Once a month, the team at Prospect Tree Mortgages gather round the table in our conference room to discuss and inform one-another of breaking news and changes to lender criteria.
In these discussions we touch upon all factors influencing the mortgage marketplace and invite every team member to join the conversation.
For the first time, we are inviting you to join the conversation:
This month we kicked off the conversation with protection.
Protection matters
Mortgage advisors have a responsibility to make you aware of potential risks when taking out such a large loan. Considering that the loan will be secured against your home, it is crucial to look at what would happen should you no longer be able to pay it.
In case you are unaware, if you cannot pay your mortgage, the lender may choose to repossess the property to clear the balance of your mortgage. If the sale does not cover the loan, you will not only be homeless, but you will still have a commitment to repay what remains.
To which end, our advisors discussed what the ‘best advice’ looks like in respect to mortgage protection.
As life insurance isn’t compulsory, some choose low-cost policies whilst others may choose not to insure themselves at all. This can leave families vulnerable should the worst happen.
In conclusion, it was discussed that the ‘best advice’ would be to consider what the borrower would want to happen should they or their partner die and build a solution-based policy around that. Whilst many will be put off by the cost of life insurance, it is important to factor in this risk as the costs in the long run could be far more devastating.
Moving to a slightly less dismal topic, we moved from protection and discussed market conditions in general.
The current market is changing at a rapid pace and there are lots of factors which are influencing this. The Bank of England has increased its base rate again recently, this time, moving from 0.25% to 0.5%. This is due to be reviewed again in April and the bank are expected to increase it again when it is.
Due to this, lenders are expecting to see less transactions this year. The good news is that because of this, they are expecting their service levels to be faster and more efficient. This means that the time it takes for a lender to approve a mortgage should become quicker.
With many homeowners choosing to extend or improve their current properties, house sales volumes have been steadily decreasing since 2017 and many lenders are now re-focusing on their remortgage products. Some have already started to offer lower rates on their product transfers.
As house prices are increasing, and mortgages with them, lenders are also reporting that more borrowers are choosing longer term loans than before. An increase to 35 and 40 year mortgages has been seen recently and there is even chatter that we may see mortgage terms of 50 years being approved soon.
Many borrowers are deciding to take a longer initial mortgage term to keep their repayments low but having a 10% overpayment facility built in so they can have flexibility and pay more if they can afford to. Whilst a longer term equates to more interest overall, some see this as a good option to keep on top of their finances.
As we reported earlier this year, lenders are also starting to relax certain criteria in terms of how they look at income. To find out more about this, read our blog on ‘stress tests’ here.
Green products are becoming more mainstream, and it doesn’t seem like they are just a fad which will be going away anytime soon. This is a huge positive for the environment as these types of mortgages are aimed at making consumers more conscious of their homes environmental impact. You can read more about green mortgages on our blog here.
Great news for First Time Buyers this month as 95% loan to value (LTV) mortgage rates are at their lowest since 2011. As these rates were higher than others initially they have also been the least affected by the recent rate rises.
Inflation
As the headlines keep telling us, inflation is rising and its going to affect us all! Given that it’s such a big factor we spent half of the meeting discussing this and its impact.
Here’s the headlines:
What is causing Prices to rise?
- The main reason is the rising global price of energy. This has meant higher energy and transport bills for businesses, many of whom pass on the extra costs to customers.
- Supply problems and higher shipping costs also continue to hurt businesses.
- Staff shortages are a particular problem in the UK, due to Brexit and the pandemic, and are prompting some employers to raise wages.
What else could affect the cost of living in 2022?
A number of measures will hit UK households:
- Average gas and electricity bills are going to rise by £693 a year from April
- Regulated rail fares in England will rise by 3.8% in March
- TV and broadband prices are also due to increase at that time
- In April, companies, workers and the self-employed will start paying 1.25p more in the pound in National Insurance contributions under the Health and Social Care Levy
- Rising interest rates will make mortgage payments higher for some homeowners.
What can be done to tackle Inflation?
The Bank of England’s traditional response to rising inflation is to raise interest rates. It has done this twice in the past few months.
That means some people who have borrowed money could see their monthly payments go up, especially on mortgages tied to the Bank of England’s rates.
If you are looking for mortgage advice, contact one of our experts via the form below or read more about Prospect Tree Mortgages