Great to see lenders are seriously looking to assist first time buyers positively. One example is the Saffron Building Society, who have launched a five year fixed rate under 4%, with only a £495 lender arrangement fee. Available with just a 5% deposit, this is an attractive product to those looking to get their first property. In addition, the lender will manually assess each application, rather than rely on a computer score based decision.
Contractors have also been targeted. For those working on fixed term contracts, who have a minimum of 6 months left on the current contract and a good history, it is possible to get up to 90% of the property value. In the main, the lenders will work on daily rate, multiplied by five days and forty eight weeks to work out income. This is then used in the lenders affordability calculations. Some lenders have no early redemption penalties so the customer can move away at any time.
In our heavily regulated marketplace, lenders main area in making a decision whether to lend, or not, is on your ability to pay the mortgage today, and also in the future. It’s difficult to detail when I have minimal words, but in the main, lenders will stress test all mortgages against a possible rate rise and underwrite the customers based on their ability to pay at the higher rates. The regulators want lenders to ensure the customer can afford their mortgage for at least the next five years. So, for example, a shorter term deal may be stress tested at a pay rate of 3% plus 3 percentage points higher than the prevailing rate at origination, so in this case 6%. Whereas a five year (or longer) deal may be stress tested against the pay rate, which might only be 3% in current climates. This can make quite a difference when it comes to calculating the affordable loan amount over the first five years of the loan, subject to the lenders terms and conditions. Longer term fixed rates can also be good for the end consumer as they should get the loan they want, but also the monthly payments remain fixed for the next five or more years.
There are a number of attractive five year deals, some six and also ten year deals currently available. Potentially great value if you know your plans for the longer term and prefer to fix your monthly payments.