The New Year is always a good time to set some new goals for the forthcoming year and 2009 is likely to be another tough one for the economy and the mortgage market.
With that in mind what action can borrowers take to put themselves in the best position as far as their mortgage is concerned?
Those that are coming to the end of an existing deal in 2009 should start their search for a new deal sooner rather than later. Lenders continue to tier the interest rates on offer according to the proportion of the property value that the borrower requires (loan to value ratio) and are making the best rates available to those with at least 40% equity. With house prices still falling, more borrowers run the risk of falling into higher loan to value brackets and with it higher interest rates.
It therefore makes sense to start shopping around as much as six months ahead. Mortgage offers are typically valid for 3-6 months so it’s possible to secure a deal now even if the current mortgage has five or six months to go. L&C’s Ratecheck service also means that the initial deal can be reviewed in case a better deal comes along in the meantime.
One of the positives for mortgage borrowers has been the slashing of the Bank of England Base Rate. It currently stands at 2% and many forecast further cuts in the New Year. Those that have seen their monthly payments fall could take the opportunity to overpay on their mortgage and help erode the capital balance more quickly.
This will put the borrower in a better position when they come to the end of their deal and will help cut the cost of the mortgage over its lifetime.
Most deals will now carry some flexibility to allow overpayments to be made without incurring an early repayment charge but it is important to check the specific terms. For example, some will allow overpayments of up to 10% per annum whilst others will be limited to £500 per month.