Review your 2024 Resolutions

Have you managed to stick to your new year resolutions? Undertaking a protection and mortgage review should be top of a financial to-do list for the coming year. But don’t worry if you haven’t tackled this task yet, just try to make it a priority in the coming months.

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Good news for Housing and Mortgages

After prospective and existing mortgage borrowers had a tough year in 2023, there looks to be good news on the horizon.

In 2023, the cost-of-living crisis squeezed household budgets. Higher interest rates put pressure on those looking to take on mortgages for the first time, remortgage, or switch deals. According to UK Finance, more customers were in arrears on their mortgage payments than in 2022 (up by 30%) due to extra pressure on their finances, although it should be noted that the total number in arrears represents only around 1% of total outstanding mortgages in the UK.

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Here for you in 2024 – come what may

As research reveals that 45% of UK adults are losing sleep over money, we’re here to remind you of the value of professional advice.

Counting cost-of-living sheep

The squeeze on people’s finances caused by the cost-of-living crisis is understandably a key reason why people are struggling to get enough shut-eye. If you’re awake with worry, you are not the only one struggling.

Speak to a professional

Thankfully, there are ways to lessen the burden. Financial advice has been shown by countless studies to lead to better financial outcomes.

Not only that, advised consumers tend to exhibit lower levels of anxiety over their household finances, as well as feeling more in control of their finances and report feeling better prepared to cope with life’s shocks.

Value what matters

A study found that 42% of people would value extra financial advice or guidance during the cost-of-living crisis. It is time to take back control and enjoy sweet dreams in 2024; your mental health and well-being are too important not to prioritise.

Here to help

Life is too short to lose sleep over your finances. Get in touch if you have any questions about your mortgage or protection cover.

Your home may be repossessed if you do not keep up repayments on your mortgage.

 

Aviva, 2023, Standard Life, 2023

Mortgage Rates Cut as Price War Continues

There is finally light at the end of the tunnel for beleaguered homeowners, as a dramatic drop in inflation announced last week could spell the end of mortgage rate misery.

Annual inflation fell to 4.6 per cent in October from 6.7 per cent in September, surprising investors and the Bank of England.

Over the past year, the Bank’s bid to harness soaring inflation with an aggressive series of interest rate rises has driven mortgages to sky-high rates. This has added thousands of pounds to the average homeowner’s annual mortgage costs, with millions refixing facing a shock.

Some 7.5 million households are expected to have been affected by the rate rises. But with inflation slowing, have we seen the worst of high rates and could mortgage costs fall back?

Mortgage rates to fall below 4 per cent

The drop in inflation could mark a watershed in the battle against the spiralling cost of living, which saw inflation peak at 11.1 per cent last autumn. With inflation forecast to continue to fall this removes the main reason driving the Bank of England’s base rate hikes.

The base rate could be cut as soon as May and fall to 4.25 per cent by the end of next year, analysts at Morgan Stanley forecast. Earlier this month, the Bank of England’s chief economist Huw Pill had predicted the first cut would be in August. The Bank ended its run of rises in September, holding rates at 5.25 per cent.

Lenders reacted to last week’s news with a flurry of cuts. Banks have reduced mortgage rates over the past two months, but the pace has increased in recent days.

On Thursday, Barclays reduced the cost of its two-year fixed-rate deals for homeowners by 0.3 of a percentage point. Homeowners with a 40 per cent stake in their property can now secure a two-year deal at 4.98 per cent with a £999 fee. On Tuesday, First Direct cut its rates by up to 0.4 of a percentage point. HSBC announced cuts of up to 0.35 of a percentage point on residential and buy-to-let mortgages on Wednesday.

David Hollingworth, broker at L&C, says: ‘We’re already seeing some cuts and that will carry on to the end of the year and into next.’ He expects five-year fixed-rate mortgages to hit 4.5 per cent in the coming weeks, a huge relief to homeowners. Someone on a five-year deal would pay £12,534 less fixing at 4 per cent instead of this year’s high of 6.37 per cent. This assumes a mortgage balance of £150,000 paid over 25 years.

But homeowners coming off a fixed rate deal agreed a few years ago will still be in for a shock when they remortgage, as rates remain far higher than in recent years and are likely to stay elevated.

Lennox wants to see an improvement in remortgage deals as existing homeowners tend to fare worse than prospective buyers. He says rates on remortgage applications are still typically 0.2 to 0.3 of a percentage point higher than for first-time buyers. Those looking to change lender also face more stringent affordability checks, which could force them to stick with their existing lender.

He also warns that lenders might raise their product fee if rates fall. These are around £999, but Lennox says £2,000 could be more common as rates continue to plummet.

Respite at last for landlords

Falling inflation offers new hope for landlords considering selling their buy-to-let investments to leave the market. In 2022, landlords sold more than 200,000 properties as they battled a tidal wave of high mortgage costs, higher taxes and uncertainty around new legislation.

Andrew Montlake, at Coreco Mortgages, says: ‘Buy-to-let will get some respite. It will make it easier for landlords to meet affordability levels.’

Buy-to-let mortgages attract higher interest rates and require larger deposits than residential mortgages. The average two-year fixed-rate buy-to-let deal peaked at 6.97 per cent in July, according to rates analyst MoneyfactsCompare.

Should you hold out for a lower rate?

With fixed-rate deals expected to improve, many may be tempted to hold out and delay locking into a new rate in the hope that they fall rapidly. However, broker David Hollingworth warns not to leave it too long.

He says: ‘Homeowners could leave it so long they drift on to a high standard variable rate. And, you never know, something could come along that derails the current improvement.’ More people are opting for two-year rather than five-year fixes in the hope rates will continue to fall and they can then refix at a lower rate.

Source: Lucy Evans, This is Money

Should I get a 2 or 5-year fixed rate mortgage?

If you’re thinking of taking out a mortgage, or you’re coming to the end of your existing fixed-rate product, you’ll know there’s been a lot in the news about mortgage rates recently.

Over the course of a mortgage term, it’s likely you’ll be able to select different mortgage types, and different deals, in order to make sure you’re paying your mortgage off in the way that works best for your circumstances.

At the moment, most people taking out mortgages do so on fixed rates: 96% of people buying homes, or remortgaging in the last three months of 2022, opted for a fixed-rate mortgage.

Lenders set their own mortgage rates, and how high or low they are is significantly influenced by the Bank of England’s Base Rate, as well as the financial market’s perception of where Base Rate will be in the coming years. If you’re looking for the lowest priced fixed rate mortgage, this will largely be dependent on what’s going on in the wider economy, and what’s likely to happen in the future. Traditionally, this would have been a 2-year fixed deal, but this changed in 2022, and since then, 5 year products have been cheaper.

The most common fixed rate mortgages are for 2 and 5 years, but you’ll also find lenders offering other time periods, including 3 years, or as long as 10-year fixed terms. But how do you work out what might be the right option for you?

What’s the difference between 2 and 5-year fixed rate mortgages?

In simple terms, a 2-year fixed rate mortgage will lock you into a fixed interest rate for 2 years, while a 5-year deal, unsurprisingly, locks you into that rate for 5 years. This rate is guaranteed, regardless of what’s happening elsewhere in the economy, including any changes made to the Bank of England’s Base Rate.

Why are the interest rates on 2 and 5-year deals different?

When a lender offers you an interest rate on your mortgage, they’ll take into account what the mortgage is likely to cost them over the course of your mortgage deal. To calculate this, they use swap rates (the underlying cost of mortgages to lenders) which are the market’s view of the direction of Base Rate.

In recent years, interest rates have been ultra-low. And 5-year mortgages have usually had higher interest rates than their 2-year counterparts.

But as interest rates started to rise throughout 2022 and 2023, we saw 2-year fixed deals become more expensive. And since the end of 2022, 2-year deals have had higher interest rates, which ultimately means you’ll pay more per month for a 2-year deal. This is because the markets have been – and still are – of the view that interest rates will drop from their current level in the coming years. And lenders have baked this into their longer-term pricing of mortgage deals.

Advantages of a 2-year fixed mortgage

Your monthly payments will be fixed for two years, so you’ll have certainty in what your monthly payments are going to be throughout this period.

The expectations of the financial markets is that interest rates are either at their peak, or are set to reach their peak soon. After which, Base Rate is predicted to stay flat for a sustained period, before falling back, with mortgage rates also following this pattern.

So you might find that by the time you need to remortgage, the new mortgage deal you’re offered could be considerably less than what borrowers are being offered today, although rates are very unlikely to fall back to ultra-low rates of recent years.

Disadvantages of a 2-year fixed rate mortgage

Right now, 2-year deals are more expensive than 5-year deals. In September 2023, the gap between 2 and 5-year deals was around 0.5%. So, while you might be able to access a cheaper mortgage rate after your 2-year deal is up, right now you’ll pay more per month by opting for this length of fixed rate.

Advantages of a 5-year fixed rate mortgage

Though mortgage rates are significantly higher in 2023 than they’ve been over the last 15 years, if you’ve been offered a 5-year fixed rate mortgage deal and you’re comfortable with the repayments, you can be comfortable in the knowledge that your monthly repayments are locked in at the same amount for the next 5 years. So even if interest rates rise during that time, it won’t affect your monthly repayments.

Right now, 5-year deals are cheaper than 2-year fixed-rate mortgages, so you’ll currently see lower monthly repayments by opting for a 5-year deal.

Disadvantages of a 5-year fixed rate mortgage

You’re locked into this mortgage rate for a longer period, so if interest rates do happen to drop, you wouldn’t be able to take advantage of lower rates on offer, until you were either in a position to remortgage, or willing to cover the – often hefty – fees that come with leaving your mortgage deal early.

Is it better to get a 2 or 5-year fixed rate mortgage right now?

Traditionally, those taking out a mortgage will opt for the fixed deal with the lowest interest rate associated with it, as this ultimately leads to lower monthly repayments. But remember, it’s important to speak to a mortgage broker if you’re thinking about taking out a mortgage right now, as they’ll be best placed to guide you through the process.

Right now, 5-year fixed rates have lower rates than their 2-year counterparts. In fact, throughout 2023, the gap between 5 and 2-year mortgage rates has grown. At the moment, a 5-year fixed rate is roughly 0.5% lower than a 2-year fixed rate on average. And in real terms, this means you could expect to pay around £27 less per month for every £100,000 you have left on your mortgage by taking out a 5-year fixed rate.

Are tracker mortgages a good option right now?

Tracker mortgages do just that: they ‘track’ the Base Rate and follow its trajectory. So any future reductions to Base Rate will mean people on tracker mortgages can take advantage of cheaper rates in real time.

Market expectations are that Base Rate is either at or nearing its peak, and will remain flat throughout 2024, before starting to drop. History has shown us that when Base Rate begins to drop, tracker mortgages become more appealing to people, because they can instantly start to see the benefits of interest rate reductions, in the form of lower monthly payments. And as a general rule, for every 1% change to the Base Rate, your monthly mortgage payments will be adjusted by £54 a month on average, for every £100,000 left on your outstanding balance.

RISK: The information and opinions provided in this article is not intended to be financial advice and should not be relied upon when making financial decisions. Please seek advice from a specialist mortgage provider.

Source: Rightmove Property News 18th October 2023

Mortgage rates falling as drop in inflation provides ‘confidence to lenders’

Homeowners with mortgages have seen their monthly repayments skyrocket in line with interest rate rises, with mortgage rates increasing to more than 6% for both two- and five-year fixed-rate deals in recent weeks. But the unexpected drop in inflation last week, and the pause in base rate hikes has allowed for better rate options to enter the property market.

Mortgage holders and homebuyers have received a fresh boost over the past few days as lenders have continued reducing rates – with some fixed deals now available below 5%.

Following the Bank of England’s decision to halt interest rate hikes last week – holding the base rate at 5.25% – several lenders, including NatWest, TSB, Nationwide and Virgin Money have reduced mortgage rates.

Some began cutting rates after the shock fall in inflation to 6.7% was announced last Wednesday, signalling an end to the need for more aggressive action by the Bank of England.

Lucian Cook, head of residential research for Savills, commented: “The inflation numbers should bring more economic certainty and confidence to lenders. This will give a further boost to competitive pricing in the mortgage markets and help buyers reliant on borrowing better compete with the cash buyers.”

Experts believe five-year rates will see the biggest fall in rates although two-year fixes will also come down.

Nick Mendes of brokers John Charcol said: “I wouldn’t be surprised if we see rates of 4.5% now for five-year fixes in October.”

David Hollingworth, of brokers L&C, added: “There is evidence that the market received inflation news positively and that should feed through to lower mortgage rates. I think it will give extra momentum to fixed rates coming down.”

SOURCE

Marc Da Silva | Property Industry Eye