Is Now The Time To Review Your Mortgage?
While the favourite topic of conversation in the UK may be the weather, the housing market must certainly be hot on its heels. Whether it’s house prices, the level of deposit needed, or the ins and outs of mortgages; there’s always something to discuss.
Right now all eyes are on the residential-mortgage-lending market and those with existing mortgages should be taking careful stock of the situation before considering what action, if any, they need to take.
The cost of paying a mortgage is set to rise
Over recent years interest rates have been held at historic lows. Without any advance indication of rises in the near future, many borrowers have been happy to take out variable rate mortgages. Those on variable deals have benefited from rates which reflected the overall trend of the market, i.e. exceptionally low ones.
Recently however the Bank of England has let it be known that interest-rate rises may well come sooner rather than later.
On 12th June, Mark Carney, Governor of the Bank of England gave a speech at the annual Mansion House event hosted by the Lord Mayor, in which he spoke of wanting to protect people from suffering when boom turned to bust. This has been interpreted as a hint that interest rates will go up. The mortgage market has been quick to respond with the rates on fixed-rate deals being increased.
Residential mortgages are becoming harder to get
As well as the prospect of higher interest rates, lending regulations have become tighter over recent times and may well become more so. Borrowers are now likely to find their financial situation being scrutinized like never before as lenders apply affordability criteria, designed to ensure that borrowers can meet mortgage repayments over the longer term and taking into account the possibility of future rises in interest rates.
Currently borrowers must be able to show that they could continue to meet repayments if interest rates were to rise. There is no set figure for this so called “stress testing” but banks have to decide on their own rate, taking into account a number of elements.
In addition to this, the Bank of England has also mandated a lending cap of 4.5 times income from 1st October 2014. Banks are permitted to exercise discretion on a maximum of 15% of the mortgages on their books but, by definition, this will be the exception rather than the rule. Already mortgage lending is showing signs of a slowdown with mortgage approvals in April 2014 being at the lowest level since September 2013.
While one month is a very small amount of data, it is hard to believe that the introduction of the new affordability rules in April has had nothing to do with this. The new lending criteria apply to new mortgages issued, i.e. they will affect those remortgaging as much as first-time buyers. It is entirely within the bounds of possibility that lending criteria will be tightened still further, which is another incentive to review your mortgage now.
Now is the time to learn the lessons of the ’70s and ’80s
Only time will tell how high interest rates will go, but those with longer memories may remember the spikes in interest rates that were a feature of the 1970s and 1980s. Extended periods of high interest rates can, of course, cause a lot of pain for borrowers.
Equally, those trying to manage the family finances can be put off their stride by frequent changes in rates. They simply make it harder to budget from one month to the next. Of course everybody is an individual and will need to look at their own family circumstances and decide which of the various mortgage options are right for them.
The key point is to make time to review your mortgage situation now, so that if you decide a fixed-term deal is right for you, you will be in a position to lock in a rate before the full impact of future rises begins to be felt on the market.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
