Mortgage Guide | Autumn 2022

Since last year the SWAP rate for 2-year fixed rates have risen dramatically – from 0.27% to 2.80% (11th Aug 2022). The same is true for longer term rates, with 5-year rates moving from 0.46% to 2.50%. Alongside wider increases in the cost of living and Base Rate rises by the Bank of England, this fast increase has meant that borrowing is now more expensive.

"Since last year the SWAP rate for 2-year fixed rates have risen dramatically – from 0.27% to 2.80% (11th Aug 2022). The same is true for longer term rates, with 5-year rates moving from 0.46% to 2.50%."

For those clients that have been looking to buy, this change of cost can come as a surprise. It could mean a re-assessment of their buying power. Clients hoping to re-mortgage will also be finding the price change startling. It is advised that you look at any mortgage agreements closely, and give yourself enough time to do so properly.

If you’re hoping to get a mortgage, there are lots of factors to think about, particularly while the market is unpredictable. For example, you may be weighing up a long term versus short term fixed rate. Whether you go for a 2-year or 5-year fixed rate, it always been based on both price and circumstance. But it may be worth bearing in mind that, unusually, at the moment the 5-year fixed rate costs less.

If you’re thinking about moving, or paying down your mortgage before 5 years, there are some things to keep in mind. You normally have a 10% overpayment allowance, but if this is not enough, some lenders will allow you to split the loan and have part on one lending rate and part on another. You can also “port” the mortgage to a new property (i.e. take it with you), but the bank will assess your ability to take the loan over based on income/expenditure rules at the time.

You may be considering whether an interest-only mortgage is option. This will be based on your income and deposit/equity level. You will need a strategy to pay back an interest-only mortgage but, but it can be useful for clients who get some income through bonuses or commissions, or have other investments and savings. For some, interest-only can make for a good cash flow and allows them room on their monthly payments, with a strategy to pay down the mortgage in stages (using the 10% allowance).

It may feel harder to get a mortgage now, but the fundamentals of borrowing have not changed. However, banks do have to take into account the increase in interest rates and the overall cost of living. This means that “like for like”, you may find it harder to borrow. In light of this, some banks have increased their Income Multiples, and others have looked to increase how much variable income they can take into account (e.g. going from taking 50% of a bonus to 60%). The key, as always, is to make sure you have your paperwork ready to go, and you can provide the right evidence to secure your loan.

If you are self-employed, you may be worried that the state of the market will mean you won’t be able to secure a loan. It is possible. The issue that banks encountered during the pandemic was the sustainability of income had decreased. As we move forward from the initial shock of lockdown, and as clients’ accounts are showing a “post pandemic” picture, some lenders are starting to look at that year in isolation. This is good news for self-employed borrowers who had to ride out the uncertainty during the pandemic.

Ultimately, the best advice is that no buyer is the same as another, so make use of a Mortgage Broker and get the right advice.

To see the rest of our Q4/22 Magazine, click the link below to view the articles online: https://issuu.com/briklondon/docs/brik_magazine_-_2022_-_q4_-_issuu

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