In our heavily regulated mortgage marketplace, the lenders main area in deciding whether to lend, or not, is on your ability to pay the mortgage both today and also in the future. It’s difficult to detail when I have a limited word count, but in the main, lenders will stress test all mortgages against a possible rate rise and underwrite the applicants 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% (even though bank base rate is 0.5%). However, 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.
Whilst in the ‘planning’ frame of mind, and with so much talk about rates increasing, have you reviewed your current financial arrangements to ensure sure you are on the best deal available?
Whether you require the security of fixing your payments for an amount of time, or whether you are a bit of a risk taker and might look at a short to a medium term tracker, right now, there are a number of attractive five year deals, and also some ten year deals currently available. Potentially great value if you know your plans for the longer term and prefer to fix your monthly payments.
Other things to consider – Do you have a Will? Statistics show that only one in three people currently have a will in place, with the remainder leaving the state to take over and determine how their assets and belongings are distributed, if they die. Do you have Life Assurance, Mortgage Payment Protection, Accident Sickness and Unemployment cover, Critical Illness Cover, and more? Any of these products might be beneficial to your personal circumstances or needs, especially if you have children, and with competition increasing, these types of products are not as expensive as you may think. As always, seek professional and open market advice.