Some of the headlines I have read recently appear full of hyperbole, others downright hysterical, but there’s no doubting that rates, cost and the ability to keep on affording a mortgage, particularly when the borrower is coming off a lower rate, are front and centre, and something of a national debate.
That, in my view, is a good thing. The more information there is available to either would-be purchasers, or existing borrowers, specifically about the importance of advice in this type of market and the wealth of product options using an adviser will provide them with, the better.
Things are different now
That said, we also have to ensure we do steer clients away from some of the more one-sided/one-eyed commentary that can be all too visible in such a market.
For instance, there has to be an acceptance that different borrowers have different circumstances and different needs, and we are not in the mortgage market of the 1970s or indeed 1980s, when each lender effectively offered one product at one rate and there was one 25-year term that you stuck to for your entire mortgage.
That clearly isn’t the case anymore, and we should certainly be glad of that.
Extended mortgage terms
On the whole issue of mortgage terms, I read a recent piece of research from UK Finance, suggesting nearly one in five first-time buyers now take out a 35-year mortgage. For some on social media this appeared to be too much to take, clear evidence that we were somehow on the precipice of a major market correction as a result, with these borrowers somehow in perilous danger. To be clear, this is the entire term of the mortgage, not the initial rate.
To my mind, this was again an overreaction and a lack of understanding about the needs of borrowers now, the housing market we currently have, the situation with individuals’ incomes, and a common-sense approach to getting on the housing ladder.
A longer-term means – quite obviously – that the borrower will take longer to pay off the mortgage and the total interest will be considerably more over such a period. However, firstly, you have to accept that this is a first mortgage and the chances of circumstances changing during a home-owning lifetime are very high, plus for many borrowers at present, a longer term is simply a needs-must approach.
It’s difficult to predict the future for these borrowers, but what we do know is that many earn more as they progress through their career, their first home tends not to be their long-term one, they are likely to move at some point, and a longer term is a starting point, not the end journey.
That has to be taken into account, as do those all-important upfront costs that can be particularly challenging, especially for first-time buyers. Let’s be blunt, there are a lot of costs that come with owning a home, and this will also be at the front of minds for individuals when they are looking at monthly payments.
As will all those other costs that have to be factored into the budget. It’s not just everything once you get to the property, but obviously stamp duty land tax (if applicable), solicitor’s fees, moving costs, plus the cost of actually furnishing and running a home.
Mortgage product costs may be a relatively small part of these overall outgoings and necessities, but they can still add up, which is why we offer fee-assisted deals which come with a free valuation, no application fees and a flat product fee.
Choice is good
Overall, it’s positive these options exist, and they allow people to get on the housing ladder that might otherwise not be able to.
As long as we’re all doing our jobs in terms of advice, recommendations, measuring affordability and ensuring these borrowers can meet their monthly payments over the term, there should always be product options and lenders to choose from in this space.
