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Lenders begin stretching mortgage terms up to 40 years

Traditionally, mortgages would tend to last around 25 years, but the demand for longer deals has grown drastically. With people working and living longer, it comes as no surprise that there’s a higher demand for longer-term deals. Recent research has highlighted that 36% of first-time buyers now opt for a term 30 years and above compared to just 17% 10 years ago.

By taking the mortgage term over a longer period, you are in effect reducing your mortgage payments. This to some degree is beneficial since the longer the term, the easier it is to pass lenders affordability rules; but you will pay more interest in total as the loan will be in place for a longer period. Nevertheless, this option is particularly useful in parts of the country such as the Chilterns where house prices have remained high and homebuyers need to acquire larger loans.

The increased demand for long term deals can also be attributed to the slow growth in wages and increased standard of living. With more purchases being made later in life and families having to juggle multiple financial commitments, there is a real demand in borrowers wanting to stretch their terms to make their monthly payments more affordable along with borrowing later into life. It could also be said that many of the younger generations have a ‘buy now save later’ mentality which could be also attributed to why they’d rather stretch the mortgage term and spend elsewhere.

Research has also indicated that the average age of first-time buyers is rising, and this has led to home buyers wishing to take their mortgage over the age of 70 purely to meet affordability. It’s also been suggested that since the average age has risen, first-time buyers are driven to buying larger homes as opposed to buying starter homes or flats.

But is it a Good Idea?

This can work in one of two ways. By stretching the mortgage term borrowers are, in effect, reducing outgoings and this can make the qualification for a larger loan possible.

As previously stated, this does cost more. By extending the term you will pay more interest over the full term and less of the capital per month, for example:

A £250,000 mortgage over 25 years with an interest rate of 2% cost £1,059.64 per month which consists of paying roughly £640 in capital initially. In total, over the 25-year term, a borrower would pay £67,890 in interest.

However, if we extended the same loan over 40 years, payments would drop to a highly attractive £757.06 per month but only £340.39 is the initial capital reduction. The result is (assuming interest rates never change), in total, a borrower would pay £133,648 in interest nearly twice as much as the 25-year version.

It’s easy to understand why taking the longer-term option may be the best option for some but it’s best to know all the facts related to this choice before going ahead. Speak to one of our independent advisers as they can help you decide what term is the most suitable for your situation.

Contact us directly on 01494 778899 or via email: info@pffinancial.co.uk

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Is an Offset Mortgage right for me?

If you usually have a reasonable amount of cash sitting in a savings account earning a low interest rate but have an outstanding mortgage balance, then an Offset mortgage could be right for you! An Offset mortgage links your mortgage account to a savings account and offsets – hence the name- the balance of one against the other. For example, if you have a £300,000 mortgage and generally around £70,000 in savings, you would only pay mortgage interest on the net debt, so £230,000.

So why would you do this? Some people would argue you should just make a lump sum payment of the mortgage and granted, this is an option.  The problem is, you would lose access to your savings which you may require either for a future plan or just to provide security.  Whatever the reason, an Offset means you retain that access and are able to make use of your savings.

Flexibility is a key benefit to the Offset. As well as being able to withdraw and deposit funds if and when required, it gives you peace of mind that should you need emergency funds relatively fast, you have total access to your savings without any penalty.

Moreover, Offset mortgages can also be utilised as an efficient way of making tax savings. Even with the new introduction of the savings allowance, interest earned on savings accounts with higher balances is still taxed; however, by offsetting you effectively remove all tax implications. In most instances, the interest you are charged on your mortgage will be higher then what you can earn in a normal savings account. Therefore, you will be better off as you would be making a tax-free saving at the higher mortgage rate. In addition, for higher rate taxpayers, it works especially well, as the savings made on the mortgage will not be tax deductible.

Why doesn’t everyone do it then? Well, a slight drawback of an Offset is that the mortgage interest rate can be slightly higher than some mainstream products. Therefore, if you don’t have much savings to put in the offset, it might not be the most cost-effective use of your money. However, for those with a decent sum of money in savings who want to retain access to it, I would suggest optimising an offset facility if you have 20% of more of the mortgage balance in savings.

If you are think an Offset mortgage might be right for you, it is important to contact a broker who can talk you through all your options and ensure you find the best possible deal. Give us a call on 01494 778899, email us at info@pffinancial.co.uk or use the link below to get in touch.

Learn more about our mortgage services here

Or contact us directly on 01494 778899 or via email: info@pffinancial.co.uk

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Brexit vs Mortgage Rates

Unsurprisingly, one of the questions we’ve been asked the most over the last few months is

What will happen to mortgage rates post-Brexit?

Like everyone else, we can’t give definitive answers, but we can give you an idea of what we think is likely based on our years of experience as mortgage brokers and analysing the housing market.

Remember though, that everyone’s circumstances are different, so if you want a free chat about your own personal situation, just give us a call or chat online.

Interest rates:  Will they rise? 

Last November was a bit of a shock for many homeowners when interest rates rose for the first time in a decade. Well, we may all be in for a shock again. Just last month, Mark Carney, Governor of the Bank of England said that an interest rate rise is ‘likely’ this year, but any increases will be gradual. Many experts believe that there will be a 0.25% rate rise later this month, although Carney has said it’s by no means a foregone conclusion. Watch this space.

So, what does this mean for mortgage rates? 

Mortgage rates are now at the lowest we have ever seen them, with some deals below 1%.  Given interest rates could be on the rise, now would be a good time to fix your rates and lock in your monthly repayments.  Some 5 year deals are extremely low, so it would probably be worth taking advantage of them to avoid any future rate rises from Brexit. We don’t know for sure if mortgage rates will go up, but if you can give yourself peace-of-mind for the next 5 years and you won’t be moving property, why wouldn’t you?

What’s going to happen to house prices? Should I buy or put my plans on hold?

We’ve all heard the horror stories of buyers pulling out because they are worried about the “Brexit Effect”, but have they got the right idea? We’re not so sure.

While it’s true that the annual rate of house price growth is at its lowest level for almost five years [Halifax], and house prices in London have fallen by as much as 15% over the past year [Your Move], other areas of the country, especially the North West are flourishing. And even though house prices across Buckinghamshire, Hertfordshire, Berkshire and Bedfordshire are experiencing some of the slowest growth in the country, experts believe that prices won’t go down, but will either stop going up in 2018, or go up by no more than 1%.

For most homeowners, house prices are relevant to each other so if the one you are selling loses a little of its value, so has the one you are buying.  Falling prices may have more of an effect on first-time buyers than any other purchaser and they could be in danger of losing money if prices fall.  But we think buying your own home is more of a lifestyle choice than an investment choice so, if you want or need to buy, then we suggest you should.  In fact, the way house price growth has slowed, could work in your favour as it might make sellers more willing to accept offers well under the asking price.  The good news for first-time buyers is that currently, if you buy a property for £300,000 or less, you won’t have to pay any stamp duty.

Brexit has been a bit of a shock for many and nobody can be 100% of its impact on the housing market and mortgage rates. If you would like to talk through your own personal situation, to get a clearer idea of how it might affect you, please give us a call. Most of our clients come from across the Northern Home Counties of Buckinghamshire, Hertfordshire, Bedfordshire and Berkshire but if you live further afield we are also more than happy to help.

Learn more about our mortgage services here

Or contact us directly on 01494 778899 or via email: info@pffinancial.co.uk