Buying a new home is an exciting time. Whether it’s the prospect of unleashing your interior design ideas or having that extra room for hosting visitors, it can be easy to get caught up in the new home hullabaloo.
But before you put on the housewarming party hat, put on the sensible hat and make sure you know the ins and outs of your new mortgage and avoid any nasty surprises.
Gail Reid, director of Gail Reid Mortgage Services, shares how to get your ducks in a row when sourcing your new mortgage
Check how much you can borrow
It may seem like the obvious starting point but research by the HomeOwners Alliance in 2022 found that a staggering 56% of prospective UK homeowners put in an offer on a property before checking their mortgage options. Then, when it comes to borrowing, the UK Finance and Mortgage Market Forecast for 2024 - 2025 documented that 40% of buyers are unable to borrow the amount they’d expect.
But it’s not all bad news, as around 85% of mortgage applications do go through successfully. So, providing you pass financial checks, the odds of being approved are in your favour.
The rise and fall of interest rates
Following the soar in interest rates in 2022, it goes without saying that it’s been a challenging few years for the property market.
Rates may not be back to their pre-boost amounts, however, they are reducing. We’ve seen an average drop of 1.46% from the peak at 6.86%, bringing us back to a more affordable rate.
The sub 2% interest rates that we’ve seen in the past were abnormal in the mortgage market and we’re unlikely to see those low rates again. We can’t predict the future rise or fall in interest rates, but if you’re in a good financial position, there’s really no time like the present in securing your deal.
Moving from one property to another
If you’re already a homeowner, there are a few additional mortgage considerations to keep in mind and avoid any nasty surprises:
- Get clued up on your early repayment charges: If you’re paying off your current mortgage before the end of your deal period, it’s likely you’ll have to pay early repayment charges (ERCs). ERCs are dependent on your lender and mortgage product and typically calculated as a percentage of the outstanding balance on your mortgage (typically between 1% to 5%).
- Porting your mortgage: If the ERCs to leave your existing mortgage are higher than expected, or you would like to retain your current mortgage deal, porting your mortgage could be helpful. You can carry across your mortgage product to your new property and maintain your current interest rate and terms.
- Check on your negative equity: If you sell your existing property and the price doesn’t pay off your outstanding mortgage balance, you’ll be left with negative equity and will need to be settled.
