The recovery in the wider economy is struggling to find a foothold and with the impact of the Government’s austerity measures yet to bite, it is likely that interest rates will stay lower for longer – good news for many borrowers.
Now for the not so good news…
It came as some relief that the sharp reduction in interest rates shrivelled the appetite for remortgaging. If the demand we saw for refinancing in the years leading up to the credit crunch had remained, the constrained credit conditions within the market would not have been able to meet this demand. These constraints still exist today and with the banks due to repay emergency government funding received during the crisis from next year, this situation is likely to be with us for some time to come.
As much as you may be benefitting from reduced monthly payments today, it is certain that at some point in the future these costs will rise and if the problems the banks face in raising money have not abated, then you could find yourself amongst a galloping herd of borrowers chasing a strangled supply of new funding. It is likely, as we have seen over the last two years, that lenders will save their best terms for the strongest of applicants and those that represent the lowest risk to their capital.
It is worth spending some time assessing the strength of your credit worthiness in anticipation of a likely application in the future. There are a number of measures you can adopt to make sure you are as attractive as you can be to the lending community;
1. Check that your credit file is clean, quite often errors occur and these can be time consuming to rectify. A copy of your file can be obtained at www.experian.co.uk or www.equifax.co.uk
2. Pay down unsecured borrowing or consolidate balances where possible, having lots of debt or debt across many providers is likely to count against you.
3. If you can, reduce your mortgage balance. You will be seen as a much lower credit risk if you are looking to borrow a lower percentage of the value of your home.
4. If you have an interest only loan consider switching this to repayment so that the capital is reducing also. The market is becoming increasingly restricted for people seeking interest only loans.
5. If you have an interest only loan, make sure that your repayment strategy is sound. If supported by other investments you hold, make sure that these are performing in line with your expectations and that you have up to date valuations and projections.
Finally, keep your eye on the market and if a product comes along that gives you the security that you seek, speak to a mortgage broker for further information. Trying to call the bottom of the market can be a risky tactic which could find you galloping along with the rest of the herd.
To review your circumstances or to commission us to watch the market on your behalf, please do get in touch with us.