It’s news to no one that savers have had a pretty rubbish time of late. With interest rates at a record low of 0.5% savers are getting very little return on their money. It’s for this reason that many people are looking for different homes for their money – often quite literally, with property investment proving attractive.
However, it is still possible to make your savings work hard for you – by offsetting them against your mortgage.
An offset mortgage is a great way of making the most of your savings when they’re not making much interest. So how does it work? Quite simply, the amount of savings you have is taken off your mortgage debt before interest is calculated, thus reducing the amount of interest you pay. So, for example, if you owe £200,000 on your mortgage but your have £20,000 in savings, rather than paying interest on £200,000 you’ll pay it on £180,000 (£200,000 less your £20,000 savings).
If you’re paying less interest on your mortgage you’re able to pay it off sooner. And, if you need to access your savings, you can do.
There are a couple of downsides however. Firstly, it’s important to remember that by offsetting your savings against your mortgage you give up the chance to earn any interest on them. While that might not be a problem right now given the low interest rates on offer, which could change in the future.
Secondly, offset mortgages tend to have higher rates than other mortgages so make sure you use an experienced mortgage broker, like We Know Mortgages Ltd, based in Manchester city centre, to find out if an offset is the most appropriate option for you.
The way in which we work has changed. Research shows more people than ever are working for themselves – or considering launching a business soon. But with the mortgage market still somewhat dated in its criteria for borrowers seeking a loan, what will happen to the would-be homebuyers in this great entrepreneurial revolution?
Before the economic collapse in 2007/2008 getting a mortgage when you were self-employed was quite straightforward – or, at least, it was beginning to be. Self-certification mortgages – whereby the borrower would simply have to tell the lender what they earned but didn’t need the paperwork to prove it – were growing in popularity. When the credit crunch hit however any ‘risky’ lending was immediately stopped and self cert was deemed among the riskiest.
Self cert was banned by the industry regulator the FCA. However, the launch of an overseas lender offering self cert earlier this year proved just how in demand mortgages for the self-employed are – it was inundated with applications to such an extent that within days it had closed its doors to new business.
However, it is possible to get a standard mortgage even if you’re self-employed – as long as you have evidence to prove you can make the repayments. Make sure all of your accounts are in order. The longer you have been working for yourself the more chance you’ll have as the lender will be able to make a more accurate assessment of your regular income. Use an accountant to ensure your accounts are in order.
Having a decent sized deposit will also help so save as much as possible before applying. And make sure your credit score is the best it possibly can be. You can access your credit report using a number of websites – mortgage lenders generally use Experian or Equifax. If it’s not as great as it could be you can take some simple steps to improve it such as making sure you’re on the electoral register, cancelling unused credit cards and checking the address on any old accounts is correct.
For more information, contact us in our Manchester city centre office.
To fix or not to fix?
As expected the Monetary Policy Committee, the body tasked with setting interest rates for the UK, kept rates at 0.5% this month. After months of speculation that rates were set to soar – followed by several more months of panic that we could see base rate fall to negative figures, consumers are no doubt confused as to what happens next. The Bank of England base rate is used by banks and lenders to set their mortgage rates so if base rate rises your mortgage rate rises and if base rate falls your mortgage rate follows suit. Unless, of course, you opt for a fixed rate which will remain the same for the duration of your mortgage deal.
At present the vast majority of borrowers are opting for the safe bet of fixing their mortgage. When rates first started to tumble those people who were coming to the end of a fixed period found themselves saving a small fortune. Many had been on a fixed rate mortgage paying 5 or 6% and suddenly found themselves paying 2 or 3%. Unsurprisingly a huge number of borrowers decided to stick with their lender’s default rate (a variable mortgage rate which can go up or down depending on what’s happening with interest rates). However, as rates hit rock bottom and lenders began offering very attractive fixed rate mortgages many borrowers opted to secure a great rate while they had the chance.
So, with so much uncertainty around which way rates will go, should you be fixing or not? Let’s look at the pros and cons.
The biggest benefit of fixed rate mortgages is they give you the peace of mind of knowing that your rate will remain the same for a fixed period. This can be hugely beneficial when it comes to making plans. You know exactly what your outgoings will be so there won’t be any nasty payment shocks, at least where your mortgage is concerned.
The downside is fixed rate mortgages tend to be a little more expensive than variable rates (you’re paying for the stability) and often come with an expensive penalty if you want to change mortgages (called an Early Repayment Charge).
Variable rate mortgages – either mortgages on your lender’s Standard Variable rate or tracker mortgages (so called because they ‘track’ the base rate) can be more attractive because the rates are usually lower. However, you should only choose a variable rate if you know you will be able to cope with a higher repayment should rates go up. Your mortgage broker will perform a stress test to ensure you could manage to make the repayment in the event of a payment shock.
If you’re looking for a mortgage and aren’t sure which is the most appropriate option visit us at We Know Mortgages Ltd in the heart of Manchester and we can help find the perfect solution for you.