Interest Rates Down, Mortgage Affordability Up

Great news for cheaper mortgages across the board as Bank of England cuts interest rates for third time this year says Enzo Mora CEO and founder of The Mortgage Brain

Mortgage rates are falling in reaction to the latest base rate cut to 4%, which will be a huge boost to affordability wherever you are on the ladder. While mortgage rates have been trending downwards this year, even better news is that the economic hawks are predicting rates will reach 3% next year. Our advisers have seen no let-up in mortgage demand this summer and we’re already sourcing excellent lower rates for our customers.

First in line

First-time buyers are having a good year so far. Rightmove’s latest analysis shows that the typical mortgage for these buyers is nearly £100 less compared to the same time last year. The average asking price for a typical FTB home has remained flat at £227,466 while earnings have increased by 5% over the same period, improving affordability.

Mortgages win over rents

More than half (55 %) of all consumers believe renting a property is more expensive than paying a mortgage says lender Barclays. This rises to 61 % of homeowners, versus 42 % of renters, perhaps because owners are more likely to have experienced both circumstances. Almost half of those looking to buy (45 %) would rather save as much as possible for their deposit, to reduce future mortgage repayments to make their first home more affordable. Conversely, just 12 % would consider getting onto the property ladder with a smaller deposit and face higher borrowing costs. This also influences choice of home, with a third (34 %) willing to move to a smaller property in order to borrow less. Our advisers can look at all borrowing options so have a chat with us before you start your property search, you may be able to borrow more than you think.

Let’s hear it for affordability

The latest Nationwide House Price Index reports a modest rise of 0.6% in house prices in July, taking the price of a typical UK home to around 5.75 times higher than average incomes, the lowest this ratio has been for over a decade. This is helping to ease deposit constraints for potential buyers as higher loan to value mortgages are more available coupled with moves by several lenders to lower their minimum income requirements for both sole and joint applicants.

Moving on from Help to Buy

Here’s a quick reminder to buyers who bought with the government’s now defunct Help to Buy scheme. The interest-free period on the amount borrowed from the government is five years and as we know time flies, so it could be a good time to look at remortgaging to pay back the loan in full to avoid interest payments. If you borrowed say 20% of the purchase price you will pay back 20% plus the proportional increase in value of the property , as verified by a RICS surveyor. So that means you will pay back more than the original value of the loan. If the price has gone down, subject to the valuation, you could pay back less. Our advisers have specialist knowledge of this scheme and will be happy to help.