Never mind mortgage rate cuts; there’s never been a better time to get on the property ladder
Speaking in response to today’s announcement by the Bank of England to cut interest rates to 0.25%, Paul Bumford, Financial Services Director at Andrews Property Group said:
“The likely knock-on effect of today’s announcement which will see mortgage rates reduce, is just one route to getting on the property ladder – simply, there’s never been a better time to buy.
“Whilst reduced mortgage rates will see the market enjoy a positive bounce as a consequence, once the headlines have faded we have to deal with reality. I’m certainly not suggesting that a cut to interest rates isn’t a good thing, but I think it should be couched within reason. Most lenders are unlikely to significantly, if at all, alter their Standard Variable Rates (SVR); fixed rates, meanwhile, may see some initial downward movement; whilst it’s in the tracker mortgage market where the greatest gains are to be made – assuming there are no collar exemptions in place whereby the rate cannot drop below a certain point.
“But does that leave us in a vastly different place to where we currently find ourselves today? I’d argue not, but it’s not such a bad place to be. Simply, there has never been a cheaper time to access money, nor has there been an easier time to get a mortgage, so long as – and this is the crux – the applicant ticks all the boxes.”
Paul goes on to explain that, especially for first time buyers, there is currently a myriad of opportunities to get on the property ladder but that simply they don’t always do their homework, hold realistic expectations, or consider more creative options for entering the mortgage market.
“There is a wealth of information out there and any purchaser, first time or otherwise, should be able to gain a pretty fair idea of what they can afford. Once they’ve done some initial research, it’s always a good idea to engage with an expert advisor who will integrate a stress test on the level of borrowing that allows for interest rates going up by anything in the region of 2-5%. Remember, it’s not simply a case of the loan being affordable now, but also in the future.
“Purchasers also need to be realistic about what property it is they really need. We often hear that young people can’t afford to get on the property ladder, but all too often they’ve set their sights on a property that would suit them later in life as their family expands or which is located in an area that commands a premium. By considering alternative property types or locations, they’re likely to open up options that they hadn’t previously considered.
“Likewise, shared-ownership is an increasingly popular option that allows the purchaser to increase the amount of equity they own in the property as their circumstances change. But it’s not just official schemes that should be considered, and your options for getting on to the property market may be closer than you think.
“The ‘bank of mum and dad’ that we here so much about is estimated to be worth £5billion annually, making it the 10th biggest lender in the UK! But rather than just stop with a gifted deposit to help towards making that initial step, parents can also consider releasing equity in their own property or being named on the new mortgage to support their offspring.
“Finally, there’s always the option of buying with two or three like-minded friends. This can work especially well in London, the South East and other areas where city centre living comes at a premium. By pooling resources, a one bedroom flat that seemed unaffordable can become a three-bedroom house and so long as all parties have sought expert legal advice and feel comfortable that they’ll be able to manage things should circumstances change in the future, it’s a great option for getting on the property ladder.”
Paul Bumford concludes with reassuring words: “Yes, the drop in mortgage rates is an opportunity to be seized for many purchasers, but it’s far from the only option and lenders have never before been so prepared to look at more creative options, so long as they are well thought through, make financial sense and are affordable. I’d encourage anyone looking to get a mortgage to not be blindsided by what they read in the media – there are options out there.”