Although the housing market and the mortgage market are related, they are not quite the same. You can buy a house without a mortgage. You can also take out a new mortgage without moving home. There is nothing particularly new about this idea, it will, however, be interesting to see if the remortgage market is impacted by COVID19.
Could home-owners feel pressed to beat a market slump?
As a rule of thumb, the less you are seeking to borrow relative to the market value of your property, the better a deal you are likely to get on your mortgage. If property prices fall, then the value of the home-owner’s equity will fall with them as will their options for remortgaging.
In fact, in a worst-case scenario, the homeowner may find themselves in negative equity. This is not necessarily a catastrophe (as long as you can keep making payments), but it would certainly impact your ability to remortgage and could potentially impact your ability to sell your home if you found yourself in financial difficulty.
With the UK only just emerging from the Coronavirus and heading towards Brexit, it may be that some home-owners may want to seal in a good remortgage deal as quickly as possible in case they struggle to do so later.
Will low interest-rates spur home-owners into taking action?
Right now the base rate is 0.1%. That may not be quite as low as it can go. In principle, the Bank of England could impose negative interest rates. It is, however, a historic low and, at present, nobody can know how long it is going to last. That being so, it could be that some home-owners will look to see if they can secure better deals, especially if they are looking for a fixed-rate product.
Having said that, potential borrowers may find that deals available on fixed-rate products may be less generous than they had hoped, especially on longer-term fixes. Mortgage lenders may be wary of discounting too deeply in case interest rates rise again.
Will home-owners look to fix their rates?
If inflation rises, then the Bank of England may have little option but to raise interest rates. This could come as a nasty shock to mortgage-holders, especially if they are already stretched. Base rates have been below 1% for over a decade now, but over the past five decades, there have been regular periods of double-digit inflation, peaking at 17% in 1979.
Even if the aftermath of COVID19 does not lead to higher inflation, the UK still has to navigate its way through Brexit. If the UK’s exit from the EU leads to Borrowers might, therefore, prefer the security of a long-term, fixed-rate deal, even if they have to pay something of a price premium for it.
Will home-owners investigate offset mortgages?
With an offset mortgage, you essentially bundle your savings and your mortgage together. The basic idea is that the interest you receive on your savings “offsets” the interest you pay on your mortgage. If interest rates go up, then you will pay more interest on your mortgage, but also receive more interest on your savings. If interest rates go down, you will receive less interest on your savings, but also pay less interest on your mortgage.
The fact that you will not actually be receiving interest payments on your savings means that you will not need to pay tax on them. This can boost your overall savings even further. Your money remains accessible, although you would need to double-check the provider’s terms and conditions to see if access is instant or if a notice period is required.
Your property may be repossessed if you do not keep up repayments on your mortgage.