We have become somewhat accustomed to rock bottom interest rates that barely nudge 0.25 percentage points either way for months on end but thanks to rising inflation, those days are over. A 0.5 percentage point interest rate rise in August and another similar hike forecast for September has woken many borrowers and property buyers from blissful financial ignorance.
When the main interest rate rises, mortgage rates usually rise in tandem, so if you already have a mortgage or want to take out a home loan, now is a good time to seek professional advice. An independent financial adviser (IFA) is the best person to assess your personal circumstances and advise on mortgage matters, as they take a holistic view of economic conditions and all the costs attached to borrowing money.
If you’re not sure if you need the advice of an IFA, read on. Here are six scenarios when it’s imperative you take professional advice before borrowing any money or committing to a new home loan:-
Scenario 1: your mortgage’s fixed rate period ends in the next six months
If you’re already a homeowner with a fixed rate mortgage, the discount won’t last forever. The rate will automatically switch to the lender’s almost-always higher standard variable rate the moment the fixed period ends. It is, however, possible to lock into a new product up to six months before the current deal expires – a good idea in the current climate of rising rates.
Scenario 2: you’re buying a more expensive property and are porting your current mortgage
Porting means taking your existing mortgage with you when you buy a new property. If the new property is worth more than the last, you may require an additional, concurrent mortgage to cover the extra amount. This will probably be at a different interest rate to the mortgage you are porting over.
Scenario 3: you’re buying a more expensive property and are settling your old mortgage
Homeowners who have equity in the property they are selling may be able to settle their existing mortgage completely, or they may have paid off their home loan in its entirety at the point of sale. This leaves the buyer free to take out a new mortgage to purchase their next property.
Scenario 4: you’re buying an additional property and need to remortgage to raise a deposit
An additional property could be a holiday home or a buy-to-let investment but the purchasing rules are the same – a deposit will be required if using a mortgage. Such a lump sum can be accessed by remortgaging an existing property to free equity.
Scenario 5: you’re buying an additional property and need a home loan
If you’re not a cash buyer, you’ll need a mortgage to buy a holiday home or investment property. There are specific home loans and associated rates for people buying a property that won’t serve as their main residence.
Scenario 6: you’re a first-time buyer
First-time buyers will almost always need a mortgage to take their first step on the housing ladder. The mortgage rates offered to them will be dictated by the value of their cash deposit, whether they’re using Help to Buy or are considering a Government-guaranteed 5% deposit mortgage.
If you identify with any of the above, contact us for preliminary property advice and for IFA recommendations.