Private Finance’s Mortgage Memo

This is our take on what is currently happening in the mortgage market. Our views are often cited in several national publications, including; The Times, Telegraph, Financial Times, FT Adviser and Daily Mail, as well as a number of key trade publications, so this should keep you ahead of the curve. If you have any questions on any of these stories, or would like further information, please do not hesitate to get in touch.

  • First-time buyers report renting cheaper than buying
  • Accord repayment type and term adjustments

First-time buyers report renting cheaper than buying

After significant mortgage rate rises following the mini-budget, many prospective house buyers, in particular first-time buyers, may now be delaying house purchases and turn instead to the rental market as a cheaper option and while consumer confidence is lower.

Using the following property as an example (both on the market to buy or rent) we have done a rough cost-benefit analysis of buying vs renting right now.

For a high-income earner looking to purchase this property with a LTV of 90%, the best available 5-year fixed rate is around 5.4%. This would mean the mortgage payments would be around £2,500 over a 30 year term. Alongside the mortgage payments, the homeowner would also have to deal with the additional responsibilities of the ground rent and service charge (which is often taken care of if renting) as well as picking up the bill for maintenance such as the boiler, leaks and upkeep. However, the owner would be able to build equity in the property with their payments, be exposed to house price changes (hopefully for them, growth) and enjoy the other freedoms with buying a home such as remodelling/renovations.

Using the same property available to rent.

The rent would be £2,100 per month, and the landlords would likely cover the additional costs of ground rent and service charge for the flat, removing a lot of hassle and extra financial risk that is associated with buying a property.

Renting appears more attractive now, especially for those that were not on the housing ladder beforehand and didn’t have a chance to build equity in their property during the last year when the UK experienced high house price growth. Many first-time buyers may now choose to rent for a longer period.

Accord Repayment type and term adjustments

Last week, Accord announced they will allow borrowers to amend their term or repayment methods to allow for greater flexibility in these arduous times mid-product. Most lenders have the facility for this type of adjustment but haven’t reached out to brokers with a guide on how to action this, Accord has been proactive in reading the struggle many will face moving forward.

This is an interesting update from Accord and makes us wonder whether we could see more lenders come out with similar forms to pre-emptively help struggling customers. It is in everyone’s best interest that borrowers can continue to pay their mortgage payments and lender innovations like this give borrowers extra support and open options, especially if mortgage rates remain high. This is also great if clients’ circumstances change, and they need to adjust their mortgage terms.

Borrowers should seek proper advice in this situation if they are considering extending their mortgage term or placing part of the mortgage loan on interest-only as this would most likely increase the total interest payable and mean they are paying more in the long term.

This is also not a decision that should be taken lightly if people are currently mid-product at lower rates, as if those are struggling with current rates they may well have a tough pill to swallow once remortgaging in months/years to come.

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