With interest rates holding steady, finding the right mortgage can be tricky for homeowners and first-time buyers alike
London: The Bank of England has decided to keep the base interest rate at 4.75%. This comes after inflation has risen for two months straight. Last time, they cut the rate for the first time since the pandemic, but now it seems like homeowners are in a bit of a bind.
Mortgage rates have shot up over the last couple of years, mainly due to the economic chaos from the ‘mini-Budget’ that was announced back in September 2022. Londoners are feeling the pinch, with average mortgage payments rising by about £7,500 a year.
If you have a variable or tracker mortgage, this news isn’t great. You were probably hoping for some relief, but it looks like you’ll have to wait a bit longer. Fixed-rate mortgage holders won’t see any immediate changes, but they might feel the impact later when they need to remortgage.
With all this economic uncertainty, it’s tough to figure out what type of mortgage is best for you. There are a few options to consider if you’re looking to buy a home.
First up, we have repayment mortgages. Most folks go for these because you pay off both the capital and interest each month. Eventually, you own your home outright. You can choose between fixed-term and variable options.
Fixed-rate mortgages keep your interest rate steady for a set period, so you won’t be affected by any rate hikes. On the flip side, variable rate mortgages can change, which means your monthly payments might go up or down.
For first-time buyers, saving for a deposit can be a real challenge. That’s where 95% mortgages come in handy. With these, you only need to put down 5% of the home’s value. This option became available again after a government scheme was introduced in 2021.
Major banks like Barclays and HSBC are offering these deals, and the scheme is set to run until June 2025. So, if you’re a first-time buyer, it’s worth checking out.
If you’re renting and don’t have much saved up, zero-deposit mortgages might be your ticket to homeownership. Skipton Building Society has a new mortgage that helps renters with a solid payment history get on the property ladder without needing a deposit.
They’ll look at your rent payment history, and if you’ve been consistent for at least a year, you could qualify for a mortgage covering up to 100% of the property’s value.
Interest-only mortgages are another option, but they’re a bit different. You only pay the interest during the loan term, which means lower monthly payments. However, you need to have a plan to pay off the full loan amount later.
These types of mortgages aren’t as common as they used to be, and lenders have stricter rules now. Only a small percentage of new loans are interest-only these days.
Then there are ‘part and part’ mortgages, which let you pay off some of your mortgage over time while leaving a portion unpaid until the end of the term. It’s a middle ground between interest-only and full repayment.
Lastly, if you’re over 55, you might consider a lifetime or reverse mortgage. This lets you tap into the equity in your home without having to move out. You can take the money as a lump sum or in installments, but keep in mind that the debt can grow quickly since you usually don’t make repayments.