During 2024, as inflation has fallen to the Bank of England target, speculation grew as to when the Monetary Policy Committee (“MPC”) would reduce the Bank Base Rate (“BBR”). Whilst on 1st August the MPC decided to reduce the BBR by 0.25%, many banks had already reduced their mortgage interest rates over the summer months in anticipation of this decision.
So, whether you are stepping on, up/down the property ladder or considering purchasing/refinancing a buy-to-let property, your mortgage is likely to be more affordable than last year. However, if inflation remains under control (or even falls below target) speculation for further rate cuts will continue. In an environment where the BBR is ‘expected’ to fall, careful thought and research needs to be undertaken to ensure the right mortgage product and lender is selected to meet your personal circumstances.
First Time Buyers “FTBs”
Whilst both lenders and the government continue to provide FTBs with support through innovative mortgage products and initiatives, affordability remains a key hurdle for FTBs and hence the ‘Bank of Mum and Dad’ continues to remain a critical source of assistance:
- Cash gift for lump sum deposit; and/or
- ‘Income’ support on the mortgage application to meet affordability criteria
Understanding the type of financial support family members are able to provide can be critical to ensuring you apply for the mortgage product and lender that meets your personal circumstances.
Purchasing your first home is likely to be your single largest financial transaction. It is therefore critical that you consider your mortgage options carefully:
- Fixed or variable rate mortgage – a key question in an environment where interest rates are expected to fall;
- Interest only or capital repayment – can have a significant impact on monthly payments and hence affordability;
- Initial interest rate term of 2, 3 or 5 years – early repayment charges (“ERCs”) can be costly
A number of factors need to be taken into consideration when assessing which type of mortgage fits your personal circumstances:
- How long you intend to stay in the property or is your mortgage portable
- Whether your finances can withstand variable (up or down) monthly payments
- The desire to have fixed monthly payments for financial security/budgeting and managing stress
- Are your personal circumstances likely to change eg work abroad, starting a family
- Age of anyone supporting the mortgage may have an impact on the mortgage term
The ‘second stepper’ mortgage
If you are ‘stepping up’ the property ladder, it is highly likely that your new home will cost more than your existing home and potentially require a higher mortgage amount. Like first time buyers, you will need to establish the size of your deposit and potentially agree a ‘mortgage in principle’ before you start viewing properties. If you decide to keep your existing property, you will need to discuss your current mortgage with your existing lender and potentially transfer it from a residential mortgage to a buy-to-let mortgage. This may require you to re-mortgage to a different lender.
Some of the following changes in personal circumstances may affect your affordability analysis:
- Move from employed to self-employed
- Form of income e.g. discretionary bonus/commission, deferred income/equity
- Change in nature of expenses – nursery/school fees
- Financial commitments – car/student loans, outstanding credit card balances
- Historic mortgage payment holidays
Mortgage options for over-55s
For over-55s who may be considering retirement, ‘down-sizing’, helping children onto the property ladder or raising additional liquidity for everyday or one-off expenditure, lifetime mortgages have become an important financial planning tool.
A ‘lifetime mortgage’ is a loan secured against your home – you retain full legal ownership of the property and usually there are no monthly repayments to make as the loan plus rolled-up interest is repaid when you pass away or go into long-term care. Many lenders offer the flexibility of allowing you to pay part of or all the monthly interest rather than have the interest roll up. Unlike normal mortgages, a ‘lifetime mortgage’ does not have a fixed end date. The amount of mortgage you will be eligible for will depend on facts such as your age (minimum age of 55), health, value of your home and existing outstanding mortgage.
Lifetime mortgages can provide you with the financial flexibility to:
- stay in the existing family home;
- potentially delay taking a tax-free lump sum or regular income withdrawals and thereby allowing the pension fund to remain invested for longer;
- delay accessing savings such as ISAs;
- allow you to gift during your lifetime rather than only on death;
- introduce some succession and inheritance tax planning during retirement.
This is a lifetime mortgage. These are only applicable to those 55 and over, and it could affect eligibility to state means-tested benefits and the inheritance you may leave. To understand the features and risks, ask for a personalised illustration. Equity release includes lifetime mortgages and home reversion schemes. We can advise and arrange lifetime mortgages and will refer to an approved specialist for home reversion schemes.
Buy-to-Let (“BTL”) Mortgages
Stricter affordability criteria triggered by tax changes and rapidly rising interest rates has left many landlords struggling to refinance existing BTL mortgages or raise new finance for new purchases. As with residential mortgages, lenders have also been reducing interest rates on their BTL range. This will bring welcome relief to landlords.
Whilst Interest Cover Ratio (“ICR”) remains a critical hurdle landlords will need to continue to focus on:
- Holding structure e.g. corporate, personal, partnership
- Property type – HMO, student accommodation, single AST, mixed use
- Geographical locations
How the Kinnison Team can help
Whether you are a FTB, second stepper, over 55 or a landlord, the Kinnison team are experienced in supporting and advising you on the mortgage options available. The team can:
- Fully understand your personal financial circumstances
- Undertake a research of the mortgage market and advise you on your mortgage options
- Discuss the merits of each of your mortgage options
- Attain an ‘agreement in principle’ from a lender
Once you have found your property and had your offer accepted, the team can:
- Submit the formal application for the mortgage which meets your personal circumstances
- Help to answer questions which the bank underwriter may have
- Work with your conveyancing lawyer to complete on your purchase/refinance
Get in touch
If you are currently looking for a residential mortgage or to refinance your existing mortgage and would like to discuss your personal position, please contact the Kinnison team:
Email: [email protected]
Call: 0203 871 2824