The Magic Disappearing Mortgage

A report for Times Radio with me, Fi Glover and Jane Garvey.

Q: A lot of good deals have suddenly disappeared – what is going on?

1,500 mortgage products have been withdrawn since the start of the war between the USA and Israel and Iran.

Average borrowing costs have also risen to their highest level in over a year at 5.75pc.

According to Moneyfacts, the average shelf-life of a mortgage product hit an all-time low of eight days last month. According to the report, it is the shortest period recorded since the firm began assessing deal periods in 2011.

The move reflects the huge uncertainty lenders feel and the difficulty they have in confidently offering products.

• Why this is especially worrying is that 1.8 million fixed rate mortgages due to come to an end. They may have been paying around 2% on a fixed rate mortgage deal and could now see the rates they pay more than double.

Q: Are rates about to rise?

It is always a guess but future expectations are based on what is happening in the so-called Swap-Rate Market.

Swap rates are agreed between a lender and an insurance company and fixes the rate of interest the lender has to pay the insurance company in return for funds over a set period of time.

If swap rates go higher, it’s more expensive for the lender to borrow and it will have to raise rates on its mortgage products.

A rise in rates recently implies mortgages may also rise. However, there is a BIG BUT… thede are volatile times and the market could have changed by the time I have finished this sentence let alone between now and when you actually read it. In other words it is very hard to predict/

Q: What advice is there for people looking for a mortgage or if their locked-in period to their mortgage is coming to an end?

First of all, it is important to understand what the locked in period is – as I think lots of people just don’t pay attention to it and it can cost them tens of thousands of pounds by not paying attention.

The lock-in period is the stretch of time — often two to five years — where you’re tied to your mortgage deal. Leave early, and you’ll usually face a penalty, known as an early repayment charge.

But once that period has elapsed – you could be switched from the great looking deal you bought a few years ago to a much, much higher rate. The switch is from the discount you got to the Standard Variable Rate (SVR). The SVR can be 2-3% higher than the initial deal. So, on a £160k mortgage that’s an EXTRA. That’s about £5,000 more than necessary each year and over a 25-year period that’s £125,000 extra you didn’t need to pay.

So don’t sit on the SVR – before the switch happens, move the mortgage.

Q: What should I do before the lock-in period ends?

Most lenders let you lock in a new mortgage deal a few months before you need it. If rates rise, you've a cheaper deal locked in. If rates fall, you may be able to ditch the deal you have reserved and move to an even better deal.

The thing to watch out for in this process, is that if you will probably lose any fees you have  paid upfront. This is the cost of the ‘insurance’ you have effectively bought by reserving the mortgage. Check whether any fees need to be paid upfront.

Q: Should I use a mortgage broker?

Mortgage brokers look around the market for you and try and get the best deal. There is no need to use them and you can do this all yourself. However, using a broker saves you some time and they do a lot of the hard work.

Some charge an upfront fee in addition to the cost of your mortgage.

I have never understood why a customer would want to do this and you can find a broker who charges you nothing. They get paid by the mortgage lender, who pays them for brining them your custom. However, the deal you get through the broker should be no more expensive than if you went directly to the lender – so it just saves you time and doesn’t cost you anything. But always check that this is the case with any broker you are considering using.

I have used the same broker 2-3 times and it has saved me some time but the service has got a lot worse over the years as this has become a big business and the deals are no better than the ones I can find. One of the advantages is that the broker reminds you when it is time to move, s they like moving you because each time they make money and you can save money. So I continue to use a broker, despite being less happy with the service.

Q: How to improve your chance of getting a mortgage?

Lenders will look at your credit report to see if you've a good repayment history – the main credit reference agencies are Experian, Equifax and TransUnion.

Checking your own credit report is free to do. It is worth checking it to make sure there are no errors – for instance a case of an unpaid bill that actually has nothing to do with you.

Oddly if you have never borrowed and been great at budgeting it can. Make it harder to get a mortgage. That’s why it can be beneficial to build up a history of using a credit card and regularly paying off the full amount – just to demonstrate you have a good track record iof using credit responsibly.

Q: Does someone’s record of paying rent regularly, help with their credit score and improves their chances of getting a mortgage?

For years, one of the biggest frustrations for renters and to be honest, one of the biggest injustices, is that someone may have been paying hundreds or even thousands in rent every month and that has counted for almost nothing when applying for a mortgage — lenders focused on deposits, income and traditional credit history, while ignoring clear evidence that someone could already afford housing costs.

That’s now starting to change, with rent payments sometimes helping your credit profile — but it’s not automatic. In most cases, renters need to opt in to schemes like Experian’s Rental Exchange, although it may depend on whether your landlord or letting agent participates. Even if they don’t, you may be able to self-report your payment history.

Where it is recorded, a consistent rent history can boost your credit score and, in some cases, be used by lenders as evidence of affordability, with a handful of mortgage products now designed specifically for renters.

It’s not a complete fix — you still need a deposit and to pass affordability checks — but the system is slowly shifting to recognise what many buyers have long argued: if you can reliably pay rent, you may well be able to pay a mortgage.

Q: Should I get a fixed rate mortgage deal or not?

Mortgage rates have risen dramatically amid deepening fears that the Iran war will drive up inflation. Mortgage rates have crept closer to 6pc, with the average two-year fixed rate mortgage at 5.89pc and the average five-year fix at 5.77pc, according to Moneyfacts.

Last month, the Bank held interest rates at 3.75pc and Governor Andrew Bailey said he was “ready to act as necessary” to bring inflation down to the 2pc target.

Often the answer to whether to get fixed or variable rates depends on how much you could afford it, if rates suddenly rose. If you can only just afford the rate, it might be better to get a fixed rate, since you know that at least you can afford it.

At the time of writing one of the best fixed rates is from Nationwide at 4.71% for 2 years

One of the best variable rates are from the Ecology Building Society at 4.09%

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