Despite the pandemic, with the government’s official guidance allowing the property market to continue to flourish, it is business as usual for those looking to purchase property or remortgage.
If speculation surrounding a three month extension of the stamp duty holiday proves correct, it could be an interesting few weeks ahead for the property market as pent up demand continues to drive activity.
|Overall Cost Comparison (APR)
|Early Repayment Charge
|2 Year Fix
|3% Years 1 and 2
|2 Year Flexible Tracker
|2 Year Fix Offset
|2% Year 1; 1% Year 2
|5 Year Fix
|5% Year 1; reducing to 1% Year 5
Mortgage availability has become much better recently, as lenders chase market share in an extremely competitive environment. A great example of this is a new product available with enhanced income multipliers, (up to 5.5 x) for newly qualified professionals. The maximum loan to value is 85% and the lender offers fixed rates over two and five years. Surprisingly, the product also comes without a fee and offers a free valuation.
Before selecting a mortgage product it is worthwhile looking at likely interest rate trends: at their February meeting, the Bank of England held rates at 0.10% and left its stimulus programme unchanged. The UK’s rapid Covid-19 vaccination programme will help the economy rebound strongly this year, according to the Bank of England.
Growth is expected to shrink 4.2% during the first quarter, amid tighter lockdown restrictions. However, policymakers expect a rebound in the spring as people become more confident about spending. Base rate is not likely to rise for at least three years although negative rates remain a possibility if growth falters. It is worth remembering it took over ten years for base rate to rise following the credit crunch.
It is difficult to be definitive when recommending which products offer best value. Both short and long term fixed arrangements are priced competitively as we appear to have reached the bottom of the current interest rate cycle. It is unlikely that lenders will pass on any further cuts in base rate as they struggle to maintain margin. Standout products are base rate trackers, preferably without redemption penalties, offering unparalleled current value and maximum future flexibility. As always, those with surplus capital should consider the tax advantages of an offset arrangement.
The Bank of England has been reviewing and preparing for negative interest rates for some time. At their February meeting they announced that they would give mortgage lenders six months’ notice of negative rates, meaning base rate is likely to remain unchanged until at least September 2021. Similarly, market expectations are for rates to go negative in 2022 with a reduction to minus 0.25% for a period of twelve months, followed by an increase to zero (subject to developments and recovery from Covid).
As with all aspects of current life, prospects very much hinge on Covid and how the nation recovers but the overwhelming message is that rates will not increase for many years to come and in fact are likely to decrease in 2022.
Following the detrimental tax changes in the rental sector, many higher rate taxpayers are now purchasing investment properties in a limited company. Not only can this offer more favourable tax treatment, but property assets can also be passed down a generation mitigating inheritance tax. In addition, raising capital using a mortgage may offer a way of passing down your wealth and limiting your future IHT liability. A little known method of doing so is asset backed lending – raising a mortgage based on your assets or investment portfolio, rather than your income.
Whether you are coming to the end of your mortgage product or keen to compare your current rate to the best available elsewhere, please contact your adviser who can put you in touch with our mortgage partners.
* Lending criteria restrictions apply to all products, always seek independent advice.
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Source: Professional Mortgage Services.
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