Emilia Hunt - Sales Director at Metro Finance, the largest shared ownership mortgage provider, shares her most frequently asked questions as more people look to get onto the property ladder in the New Year.
When is the interest hike going to end?
There’s no doubt it’s a scary world at the moment. The Bank of England has again confirmed they have lifted the base interest rate by 0.75% to 3%. In reality, it’s not a huge surprise that the rates are increasing, this was always on the horizon although circumstances may have forced it a little sooner than expected. And ultimately what is the norm for Bank of England base rate? The long-term average for the Bank of England isn’t where it has been since 2008, we could now be going back to the norm.
If you listen to economist, the expectation is that you will continue to see the Bank of England base rate drive upwards into next year – to maybe 4.8% by summer 2023, and lenders are pricing now in expectation of that. So, the fixed rates you see today are priced on the expectation of higher Bank of England base rate.
Is now really the time to buy?
This is difficult to answer, and ultimately only a buyer can answer this themselves. Every buyer should feel comfortable when purchasing a property, it’s not something to go into lightly. That being said, just as interest rates have increased, we’ve also seen the rental market increasing.
The average rent in the north is £1,162. Based on this payment, you could buy a 25% of a £340,000 property, far above the average house price.
The average rent in London is £2,343. On this basis you could buy a 25% share in the £690,000 property, again above the average house price in the area. Ultimately, if it’s your desired property and affordable, then yes, it is the right time – as it’s a home for you.
What are the mortgage options in terms of rates at the moment?
Fixed rate – for a first-time buyer is probably the most common type of rate. A fixed rate means the interest rate will not change for several years, be it 2-year, 5-year etc. The benefits of a fixed rate are simple – you know what your payments are. Irrespective of what happens in the world, you have that rate secured for a period of time. The disadvantage – you could end up paying a little more for that extra security, but for many people, especially during times like this, that cost is worth it for the security.
Tracker/discount rates – these rates can be far riskier as they follow the Bank of England base rate. The benefit of these is that currently they are sitting around 4.09% at 95% for shared ownership, which is much lower than a fixed rate. But beware – they are not for everyone. These rates will likely increase, and when this happens your mortgage payments will go up. So you are best budgeting for a higher payment, and just thinking of the lower payment as a short-term gain. If your affordability is tight, it might be best to go with a stable fixed rate, rather than running a risk.
Why Shared Ownership?
Shared ownership is an affordable product for those that cannot afford to buy on the open market. It allows you to get onto the housing ladder, where otherwise it may not be possible.
For many it’s a pipe dream to own a property, either because they don’t have the deposit or they don’t have the income needed for the area they want to buy in, and shared ownership tackles both of these.
I’m interested in buying, what are my next steps?
Every person’s circumstances are unique, making every mortgage application unique. My best advice would be to speak to an advisor to guide you through the process, work out what is affordable and within your budget, and obtain you an Agreement in Principle which is the first step to securing your dream property.
Looking for more? We have plenty of tools and support available to help you on your journey.
Shared Ownership FAQ's
