Looking for a new mortgage deal? – Times Money Mentor – The Times

April 25, 2022 By admin

UK house prices rose by an average of 10% last year and interest rates are on the up too, making it harder for some to get a mortgage deal.
But at last there could be some good news for homebuyers. In December, the Bank of England said it wanted to relax mortgage affordability rules – in a move that could allow people to borrow more to own a property.
In this article we explain: 
Looking for a new mortgage deal? Check out our free mortgage tool to compare the best deals. 
At present, to be accepted for a home loan by a lender, borrowers must demonstrate that they would be able to afford their mortgage if interest rates were to rise 3% above the lender’s “reversion rate”. This affordability check is called a stress test.
A reversion rate, also known as standard variable rate (SVR), is the interest rate to which you default when your current mortgage deal expires. The average reversion rate is 4.41%, according to the data firm Moneyfacts. 
If you are taking out a fixed-rate mortgage deal of five years or longer, you are exempt from the rule. Everyone else must prove they could afford to pay their mortgage if rates were to rise to more than 7%.
Watchdog the Financial Conduct Authority imposes its own affordability rules on lenders, which will remain unchanged. We will look at those later.
Looking for a new mortgage? Try our free calculator below to see how much you could borrow.
Since 2014, when the Bank’s lending rule was implemented in the wake of the financial crisis, mortgage rates have fallen. For borrowers with the biggest deposits, some lenders offer deals of less than 1%.
At the same time, house price inflation has continued to outstrip wage growth. To help, some lenders have increased the amount they will lend to borrowers in certain occupations, offering loans of up to seven times their annual salary.
Yet such low rates and generous income stretches have not made it easier for all borrowers to get a mortgage. Families must prove they have enough disposable income after paying for bills and living expenses to afford an interest rate of 7% – even if they are taking out, say, a 2% mortgage deal.
The Bank’s plan to relax the mortgage affordability rules is under consultation and expected to go ahead in the next six months. 
Any change would increase the buying power of those who:
But there are risks. If lenders became too generous, it could encourage borrowers to take on large mortgage debts.
Not only could this put household budgets under pressure, but families would be able to make a higher offer for a property than they previously could – potentially pushing house prices up even higher. 
The stress test won’t disappear completely, however. Banks and building societies would have to make mortgage policy changes to implement their own stress tests to account for a rate rise of at least 1%. 
Is now a good time to buy a house? We weigh up the pros and cons of buying a property in 2022.
The mortgage affordability checks that will remain in place are: 
There are three main types of mortgage deal: 
Fixed-rate mortgage. You pay a set rate for a set period. If you repay your mortgage before the fixed term ends, you will be charged a penalty.
Tracker mortgage. Your interest rate rises and falls in line with the Bank of England base rate. 
Discounted-rate mortgages. You are offered a discount off your lender’s standard variable rate. Your mortgage rate rises and falls in line with the SVR. 
For more information on the pros and cons of each, read our guide: Different types of mortgage: which one is right for you?
Halifax: borrowers with a 25% deposit, earning £75,000 a year, may be offered mortgages of 5.5 times their income. Lowest rate: 1.31% fixed for two years. 
Barclays: borrowers with a 15% deposit, earning £75,000 a year, could also get a multiple of 5.5 times earnings. Lowest rate: 1% two-year tracker.
Santander: 5.5 times income stretch open to borrowers with a combined salary of £100,000 armed with a deposit of 25% or more. Lowest rate: 1.24% fixed for two years. 
Nationwide: first-time buyers with a 10% deposit may be offered up to 5.5 times earnings. Lowest rate: 0.99% two-year tracker. 
HSBC: borrowers with a 10% deposit, earning £75,000 a year, could get a multiple of 5.5 times income. Lowest rate: 1.14% for a two-year fix.
A broker can search the market for you to find the most suitable new mortgage deal and carry out a mortgage affordability check.
Read our guide: Which lenders are offering sub 1% mortgages?
Is now a good time to buy a house? Watch our video here
If you are a first-time buyer in need of extra borrowing power, look for a lender offering a guarantor mortgage option, a generous income stretch and free valuation and legal fees.
Here are some of the most well-known first-time buyer deals.
Barclays Family Springboard mortgage: no deposit is needed if family or friends put 10% of the purchase price into a Barclays savings account for five years. 
Nationwide Helping Hand: first-time buyers with a 10% deposit taking out a five or ten-year fixed-rate mortgage may be offered an income stretch of 5.5 times annual earnings. 
Lloyds Lend a Hand/Halifax Family Boost: similar to the Family Springboard, family members must lock up their savings for three years.
Looking for home financing? Read our seven tips to help you get a mortgage.
If you’re wondering how many times salary you can borrow for mortgage purposes, the answer is a maximum of seven.
Habito One, a newly launched mortgage deal from the broker and lender Habito, offers borrowers a seven times’ salary mortgage. You must take out a fixed rate for the life of your loan, up to 40 years, and have an eligible occupation.
Habito One mortgage rates are higher than other lenders’ rates. If you have a 10% deposit, the cheapest rate Habito offers is 4.39% fixed for 10 to 15 years. The average two-year fixed rate is 2.55%, according to Moneyfacts. 
Jane King at Ash-Ridge Private Finance says: “If you have significant disposable income and an expectation that your salary will rise in the future, a seven times’ salary mortgage may be worth considering. But the rates are not competitive.” 
Habito, like all lenders, must stick to responsible lending guidelines. It must carry out an affordability check using the assessments mentioned above. 
Remember – you don’t have to take out the maximum loan offered to you; set your own budget. Consider what’s affordable now and what might be in the future. Build breathing space into your budget for unexpected bills or events. 
Don’t be tempted to increase your borrowing by an estate agent who wants you to put in a higher offer for a home.
If you are considering a 40-year mortgage, we explain what you need to consider: Should I get a 40-year fixed-rate mortgage?
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By entering your details, you agree that these will be used according to our privacy policy. When you subscribe, you will also receive our six week ‘Couch to £5K’ newsletter too. You can unsubscribe, although if you do you will stop receiving both newsletters.
By entering your details, you agree that these will be used according to our privacy policy. When you subscribe, you will also receive our six week ‘Couch to £5K’ newsletter too. You can unsubscribe, although if you do you will stop receiving both newsletters.
By entering your details, you agree that these will be used according to our privacy policy. When you subscribe, you will also receive our six week ‘Couch to £5K’ newsletter too. You can unsubscribe, although if you do you will stop receiving both newsletters.
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