Mortgages are a major commitment. Much has been made of the difficulty associated with acquiring a mortgage in recent years. Some banks are asking for as much as a 30% deposit before they will give you a mortgage. Younger people have been hit the hardest by this attitude in relation to mortgages. Some people have even begun calling the latest generation Generation Rent.
For those who already have a mortgage, the landscape has changed because of the latest turn in economic policy. The Bank of England is about to take its record-breaking lows of 0.5% interest and lower it to 0.25%.
What does this mean for your mortgage?
Now is the Time to Get a Mortgage
If you can secure a mortgage, this is the time to get one because these low interest rates mean that you are going to be paying less for your mortgage than ever before. The interest rates are lower than ever, and so this could save you hundreds of pounds every single year.
an incredible chance for you to save a lot of money on what will likely be the biggest purchase you ever make. And interest rates are expected to go down even further, with most speculating that by the end of the summer interest rates will be 0%.
The Bank of England has to reduce interest rates in order to encourage growth. They are doing this because encouraging growth will counterbalance the decrease in business caused by the Brexit vote.
Why is it Harder than Ever to Get a Mortgage?
Banks are not giving out mortgages without a huge number of checks. The amount they expect you to provide as a deposit is going up, Despite the government’s Help to Buy Scheme, it’s not much easier to get a mortgage than it was before this scheme.
why this is the case, you have to take things into context. The 2008 financial crash meant that banks were no longer able to take risks on people. Before, they could hand out mortgages with as little as 5% as a security deposit. For them, it meant that they were able to make a lot of money selling mortgages to people who were wholly unsuited to hold them.
The moment interest rates rose these people were unable to pay their mortgages, thus enabling the banks to repossess their homes. New regulations came in, and the banks had no choice but to tighten things up.
But there is another perspective to take into account. They had no reason to lend. With interest rates so low, they are not making much money from your mortgage. They make money from interest rates, so this is bad news for them.
Beware of Rising Interest Rates
In the short to medium-term, interest rates are not a problem. They are unlikely to rise significantly as a result of the Brexit vote. Celebrate this now, but in the long-term, it is inevitable that interest rates are going to go up again. And when this happens you are going to have to increase the amount you pay every month.
Banks are going to stress test your ability to pay, based on your current income. You should do this as well, and you should hold yourself to higher standards. Think about whether interest rates rose a few percentage points and whether you would still be able to pay.
There are lots of mortgage calculators you can find online to help you work this out. With a mortgage being such a long-term commitment, you should think ahead of time.
It is inevitable that interest rates are going to rise sooner or later. As it stands, you can save hundreds of pounds in interest every single year, but until that time you have to be aware of rising interest rates and what they could mean for you.
Plan ahead and make a careful decision when it comes to your mortgage. It could just save your family home in a few years when the economy begins to improve again.