With regards to mortgages, it seems 2018 was the year of change. It began with historically low mortgage rates and high home prices that favoured sellers rather than buyers. It ended, however, with mortgage rates reaching an eight-year high, a slowing of rising house prices and what appeared to be a promising buyer’s market.
Although many lenders suggest that the new year will bring big opportunities for potential home-buyers, the looming unknown of Brexit may have a real effect on not only mortgages, but of finances in general. There are ways to avoid this, however. Here we have complied the best tips for keeping on top of your mortgage finances in 2019.
A mortgage is likely to be the biggest financial commitment of a person’s life, but it can also make the biggest savings if done right. The most important step in securing the best mortgage deal is to make sure you re-mortgage at the end of your agreed term. Around three to six months before the end of your agreement, be sure to look into other mortgage deals. If you don’t, you could end up spending up to £4,000 a year more than necessary.
This is because usually when mortgages come the end of an agreement, the lender will automatically transfer the borrower to their Standard Variable Rate (SVR). These often come with a much higher interest rate and as of last year, more than two million homeowners were on a SVR mortgage. Consulting an online mortgage broker is a quick and simple way to explore the market.
The imminent completion of Brexit could see the Bank of England’s base rate increase largely. In 2018, the rate increased to 0.75% which could be doubled in the coming months. Hence, it is more important than ever to think about switching from an SVR or tracker mortgage to a fixed-rate mortgage. A tracker mortgage follows the base rate – if it increases, then so will the interest on your mortgage repayments. Therefore, although fixed-rate mortgages tend to be more expensive at first glance, it offers a sense of security for future payments. Switch before the base rate rises again as this could occur at any moment.
Despite staying with the same lender seeming like the easier option, it is often not the most financially wise. Loyal customers don’t always get the best deals, so when considering re-mortgaging, it is advised to shop around to check every available offer. Customers who stay with the same providers in the likes of broadband, home insurance, mobile phone and mortgage companies could lose anywhere up to £1,000. At the tail end of a contract, check rival offers online or contact your provider to negotiate a better deal.
Although re-mortgaging is important right now, do not be hasty. Do your research and ensure there are no hidden fees or charges. Savings can be made in the long run, but fees may amount to more than you could save, resulting in you actually paying more.
Some lenders charge exit fees and early repayment charges that can be as high as 5%. Consider this before leaving your current mortgage agreement. Will it seriously affect the savings you hope to make?
If your lender allows it, overpaying on your mortgage can help you save now and in the future too. If you can afford to, paying more than the agreed monthly fee on a mortgage repayment can reduce the overall outstanding balance. This is caused by paying less in interest and decreasing the total length of the repayment period, leaving you mortgage free sooner.
Before you do this, check with your lender on how much you can overpay. There is usually a cap on this and a penalty charge if you exceed it. For a typical fixed-rate mortgage, the amount you can overpay is up to 10% of the remaining repayment balance per year.
To prevent you from getting overwhelmed or intimidated by the idea of paying more than you already do, start this process with a low increase. Perhaps you only pay one extra payment in the first year, and increase this to two or three in the years that follow. As you grow more confident with your finances you may be able to pay more towards the repayment of your mortgage.
As this area of mortgages is highly disputed amongst financial experts, seek advice from a loan officer before starting an overpayment plan. They will help you discuss the pros and cons of paying off your mortgage early, to ensure you have a well-rounded knowledge before your final decision.
It is vital that you do not stretch your mortgage budget too far. Think about your long and short term goals and finances when considering this approach. Include your mortgage payments in all of your financial planning to avoid any confusion and to ensure you’re on top of your budget.
For first time buyers
With the early months of the year looking good for the buyer’s market, now could be the best time for potential first time home owner’s to make their purchase. Lenders are increasingly offering competitive deals and there is a significant rise in 95% mortgages. At the end of 2018, 95% mortgages were beginning to become affordable to those who need them. This type of mortgage allows the borrower to only pay 5% of the asking price for the property as a deposit. Typically, lenders will require a down-payment of around 20%. Hence, these types of mortgages are ideal for those who cannot afford such a hefty deposit.
Although this type of mortgage seems to be becoming more accessible, it is still important to start saving for a down-payment as soon as possible. The more you save, the better loan deal you will be able to gain. Lenders will reduce the interest amount on repayments dependent on how much of a deposit you can put down. It also means that you’ve paid for more of the property and your mortgage repayment period could be shorter.
However, if saving this much money really is a problem for you then enquiring about low and no down-payment mortgage programmes is the way forward. Loan advisors and mortgage brokers are at hand to aid in this process. One way of doing this is an automated saving procedure. In this, part of your salary will automatically be put into a savings account towards a deposit. It is important to know that if your pay less than the typical 20% require for a deposit, then your property will need a Private Mortgage Insurance (PMI). This is in case the debtor defaults the loan. Again, seeking council from a mortgage broker or loan advisor will help you to fully understand a PMI.
If you’re hoping to make 2019 your year to get onto the property ladder, be sure to pay attention to your credit score. Request a free annual credit report and ensure you understand it before attempting to apply for a mortgage loan. The higher your score, the more likely your chances of gaining the best deal.
Another way to prove to a lender that you can handle repayments is to keep a spending diary and be organised with your finances. Identifying where you can cut back on spending can help you stay in control of the situation. It is likely that you are paying for things you don’t use, so this type of thing can aid with clarity of what is going out and coming in to your bank account. Demonstrating financial organisation is an essential part of gaining the trust of a mortgage lender.
The year has started well in terms of the property market, but with Brexit on the horizon and the predicted escalation of the Bank of England’s base interest rate it is imperative that you stay on top of your mortgage finances. Re-mortgaging and overpaying your mortgage payments are great ways to help those who are already on the ladder. For those hoping for become home owners, the time is now. Seize the moment, as no one knows how long it will last.
This is a collaborative post.