Demand has seen property prices, in the UK, rise at the fastest pace for 17 years along with the average house price reaching an all new high of £238,831! This has led to an ever- increasing array of new mortgage products becoming available giving the buyer more choice than ever before.
However, with such a wide choice available, it’s important that buyers employ an amount of due diligence and check out the full ramifications of their prospective mortgage choices.
The latest research, presented by the ‘Money Facts-Uk Mortgage Trends – Treasury Report, tells us that the amount of new mortgage products is increasing, month on month, with 85 new products entering the market between April and May 2021 alone. This is an increase from 3842 to 3927. The number of 95% loan to value deals (LTV’s) saw the biggest increase – up by 78 to 112 in May. This is largely due to the governments ‘Mortgage Guarantee Scheme’ where providers are protected. Deals requiring A 10% deposit (90% LTV), increased by 41 – up from 440 TO 481.
However, the average 5- year fixed mortgage term saw an increase in interest rate from 2.77 to 2.79% - a direct result of the demand for the new higher LTV products; with high LTV’s traditionally attracting a high rate of loan interest.
Buyer beware! It is worth remembering that the UK economy is still very much in a low interest rate environment and that the ‘ideal’ mortgage package is far more than being about just a low deposit. With this in mind, there isn’t any need to rush in. Good mortgage deals will always be around as long as there is a strong demand for property. A mortgage is very much a long-term commitment and with this in mind, you need conduct some thorough research into looking at all the ramifications of a potential mortgage deal – above and beyond the seemingly attractive ‘headline offer.’
For example, a 5% deposit can seem very attractive; particularly given how hard it is to save for a deposit, but, by putting in a larger deposit of 10 or even 15%, if you can manage it, has a big impact on both the interest rate you’re offered and the overall amount you pay back. Furthermore, other aspects such as product fees as well as any additional incentives can all have an impact on the total, long-term cost of a mortgage - and this also has the effect of seriously ‘out-weighing’ some of the low deposit options.
As the old adage goes ‘Beware of Greeks Bearing Gifts;’ mortgage companies are in business to make money and as such, you should treat this as any potential business transaction and cut beneath the ‘gloss’ to look at the overall offering. In particularly, look at the overall amount to be paid as well as any clauses the tie you in and possible financial penalties to get out of the contract.
Buyers also need to be aware that even with a 5% deposit, which amounts to £13,350 based on the UK’s current average house price of £267K, that reality dictates that you will actually require £15,350; in other words, a further £2000 to cover conveyancing and other associated fees.
We would advise not to rush into high LTV products. Get some FREE advice from an independent specialist like Dunham McCarthy. The only thing that such a meeting will cost you is a little of your time, but the advice and information that you receive would be invaluable with the potential to save you many thousands of pounds.