfortunately, your rate will increase with the base rate rise.
Those on variable rate mortgages will see a small increase in their monthly mortgage payments. For example, for the average mortgage in Britain of £175,000, an increase of 0.25% would increase monthly payments by about £22 a month.
But it’s not all bad news. Andrew Thriepland, Mortgage & Insurance Adviser at Capricorn Financial, states that, “Over the last few years, around 70% of people that have taken out mortgages have done so on a fixed rate basis. These customers will not be instantly affected by the base rate rise from the historical low of 0.25%.”
Is Your Fixed Rate Mortgage Deal Coming To An End?
If you’re on a fixed rate mortgage, that doesn’t mean you can just sit back and relax, however.
If your fixed term is soon to run out and you will be looking to get a new fixed-rate deal, the quicker you act the better rate you will secure. Rates are going to continue to rise over the next five years – so it’s advisable to lock in a low, fixed rate now.
Deals Are Still Close To The Lowest-Ever Levels
If you’re hoping to get on the property ladder, or upgrade or review your mortgage, it will come as welcome news that there are still some fantastic products on the market.
“Though big lenders such as Barclays, NatWest and Halifax scrapped or increased some of their lowest mortgages ahead of today’s expected rate rise, others have reduced their rates, so the mortgage market remains very competitive.
Compare Mortgage Rates
Getting a great deal can save you thousands of pounds each month – so it pays to be in the know. Here are the top residential mortgage deals recommended by financial experts, Capricorn Financial:
- 40% deposit: rates start at 1.24% for a 2 year fix or 1.74% over 5 years.
- 25% deposit: if the deposit is decreased to 25%, rates start at 1.25% over 2 years or 1.89% over 5 years.
- 10% deposit: if the deposit is decreased to 10%, rates start at 1.9% over 2 years or 2.54% over 5 years.
- 5% deposit: if the deposit is decreased to 5%, rates are 3.89% for a 2 year FTB, 3.99% for a 2 year home-mover or 4.29% for a 5 year
Rate Rises Won’t Deter Hopeful Homeowners
Mark Lawrinson, Portico London estate agents Regional Director does not believe that today’s interest rate rise will deter hopeful buyers:
“In spite of interest rate rises, we know that a huge number of hopeful home owners are still determined to get on the property ladder in London.
London house prices have stabilised, and even dropped in certain boroughs, which is a great pull for first-time buyers. Plus – from new ISAs and Help to Buy, to buying with friends and shared ownership, there are lots of options available to make getting on the ladder that little bit easier.”
Help To Buy Properties For Sale
The Landmark in Loughton offers two bedroom apartments from £395,000, and it’s also supported by the Help to Buy scheme, meaning home-hunters can purchase a stunning home within the development with as little as a 5% deposit. Better still, the developer is offering to completely refund stamp duty costs, saving you an extra £10,000 or so.*
Joint Mortgages & Buying a House Together
If you’re still a long way off from saving a 5% deposit, you do have other options. One of which is to take out a joint mortgage with your partner, family or friends.
A lot of people may not be aware that up to four people can jointly be registered as legal co-owners of a property – which would mean forking out a lot less to get onto the property ladder, or securing a larger mortgage. If you decide a joint mortgage is best for you, the next step is to decide on how you will own the property: through a joint tenancies, (usually best for married couples), or tenancy in common, (more typical for friends or relatives who are buying together). Once you’ve all made a joint decision, the application process is similar to that of a standard residential mortgage.
Alex Smith at Capricorn believes that “Tenancy in common is the best set up for all purchases. This is because the ownership can be changed easily, i.e. 50/50, to reflect a joint ownership, or an uneven split for tax planning purposes.”
He continues: “Buyers entering into joint mortgage arrangements should ensure they have life insurance to cover the mortgage. The policy should also be written in trust for the other borrower’s benefit which we arrange for all our clients without cost.”
How Does A Guarantor On A Mortgage Work?
As a result of the government’s increased Stamp Duty rate for subsequent property purchases, parents who already own one property are now subject to the higher taxation rate if they help one or more of their children with a purchase – even if they don’t live in the property.
A new structure known as “joint borrower sole proprietor’ is now a much better option, as the guarantor is kept off the deeds.
Alex Smith, Senior Mortgage & Insurance Adviser comments “Joint borrower/Sole Proprietor mortgages are very useful where parents are happy to have their income included in the mortgage assessment. Age can be prohibitive however, as the repayment term offered may be too short to make the mortgage affordable, but an increasing number of lenders are starting to appreciate that people are choosing to work beyond the age of 65.”
We recommend you take legal and tax advice before making any financial decisions. If you’re interested in any of these mortgage rates, or speaking to an expert mortgage broker, give Portico a call today on 0207 099 4000.
*Based on a purchase price between £395,000 and £432,500