June 2023

Newsletter

What’s going on with mortgage rates?

Chances are that you will have seen the news headlines in recent weeks – inflation remains way above the Bank of England’s target rate of 2%, meaning that interest rates are continuing to rise for far longer than originally expected. This is ultimately impacting mortgage rates making the cost of home ownership even more expensive, and that’s on top of contending with the current Cost-of-Living crisis.

A challenging market

According to Moneyfacts1, the interest rate on the average 2-year fixed-rate mortgage deal has now increased to 6.01%, and with 5-year fixed deals not far behind at 5.67%, on average. This means that homeowners who are remortgaging this year are set to pay potentially hundreds of pounds more each month on mortgage repayments compared to their older deals, brokered when rates were considerably lower.

Analysts are now forecasting that the situation may get worse next year, with the average household remortgaging in 2024 set to pay up to £2,900 more per year on mortgage repayments due to the increased rates2.

What’s behind these increases?

As you may have seen, The Bank of England has consistently increased Interest Rates since 2021 in an effort to reduce consumer spending and increase saving, to counter the high levels of inflation across the UK economy, which has been especially noticeable in the increased prices for everyday groceries and energy bills.

However, the increase in interest rates does not appear to be helping curb inflation as quickly as experts forecast2, which has now started to drive a round of increases in mortgage rates, as many key lenders have been withdrawing their old products and re-launching with higher rates.

More challenges lay ahead

There is a bleak outlook to the market right now, especially as the Bank of England confirmed that over 1.3m households were due to remortgage their properties before the end of 2023, and will experience the shock of the new higher rates, having previously taken out a mortgage when rates were around 2% or lower3.

To give an example of what this can feel like, the average mortgage holder is looking at a £200 increase in their monthly repayments if their mortgage goes up by 3 percentage points, according to the Resolution Foundation think tank research on the topic.3

What can you do?

The most important thing is not to stick your head in the sand. If you think you may have some difficulties in paying the mortgage, then we advise that you contact your lender immediately. If you fall behind your mortgage payments by 90 days, then your lender can start proceedings to repossess the property, however there are avenues of assistance that can prevent you reaching this stage.

By speaking to your lender, you may be able to make a plan for the payments you owe, or even to create a forbearance agreement with your lender, to allow a short-term solution to catch up on your payments.

We recommend that as well as speaking to your lender if you are struggling, please do not hesitate to reach out to us and let us know if you have any challenges, we can take a look at your specific circumstances and offer practical advice that can hopefully assist in your situation.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Sources

  1. BBC (2023) Mortgage rates: Average two-year fix now above 6%. Available at: https://www.bbc.co.uk/news/business-65931132 (Accessed 19th June 2023)
  2. SkyNews (2023) Mortgage crunch: Annual repayments set to rise by almost £3k next year. Available at: https://news.sky.com/story/annual-mortgage-repayments-set-to-rise-by-2-900-on-average-next-year-says-think-tank-12904111 (Accessed 19th June 2023)
  3. SkyNews (2023) Mortgage misery: What is causing the crunch, will it get worse and what can you do if you are struggling? Available at: https://news.sky.com/story/mortgage-misery-what-is-causing-the-crunch-will-it-get-worse-and-what-can-you-do-if-you-are-struggling-12904191 (Accessed 19th June 2023)

How long could you last without an income?

We take great care to insure valuable items around us – whether it’s cars, pets or mobile phones, but if something were to happen to you or your partner – for how long could you continue to pay the bills?

A report from Legal and General1 has shown that the amount of time we think we can survive and maintain our lifestyles may be a lot less than we think, and the amount of savings held by the average UK household is significantly less than what may be needed if the main source if income was lost.

Some interesting facts revealed:

  • The average UK consumer is just 19 days from the breadline
  • 42% of employed adults believe they could only survive a month or less on their savings
  • 60% of households have less than £5k savings and 16% have no savings at all
  • The average person stated they would need £12k+ savings to feel secure, but the average household has less just £2.5k savings
  • It would take 10 years for the average household to save up the equivalent of their gross annual income
  • 53% say they can’t afford to save after covering day-to-day living costs
  • 45% aren’t confident that they are saving enough for their retirement – that’s over 14 million working adults

There’s some very shocking statistics within the findings, so it does make you think about your own situation, how long do you think you could last?

Losing an income may be closer than we think – whether it’s a sudden job loss or redundancy, through to a serious illness or worse, life can change very quickly and your ability to earn and maintain your lifestyle can be seriously impacted in a short time.

To help maintain a peace of mind, there are a range of protection options out there that can help you and your family mitigate against the worst happening, and we would be happy to help you find the most suitable options for your individual circumstances.

As a starting point, let us give you a quick overview of what cover is out there:

  • Protect your income if out of work – we can all feel secure in our jobs, but you never know what’s around the corner. Policies are available that aim to protect policyholders from losses of income due to being involved in an accident, getting a sickness that forces the person to stop working or involuntary unemployment. Something that could help significantly if you are facing the burden of household running costs alone.
  • Protect against serious illness / critical illness – if you or your family become seriously or critically ill, this could have a huge impact on your daily life, especially as any extended period off work puts additional financial burden and stress during a difficult time. Serious Illness cover / Critical Illness Cover could potentially pay out a sum if you are diagnosed with or undergo a medical procedure for one of a list of specified critical illnesses set out by your provider, during the length of your policy. This can then be used to help with childcare costs, household bills or maintaining your standard of living if you take time off work to recover from illness.
  • Protect your family against a death – no one wants to think about it, but sometimes the worst can happen – and often at the most inconvenient time. Think of life insurance as a way to protect your family should the worst happen to you. A policy could minimise the financial impact on your family after you’ve gone, with a lump sum payout that could be used in a number of useful ways, such as to clear mortgages, cover household bills and childcare costs, and to provide welcome assistance at an emotionally challenging time.

Seek advice

There are whole range of policies and options online, and it can be overwhelming to work out which may be the most suitable for your circumstances, so we would encourage you to book an appointment with us, we will listen to your exact circumstances before giving advice to help you make the right decision for you and your loved ones.

Sources

  1. Legal & General (2023) Deadline to Breadline 2022. Available at: https://www.legalandgeneral.com/landg-assets/adviser/files/protection/sales-aid/deadline-to-breadline-report-2022.pdf (Accessed 15 Jun 2023).

Making the most out of your home

Is your property getting too small for you? Perhaps you have a growing family or you just need more space to accommodate a home office setup?

The obvious idea may be to move to a larger property, however, the present economic situation with increased mortgage rates means that the prospect of moving home can be very expensive indeed, so a simpler and cheaper alternative is to make the most of your existing home to increase space and make it feel less of a squeeze.

The cheapest way to start is to declutter. Most of us never stop to recognise how much ‘stuff’ we accumulate over the years. Take some time to take an inventory and decide what you can put into a car boot sale and how much can be taken to the tip. Rationalising your belongings will free up a lot of space and make you wonder why you did not do it before.

Here are a few suggestions for where to maximise the space you have:

Use Under Stair Storage

Lots of people have made the move to storing their things under the stairs with built-in cupboards and storage units. Depending on what you plan to put away in there can determine how you build the space. For example, if you are storing blankets, towels and bedsheets, you could consider using pull out shelves for easy access.

Use Multifunctional Furniture

Multifunctional furniture is a great way to create space in smaller rooms. For instance, if you have no room for a permanent table in the kitchen, then consider using a drop down table with space for kitchen utensils. Another multifunctional option to use are Ottoman style storage units, these can come in many formats, including under bed storage.

Use Your Attic Space

Attics can be renovated into extra rooms. A loft conversion can add one to two more bedrooms depending on how large of a space you have. Not only does this leave you with a bigger home, but it adds value to the property. Have it as a storage space to create more room in the rest of the house, use it as an office or even just as a place to watch TV.

Use Outdoor Spaces & Outbuildings

If your property features outdoor spaces such as garden, this can form an ideal location to maximise your storage. For example, a cycle locker could prove a good, secure solution to avoid bikes cluttering up the hallway or and a well-organised shed or garage with storage racks can help you store more items in the same space to reduce clutter.

The costs of moving home

The idea of moving home can be very exciting, but in today’s economic climate, it pays to keep an eye on just how much it costs.

According to research[1][2], the average cost of moving home in the UK can be between £12,000-£14,000, when you factor in the wide range of costs, from Stamp Duty to estate agent fees, conveyancing, surveys and more.

A breakdown of some of the most common costs can be found here:

Key average home moving costs recorded in 20222
Stamp duty£6,500
Estate agent (sale of your existing)£4,544
Conveyancing£2,003
House survey£   456
Removals£   649
Energy performance certificate (EPC)£     55
Total£14,207

These figures are based upon averaged data recorded by Reallymoving for a home move in the UK last year, and can show some of the costs that you may not have initially bargained upon, but can be quite sizeable.

Stamp Duty

When moving home, Stamp Duty is likely to be the highest cost you will face. You will pay Stamp Duty Land Tax (SDLT) on the agreed price of your new property on any value over £250,000 in England and Northern Ireland. More details about Stamp Duty can be found on the Government website – https://www.gov.uk/stamp-duty-land-tax

The rules are slightly different for Scotland and Wales, in Scotland it is known as Land and Buildings Transaction Tax – https://www.gov.scot/policies/taxes/land-and-buildings-transaction-tax/, whilst in Wales it is simply known as Land Transaction Tax – https://www.gov.wales/land-transaction-tax-guide.

It’s useful to familiarise yourself with the applicable tax for your new property, especially as it represents a significant amount. We would always advise you seek independent legal advice/confirmation from your solicitor/conveyancer, but as a good starting point, more information can be found on the Calculate Stamp Duty Land Tax (SDLT) link – https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro

Conveyancing sorts out the legal aspects of the sale and purchase when you engage a solicitor or licenced conveyancer to handle your move from one property to the new one.

Valuation Your lender will insist on a valuation of the new property to ensure that the sale price and the valuation are realistic and also to spot any obvious issues with the property. Unless it is a new property with a new build guarantee, it is advisable to also arrange to have a survey done of your new property which is more comprehensive, should highlight any potential underlying issues and may be a good way to avoid unexpected repair costs further down the line. Also, you may be able to re-negotiate the purchase price to factor in any costly current or future repairs.

Estate agent fees

According to the latest research by Home Owners Alliance, the average fee for an estate agent in 2023 is typically 1.42% of the sale price, plus VAT. For an example, a property that sells for £275,000 would mean an estate agents fee of £3,600.3

These are just a few of the most common fees that you are likely to encounter, but a more detailed listing can be found at the Reallymoving website here – https://www.reallymoving.com/removals/guides/cost-of-moving-house

Where possibly, it is recommended to shop around for the key services you need when moving home to maximise the savings where you can, areas such as conveyancing, surveys, removal costs and estate agent fees are all negotiable, so it’s worth contacting a range of firms to obtain multiple quotes before committing, and you could save yourself a considerable sum.

Sources

  1. Halifax (2023). How much does it cost to move house? Available at: https://www.halifax.co.uk/mortgages/help-and-advice/moving-house-costs.html (Accessed 20th June 2023)
  2. ReallyMoving (2023) Cost of moving house. Available at: https://www.reallymoving.com/removals/guides/cost-of-moving-house (Accessed 20th June 2023)
  3. Home Owners Alliance (2023) Estate agent fees – and how you can save in 2023. Available at: https://hoa.org.uk/advice/guides-for-homeowners/i-am-selling/how-much-should-i-pay-the-estate-agent/ (Accessed 20th June 2023)

All the information in this article is correct as of the publish date 29th June 2023. The opinions expressed in this publication are those of the authors. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.

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