The Bank of England monetary policy committee today opted to hold the base interest rate at a record low 0.1%. That means the cost of mortgage borrowing will remain lower for longer.
There is certainly plenty to talk about in the mortgage market at the moment. From the stamp duty holiday, to high loan-to-value mortgages being reintroduced and a new Help to Buy scheme, the first months of 2021 have been busy, and there is more to come. Here are our experts’ five things you need to know about the mortgage market right now.
- Interest rates are on hold...for the moment
From jobs to spending, officials say they are increasingly aware that the UK economy is performing far better than estimates suggested just a month ago. UK consumers have built up £125 billion in savings during lockdowns and will begin spending it as restrictions ease.
That could fuel inflation, which in turn may prompt the Bank of England to raise interest rates earlier than it has signalled to date. Some buyers may wish to seek out longer-term fixed rate deals as a result.
- Buy-to-let investors are taking advantage of the stamp duty holiday
Buy-to-let investors have seized the opportunity to benefit from the stamp duty holiday that alleviates the need to pay the charge on the first £500,000 of a property purchase.
Lenders approved 22,500 mortgages for landlords in the final quarter of 2020, according to data from UK Finance. That’s the highest level since 2016.
Lenders are eager to gain market share among first-time-landlords (FTLs), and 65% of buy-to-let mortgage deals are now available only to this demographic, a 4% rise on a year earlier, according to Moneyfacts.
While recent taxes rises have caused some investors to leave the sector, its appeal endures to many seeking regular income. News that the Bank of England now forecasts unemployment will peak below its February forecast of 7.75% is likely to provide another draw.
As economic confidence has returned, so have mortgages for buyers with small deposits.
Buyers with deposits worth 10% of a property’s value now have 277 products to choose from, up from just 44 in September, according to Moneyfacts.
Mortgages for borrowers with a 5% deposit are harder to come by, however this week Yorkshire Building Society became the first top ten lender to announce it was returning to that market since the government announced a 95% LTV mortgage guarantee scheme in the Budget.
Knight Frank Finance understands about half a dozen other lenders have signed up already and it looks like rates for new 95% mortgages may come in under 2% when you fix for two years.
- Lifetime Mortgage rates are rising
Lifetime Mortgages allow borrowers aged 55+ to free up some of the equity they have in their home while they still live there. This can be beneficial for a number of reasons, which we outline here.
In the past two weeks, every provider of these mortgages has increased rates, and it’s likely to be a sign of things to come.
Unlike normal mortgages, Lifetime Mortgages are fixed for life, and rates move in tandem with long term Gilt yields, which in turn reflect the future health of the economy. The first quarter economic contraction of 2.9% in January was far better than the 5% contraction expected by economists and the Bank of England predicts the economy will roar back to life from the second quarter onwards.
The best available Lifetime Mortgage rates are currently just above 2.5%, and could hit 3.5% before Christmas, according to our Later Life Finance expert David Forsdyke. So it's worth speaking to a qualified expert now if you're thinking about your options this year.
- A new Help to Buy starts on 1st April
Help to Buy has just had a pre-spring clean.
The scheme is now only available to first time buyers, runs until March 2023, and enables you to purchase a new home with a deposit as low as 5%. Through this scheme, the government will lend you a maximum of 20% of the sale price up to the regional limit in your area. In London that moves up to 40%.
We have access to 26 lenders specialising in the Help To Buy market at the moment, with two year fixed rates available as low as 1.34%.
Do get in touch for more advice on navigating the current mortgage market to meet your current needs and future goals. We'd love to help you.