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A property boom, rock bottom rates and a borrowing bonanza

The year has been turbulent for nearly every aspect of our lives, not least our finances. 

And at the heart of most people’s finances is a mortgage, which is typically the largest outgoing for families every month. 

The pandemic plunged us into an economic unknown. Millions of us were forced to take a break from home loan repayments with a mortgage holiday. 

Maze: At the heart of most people’s finances is a mortgage, which is typically the largest outgoing for families every month

Yet, on the other hand, many of us were left unable to spend in lockdown and collectively saved an extra £150billion. 

Coronavirus also triggered an unexpected property boom with the stamp duty holiday. As a result, mortgage borrowing has hit record heights. 

Interest rates on loans are nearly as low as before the pandemic, and there is a bountiful range of deals on offer. But how long will they last? 

Money Mail has produced a must-read guide to the mortgage market mayhem. We’ll show you the best rates on the market, explain your options and spell out how much you can save in a few simple steps. 

Boom . . . but will it be bust

Ever since the Government opened up the property market again in May last year, sales and prices have been soaring. 

Annual house price growth has hit 10.9 per cent — the highest for nearly seven years — with month-on-month growth at 1.8 per cent following a 2.3 per cent hike in April, according to Nationwide. 

The average house price now stands at a record £242,832, up £23,930 over the past 12 months, while in March a record £35.6billion of mortgages were handed out. Demand for mortgages is high, so competition is healthy. 

Figures from finance data analysts Moneyfacts show that there are 4,243 deals on offer for borrowers — up on the 2,810 a year ago. Miles Robinson, head of mortgages at online broker Trussle, says the scramble to move meant last year was the first in recent memory when there were more new mortgage applications than remortgages. 

He says: ‘New mortgage applications outpaced remortgaging, with rates falling from 72 per cent of all applications received in 2020 to just 45per cent in 2021.’ 

Yet property experts and estate agents say the pandemic has put into perspective what people want in a home, and flexible working arrangements have allowed people to move further away from cities. 

But David Hollingworth, of broker London & Country Mortgages, says: ‘There are still lots of ifs and buts. As the economy emerges and springs back, will this demand continue? That is the question.’ 

Borrowing going cheap

Home loan borrowers can currently get a mortgage for less than 1 per cent. Mortgage specialists say rates on offer are dipping as the virus crisis draws to a close. 

James Pagan, Nationwide’s director of mortgages, says: ‘The market is becoming more competitive all the time.’ 

Figures from Moneyfacts show the average two-year fix is now 2.58 per cent, the average five-year fix is 2.81 per cent and the average ten-year fix 2.98 per cent. 

But when remortgaging, borrowers need to keep an eye on extra charges. TSB offers a 0.99 per cent deal fixed to the end of August 2023 for those with equity of up to 40 per cent, but the mortgage comes with a £1,495 fee. 

Deal: Home loan borrowers can currently get a mortgage for less than 1 per cent

Deal: Home loan borrowers can currently get a mortgage for less than 1 per cent

Eleanor Williams, from Moneyfacts, says: ‘It will be interesting to keep an eye on the sector over the coming weeks, as it could be hoped that more lenders may launch their own deals to tempt new customers.’ 

Laura Howard, mortgages expert at Forbes Advisor UK, adds: ‘There is little price difference between variable and fixed-rate mortgages currently, but you’ll need to consider other factors, too, such as arrangement fees and any tie-in periods during which it will cost you a penalty to leave the deal. 

Beware of the rate divide 

Lenders have been happy to hand out mortgage money to cash-rich homeowners in the pandemic, but not to first-time buyers with small deposits and the self-employed. 

Interest rates levied on mortgages with a 5 per cent deposit are now below 4 per cent, with the lowest in June at 3.39 per cent for a two-year fix. At the very beginning of the virus crisis, the Bank of England dropped the base interest rate to a record low of 0.1 per cent. 

And now, as lockdown eases, there’s a chance the rate could be raised. Such a change would increase mortgage repayment bills for those on tracker deals. Trussle’s Mr Robinson says homeowners should also be wary of standard variable rates, adding: ‘We’ve found that customers save £334 on average per month by remortgaging on to a fixed rate.’ 

Are inflation fears inflated?

While the nation is nearly out of the virus crisis, there is a new threat on the horizon: inflation. Economists are fearful that a spending boom will drive up prices and interest rates. 

Back in the late 1980s, a bout of inflation caused mortgage rates to soar. Families were stuck paying 15 per cent or more. 

The latest figures show the consumer prices index (CPI) measure of inflation almost doubled in April to 1.5 per cent. 

Yet Ms Howard, of Forbes Advisor UK, says: ‘It needn’t be cause for alarm. CPI is still well below the Bank of England’s 2pc target and, furthermore, lenders reprice new deals in anticipation of interest rate rises — so it’s really still a case of seeing what deals are available on the mortgage market when you’re ready to look.’ 

Help for new buyers

Nearly one in three first-time buyers delayed their plans due to Covid, according to NerdWallet. 

The site’s mortgages expert, Richard Eagling, says higher property price tags, tougher borrowing criteria and struggles saving had all added to delays. 

He says: ‘For some, plans will have been put on hold because of a change in their financial circumstances, but for some those buying hopes will have been paused because of how lenders have reacted to the crisis.’ 

However, government-backed 95 per cent mortgages are now being offered by major lenders. 

Nationwide is also allowing first-time buyers to borrow five and a half times their income. 

Charles Morley, director of mortgage distribution at Metro Bank, says: ‘Since we launched our 95 per cent LTV mortgages, we’ve seen exceptional demand from first-time buyers and home movers.’ 

Health check your finances 

Those wanting to get the best deal need to make sure their finances are in good health. 

NerdWallet’s Mr Eagling says would-be borrowers should look to improve their credit score while building a bigger deposit and doing their homework. 

Forbes Advisor UK’s Ms Howard adds: ‘Lenders typically ask for the last three months’ bank statements, so give yourself at least this time to treat your spending with extra care — ensuring you avoid making major purchases. 

Best mortgages

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