Owning your home adds another layer of financial responsibility to your personal money management approach. It is one thing to account for monthly payments to a landlord, but mortgages can be difficult to maintain, and the consequences of falling short on payments can be severe. Fortunately, home ownership remains affordable for those living within their means. And with modifications, even struggling home owners find ways to make ends meet.
To stay on solid financial footing, savvy property owners remain mindful of economic trends, especially those impacting the mortgage lending industry. By anticipating interest rate changes and other market forces, cash conscious home owners stay a step ahead of shifts in financial markets, enabling them to land the best available deals on mortgages.
Whether you are poised to buy real estate or an owner seeking to protect your investment, due diligence keeps home ownership affordable, even under challenging circumstances.
Mortgage Outlook for 2015
The recent global economic slowdown left mortgage markets damaged worldwide, so the emerging, restructured UK mortgage industry is very different, when compared to historic conditions. For borrowers, current mortgage terms are among the best ever seen, supporting robust trade in the mortgage lending industry. But qualifying for loans is also more difficult than it was in the past, so the best rates are reserved for applicants with favourable credit histories.
The Bank of England Base Rate continues to hold at a record low .5 per cent rate, furnishing tempting mortgage interest conditions for buyers and remortgagers. At the same time, the rate of inflation is very low, resulting from falling oil prices, declining energy rates and high levels of pricing competition among supermarket operators. Due to these unique conditions, many trained observers predict UK interest rates will hold steady until at least the second half of 2015.
To keep your mortgage payments affordable, consider remortgaging to a fixed rate loan. Whether you believe prevailing wisdom about Bank of England rate hikes, or share a different view, interest rates will rise eventually. For mortgage holders stuck in the wrong variable rate loans, rising rates could push payments beyond the level of affordability. Locking-in for five or ten years may sacrifice a fraction of a point in the short-term, but the consistency of a long-term deal makes sense for many borrowers – especially at today’s rates.
Downsize for Savings
In addition to money saved on mortgages, home owners are conserving cash by downsizing to less expensive properties. The savings taken-in by moving from a detached or semi-detached home to a bungalow, for example, brings affordability back to the equation for some residents. In London, where home loan saving potential is greatest, downsizing to a more affordable property can lead to £100,000 savings for buyers.
A recent Lloyds Bank survey indicates more than 50% of sellers consider downsizing as a possible way to raise money. And though not everyone follows through with downsizing plans, it remains one of the most important considerations for sellers, overall. Many respondents also indicated they are downsizing earlier in life than expected, due in part to relationship changes, health status and even simply to be closer to everyday conveniences.
Mortgage Payment Protection Insurance
MPPI is an important form of optional insurance borrowers take-on to cover their mortgage payments in the event of accident, sickness or unemployment. Under the terms of most policies, covered borrowers are eligible for payments totaling between 50-70% of their regular incomes, to be applied to home loan payments. Though most benefits are limited to a preset term, the cover proves invaluable during short-term cash flow interruptions.
Unfortunately, MPPI cover is underutilised, with only a small fraction of buyers willing to purchase the insurance. It can help you save your home when facing unanticipated financial difficulties, so MPPI should be a part of your comprehensive mortgage affordability review.
Affordable home ownership relies on informed decisions and consistent attention to your mortgage and other financial obligations. For the short-term, borrowers have access to low, fixed-rate loans, which should be embraced by buyers and remortgaging home owners. The never before seen conditions will ultimately disappear. And though the Bank of England may hold-off on increases until the second half of the year, locking-in fixed-rates now makes financial sense for a range of borrowers. For others, downsizing furnishes debt relief and savings windfalls worth pursuing.