mortgage advice Archives - Urban Union Ltd

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Since December 2021, the Bank of England has put up interest rates several times and this has meant that mortgage rates have steadily become higher.

Most homeowners are on a fixed rate mortgage deal and will be unaffected by the rise, but homeowners looking to remortgage at the end of their current deal along with first-time buyers will be affected. However, there are some things you can do to help offset these rises.

Fixed-term deals

A fixed-term mortgage deal means that you are protected from any increases for either 2, 5 or 10 years (longer fixed terms are available but this level of commitment needs some considerable thought). Unlike a variable rate mortgage, your mortgage will stay the same for the term of the mortgage. However, it’s important to look ahead and decide if you are willing to be tied in for a set amount of time because you could have to pay an early redemption penalty especially if you have opted for a 10-year fixed deal. Some lenders will let you ‘port’ the mortgage to your new home.

Mortgage term

If you want to keep your mortgage down, you should opt for a longer term. Depending on your age, you could opt for a 30-year mortgage instead of the standard 20- or 25-year mortgage. Although you will end up paying back more, your montly repayment will be lower. Some lenders offer a 40-year mortgage term but eligibility will depend on how old you are when you first take out the loan.

Mortgage overpayments

Although overpaying won’t result in lower repayments it will offset the higher interest as you’ll be reducing the amount of outstanding debt you owe so you’ll be charged less interest overall.

Will Longer Mortgage Terms Be the Norm?

If you are considering purchasing your first home, you are probably watching the mortgage rates with interest. Over the last few years, we have seen historically low interest rates which have made mortgage borrowing more affordable.

The cost of living has been rising. Energy price caps have been pushed up (and they will rise even further in October), interest rates have risen five times since December, petrol and diesel are reaching record highs and food prices are increasing. With so much uncertainty around the cost of living, it is important to consider how much you can afford to pay for a new property and budget for your general living costs.

Mortgage payments have gone up since the start of the year and the average first-time buyer monthly mortgage payment for someone taking out a 90% loan-to-value mortgage, fixed for two years is currently 20% (+£163) higher it was at the start of the year.

If you are considering moving this year, work out what you can afford to pay and talk to a mortgage broker about fixing your mortgage for a longer term.

Buying new

By purchasing a newly built home, you can be safe in the knowledge that you won’t need to worry about costly repairs, renovations, or decorating work to make your home habitable.

You can move straight in with brand new appliances, secure windows and doors and a high EPC rating to keep your monthly energy bills down. You’ll have a warranty for peace of mind and when it comes to the purchase price, you can be safe in the knowledge that it has been competitively priced against the market in that area – and that you won’t have to put in an offer over the asking at closing date. At present, some areas are seeing offers over in excess of 15% making a first home out of reach for many first time buyers .

Fixing your mortgage

When you take out a mortgage, it will either be on a variable or fixed-rate basis. When you take out a fixed-rate mortgage your rate is guaranteed for a specific time frame. Most lenders enable you to fix your rate for anything from two to ten years – sometimes even longer although this is rare. A fixed rate mortgage gives peace of mind knowing exactly what you have to pay each month regardless of what happens with interest rates.
Usually, it’s cheaper to fix for just two years – with the mortgage rate increasing slightly the longer you fix your mortgage for. Over recent years, the gap between interest rates for two and five- or ten-year fixes has been closing and some deals are very similar. Previously the difference could be as much as 1%.

Fixing for more than two-years could give you peace of mind if you’re planning on staying in your home for a long time.
Once the fixed rate period ends, you will be automatically moved onto the lenders’ Standard Variable Rate (SVR) which is a higher rate of interest than a fixed rate. However, you can usually start to look at taking out a new mortgage deal up to six months before your deal ends.

If you’re considering a new home at a fixed price and with no renovation or decoration costs, talk to us at Urban Union.