Mortgages, debts and the Brexit effect - now's the time to act
PUBLISHED: 17:36 16 November 2018 | UPDATED: 17:36 16 November 2018
With four months remaining until the UK's official withdrawal from the European Union, and still no clear message on the Brexit deal - despite the dramatic events in Westminster this week - concerns are rising over future interest rates and the effect on house prices and debt levels. Now is the time to review mortgage arrangements and property portfolios.
This is what we know: the Bank of England’s Monetary Policy Committee (MPC) has frozen the base interest rate at 0.75pc. This is what we don’t know: the Brexit effect on interest rates, debt and house prices when we leave the EU at 11pm on Friday, March 29, 2019... exactly 130 days away.
Now we need to make such assets as we might have – property, savings or pensions – safe and hard-working, while considering how best to handle what we owe – mortgages, loans and credit cards.
And, with the results of the political fall-out from the “technical deal” signed off by Cabinet still unclear, most experts suggest that we would be well advised to do it now rather than wait to see what happens at the end of March.
According to the Royal Institution of Chartered Surveyors, the unknowns surrounding Brexit are already weighing on the property market, with surveyors estimating in September that the house price outlook in three and 12 months’ time was at its lowest since June 2016, with Brexit the main worry among buyers.
Add to that a worst case scenario warning at the same time by governor of the Bank of England Mark Carney that a no-deal Brexit could cut 35pc off house prices and, unsurprisingly, mortgage holders, potential buyers and savers are left scratching their heads over what to do for the best – and when.
The first step for anyone unversed in the multiple products available is to find an independent mortgage advisor – someone whose advice is not tied to any provider and so is able to recommend the best deals for the client.
Independent mortgage advisors, or brokers, research the whole market and recommend to clients the most appropriate solution. You are not sold a product, you are given advice.
In the current period of uncertainty, independent mortgage advisor Ranald Mitchell, a director of Charwin Private Clients, based in Norwich Cathedral’s Close, recommends that we “get our affairs in order by March”.
“We still don’t know what the Brexit deal will be, but it is likely that there will be an increase in the cost of living, a rise in the rate of inflation, subsequent rising interest rates and so potential problems in getting mortgages or handling debt,” he says. “We have a five-month window of opportunity.”
Ranald says people carrying debt levels relatively high compared to their incomes are most likely to feel the pinch post-Brexit, and a restructuring of the existing debt may be a good idea now.
“We can either reduce overall monthly outgoings, secure rates now while at historical lows or help them make their money work more efficiently,” he says.” If there is opportunity, we will be able to identify it. Our job is to make sure the benefits outweigh the costs.
“Getting debt under control now will give families a ‘buffer’ to absorb the unknown but likely increase in the cost of living, protecting lifestyles rather than looking for ways to cut back.”
Every mortgage deal has a limit to how much can be borrowed compared with the current value of the property, and is shown as a percentage – the “loan-to-value”. When you re-mortgage, the lower the loan-to-value required, the more deals that might be available, including cheaper mortgage deals.
“We are seeing a spike in the number of people re-mortgaging to fund let-to-buy arrangements,” says Ranald. “Say, you’re moving jobs, you can re-mortgage and let out your first home to fund the purchase of another.
Homeowners should keep a regular eye out for better mortgage deals. With new products coming on the market all the time, it could be worth your reviewing your lender’s agreement when interest rates change, and when your current mortgage deal comes to an end.
Even if you are locked in to a fixed or discount rate deal with an early repayment charge, these few months before we leave the EU might be a good time to review the situation, according to Ranald.
A buy-to-let mortgage is suitable for people who want to invest in property, have a good credit record and are not stretched on other borrowings such as an existing mortgage or credit cards, you earn £25,000+ a year, and you’re under a certain age, typically under 75.
“This is 20-25pc of our business,” says Ranald. “Conditions are fantastic at the moment, with interest rates at historic lows. Looking ahead, it might not be so good.”
He adds: “I suspect the party’s coming to an end. By which I mean that there is a generation of people who have never seen a significant interest rate rise – there hasn’t been one since 2006, after all.
“People with a high proportion of borrowings need to act. If the base rate went up to the ‘dizzy heights’ of 2pc, some people will be in trouble. Of course, historically, 2pc is still ridiculously low, but it is several multiples of the current rate and would shake up a lot of households.”
CLASSIC MORTGAGE MISTAKES
Only speak to one lender for your deal
Some borrowers go straight to one lender when they need a mortgage – usually their banking provider. Shop around, do the research yourself or to make things really easy, visit an independent broker.
Choose the lowest interest rate
The cheapest rate doesn’t always equate to the best mortgage. The lowest rates can come with high fees, and they are only available to borrowers with the biggest deposits. A mortgage broker will establish the least cost option.
Ignore your own personal circumstances
Not so long ago, tracker and variable mortgages were popular because they were cheaper than fixed rates, plus with interest rates expected to stay low, they didn’t present too much risk. But for a family that absolutely cannot risk a rise in repayments, variable rates may not be as suitable as a fixed rate.
Fall into an expensive LTV bracket
Don’t tip the wrong side of a lender’s loan-to-value (LTV) bracket - it can make your monthly repayments much more expensive. The bigger your deposit the cheaper the mortgage, so try to muster the extra money and you could bag a more competitive mortgage and save yourself a fortune.
Forget to read the small print
Mortgage small print can be complex, boring and long, but it is important - particularly the Key Facts about your Mortgage document. Read it cover to cover, more than once and make sure you understand it. If you don’t, ask your lender or mortgage adviser to explain it.
Charwin Private Clients recommends you use a broker, who will understand your circumstances and take responsibility for the advice given. To search for mortgages, visit www.charwinprivateclients.co.uk/mortgage-search