The slowdown in the housing market may come as good news for first time buyers, who may stand a better chance of getting a home of their own. However, for mortgage lenders, it may be becoming a problem. Without a steady stream of borrowers their revenues are down.
Few of us will shed a tear for banks and building societies, especially when they are forced to offer lower rates to compete for what borrowers there are. But we should be careful to look at all the costs if we are thinking about a home loan – because those low rates don’t tell the whole story.
Low rates are not the only factor in a mortgage
There have been two interest rate rises by the Bank of England in recent times, with Base Rate moving up first from 0.25% to 0.5% and then to 0.75%.
The rise from the historic low of 0.25% – which was around for so long that it seemed to have become the new norm – should have been expected to prompt rate rises across the board. Lenders need to increase rates to keep pace with the Base Rate, because it affects the terms on which banks and building societies can themselves raise the cash they lend out.
True, there have been rises in the lending market, and not just in tracker mortgages, where rates are automatically raised when the Bank of England Base Rate is increased. But many increases seem to be much smaller than the latest 0.25% increase.
Many mortgage providers still appear to be offering loans at or near historical low levels.
Fees are on the rise
With first time buyers and those considering remortgaging in their sights, many lenders are offering attractive headline rates which look tempting but hidden behind them are arrangement fees that seem to be heading skywards.
Data from financial information firm Moneyfacts revealed that the average mortgage arrangement fee increased by £15 between August and November. You can expect the lender to add somewhere in the region of £1,000 to your mortgage for the privilege of borrowing from them.
Of course, as a one-off charge, the impact looks small on the overall cost of a mortgage. An arrangement fee can often be added to the amount you are borrowing, giving the impression that the charge is just a technicality.
However, whilst it may be a ‘technicality’ by adding £1,000 to your loan, you might be paying interest on this amount of the next 25 years or more.
These high arrangement charges could also lead to more expense. The average borrower will probably re-mortgage every two years or so, at the end of a fixed rate introductory period. An extra £1,000 going out every two years is a significant cost.
It is worth noting that it may be possible for lenders to apply an early repayment charge in addition to any arrangement fee.
What can you do?
The problem of the hidden fees might seem hard to avoid. If you have found a home you want for the long term, one answer might be to get the most suitable deal for your circumstances and needs, with arrangement costs factored in. There are now some five-year fixed deals for very little more than a two year fix, which will at least avoid the need to re-mortgage for longer.
But the best answer is to get professional help. At Continuum we have experts who can work with you to find the mortgage that really is most suitable for you and we have access to mortgages that are not featured on comparison sites.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.
dailymail.co.uk – Don’t be fooled by the cheap mortgage trap: Banks sneak up fees while keeping rates low to appear more competitive – 22nd October 2018