One of the big lessons to take from the upheaval of the last couple of months has been the importance of getting quality, independent advice when arranging a mortgage.
The choice of the right mortgage product has been quite straightforward the last decade or so, really. Interest rates dropped to record low rates, which made the process of picking the right deal more straightforward.
Yes, fixed rates often came at a premium – the interest rate may have been a little larger than you might get from a variable rate – but given the rate had been so low anyway, it was a premium worth paying for many.
In fact, it was often the case the only real decision had been precisely how long to fix for.
Things have changed dramatically though over the last month or so, in the aftermath of the chaos of the mini-Budget. Lenders of all shapes and sizes have rejigged their product ranges and criteria, meaning that borrowers face a more challenging decision when working out which product is the right for them.
The re-emergence of the variable rate
A good example here is how attractive variable rate deals look today. The reality is that a typical variable rate today is likely to come with an interest rate up to two percentage points lower than a comparable fixed rate mortgage.
That translates into a significant difference in the size of the monthly mortgage repayments, an always-important consideration but all the more vital when inflation is at the highest level in decades and finances are stretched.
Of course, these lower initial prices come with an important potential downside, in that rates will increase as and when bank base rate does. And while we have seen a succession of base rate rises this year – 12 months ago it stood at 0.1%, while base rate is now at 3% – the expectation is that there will be further increases to come.
Is a variable rate mortgage right for me?
Whether a variable mortgage will be right for you will come down to what you think will happen with the base rate.
If you do not believe that base rate will go up by more than 2% then a variable deal will be the best choice, since it will work out cheaper.
If however you think the base rate will increase to that level, or you simply want more certainty over your budgeting, then a fixed rate will be the right option.
It’s notable that the take up of variable rates has increased substantially, to the point that for the first time in our history as a business they now account for more than 50% of our new business.
Variable or fixed-rate? How getting advice can help
The market upheaval of the last few months has really reinforced the value that a quality mortgage broker can provide.
When the only real decision is how long to fix for, then there will be some borrowers who feel sufficiently well equipped to handle that themselves.
But at the moment there is far more at play when establishing the right type of mortgage, let alone the individual product that’s best suited for your circumstances.
A broker can go through the permutations with you, so that you understand in pounds and pence what the difference between a fixed and variable rate will mean for you; not just today, but also in the future should rates increase.
Once you are content with either the fixed or variable route, then the broker can help you ascertain which individual product will be best.
It’s one thing to spot a low rate, but brokers will have a greater insight into the criteria employed by individual lenders, as well as access to products that you would not be able to obtain if applying directly.
While the market has settled somewhat since the upheaval, the impacts will continue to be felt by borrowers of all kinds for years to come.
Working with an experienced broker will help you make the right decision and keep your finances in the best possible shape and help you achieve your goal of paying off your mortgage as soon as possible.
Richard Campo is founder of Rose Capital Partners
