UK mortgage brokers are advising property owners to carefully check the terms and conditions of their mortgages following news that there could be a huge increase in rates by 2023. This, in real terms, means that monthly mortgage repayments will potentially rise by hundreds of pounds if the BOE’s baseline is to rise, as has been forecast by the Office for Budget Responsibility.

Currently sitting at an all-time low of 0.1%, the base rate is expected to rise in the coming months in order to tackle rising inflation. It is not yet known what the rise will be, but we have been warned of a “worst-case scenario” where decreased wages and increased energy costs may cause the baseline rate to rise to as much as 3.5% by 2023. This, in turn, could see mortgage repayments rise by as much as 33%.

Director at mortgage broker Your Mortgage Decisions, Dominic Lipnicki, said: ‘For many borrowers, the idea that the Bank of England base rate could increase to 3.5 per cent by 2023 is very scary indeed.

‘Those used to record low fixed rates would be shocked to see their payments balloon if such an increase became a reality.

‘The market has not seen rates as high as this since 2008 and many borrowers would find such an increase devastating.

‘Many borrowers who are either on the lender’s standard variable rate or a few months away from their fixed rate scheme expiring will be keen to secure a new deal now to avoid that risk.’

Considering we are currently experiencing some of the lowest rates on record, the expected rate increase has come as somewhat of a shock. Lenders are suggesting that sooner or later the rates had to increase substantially.

‘There are early signs of upward pressure on mortgage rates, with markets anticipating a base rate rise.

Competition cannot hold prices back indefinitely

‘At some point we will start to see movement, and the historically low rates that we have today may have a very short shelf life. We could see upward momentum as early as the first quarter next year’, commented John Eastgate, managing director of property finance at lender Shawbrook Bank.

Brokers are urging people to carefully check their mortgages, particularly those with standard variable rates, and are encouraging them to consider switching to fixed-rate mortgages. Fixed mortgage deals at lower rates will allow households to budget more effectively for the coming years, which is vital with other household costs rocketing.

Chief executive at The Mortgage Lender, Peter Beaumont, said:’ For some, depending on the deal they are on, the financial benefits of remortgaging could outweigh any charges, especially during this period of record-low rates.

‘For anyone tied to a standard variable rate, then the best bet is to refinance as soon as possible.’

It has typically been the policy of most major lenders to issue mortgages only to those able to repay the balance in full prior to their retirement. As of late, lenders have been acknowledging the UK’s skyrocketing average life expectancy, along with the desire of more people than ever before to work well into their 60s or 70s.

Consequently, more than half of all new mortgages issued are being allocated to borrowers who will still be repaying their debts after their 65^th birthdays. That’s according to new figures from UK Finance, which indicate that 52% of new homeowner mortgage lending activity involves borrowers planning to continue repaying long after turning 65.

The UK’s ageing population is spurring an inevitable shift in attitudes towards mortgage lending, reports UK Finance.

Growing demand from older applicants

The report from UK Finance indicates that this is the first time more than half of all new mortgages issued are going to those who will still be repaying their home loans after their 65^th birthday. Demand for mortgages among applicants aged 55 and over has been growing significantly for several years.

In 2014, less than one-third of all mortgages issued went to applicants who would complete their repayment obligations beyond the age of 65.

Speaking on behalf of UK Finance, director of mortgages Charles Roe said that the trend was only likely to continue gaining momentum indefinitely.

“There’s been growing demand for mortgages from those aged over 55, and this is set to continue as more people live and work for longer,” he said.

“For the first time since records began, more than half of all new mortgages are due to end after the homeowner’s 65th birthday, and lending to over-55s has grown even where mortgage lending in the wider market has remained subdued.”

“Later life lending, both now and in the future, will be imperative as existing homeowners look to later life products for accessing equity as they get older.”

Equity release products have also seen unprecedented demand from homeowners across the UK. However, decisions regarding equity release should only be reached after enlisting the support of an experienced broker or financial adviser.

While attitudes towards finance in later life are changing, the potential consequences associated with secured borrowing must always be carefully considered.

“UK Finance’s findings underscore the integral role that later life lending plays in consumers’ long-term security,” commented the chief executive of the Equity Release Council, Jim Boyd.

“Attitudes towards home finance in later life have changed, and homeowners are increasingly comfortable with mortgage borrowing into retirement and open to the benefits of realising some of their property wealth as they age.”

“Property wealth can play an important part in a holistic approach to funding retirement, and, as an industry, we must work together to ensure consumers get the information they need to weigh up increasingly complex financial decisions to do this.”

 

Self-employed workers have always had a tough time qualifying for a competitive mortgage. Today, things are only getting more difficult.

In the wake of the COVID-19 pandemic, lenders are scrutinising self-employed borrowers more intensively than ever before, to such an extent that even having received financial support from the government during the crisis could count an applicant completely out of the running.

This paints a fairly gloomy picture for self-employed workers looking to own their own homes. However, there are steps that can be taken to at least tip the balance slightly in your favour.

While there are no guarantees, each of the following could significantly boost your chances of qualifying for a competitive self-employed mortgage:

1. Provide comprehensive proof of income.

You can expect to be asked for extensive proof of income from the last few years, at least. The more evidence you can provide of income that is both stable and adequate to cover the costs of the loan, the more likely you are to qualify.

You may also need to provide evidence on future contracts, projects, and general assurances of long-term income.

1. Use an accountant.

An application submitted via, or at least endorsed in some way by, an accountant always carries more weight. Banks and lenders instinctively see applications, projections, and financial documents as more accurate and reliable when they come from an experienced accountant.

Even if this means paying for the services of an accountant for a few months, it is a small price to pay for the added credibility they bring.

1. Boost your credit score

Your credit rating will be taken into account as a major indicator of your worthiness for a mortgage. In addition, your credit score will heavily influence the interest rate that applies to your loan if your application is accepted.

It is advisable to do everything you can in advance to boost your credit score. Even just a few extra points added by tidying up your accounts and paying off a few smaller debts could work in your favour.

1. Save a bigger deposit.

The bigger the deposit you are able to provide, the more likely you are to qualify for a mortgage. Again, this is something that will influence the overall borrowing costs of the facility. Larger deposits mean lower-risk transactions in the eyes of the lender, plus a lower sum of money borrowed.

Offering a larger deposit could hold the key to getting your application through the door with many high-street lenders. If pulling together a meaningful deposit is proving problematic, you may need to consider alternative options away from the High Street.

1. Work with an experienced broker.

Consulting with an experienced broker before applying is essential. This will enable you to not only determine your eligibility ahead of time but also begin building the strongest possible case to support your application.

Many of the UK’s specialist lenders offer their services exclusively via broker introductions. As it may be necessary to direct your application to specialist lenders as a self-employed worker, broker support could hold the key to qualifying for a competitive mortgage.

At the risk of jumping straight to the conclusion, the short answer is sometimes

Comparing a conventional repayment mortgage to an interest-only mortgage is a little like comparing apples to oranges. Both have their benefits and points of appeal, though they are completely different in nature.

For most people, the prospect of taking out an interest-only mortgage does not seem realistic. The idea of being left with a major debt to repay at the end of the mortgage term can be off-putting, and understandably so.

Just as is the case with all financial products, affordability and cost-effectiveness vary on a case-by-case basis.

The difference between the two mortgage types

Roughly summarised, this is what makes the difference between an interest-only mortgage and a repayment mortgage:

• With a repayment mortgage, you gradually repay the full outstanding balance of your mortgage over the agreed-upon term, and at the end of the term, the mortgage is paid off and you own your home.
• With an interest-only mortgage, your monthly repayments only cover the interest. When the repayment period comes to an end, you still owe the lender the full price of your home, i.e., the full outstanding mortgage minus interest.

The latter is considered the most undesirable option; the vast majority of home loans are issued in the form of repayment mortgages. Being left with the full price of your home to be paid when the term reaches completion is a legitimate cause for concern.

This does not necessarily mean that a repayment mortgage cannot be a viable and cost-effective option; it all depends entirely on your financial situation and long-term plans.

Initial vs. long-term savings

A homebuyer takes out a mortgage of £400,000 with a ten-year introductory fixed rate of 2.5% over the course of 25 years. If this loan was issued as a repayment mortgage, they would be paying around £1,795 each month to the lender. With an interest-only mortgage, their monthly payment would be reduced to £834.

The borrower in question would be looking at around an extra £1,000 in their pocket each month, giving them the option to save, invest, or inject cash into their business. At the end of the mortgage term, when the balance of the mortgage is due, they could have accumulated enough cash to cover the debt and pocket a profit in the process.

By contrast, a repayment mortgage would leave the borrower with much less to play with each month but with no final debt to pay 25 years later.

Choosing the right option

Interest-only mortgages are not suitable for everyone. For the sake of simplicity, security, and confidence, most people are better off considering the standard repayment option.

There are instances where borrowers meeting very specific criteria could find interest-only a more economical option.

Consulting with an independent broker before applying is therefore essential in order to ensure you fully understand the options available and which are suitable for your requirements.

 

Self-employed workers have always been given the short end of the stick where mortgages are concerned. For the UK’s approximately 4.3 million self-employed workers, getting on the housing ladder can be a challenge.

Major banks and high-street lenders in particular often want nothing to do with self-employed applicants. Elsewhere, those who consider applications from self-employed workers show no mercy where interest rates or overall borrowing costs are concerned.

Particularly in the wake of COVID-19, qualifying for a self-employed mortgage via conventional channels has never been more difficult.

Why is getting a mortgage as a self-employed worker so hard?

The process of applying for a mortgage as a self-employed worker via conventional channels can be complex and frustrating for three main reasons:

1. Most lenders instinctively see self-employed workers as higher-risk applicants. Even if their job is stable and their take-home pay is high, they are still considered risky on the part of the provider.
2. There are still no specialist self-employed mortgages available from most lenders. The overwhelming majority of mortgages on the High Street are designed with conventionally employed people in mind, making it difficult to qualify.
3. Lenders have very different policies where proof of income is concerned. What you may consider to be concrete and irrefutable proof of your financial status may be worth nothing in the eyes of many conventional lenders.

All of which paints a pretty gloomy picture for self-employed workers looking to buy their own homes. But this does not necessarily mean that you are completely out of luck.

Essential tips

As is the case when applying for any type of mortgage, it is essential to adopt a strategic approach. There are steps any self-employed person can take to significantly boost their likelihood of qualifying for a mortgage.

The most prominent examples are as follows:

1. Prove your income beyond a reasonable doubt.

Copies of bank account statements and such are of no consequence when applying for a self-employed mortgage. Instead, your lender will expect to see proof of your earnings in the form of your tax returns and general financial projections.

You should be looking to provide evidence of income from at least the past few years. You can get copies of your tax returns from HRMC online or request that they be posted to your registered address.

1. Get yourself a good accountant.

Having a chartered accountant on board as a self-employed business owner is highly recommended. This alone can open a lot of doors on the High Street and elsewhere, as small businesses represented by reputable accountants are always considered safer.

There are many lenders who only consider applications from self-employed workers that are formally stamped and signed by a registered accountant. This can be the best way of adding weight to your application and showing the lender that the figures on your documents are complete and accurate.

1. Work on your credit score.

While this can be effective in supporting your application, it is rarely a short-term solution. Instead, it may take weeks or months to begin steering your credit score in the right direction. Something that can be done by paying off existing debts, tidying up your old bank accounts, ensuring you do not go overdrawn, and so on.

Before applying, check your credit score with the major credit agencies and make as many quick fixes as you can.

1. Offer a larger deposit.

Offering the lender a larger deposit is also guaranteed to work in your favour. Along with boosting your likelihood of being accepted for a mortgage, a larger deposit can also pave the way for lower interest rates and more competitive borrowing costs.

Most major lenders will only accept self-employed applicants who are able to provide at least 15% or 20% by way of a deposit. If you are able to increase this to 25% or 30%, your application is far more likely to be accepted.

If you would like to learn more about self-employed mortgages or have any questions regarding your eligibility, we would be delighted to hear from you. Call or e-mail anytime for an obligation-free consultation with a member of our team.