Spring has almost arrived, lockdown is lifting and we anticipate another mini-surge of housing activity. What impact will this have on you and your mortgage? See what the experts are saying, compare rates and find the best deal for you.
What’s happening with mortgages March 2021
The big mortgage news this month is that Chancellor Rishi Sunak announced a mortgage guarantee scheme in the Budget, which will see the return of 95% mortgages after they all but disappeared since the start of the pandemic.
And we may still be in lockdown, but the housing market remains open. This means that mortgage and remortgage applications can continue as normal.
In fact, recent figures from the Bank of England show that in January, the number of mortgage approvals – an indicator for future lending – was 99,000. This was considerably higher than the monthly average in the six months to February 2020, when the figure stood at 67,900.
However, if you’re seeking a new mortgage deal you may want to do it sooner rather than later. Research from Moneyfacts shows that average mortgage rates on both two and five-year fixed deals have continued to rise, with the average two-year fixed rate now at its highest level since June 2016.
The average two-year fixed rate is now 2.57%, up from 2.43% a year ago. While the average five-year fixed rate is 2.75%, compared to 2.74% in March 2020. Although bear in mind, there are rates available that are significantly lower than the average rates. So always shop around.
The return of 95% mortgages
The last year has been tough for buyers with small deposits as 95% mortgages virtually disappeared from the market. But that’s set to change, following the Chancellor’s announcement in the Budget of a new mortgage guarantee scheme.
The scheme launches next month and allows you to buy a house with just a 5% deposit. The scheme will run until December 2022 and applies to all types of properties (new build and old) that cost less than £600,00. You’ll be able to fix your initial rate for 5 years if you wish to. Also, first time buyers and existing homeowners can apply. However, it’s unlikely to be the best option for all buyers so it’s essential you do your research.
Homeowners remortgaging to fund renovations
Home improvements are in the pipeline for many UK households, according to new research. The study by Habito found 62% of homeowners want to carry out renovations and 37% plan to fund the works by remortgaging. Of those planning works, roughly one in five want to refurbish their kitchens. While a similar number is planning to remodel their garden. And 16% are planning to renovate their bathroom, while 8% are considering an extension.
However, the study also found one in ten homeowners didn’t know that remortgaging could be used to help fund home improvements.
Can you get a better mortgage deal because of your job?
If you’re a professional or key worker, did you know you may be able to get a more advantageous mortgage deal?
While you can typically borrow up to 4 to 4.5 times your income with a standard mortgage, with a specialist key worker or professional mortgage, you may be able to borrow a higher multiple. Also, these specialist mortgages provide borrowers with the prospect of a higher loan-to-value ratio (LTV) too, which means a smaller deposit is required.
‘If someone is a newly qualified professional and a first time buyer, they are likely to have a solid progression in their income as a professional, so it is easier for the lender to predict that,’ explains David Hollingworth of broker L&C Mortgages. ‘However, on standard criteria they may be falling a little short of the amount they need to meet affordability criteria, so a professional mortgage might carry additional flexibility around maximum borrowing.’
However, while they may be a good option, it’s always best to shop around for the best deal.
Mortgage choice increases for first time landlords
The number of buy-to-let mortgages available to first time landlords fell from 1,635 on 1st February 2020 to 1,311 a year later, according to Moneyfacts.co.uk. However, the research also found that because of fall in the number of buy-to-let deals overall, the percentage of the market available to first-time landlords actually increased from 61% to 65% during the same period.
Moneyfacts.co.uk says this suggests that despite the current economic uncertainty, many mortgage providers are still willing to lend to new property investors.
However, the data reveals average rates have increased. On 1st February 2020, the average first time landlord two-year fixed rate was 2.80%. This increased to 3.10% a year later. Although there are rates available for first time landlords significantly lower than the average rates. So it’s a good idea to speak to a broker to get expert advice.
Remortgage borrowers look to fix for five years
A new study claims almost three in ten UK homeowners looking to remortgage prefer 5-year deals when refinancing.
The Online Mortgage Search and Competition Index by Iress and Koodoo, which will be published every month using data from the two businesses, found 5-years fixed rates command 28.5% of all online clicks when people are seeking new deals.
Iress’ executive general manager, Dave Miller said: ‘We’re clearly seeing a response to continued uncertainty in the market, with consumers keen to lock in rates for a longer period.’
Article by HomeOwners Alliance