An Englishman’s home is his castle, but yours could be under siege if a public spending splurge follows a Corbyn Election victory.
Though the Labour leader will go rifling through the pockets of the richest to raise taxes to help fund that spree, it is also likely he will go cap in hand to the bond markets to meet a large chunk of the bill.
If he opts for high levels of borrowing then inflation will follow suit – and, as sure as night follows day, that will fuel upward pressure on interest rates. And guess what – our mortgages will cost more.
Lock-in: It is now possible to fix loan repayments for up to 10 years to see you through Corbyn and beyond
This threat will loom larger still if Corbyn removes the right of the Bank of England to act independently – and starts ordering the printing of loads of money to fund a spending spree.
So it is time to act fast and fix the rate on your mortgage – that is if Brexit worries have not persuaded you to do so already.
It is now possible to fix loan repayments for up to ten years to see you through Corbyn and beyond – as well as all kinds of economic downs and ups. Experts says now is the right time for borrowers to put their house in order, whether or not Corbyn walks into No 10, since loan rates are still at bargain levels.
Fixed rates are also popular because homeowners know exactly how much they will need to pay each month for years to come and can ride through any interest rate rises applied by the Bank of England (plenty guaranteed under Corbyn, that’s for sure).
Nine years ago, fixed-rate loans accounted for half of mortgages taken out for house purchases. Last year, they made up 95 per cent of new loans, according to industry body UK Finance.
David Hollingworth, of mortgage broker London & Country, says anyone on a high street lender’s standard variable rate (on average 5 per cent) should make cutting (and fixing) their mortgage bill a priority before Corbyn causes havoc.
He says: ‘Those homeowners who have failed to fix their loan rate are missing a trick and could be paying thousands of pounds less than their lender’s costly standard variable rate. The direction of base rate is upwards and the competitive fixed rates available offer an obvious way for homeowners to take control and insulate their finances against any further increases.’
Huge savings can be made by locking down mortgage payments. London & Country says a borrower with a £150,000 repayment loan over 25 years who currently pays 5 per cent interest pays £877 a month. But taking out a two-year fixed rate priced at 1.43 per cent with Lloyds Bank – assuming they have 40 per cent equity in their home – would cost £595 a month, a monthly saving of £282 or £6,768 over two years.
For many, the idea of having to switch again in two years time (when who knows what political and economic turmoil will be playing out) will not appeal.
A five-year fix provides a longer-term security blanket against the worst of Corbyn.
For example, Barclays has a five- year fix at 1.83 per cent (£999 fee) that would reduce monthly payments on a £150,000 loan to £623 – a saving of £15,000 over five years compared to a loan priced at 5 per cent.
For those wanting to sleep soundly at night free of Corbyn-induced nightmares for a full ten years, then there is a choice of ten-year fixed rate loans.
Coventry Building Society offers a rate as low as 2.29 per cent, but only for homeowners who have 50 per cent equity – or a similar sized deposit if they are a purchaser.
The attraction of this loan is that it only ties in borrowers for five years, a ‘useful feature’ according to Hollingworth because you avoid early repayment charges for the last half of the deal.
Someone switching a £150,000 loan to this rate would make monthly repayments of £657 – a potential saving of £26,400 over a decade, compared to a loan priced at five per cent.
TSB offers a ten-year fixed rate at 2.29 per cent, but this is less flexible than the Coventry deal with early repayment charges applying throughout the ten-year term.
SHRINK YOUR LOAN… BY OVERPAYING
With savings rates still meagre, a better use of any spare cash is to overpay on the mortgage. The less debt homeowners have when Corbyn comes knocking at No 10, the better.
Hollingworth says: ‘By overpaying, borrowers can shorten the term of their mortgage.’
Most lenders allow borrowers to overpay up to ten per cent a year without incurring an early repayment charge.
Some are more generous such as Tesco Bank which allows up to 20 per cent a year.
A few allow unlimited overpayments. Even making small regular overpayments can make a big difference in reducing interest bills.
For example, repaying an extra £50 a month on a 25-year £150,000 repayment mortgage priced at 2 per cent would cut the total interest bill by £4,011 – and the loan would be repaid two years, two months early.
Overpaying £100 a month would cut total interest payments by £7,295 and the mortgage would be repaid four years and a month early. Double it to £200 a month to cut the interest by £12,354 and repay seven years and one month early.
THOUGHT TORIES WERE BAD FOR LANDLORDS…
Hard-pressed landlords could be forgiven for believing a ‘Corbyn catastrophe’ awaits them.
As easy whipping boys for hard-Left politicians, landlords can expect austere controls on rent rises and the introduction of longer tenancies of up to three years.
These plans, already pledged by Labour, are just the latest challenges to face landlords.
Recent changes to tax breaks – plus the scent of more curbs to come – have provoked an exodus from the market. Many buy-to-let owners have chosen to cash in now in case capital gains tax (currently 28 per cent at most) spirals skywards under Corbyn.
Those renting out properties are already feeling battered and bruised. The onslaught on landlords – blamed for fuelling property prices beyond the reach of many first-time buyers – has ranged from a 3 per cent surcharge on stamp duty paid on buy-to-let properties, tighter lending criteria and a massive squeeze on the tax relief available on mortgage interest. In addition, from June landlords in England will no longer be able to charge letting fees such as tenancy renewal or credit check fees.
Any such costs will now have to be met by the landlord. These reforms have come under a Conservative-led Government, so landlords should brace themselves for harsher treatment if Corbyn wins the next Election.
Sam Mitchell, chief executive of online estate agent Housesimple, says: ‘The net effect of these tax hikes is that we’ve seen a rise in the number of landlords selling up as the sector becomes less profitable, with more owners likely to head for the exit door if Labour introduced changes too quickly.’
Buy-to-let owners who are determined to stay put are cutting costs by remortgaging to cheaper loan deals. This gives them a degree of financial protection if interest rates rise in the future as a result of Corbyn’s mishandling of the economy.
Industry body UK Finance says the number of buy-to-let remortgages in January was at its highest level on record.
But those looking to remortgage should brace themselves for strict affordability tests. Lenders are now obliged to demand that rental income covers the mortgage interest by a factor of at least 1.25.
According to online mortgage broker Trussle, the best fixed rate loans for landlords include a two-year deal priced at 1.98 per cent from Virgin Money and a five-year rate at 2.5 per cent with the Post Office.