Each week seems to be bringing another mouth-watering, jaw-dropping, low-defying mortgage rate.
The tail end of 2014 and beginning of 2015 saw rates plummet to new records with a variety of fixed, tracker and discount rates now on the market, some as low as 1.19%.
Great Rates! Wait, there’s a catch?
Well. Sort of.
Great rates are great rates, don’t get us wrong. They make having a mortgage cheap and compared to where we were 5 years ago when Mortgage Interest rates were around 5-6%, it’s excellent for Mortgage Owners across the board. With the Bank of England Base Rate expected to remain at 0.5% for at least another year, the likelihood of Interest Rates soaring is limited (although the possibility is always there).
But there is one big question and it’s quite a massive one.
Are you eligible for the Mortgage?
You’ve probably heard, or at least seen somewhere, about MMR – the Mortgage Market Review. We discussed the changes back in April. Since it’s introduction approval rates have fallen as Lenders apply strict criteria.
The point is that on the face of it, with such low interest rates you’d probably think you can afford a mortgage. As an example, a £150,000 over 25 years, interest rate of 1.99% you would pay a total cost of £578 a month.
But what happens when the rates rise?
This is the question the Lenders will ask and they have tests that make an educated guess as to whether or not you’ll be able to afford your mortgage.
Applying for a Mortgage
When you apply for a Mortgage, the Lenders will apply both Affordability and Stress Tests.
For the first, they’ll ask you to provide examples of your spending – how much is going out compared to coming in. They’ll then apply a stress test – a very simple test that identifies if the interest rates rise, whether you’ll be able to afford the increase in payments. The current average interest rate they use is around 6.5%.
What Next?
You then have a few options.
You can apply for one of these mortgages and see what happens. You might be approved, but you might not. If you’re not, you might end up damaging your credit file. Alternatively, before apply for anything, you could speak to a Mortgage Advisor and discuss what your realistic options are.
Michael Usher Mortgage Services
We’re qualified and we have experience which means once we know your circumstances and what you want to achieve, we’ll know which Lenders you fit criteria for and subject to the relevant checks, we’ll know within our first meeting which Lenders are more likely to approve your application.
