2010 Mortgage Round Up

As ever, there's plenty happening with mortgages at the moment, with continued uncertainty on the property market, an Emergency Budget and the potential rate shock that could hit homeowners hard in the not too distant future. Here's a round-up of what's been affecting mortgage customers most recently...

A second credit crisis?

The Bank of England this week offered something of a stark message to mortgage seekers, warning that the availability of lending may well fall significantly in the coming three months.

Mortgage approvals are hardly sky high at present. In May, they stagnated at 50,000 - around half the level seen before the economic crisis hit. According to the Bank's Credit Conditions Survey, though, mortgage providers are expecting things to get even worse, as wholesale lenders - those from whom banks borrow themselves - tighten their purse strings in tense economic conditions.

All this means that, by autumn, mortgage availability will have fallen steadily for over a year. As a result, it may well be wise to move quickly before some of the most competitive mortgage deals are withdrawn - particularly if you are only able to provide a relatively small deposit.

Don't let rate shock hit

Sadly, the lack of mortgage availability is not the only thing haunting the market at present. Many existing homeowners may have enjoyed low interest rates for some time now, with the average first-time buyer currently paying just £334 a month in mortgage payments according to recent research from Santander.

However, this won't last forever. Indeed, with inflation still well above the target of 2 per cent, many are concerned that interest rates may have to rise somewhat sooner than may have been anticipated a few months ago. While that is still unlikely to be before the end of this year, it's well worth thinking about what you are doing with that spare cash, and considering putting it aside for when you may need it.

Working out what you would be paying if rates were to increase is one way in which you could plan for the future. Figure out the difference between that amount and what you're paying now, and putting it away in one of our top cash ISAs should see you covered when rates do rise, with a little interest of your own left to spare.

Top Tip

A top tip this time comes from Joanne Garcia, head of financial services at Confused.com. She explains that, when it comes to choosing a mortgage, it's best to ask as many questions as possible.

"Making the choice between a fixed rate and a tracker is arguably tougher than ever in the current environment, and the last thing you want is to be regretting your decision two years down the line.

"As none of us can predict the future, it's best to simply consider each aspect of your mortgage individually rather than trying to bet on interest rates rising at a certain time.

"First then, you need to think realistically about what type of person you are. If you want to know exactly what your repayments will be each month, then it might be that a fixed rate is for you. This is particularly the case if you're on a tight budget and want certainty rather than the risk of rates rising during the term of your deal.

"Variable rates are likely to look more attractive at present as they track at a certain percentage above the Bank of England's base rate - currently at an all-time low of 0.5 per cent. That could mean a lot of joy now, but you'll need to be sensible and plan for the eventuality that rates will rise at some point.

"Once you've got that big decision out of the way, it's time to decide the length of deal that you want. This is likely to depend a great deal on the type of mortgage you have chosen and what offers are around - you can choose from 2, 3, 5, 10 or even the very few 25 year mortgage products that remain on the market.

"Remember, this is not the length of time in which you have to pay off your mortgage, but the period of your current deal - once it expires you will automatically start paying at your lender's standard variable rate.

"Which leads us on to the final thing to remember - don't just get swept away by attractive headline rates. Make sure you know what you will be paying once your deal ends, and, just as importantly, if there are any fees attached at the end of your deal if you choose to switch, or if you want to pay off early - some mortgage providers will penalise you for doing so."
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