Published on 22nd May 2015
The Mortgage Market Review, which took effect in 2014, imposed “affordability criteria” on lenders. In simple terms it aimed to rein in high-risk mortgages. Like any change it triggered speculation about its potential effects.
Almost a year later, mortgage approvals remain high, while house prices are currently holding fairly steady. So what does this mean in practical terms? Well if you’re thinking of buying a house, here are some questions you might want to consider.
One of the key points to understand about house-buying is that it involves a lot of expenses in addition to the actual price of the house. Along with the infamous stamp duty (on homes costing over £125K), there are likely to be fees for solicitors and surveyors as well as mortgage-arrangement fees. These all need to be factored in to your rent v buy calculations.
Some mortgages impose an early repayment charge if you end them before the full term of the loan (e.g. if you move house). Likewise if you use an estate agent to help sell your house, you will pay a fee for their services. Therefore it’s a good idea to think carefully about how long you will need to stay in a house to make all these expenses worthwhile. It can also be a good idea to factor in a margin for adjustment. In other words, where would you stand if house prices stayed steady rather than rising? What about if they actually fell slightly? If you feel uncertain about any of these points, then renting may be a better option for you.
The good news is that lower interest rates can feed through into lower rates on loan products, including mortgages. There are still great mortgage deals out there. The trick to being able to take your pick from the low-cost mortgages is making yourself as attractive as possible as a customer. There are basically three steps to doing this. Firstly, put together as much of a deposit as you possibly can. Secondly, make sure your credit record is sparkling clean. In particular make sure that you avoid being scored negatively for reasons you can easily address. For example being on the electoral roll is a plus point for your credit score so make sure you are. Also make sure that any actual mistakes are corrected. Thirdly make sure that you stay within the affordability boundaries laid down by the Mortgage Market Review.
You can expect a prospective lender to check this thoroughly, so doing your homework in advance can be a useful exercise in seeing yourself as others see you.
If you are on a fixed-rate mortgage deal then any changes in interest rates will only affect you once the fixed-rate term comes to an end. If mortgage rates rise then you can reasonably expect this to feed through into your mortgage repayments. Therefore in addition to all the other questions we’ve just discussed above, it is also advisable to think about how you would cope in this situation. In principle lower interest rates should also mean lower monthly repayments. It would, however, arguably be very risky to base a financial strategy on this happening. In practical terms, if you are planning to make a house a home and stay in it over the long term, say at least 5 years, then it is entirely possible that you will see interest rates rise and fall during this period. Your financial strategy needs to be able to cope with both scenarios.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE