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Your mortgage questions answered!

Your mortgage questions answered!

Q: Can banks increase mortgage interest rates during the term?

A: This depends on the type of mortgage you have with your lender. If you have a fixed-rate mortgage you are locked into the rate until the end of your fixed deal and this will not change, after that you will be moved to the lender’s Standard Variable Rate (SVR). 

A tracker mortgage will usually change in line with the Bank of England Base Rate. If it goes up your monthly payments will increase, if it goes down you pay less. The latest base rate increase took it from 2.25% to 3%, which means your own rate will increase by 0.75 percentage points. 

If you’re on a SVR it could change if the base rate goes up, but not necessarily by the same amount or immediately. With these mortgages, lenders consider a number of factors when deciding the rate and the base rate is only one of them.

 

Q: Would it be better to tough it out on a variable rate mortgage and hope the market settles down rather than fixing now?

A: It depends on your personal circumstances and your current mortgage. For some people it may be better to wait, for others it will be more beneficial to lock in a rate now. But this will depend on a number of things including your personal views of the market, what your attitude to risk is and what your goals are. A mortgage broker will be best placed to talk through your options before making a recommendation. 

No one knows for sure what will happen to interest rates in the future - however, they are predicted to continue to increase, at least in the shorter term. If you are considering remaining on a variable rate, it is worth remembering that it is likely to be above the Bank of England base rate.  

SVR mortgages are typically higher than tracker rates, and usually the most expensive option. You should be seeking advice from a mortgage broker about your options.  

 

Q: I'm not a homeowner but I was hoping to be in the next two years or so. If property prices don't come down, and interest rates continue to increase, how do the recent events impact my chances of getting accepted for a mortgage offer? I heard some lenders are pausing offers with rates rising. If things don't improve does this mean the criteria might be tougher to meet in the future?

A: If interest rates continue to rise the cost of mortgages will also increase, which could affect your affordability.  

Mortgage providers will assess your finances to establish whether you can afford your mortgage payments. This includes deducting your outgoings from your income to work out your free disposable income.  

The criteria is set by individual lenders, but they have a responsibility to ensure the offer is responsible. Some providers will allow mortgage payments of no more than 80% to 85% of free disposable income, based on actual expenses.

Due to the volatility in the markets and pound/currency that occurred following the Government’s mini budget, the rates at which banks could borrow also became turbulent.  This meant it was difficult for mortgage providers to price their mortgages and some lenders took the decision to pause or withdraw their deals temporarily whilst they considered what rates they could charge during this unsettled time. This does happen occasionally when there is difficulty pricing, however, many lenders have come back into the market since then with new products and rates available to people. 

 

Q: What to do with my mortgage in the spring?

A: If you have a mortgage deal coming to an end in the next six months, now is the time to review this with your mortgage broker. You can fix a new deal up to six months in advance. 

If it ends in more than six months, you could still choose to move over to a new deal now, however, there are likely to be repayment penalties. Careful consideration should be given to deciding if this is right for you.

If you have a deal coming to an end, there are steps you can take before it does. Check your credit score, consider overpaying your mortgage now, where you can, so you’ll borrow less and you’ll be prepared for a potentially higher monthly payment in the future. It’s also a good idea to try and pay off other debts and reduce credit card balances if you can, in order to get the best deal. 

 

Q: How does the interest rate impact my mortgage?

A: This depends on the type of mortgage you have. If you have a fixed rate, it will not affect you until the end of your current deal. 

For all other mortgages, it could mean an increase or a decrease on your monthly payments. How much and when will depend on the type of mortgage you have.  

 

Q: I'm on a fixed rate now, but not sure what happens after that ends.

A: At the end of your current deal (fixed, tracker or discounted) your mortgage will usually move onto the lender's Standard Variable Rate. The details of these deals are published on the provider’s website or you can call them to ask for it. They tend to be higher than other rates your lender offers and therefore you could pay more than you need to. However, they don’t usually have repayment penalties.

Each lender sets their own rate and they can change it at any time. The base rate is only one factor of several which a lender will assess when setting their rates. However, it is likely that if the base rate increases, so will the Standard Variable Rate.

Your mortgage provider may possibly allow you to complete a product transfer to another deal depending on your circumstances and this could mean no further credit check, no property valuation and less paperwork.  

However, a transfer isn’t always available and is normally only an option if you’re not changing anything other than your rate. You may have to wait until you near the end of your current deal, typically three months before it expires, and there is also no guarantee the rate will be the most competitive. But product transfers are simple and cost-effective to set up. It could also be a good idea if your circumstances have changed since taking out your existing mortgage, for instance if you’ve become self-employed.

You also have the option of remortgaging to another provider and paying off your existing  mortgage. You can secure a rate up to six months in advance and once your current deal ends, you move to the new deal. However, this is an entirely new application. You will be required to start from scratch and the new provider will need more information. They will also look at affordability and credit score, and they are likely to complete a property valuation as if you were taking out a mortgage for the first time. 

The option that’s best for you will come down to a number of factors and if your rate is ending soon, it is best to speak with your mortgage broker.   

 

And some final words from Abby:If you are currently in the process of buying a property and you are worried, please don’t panic.  

“Providers have confirmed that if you have already completed your application, they will continue to process these and if you already have a firm mortgage offer, this will be honoured. However, if you haven’t already applied, you’ll need to check if the mortgage you were hoping for is still available. 

“If you are currently on a variable rate or tracker mortgage, now could be a good time to contact a mortgage broker to discuss your options. Rates are predicted to keep rising, and this will have a direct impact on your monthly payments. If your fixed rate is due to come to an end, again, speak with your mortgage broker or provider to find out what options are available to you. You may be able to secure a rate up to six months before your current deal comes to an end and in some cases, paying a redemption fee now to secure a new deal could be beneficial.

“Ensure that you prepare before your fixed rate finishes. Find out how much the rate increases could affect you and start to budget ahead. Try and put some money away each month to help when your payments increase and look at ways you can save money. If you find you cannot afford your mortgage, speak to your provider in the first instance to find out what help is available to you.




 

 
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