mortgage rates are helping purchasers get access to market
PROPERTY is making headlines again and this time the reasons are twofold: average asking prices in London have reached £500,000 for the first time. And the IMF has joined the long list of critics of Help to Buy (the government-backed scheme designed to help buyers purchase property with as little as a 5 per cent deposit), warning it will push up house prices further. Property prices have long seemed to defy gravity in the capital. Today this is partly the result of an influx of foreign buyers into London – nearly all of the 866 flats in Battersea Power Station have been sold to foreign investors, for example.
But it is still a good time to be buying. “In London, there remains an incredible demand for housing, which supports prices, and I don’t see that changing anytime soon. If you have the finances available and have found the right property, then go for it,” says Mark Harris of SPF Private Clients.
Recent Halifax research has found that buying a home is more affordable than renting. In London, typical homebuyers will pay £193 less per year than the average renter. And while a lack of new properties in London has pushed up house prices, the country is a long way from another bubble. “House prices continue to pick up gradually, but we are not seeing evidence of a UK property bubble,” says Craig McKinlay, mortgages director at Halifax.
As you would expect, the best deals are reserved for those with larger deposits, with the top deals wanting 60 per cent loan-to-value (LTV). But with lenders responding to low expected Bank of England interest rates over the next couple of years (currently at 0.5 per cent), and the Funding for Lending scheme increasing liquidity in the mortgage market, fixed-rate deals look increasingly appealing. Indeed, in the first quarter of this year, 83 per cent of buyers were opting for a fixed-rate product. And the average rate was 3.62 per cent, down from 4.05 per cent in 2011.
FINDING THE BEST DEALS
Gareth Lowman of SPF likes the Natwest fixed-rate mortgage with 1.74 per cent until October 2015, 60 per cent LTV, and a £1,995 arrangement fee. It offers free valuation and legal services for remortgages. Such offers look like good value, especially with interest rates so low, but “don’t fix for longer than you are absolutely sure about, as you will pay a penalty to exit early,” warns Harris. If you opt for a tracker, Cheltenham & Gloucester tracks 1.39 per cent above the Bank rate until August 2015.
But while mortgage rates are hitting historical lows, arrangement fees are on a high. Which? found that, in November 2005, the average mortgage arrangement fee was £411; in March this year it was £1,412. A Chelsea Building Society fixed-rate mortgage looks like a good deal: 60 per cent loan to value, initial rate of 1.74 per cent, up to 5.79 after two years. But it charges a £130 arrangement administration fee and a £1,545 completion fee. So be sure you factor this into your calculations. Some lenders have been making cuts – HSBC, for example, offers a 2.59 per cent initial rate on its fixed-rate mortgage, with no product fees.
Whichever mortgage you choose, make sure you check your credit file before making an application. Harris recommends paying off debts on credit cards or loans to boost the amount you can borrow.
Lenders favour purchasers who are on the electoral roll and have a long-term employment history. So if you have recently changed jobs, wait six months before applying. Avoid applying for lots of new mortgages when applications are rejected – this makes your credit rating worse. So do your research, and only apply to lenders that are suited to your circumstances.