- By Simon Read & Jennifer Meierhans
- Business reporter, BBC News
Mortgage lenders are offering new products to people struggling to get loans because of escalating interest rates, which the Bank of England recently raised for the 12th consecutive time to 4.5%. .
Those with mortgages tied to this prime rate are now paying hundreds of dollars more each month, and first-time buyers are struggling to get a deal.
As a result, banks and building associations are offering deals to first-time buyers without a deposit – or those trying to renew their mortgage.
Here’s an overview of the five new products lenders are offering and whether they can catch up.
Mortgage without deposit
You can apply for a new no deposit deal through Skipton, the UK’s fourth largest building association. It’s available for the same amount as you’re currently paying rent, and unlike other 100% mortgages, it doesn’t require a guarantor.
Holly Wardman lives in the nearby village of Carleton, where rent is cheaper, and puts her £625-a-month rent into the company’s affordability calculator.
“It says I can only borrow over £116,000, there’s no way I’d go anywhere in Skipton with that money,” the 24-year-old teacher told the BBC.
“The deal won’t help everyone, but it will likely allow some to get ownership,” said Chris Sykes, chief technical officer at mortgage broker Private Finance.
If you have a trusted parent, there are deals that allow them to help, says David Hollingworth, vice president of L&C Mortgages. For example, the Barclays Family Springboard mortgage uses your family or friends’ savings to take your own no-deposit mortgage and pay them back with interest.
Smaller lenders such as Buckinghamshire, Loughborough and Tipton have similar plans. “But these require additional collateral such as cash or equity in the parent’s home,” Mr Hollingworth said.
The idea that other lenders could follow Skipton’s lead in offering zero-deposit mortgages may not be universally welcomed – riskier mortgages with high loan-to-value ratios. was the cause of the financial crash in 2008. But mortgage expert Andrew Montlake said it could work if the loans were “reasonably guaranteed”.
Lenders want to know that you can afford to make future mortgage payments even if interest rates rise – this is called a stress test.
Many potential first-time buyers are being turned down for this reason. But long-term fixed-rate mortgages reduce risk for lenders and can therefore help buyers advance.
Kensington Mortgages, taken over by Barclays in March, has a 40-year contract, the longest currently on offer.
“I’d love to see more similar products in the future. More products on the market will encourage competition and lower prices,” said Mr. Sykes at Private Finance.
But Mr Hollingworth at L&C Mortgages warned that interest rates could be high at the moment so a long-term lockdown “won’t be for everyone”.
Interest-free loans for green innovations
If you’re looking for ways to make your home more energy efficient to save on bills, there’s a range of exciting offers from lenders to encourage you.
From 1 June, the National Building Association will offer 0% loans to existing mortgage customers looking to spend up to £15,000 on energy-efficient home improvements such as solar panels, upgrades window or electric vehicle charging point.
Mark Harris, chief executive officer of mortgage brokerage SPF Private Clients, said other lenders could follow suit.
Too old to borrow?
Some older adults looking to renew or withdraw their first mortgage are being turned down by lenders because the time period they have to pay back is too short.
Some lenders have become more flexible about age limits, with deals available to borrowers typically until they reach 80.
“This is an opportunity for suitable lenders to raise their criteria for older borrowers and take into account other factors, such as rental income or pensions,” said Mr Sykes.
Smaller building associations around the country – such as Hinckley & Rugby, Tipton and Teachers – are particularly open to older borrowers, as long as they pass the usual affordability tests.
Overpaying to reduce overall costs
If you’re in the lucky position of being able to overpay on your mortgage, you could save thousands of dollars in total costs.
With a £350,000 loan, for example, you can typically overpay up to 10% a year – up to £35,000 – saving you around £1,600 a year on a 4.5% mortgage.
You’ll often be charged a penalty fee for repaying more than 10% of a loan, which can make you unwise – but NatWest Bank has doubled the amount it allows borrowers to overpay, to 20%, with which means the savings could be even higher.
“It’s a good innovation that we hope to see other lenders follow,” Mr Sykes said.