While house prices in most areas of the UK climbed by 2.6% in 2017, the value of residences in London have taken a drop. The capital’s house prices fell by 0.5% last year, making it the weakest performing region in the entire UK since 2004.
Despite the falling prices, however, the cost of buying a home is still high and out of reach for a large proportion of the population. In 2016, house prices jumped by 4.5%, and reports detailed that people struggled to buy a home at that time due to constrains in pay growth.
Since prices will more or less continue to climb despite a slow growth rate, some financial advisers assert that now is a good time to get a mortgage. The chance to get a low-cost mortgage this year may recede as several factors now point to a time of rising borrowing rates.
Mortgage rates have declined for years, which was due to a low bank rate as well as lenders’ increased competition from foreign investors. While borrowing cash was extremely difficult due to the recent economic crisis, most banks have eased their requirements today. Those with smaller savings are now able to borrow more credit from UK lenders.
Choosing a rate for your mortgage
For those who are thinking of getting a mortgage, experts advise that borrowers should be on a variable rate mortgage plan that yields no penalties. This type of mortgage comes in different forms, one of which is a standard variable rate, which gives lenders the right to loosely base their rates on the bank rate. There are also tracker mortgage repayments that strictly follow the movement of the official bank rate.
How long should you pay for your mortgage?
Usually, people opt for the 2-year mortgage payment. However, there are more flexible deals that offer a longer period of repayments such as 5 or 10 years. As a rule of thumb, the shorter the repayments, the lower the interest rates that a borrower should pay. However, a longer repayment plan isn’t so bad given the current economical situation in the UK. A slow pay growth simply does not allow a lot of locals to pay in just two years, and this is becoming apparent based on the data by London & Country.
“Most people go for between two and five years, but the gap between five and 10-year rates has narrowed and that brings more people in for longer deals,” said David Hollingworth, a broker for London & Country. “Of course, that ties you in and that’s harder for people to come to terms with…Can Bank Rate really go any lower? There’s very little upside in having a variable rate.”
In addition to a slow pay growth, several economic factors are affecting the ability to pay in two years’ time. In the UK, the BOE Credit Conditions Survey sometimes affects the amount of credit that lenders can provide borrowers. FXCM in their description of BOE Credit Conditions Survey states that as part of the BOE’s task to preserve monetary and financial stability, the financial establishment needs to understand the trends and developments in credit conditions. The survey covers secured and unsecured loans to households and small businesses. One recent event that has affected loans has been Brexit. Experts say that until a final Brexit vote can be made, the UK will not be able to increase its available credit to consumers.
Before getting a mortgage, make sure that you’re already prepared for the responsibility of owning a house. Quote Goat has some tips on how you can acquire a loan even under difficult circumstances.