THE MORTGAGE MARKET AHEAD

The back end of 2022 saw some fairly sharp interest rate rises, and with the Bank of England base rate increasing from 1.25% at the start of August to 3.5% in mid-December, it is easy to see why the mortgage market proved fairly volatile.

Clients have been keen to fix rates across the longer term amid fears that this increase could be set to continue, but lenders were forced to load a premium onto their mortgage rates as they anticipated increases to continue. Thankfully, since Christmas, we have started to see some of these mortgage interest rates come down as lenders have been keen to display an appetite to lend, which is good for the property market and, of course, good for our clients.

For those who already have a mortgage, the advice that we have been giving is to plan ahead. We will look to speak to our clients six months prior to their mortgage fixed rate end date in order to start looking at what the new payments are going to look like on the current market rates.

There is no doubt that most of our clients are going to see an increase at the moment, but there are things that can be adjusted, and that we can review together such as re-looking at the mortgage term, the schemes on offer through alternative lenders, and alternative rate types. We will go through a client’s income and outgoings at this stage, which although not directly linked to the mortgage, has helped highlight a few areas that clients can start looking at to save in certain areas, too.

It’s incredible how much the subscriptions start adding up when you throw in all of the on-demand TV and music services that we have grown accustomed to paying each month. An early review doesn’t tie you into a product if you feel that rates may decrease, and a new rate wouldn’t usually take effect until the end of the current fixed rate too.

The advice is the same for my purchase customers, and again the income and outgoings assessment is key as things like utility bills have increased in recent times.

So, that is another area that we need to think about and tackle head-on to ensure that the monthly mortgage payments that clients are looking to take on remain affordable.

What we are also seeing a bit more of are changes in client income, and how this can be used. We have seen a fair number of clients who are gaining pay rises, bonuses and also who have secondary income such as second jobs and benefit income. These are things that lenders all look at differently, but that can really alter the amount of mortgage that can be obtained.

A lot of people think that if they receive a pay rise or gain a new job, they can only look to start using this income for mortgage purposes once they have three months’ payslips showing this income. This isn’t usually the case, and sometimes clients won’t realise that a lot of lenders will take child benefit, maintenance and other income sources such as annual bonus payments into account.

This can be the difference between being able to purchase a property or not, so as soon as you are aware of any income changes, my advice would be to let your advisor know so that they can see what difference this can make and if/when it can be used.

A large part of our business is also in assisting our buy-to-let clients, who have been as keen as our residential clients to look to review their options early and secure a continued return from their investment.

Again, reviewing early is the advice and with rising interest rates has come rising stress rates, which has meant that some of the rental properties in our clients’ portfolios are falling short on affordability for approving the same loan amount that they already have. A lot of the time, the current lender will offer a product transfer option, so a new rate can still be secured and we would always look at this against the schemes available through alternative lenders when assessing these for our clients, regardless.

It’s key to review the rental income regularly to ensure that market rate is being achieved, and we are lucky that we have a very good lettings team that we work alongside to help our clients here. Failing to review rents in the past has meant that our landlords might lose out on the difference between what they are charging tenants and the market rental valuation across a year.

However, in this new market, the increase in mortgage payments by not being able to move lenders also needs to be factored in if it prevents clients from being able to remortgage successfully, showing how important it is to keep on top of rental income.

Article by Chris Pargin, of Pargin Financial Solutions. You can contact Chris on chris@parginfs.com or 07398163663.

Pargin Financial Solutions Ltd and Boydens are separate entities. For estate agents, Pargin Financial Solutions Ltd acts as introducers only boydens.co.uk