4 things you need to know about mortgages & interest rates

House prices have long held the property headlines but making a late charge for column inches of late are interest rates and their effect on mortgages. December 2021 was a busy month for the Bank of England, whose actions and intentions will shape the year ahead for property buyers.

Here are four key take-aways from the most recent announcements:-

1. The interest rate has risen: it has taken the Bank of England three years to start raising the interest rate from its historic low of 0.10%. As of December 2021, the interest rate is 0.25% – still a very low rate and a return to the figure we last saw in March 2020. The mortgage market, however, remains fiercely competitive and lenders continue to offer attractive rates on home loans in a bid to win borrowers’ business.

2. Most borrowers are unaffected: mortgage rate volatility in the past has encouraged more borrowers to take out fixed rate home loans. As a result, UK Finance estimates that 74% of all current mortgages are fixed and enjoy a rate that doesn’t budge, despite what the Bank of England does. Borrowers should, however, pay attention to when their fixed-rate period ends. Many lenders have already increased their standard variable rate – the rate you’re automatically switched to if you take no action at the end of a fixed-rate period – in light of the Bank of England’s decision.

3. Long-term mortgages are on the rise: coming at a time when more property buyers will be looking for long-term repayment security, another 40-year fixed-rate mortgage has launched in the home loan market. While borrowers need to check details – such as any early repayment charges, the set interest rate and the ability to ‘port’ the mortgage to a different property – fixing for four decades allows people to borrow greater sums of money, with a repayment figure that stays the same, even if interest rates rise.

4. Affordability checks may be eased: before the Bank of England decided to raise the interest rate, it had floated the idea of easing mortgage affordability checks. This tests the borrower’s ability to keep paying the mortgage after any fixed-rate period ends and interest rates rise by 3%. It is thought the 3% benchmark may be revised downwards, making it easier for more people to borrow money. It’s a case of ‘watch this space’, with further details expected.

Whether you are taking out your first ever mortgage, need to borrow more to fund your next move, want to purchase a buy-to-let or are thinking of freeing equity by remortgaging, we urge you to take independent financial advice.

First-time buyer? 6 top tips when saving for a deposit

If you’re a first-time buyer, putting down a deposit is part and parcel of purchasing your first home. We all know the bigger the deposit the better but how can buying novices save effectively in 2022?

A little background about deposits
A cash deposit is provided by buyers to show serious commitment to a property purchase. The deposit is paid to the seller’s solicitor at exchange and if the buyer withdraws from the purchase, they will forfeit their deposit. When you consider Halifax’s UK average house price in November was £272,992, 10% of that – £27,299 – is a sum most of us can’t afford to lose.

Deposits and mortgages
The cash deposit provided at exchange is the same deposit that is considered when applying for a mortgage – there’s no need to save twice! The bigger the deposit the better as this will improve the LTV (loan-to-value) – the ratio of mortgage to property value. For example, if you’re buying a £200,000 flat with a £20,000 (10%) deposit, you’ll need a 90% LTV mortgage.

Lower LTVs – where the lender loans less and the buyer provides a larger deposit – result in cheaper monthly repayments, the ability to reduce the mortgage term and access to the lowest interest rates, and this is why saving for the biggest deposit possible is advisable.

Existing homeowners don’t need a deposit
If you’re already a homeowner, you won’t need to save up for a deposit when making an onward purchase as the conveyancers involved will use what’s referred to as the exchange deposit. This is where the deposit paid by the buyer at the bottom of the chain moves up and provides the security for the others involved.

How much is enough when buying your first home?
Mortgage lenders offer a number of home loans where buyers need to supply a 5% deposit, although lower rates of interest are generally attached to products where the purchaser can supply a 10%, 15% or even 20% deposit. If you’re at the start of your savings journey, these 6 tips will help get you started:-

  1. Open a specific account
    Use a comparison site to find the account that pays the best interest rate and open an account for the sole purpose of saving for a deposit. Look for accounts that limit how many times you can withdraw money to stop you accessing the account in an emergency.
  2. Save in a deposit-specific ISA
    An alternative to a savings account is the lifetime ISA (LISA) – a tax-free savings or investment account designed specifically for those saving for their first home or for retirement. You must be between 18 and 39 to open a LISA, and for every £4 saved, the Government will add £1, up to a maximum of £1,000 every tax year. Savings can be withdrawn after the first 12 months and used as a deposit on a property worth up to £450,000.
  3. Make saving automatic
    Manually moving money between accounts is a habit you can easily fall out of, so set up a standing order that automatically transfers money on a monthly basis into your dedicated deposit account. You could also ask for all birthday and Christmas presents to be in cash, to be paid directly into your deposit account.
  4. Re-evaluate your renting situation
    It can be hard to save for a deposit while paying rent. You can reduce your outgoings by moving to a smaller property or by taking in a lodger (check with the landlord first). You could even remove the need to pay rent altogether by moving in with family or friends.
  5. Change your eating habits
    A milkshake here, a pizza there – it all adds up, with a twice weekly trip to Starbucks for a caramel frappuccino and a muffin setting you back at least £5 every visit. Home cooked food will always save you money, as will swapping your food shopping habits. Replace Waitrose with a continental budget supermarket and your deposit fund will look a lot healthier.
  6. Shop around & switch
    Save more money by reducing your monthly bills. Use comparison sites, switching incentives and introductory offers to cut what you spend on gas, electricity, broadband and mobile phones. Easy wins include changing your SIM card plan and asking rival broadband suppliers to beat your current deal.

If you need help with working out how much deposit you may need and what loan-to-value you should aim for, we’d be happy to help crunch the numbers with you. Contact us for advice and guidance.

Regulation change regarding carbon monoxide alarms

Tenant wellbeing should be at the top of every landlord’s compliance list and there’s a new gas safety regulation to understand and implement this winter. The change has prompted a number of questions from landlords, which our lettings team have answered:-

Q. How have carbon monoxide alarm rules changed?
A. The Government’s change to gas safety regulations in late 2021 states that all properties in the private rental sector with a fixed gas appliance, such as a gas boiler or fire, now need a carbon monoxide alarm fitted.

Q. Wasn’t that always the case?
A. Previously, the Smoke and Carbon Monoxide Alarm (England) Regulations 2015 made it mandatory for rentals to have a carbon monoxide alarm only where there was a solid fuel appliance, such as a coal fire or wood burning stove.

Q. My buy-to-let doesn’t have a gas appliance – am I affected?
A. If your rental property is all-electric but you’re planning to install a gas appliance, the new regulations have made it compulsory to supply a carbon monoxide alarm at the same time as you fit a new gas appliance. If you rely on solid fuel to heat or power the property, you will still need a carbon monoxide alarm.

Q. If I supply a carbon monoxide alarm, have I fulfilled all of my alarm obligations?
A. Landlords, or their property manager, need to go a little further than merely providing a carbon monoxide alarm. They need to ensure it works at the start of every new tenancy by testing the alarm, and they need to replace a faulty carbon monoxide alarm as soon as a fault is flagged up.

Q. Have the rules changed in regards to smoke alarms?
A. Smoke alarm rules – as set out in the Smoke and Carbon Monoxide Alarm (England) Regulations 2015 and the statutory guidance (Approved Document J) supporting Part J of the Building Regulations – stay the same. Landlords are required to install at least one smoke alarm on every storey of their rental property that is used as living accommodation. Like carbon monoxide alarms, a landlord, or their property manager, needs to test the smoke alarm at the start of every new tenancy and replace a defective alarm as soon as they are alerted to a problem.

Q. Whose job is it to test any alarms?
A. The Government makes it quite clear that a tenant is responsible for testing any carbon monoxide and smoke alarms during the tenancy period, as outlined in the Government’s Smoke & Carbon Monoxide Alarm Q&A Booklet. Tenants are responsible for changing an alarm’s batteries but it should be the landlord that replaces an alarm unit that’s broken.

Q. Where’s the best place to install smoke and carbon monoxide alarms?
A. The best locations for smoke alarms are where air circulates more freely, such as landings, hallways and stairwells. Installing carbon monoxide alarms at head height is best, as long as the alarm is between 1 and 3 metres away from any gas or solid fuel appliance.

Please check with us if you think your buy-to-let property is exempt from any gas safety regulations. We would be happy to advise on the best course of action to keep your let compliant and your tenants safe.

2022: the year of the power buyer

We’ve had power dressing, the power lunch and even power walking but have you heard about the power buyer? It’s a phrase recently used by property portal Rightmove to describe purchasers who are in the strongest position possible.

As we move into 2022, becoming a power buyer will increase in importance. Expert forecasts for the months ahead are in agreement – moving activity will continue, buyers will face competition from rival purchasers and sellers will prefer offers from those who can proceed without drama and delay. Have you got what it takes to be a power buyer?

The value of the offer is important….

As well as reflecting a home’s value, finish and desirability, the asking price will play an instrumental role in the owner’s next move. In almost every case, the seller’s onward purchase and potentially how much money they need to borrow will hinge on the offer they accept. A power buyer will offer as close to the asking price as fairly possible.

….but it’s not everything

As an estate agent, it’s highly unlikely that we’ll encourage sellers to accept the highest offer without investigating the potential buyer’s wider circumstances. One of the first questions we ask anyone hoping to view a property is ‘do you have a property to sell?’. If the answer is yes, we’ll ask if the property is under offer.

These questions relate to time and proceed-ability. A power buyer will already have their home under offer so they’re ready to hit the ground running and won’t risk delaying the transaction. Remember, even if a buyer offers way over the asking price, they may be overlooked if their own property isn’t on the market and this can draw out a transaction for weeks or even months.

It’s behind you

A chain, that is. Power buyers realise that getting caught up in a long chain isn’t what any seller wants, so they make themselves as chain-free as possible. Of course, first-time buyers are naturally chain-free but some power buyers will sell their own property and move into rented accommodation as a temporary measure. This makes them chain-free when they decide to make their next purchase.

Money matters

Some of the most powerful buyers are those who can purchase with cash. By having money in the bank, they sidestep the mortgage application process and remove the risk that they may be turned down for finance. For a seller, a cash buyer represents a quicker, simpler transaction.

The majority of buyers, however, will need a mortgage to purchase a property but there are two simple steps people can take to move them into the power buyer category. The first is to have valid evidence of your deposit and the second is to have a mortgage agreement in principle. Both of these should be in place before a buyer starts looking for a property.

Be authentic

Sellers will sit up and take notice of purchasers who are sincere, open and reliable. That means turning up to pre-booked viewings (preferably on time), putting forward sensible offers and not making outlandish demands. Building the best ‘power buyer’ picture also includes having a solicitor instructed when an offer is made, showing flexibility when it comes to a completion date and taking a genuine interest in the property for sale.

If you would like more advice about how to become a power buyer, contact our team today.