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What is happening in the UK's mortgage market? With Moazzam Kamruddin

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With higher interest rates, increased borrowing costs and tighter lending standards, staying informed and prepared is crucial for both new and existing homeowners.

Moazzam Kamruddin, Associate Director/Team Leader at Alexander Hall provided deverellsmith employees in an internal event with a comprehensive overview of the 2024 mortgage market. He highlighted the critical aspects that borrowers need to consider.

From understanding market dynamics to navigating loan options and overcoming challenges, the information below will help you make informed decisions.

Interested in how the market has changed since last year? You can read Moazzam’s full update from last year here.

Understanding the Mortgage Broker’s Role

A mortgage broker plays a pivotal role in guiding borrowers through the complex mortgage market, helping them to find the most suitable mortgage products that align with their financial situation and homeownership goals.

Mortgage brokers also have access to a wide range of lenders and mortgage options, which enables them to offer tailored advice and competitive rates. They also handle the intricate details of the mortgage application process, including documentation and negotiations, ensuring a smoother and more efficient experience for the borrower, and dealing with estate agents and solicitors throughout the process.

Ultimately, a mortgage broker’s expertise and industry knowledge can save clients time, reduce stress, and potentially secure more favourable loan terms.

Key mortgage terms explained

Moazzamm took us through some key mortgage terms that are helpful to know before entering the property ladder.

Loan-to-Value (LTV): The ratio between the loan amount and the deposit.

Loan-to-Income (LTI): Measures the maximum loan amount based on your income.

Early Repayment Charges: Fees for exiting the mortgage early.

Overpayment Facilities: Additional payments that go directly towards reducing the loan.

Standard Variable Rate (SVR): The rate that applies once the fixed-rate period ends.

SWAP Rates: The rate at which banks borrow money.

Case study: Maximising borrowing potential

To help you visualise what a mortgage agreement could look like, Moazzam gave us a common scenario.

Consider a joint income of £100,000, aiming for a £600,000 budget with a 10% deposit. This scenario requires borrowing £540,000. With an income multiple of 4.5x, you can borrow £450,000, leaving a £90,000 shortfall. Some lenders like Santander, Barclays, and HSBC offer higher borrowing levels with deposits ranging from 15% to 25%. Additionally, lenders providing 5x to 5.5x income multiples with a 10% deposit and a £40,000 salary can bridge the gap.

Current mortgage trends and challenges

Interest rates

The Bank of England’s base rate remains at 5.25%, impacting both new and existing mortgage borrowers. This stable yet elevated base rate has led to fluctuating interest rates across different deposit levels, ranging from 60% to 95%. For many borrowers, especially first-time homebuyers, these fluctuations have made affordability a pressing concern. Consequently, the current interest rate environment requires borrowers to be more strategic and well-prepared, often necessitating the guidance of a knowledgeable mortgage broker to navigate these complexities and identify the best possible mortgage solutions.

House prices

House prices continue to rise due to the supply-demand imbalance and lack of stock post-Help-to-Buy scheme. This, combined with higher mortgage rates and cost-of-living crises, has led to stricter affordability assessments.

Lenders have become stricter with things like, income types (bonus, overtime, commissions), credit history and residency status. With the ever-changing market, lenders need to manage risk more effectively. This means borrowers will need to ensure they understand these criteria and prepare accordingly to navigate the mortgage market successfully.

You can calculate house prices here using Nationwide’s ‘House Price Index’.

How can you overcome these challenges?

In response to the current market, lenders are introducing several innovative schemes designed to make property ownership more accessible and affordable.

These sorts of initiatives aim to address the barriers of high deposits and affordability, offering creative solutions to support buyers. Below are some examples of these:

Shared ownership

This is a scheme that allows buyers to purchase a portion of a property, typically between 25% and 75%, and pay rent on the remaining share. This significantly reduces the initial purchase cost, making it easier for buyers to step onto the property ladder.

1% deposits

Some lenders are introducing mortgage products that require only a 1% deposit, significantly lowering the financial entry point for buyers. These products are often targeted at first-time buyers and are designed to make homeownership more attainable by reducing the upfront cash needed.

Helping hand

The Helping Hand scheme includes a range of special products and support services aimed at easing the buying process for new homeowners. These products might feature lower interest rates, extended repayment terms, or financial advice and planning services to help buyers manage their finances effectively. The goal of the Helping Hand scheme is to provide comprehensive support throughout the home-buying journey, ensuring that new homeowners can make informed and sustainable financial decisions.

The 2024 mortgage market presents both opportunities and challenges. By understanding the key aspects and leveraging the expertise of a mortgage broker, borrowers can navigate this landscape effectively. Stay informed about market trends, explore innovative lending options, and make strategic decisions to secure the best mortgage deals.

Interested in a career in mortgages? Get in touch here.