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A mortgage is a type of loan specifically used to purchase real estate. Here are some key aspects to understand:
- Purpose: Mortgages are primarily used by individuals or businesses to buy property, whether it’s a home, land, or commercial real estate.
- Lender and Borrower: The lender (often a bank or mortgage company) provides the loan, while the borrower (the person or entity seeking the loan) uses the funds to buy the property.
- Terms: Mortgages typically have specific terms, including the amount borrowed, interest rate, repayment schedule, and duration (often 15, 20, or 30 years).
- Interest: The interest rate on a mortgage can be fixed (stays the same throughout the loan term) or variable (can change over time based on market conditions).
- Collateral: The property being purchased serves as collateral for the loan. This means if the borrower fails to repay the mortgage according to the agreed terms, the lender has the right to foreclose on the property to recover their investment.
- Down Payment: Borrowers are usually required to make a down payment, which is a percentage of the property’s purchase price paid upfront. The size of the down payment can affect the terms of the mortgage, such as the interest rate and whether private mortgage insurance (PMI) is required.
- Repayment: Mortgage repayments typically consist of both principal (the amount borrowed) and interest (the cost of borrowing the money). Payments are usually made monthly and include taxes and insurance (often collected in an escrow account) to cover property taxes and homeowner’s insurance.
- Types of Mortgages: There are various types of tailored to different needs, such as conventional mortgages (not insured or guaranteed by the government), FHA loans (insured by the Federal Housing Administration), VA loans (for veterans and active-duty military personnel), and others.
- Qualification: Lenders assess borrowers’ financial situations, including income, credit history, and debt-to-income ratio, to determine eligibility and the terms of the .
- Closing Costs: Additional fees and expenses, such as appraisal fees, title insurance, and attorney fees, are typically paid at the closing of the mortgage.
Understanding these aspects is crucial for anyone considering taking out a mortgage, as it involves a significant financial commitment and long-term responsibility.
4 July: Competition Intensifies For Borrower Business
HSBC, Barclays and Yorkshire building society have announced reductions to the cost of fixed-rate borrowing in the footsteps of other major lenders including Halifax, NatWest and Santander as expectations grow that interest rates will be cut by the Bank of England next month.
The next meeting to determine the Bank Rate, which is currently 5.25%, will be on 1 August.
HSBC has cut two, three and five-year residential fixed rates across a broad range of its deals, available through brokers, effective from 5 July. New rates, which will be unveiled tomorrow, will apply on deals for first-time buyers, home movers and remortgage customers, as well as selected deals for product transfer (for existing customers looking for a new deal).
Barclays has cut selected product transfer deals for existing residential and buy-to-let customers looking for a new fixed rate deal, effective from 5 July. Its fee-free five-year product transfer fixed rate for residential borrowers is cut to 4.68% (from 4.95%). This is for borrowers with at least 25% equity in their home (75% LTV).
Yorkshire building society has cut fixed rates for residential purchase and remortgage by up to 0.2 percentage points. The mutual lender is now offering a five-year fixed rate for remortgage at 4.69% (down from 4.89%) with a £495 fee, for borrowers with 25% equity in their home (75% LTV). Over two-years it now has a deal for purchase at 4.89% (down from 4.99%) with a £1,495 fee for customers with a 25% cash deposit (75% LTV).
Mark Harris, chief executive of broker SPF Private Clients, said: ‘With the big five lenders – Barclays, HSBC, Santander, Halifax and NatWest – reducing their mortgage rates this week, lenders continue to jostle for business as they ramp up the summer sales. Those lenders who haven’t yet repriced are likely to follow suit, as long as service levels allow.
“Even though bank swap rates, which underpin the pricing of fixed-rate mortgages, are not showing a consistent downwards trend, the need to generate more business seems to be motivating lenders to tweak their rates.”
3 July: Santander Joins Rate-Cutting Spree
Santander has cut selected fixed rates for first-time buyers and home purchase by up to 0.16 percentage points, writes Jo Thornhill.
The new rates and deals will be unveiled and available from tomorrow (4 July). But Santander has been consistently among the best buys in recent months, and brokers are hopeful its reduced rates will be a boost for home buyers.
The Spanish-owned bank currently offers a five-year fixed rate for purchase at 4.28% for borrowers with a 40% cash deposit. There is a £999 fee. The equivalent two-year rate is 4.8%.
For borrowers with a 10% cash deposit the current rate is 5.10% for a five-year fix or 5.62% over two years. Both deals have a £999 fee.
Nick Mendes at broker John Charcol said: “Santander is the latest lender to make its mark during a week of significant repricing by high street lenders (see stories below).
“The recent flurry of activity has motivatedhttps://youtu.be/BG_C0licd_Q prospective buyers to reassess their options. With the election nearing its conclusion, any hopes of last-minute incentives for first-time buyers are fading. Now is the time to act swiftly to stay ahead of the competition.”
- Aldermore has cut selected fixed rate buy-to-let deals, available through brokers, by up to 0.2 percentage points. It has also launched a range of five-year fixed rate deals for borrowers at 65% loan to value. This includes a fee-free, five-year, standard individual landlord BTL fixed rate at 5.99% for remortgage. The rate drops to 5.69% for the same deal with a 1.5% product fee
- Residential by Foundation, the residential mortgage arm of specialist lender Foundation Home Loans, has reduced fixed rates across its range, available through brokers, by up to 0.3 percentage points. The cuts have been applied to its green mortgage deals (lending on properties with an energy performance certificate rated A to C), deals for key workers and rates on its F1 range, for borrowers with near-prime credit scores, among others. The lender is offering a two-year fixed rate for remortgage at 6.54% (80% LTV) for near-prime borrowers. There is a £595 fee.
1 July: NatWest’s Second Round Of Reductions In Less Than Fortnight
NatWest has cut selected fixed rate mortgage deals, available direct and through brokers, by up to 0.23 percentage points, effective from tomorrow (2 July), writes Jo Thornhill.
It follows cuts of up to 0.17 percentage points to fixed rate deals by the bank less than two weeks ago.
Halifax has also announced it will cut selected fixed rate deals for first-time buyers and home movers by up to 0.19 percentage points, effective from 3 July.
Among NatWest’s newly-priced deals is a five-year fixed rate for purchase at 4.34%, or 4.77% over two years. For remortgage, five-year rates are available at 4.41%, or 4.81% over two years. These deals are all available at 60% loan to value and come with a £995 product fee.
NatWest has also cut rates on its product transfer deals (those for existing borrowers looking for a new rate). For these customers the bank is offering a five-year fixed rate at 4.46% or a two-year rate at 4.86%. Both deals are at 60% LTV and charge a £995 fee.
Selected buy-to-let (BTL) deals at NatWest have been cut by up to 0.18 percentage points. Deals for BTL remortgage start from 4.81% fixed over two years, or 4.66% fixed over five years. These deals are available at a 60% loan to value and come with a £3,499 fee. BTL deals with a lower product fee are available at higher rates.
Virgin Money has cut selected residential fixed rates, available through brokers, including reductions of up to 0.1 percentage points for new business purchase deals and up to 0.15 percentage points on selected product transfer deals (for existing customers looking for a new rate).
The bank is offering a five-year fixed rate for purchase at 4.5% for borrowers with a 25% cash deposit. There is an £895 fee.
Clydesdale Bank, the brand owned by Virgin Money, will also cut selected fixed rate residential mortgage deals by up to 0.38 percentage points. Buy-to-let deals have been slashed by up to 0.73 percentage points. The changes are effective from 2 July.
Residential remortgage fixed rates will be reduced by up to 0.15 percentage points to start from 4.52% while purchase deals will be reduced by up to 0.18 percentage points, starting from 4.61%. Both rates apply to five-year fixes at a 65% LTV.
Selected professional and newly qualified professional mortgages, for borrowers working in certain professions, including architects, barristers, dentists, doctors and vets, will be reduced by up to 0.38 percentage points.
The Mortgage Works, the specialist lending arm of Nationwide building society, is cutting selected fixed rates for buy-to-let borrowers by up to 0.3 percentage points, effective from 3 July. The rate reductions will benefit new and existing customers. Among its new rates is a five-year fixed rate for standard BTL purchase or remortgage at 4.04% with a 3% fee (65% loan to value).
Accord Mortgages, the specialist lending arm of Yorkshire building society, has cut a range of fixed rate buy-to-let mortgage deals by up to 0.4 percentage points, plus rates on its residential deals (at higher loan to values of between 75% and 85% LTV) by up to 0.1 percentage point. The lender is offering a five-year residential fixed rate for purchase at 4.95% (down from 5.05%) with a £1,995 fee for borrowers with a 25% cash deposit (75% LTV).
Skipton building society is launching a number of additional two and five-year fixed rate deals for new customers with 40% cash deposit or equity (60% LTV), or at least 25% deposit or equity (75% LTV).
It includes a five-year fixed rate for home purchase at 4.41% with a £1,495 fee (60% LTV). It will also introduce new base rate tracker deals for purchase or remortgage at 0.52 percentage points above the Bank of England Bank Rate (currently 5.25%). This deal, which has a starting rate of 5.77%, is available at 60% loan to value and comes with a £995 fee.
But mortgages themselves are getting harder to come by, according to the latest Bank of England data. It showed that mortgage approvals (for home purchase) fell by 1.3%, from 60,800 in April to 60,000 in May. Approvals for remortgage (switching to a deal with a new lender) also dipped slightly from 29,900 to 29,600 over the same period.
Overall individual net borrowing of mortgage debt fell to £1.2 billion in May, down from £2.2 billion in April.
Alice Haine, personal finance analyst at online investment platform Bestinvest (part of Evelyn Partners), said: “Mortgage approvals – an indicator of future borrowing – dipped in May as lingering affordability concerns caused borrowers to approach the market with caution.
“Interest rates have remained on pause at a 16-year high of 5.25% since August last year, something also impacting net mortgage lending, which fell in May amid wavering consumer confidence.
She added: “Inflation may be easing, but persistently high borrowing costs are still making it hard for buyers to secure the homes they want. All eyes are on the next rate decision at the start of August when buyers and those looking to refinance are hoping for some respite.
“People may be seeing their wages increase in real terms, but robust pay growth is still no match for the hit from higher mortgage rates, something keeping house prices relatively stable for now.”
28 June: 400k Households To See 50% Increases
More than three million borrowers could face shock increases in their mortgage payments over the next two years, writes Jo Thornhill.
According to the latest Bank of England data, these households are currently paying mortgage rates at under 3% but are due to remortgage onto what will inevitably be more expensive deals between now and the end of 2026.
Around 400,000 households will see a significant increase in their monthly mortgage payments of 50% or more.
For the average mortgage holder rolling off a low fixed rate between now and the end of 2026, the Bank of England says the average jump in monthly repayments will be around £180 – a 28% rise on a typical £650 repayment.
Despite this, the Bank is confident the overall risks in the market are unchanged and that households have been broadly resilient in the face of rising rates.
It also pointed to the potential for lower mortgage rates in the coming months to ease pressure on borrowers, saying “market participants expect Bank Rate to start falling in the second half of 2024.”
Coventry building society has followed other lenders in cutting selected fixed rate mortgage deals for residential borrowers by up to 0.21 percentage points.
HSBC, Barclays, NatWest and Skipton building society have all trimmed their fixed rates down in recent days (see stories below).
Coventry has also cut selected buy-to-let borrowing rates by up to 0.15 percentage points.
The mutual lender is offering a two-year fixed-rate deal for first-time buyers with a 15% cash deposit (85% loan to value) at 5.34%. There is no fee and the deal pays £500 cashback on completion.
Five-year fixed rates for remortgage now start from 4.43% (65% LTV) with a £999 product fee. Equivalent two-year remortgage deals start from 4.86%.
For buy-to-let remortgage, Coventry has two-year fixed rates from 5.43% (65% LTV) with a £1,999 fee, or equivalent five-year rates from 4.87%.
26 June: Number Of Interest-Only Loans On Way Down
HSBC and Skipton building society are the latest lenders to cut selected fixed-rate mortgage rates in expectation of a summer interest rate cut by the Bank of England, writes Jo Thornhill.
HSBC has reduced the cost of a range of two, three and five-year rates across its residential and buy-to-let rates. Its two-year fixed rate for residential remortgage at 60% loan to value now starts from 4.88% with a £999 fee (the fee-free option starts from 5.18%) and the equivalent five-year fixed rate is now at 4.44% with a £999 fee (or 4.64% with no fee).
For borrowers with 20% equity in their property (80% LTV), rates for remortgage start at 5.64% for a two-year fix with a £999 fee or from 5.04% for a five-year fixed rate, also with a £999 fee.
Skipton has also cut selected residential and BTL deals. For home purchase its two-year fixed rates start from 5.18% with a £495 fee, or five-year rates start at 4.64% with a £1,295 fee. Both deals are available for borrowers with at least a 40% cash deposit.
Its two-year fixed rate for residential remortgage is 5.19% with a £495 fee (at 60% loan to value). The equivalent five-year fixed rate deal is at 4.65% with a £1,295 fee.
The mutual’s 100% loan to value Track Record five-year fixed-rate mortgage for first time buyers remains at 5.79%.
Skipton’s buy-to-let fixed rates now start from 5.47% for a two-year fixed rate with a £995 fee (60% LTV) and from 4.88% for a five-year fixed rate with a £2,995 fee (also 60% LTV).
Nick Mendes at broker John Charcol said: “Following last week’s Monetary Policy Committee (MPC) decision (rates were kept on hold at 5.25%), and with important wage data and general election results on the horizon, markets are anticipating reductions in interest rates very soon.
“Given that until recently most lender repricing has involved increases, there is now potential for bigger reductions. We’ve seen some movement but this latest reprice from HSBC is certainly going to spur on the market.”
The number of mortgage borrowers with interest-only home loans has dropped by 5.4% in the past year, according to new data published by the financial trade body UK Finance.
It shows there were 664,000 interest-only mortgages outstanding at the end of 2023, compared to 702,000 at the end of 2022. Added to this there were 200,000 partial interest-only homeowner mortgages (mortgages that are part interest-only and part capital repayment). This was 9.9% fewer than at the close of 2022, when the figure was 222,000.
