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Mortgage latest: What lies ahead for 2014?

Our mortgage expert from the award winning brokers London & Country helps to answer the perennial questions: is now a good time to get my first mortgage? When should I remortgage? Which type of mortgage should I go for?

Last year saw significant improvement in the mortgage market and as a consequence the housing market has picked up.  Not only did mortgage rates fall to new record lows but the range of options for homemovers and first time buyers has opened up, as more lenders develop their products for those with smaller deposits.

This year has already started strongly and demand from borrowers remains high, whether it is in the search for a new home or to capitalise on competitive remortgage rates.  So the year looks likely to see increased growth in the mortgage market but what might lie in store in terms of interest rates and the cost of mortgage deals?


Should I fix my mortgage?

The vast majority of borrowers have been opting to fix, unsurprising as fixed rates have been at their lowest ever level.  This preference for fixing is something that is likely to continue especially as talk of Base Rate rising has only intensified.

The Bank of England’s forward guidance set an unemployment rate of 7% to be met before an increase would even be considered.  That measure looks set to be met much sooner than the Bank originally expected but the Bank has been clear that this is a threshold and does not automatically trigger an increase.

We could therefore still have some time to go before Base Rate does commence its inevitable rise.  That does not mean that fixed rate mortgages won’t fluctuate and already there are signs that five year fixed rates are increasing.

The cost of funding has increased as a result of an interest rate rise looking more likely.  In addition the Funding for Lending Scheme, which successfully kickstarted the mortgage market by providing a cheap line of funding for lenders, has now been withdrawn for new mortgage lending.

Although that is unlikely to see a large hike in mortgage rates, the removal of a source of cheap funds could cause rates to tick up over time.  There’s no room for complacency and it’s clear that fixed rates have bottomed out and could get more expensive.  There are still some extremely competitive rates on the market so those looking to lock in at the low and protect against higher rates in the future should consider taking action.


Do I still need a big deposit?

Home buyers and first time buyers in particular have struggled with the bigger deposits required by mortgage lenders.  However the early introduction of the Help to Buy guarantee means that there has already been a number of new lenders launching deals for those with deposits of as little as 5% of the purchase price.

Major lenders including Halifax, HSBC, Barclays, Santander, Natwest and Virgin Money are all participating in the Help to Buy guarantee.  That increase in 95% deals has also encouraged other lenders such as Yorkshire BS to launch and those that were already offering deals to improve pricing, even where they are not using the guarantee.  Even so, rates are still higher and building a bigger deposit will open up more options at better rates.


Will it get easier to get a mortgage?

The introduction of the Mortgage Market Review rules in April may see lenders take their foot off the gas a little bit as they bed in system changes.  The rules will further entrench the need for lenders to establish affordability and evidence income so there is likely to be some tweaks that will tighten criteria.  However, it’s unlikely to mark a radical change in the market.

Overall then there is a lot to be optimistic about in terms of mortgage availability and lender appetite and 2014 looks likely to be one of much greater activity whether it be those taking their first step onto the ladder or borrowers looking to save money and batten down the hatches before rates do climb.


For more information about mortgages, see our helpful guides:

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