Buying a home has not been particularly easy of late. House prices are rising at a much quicker rate than what the income of the average British household can support; particularly in London, where house prices rose 17 per cent last year while income dropped by 1.6 per cent. The Hamptons International's Ability to Buy Index reports that buying a property in the capital has become 73 per cent less affordable.
But it's not all bad news. In an effort to compensate for the rising property prices, lenders have introduced cheaper mortgage rates that make home ownership a more realistic prospect for those who might otherwise have given up hope. HSBC is one notable example, having introduced a new five-year fixed-rate mortgage with a 1.99 per cent rate, the lowest ever for a five-year mortgage deal.
Lower rates and higher hopes
For a time, home buyers were concerned that the UK property market was going to become even more untenable, as analysts were predicting a rise in interest rates, which have been kept low to assist recovery from the financial crisis. However, the doom-mongering appears to have been premature, as the Bank of England does not look set to increase interest rates until the spring of 2016; hence, a dramatic drop in mortgage rates that should prove favourable to home buyers.
A home owner who secures a 25-year £150,000 mortgage repayment with HSBC's new 1.99 per cent deal would pay £635 a month and £39,602 over the course of five years, saving £14,500 compared to what they would have paid on the 4.99 per cent rate that was frequently attached to five-year deals before the financial crisis.
Lower rates can be had though. For example, Yorkshire Building society offers a 2-year fixed-rate mortgage at 1.18 per cent. However, home buyers need to weigh the benefits of a lower rate versus the expense of remortgaging after the two-year fixed term is up.
A 1.99 per cent rate over the course of five years potentially offers a better deal in the long run, as you can rely on fixed rates regardless of whatever shifts may occur in the housing market as a result of a newly elected parliament.
Finding the best deal
The catch is that home buyers will have to pay a deposit of 40 per cent on the property in order to qualify for the mortgage deal. They will also need to pay a fee of £1,499, although, according to David Hollingworth of mortgage broker London & Country, this will have less impact on someone taking out a five-year loan than a two-year deal.
Of course, if you'd prefer lower fees in exchange for higher interest rates, there are mortgage deals that cater to that as well, with Nationwide Building Society offering a five-year fixed-rate at 2.29 per cent with a £999 fee. With mortgage rates so competitive at the moment, and HSBC raising (or rather lowering) the bar even further, it may not be doom and gloom for home buyers after all.
However, if you need help finding a mortgage rate best suited to your circumstances, don't hesitate to contact the experts at Tepilo for advice.
The information and data provided are for general information purposes. They do not constitute investment advice nor can they take account of your own particular circumstances. If you require any advice on investments, you should contact a financial or other professional adviser.