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September 2024

Newsletter

As a chill hits the air the property market has burst back to life.  

In this months update we'll have a look at how we got here, what happened in August with the mortage market. 

We'll also be exploring the difference in Capital Repayment and Interest Only mortgages 

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Latest News

September has started with a bang. In fact, instructions were 14% higher in August 2024 compared to the same month in 2023 according to analysis by Zoopla. 

 

House prices have been steadily increasing and mortgage approvals are on the rise. This positive momentum was driven by a combination of factors, including the easing interest rates,

 

The Bank of England's decision to cut interest rates in August provided a much-needed boost to the housing market. This reduction in borrowing costs made it more affordable for some, which only helps. 

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As interest rates decreased it seems that finally, buyers who had been waiting for the right time to purchase seem to have picked the search back up. 

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I've also seen a couple of changes with lenders affordability, specifically targeting first time buyers. 

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Halifax have introduced 5.5x income lending for first time buyers earning in excess of £50,000 a year. 

This is amazing news for first time buyers, who previously only had access to this level of lending through Nationwide.

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Nationwide do already offer this level of lending, again, with a product for first time buyers. Their qualifying income is set lower at £30,000. The product comes with the stipulation that they must take a 5-year fixed rate mortgage. This product is also not available to anyone who is self-employed and so it can be quite limiting. 

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Halifax' product gives a bit more opportunity for first time buyers, especially those who are self employed. 

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Accord have also increased affordability for those earning over £50,000. They will offer 5x income. 

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These changes are a really positive sign that lenders are becoming more competitive with their products, especially for first time buyers who have had a hard time getting on to the market in the last year.   

Mortgage Rates Today

What is the Difference Between Capital Repayment Mortgages and Interest Only â€‹

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Most mortgages you'll encounter on a residential basis will be a capital repayment mortgage. This simply means that along with the interest you will pay for the loan, a portion of your payment will also go towards repaying your mortgage. 

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The percentage of the total monthly payment that repays, what we call, the principal loan will increase as time goes on.

This is because, as time goes on, your loan will get smaller. Interest is charged daily on the loan you have left.

 

Your payment will remain similar as the repayment is calculated across the total length of the term. So, naturally, as the term dwindles, the amount of interest due in your payments will decrease and the amount you repay will increase. 

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The other option is an Interest Only Mortgage. 

An interest only mortgage is where you do not pay anything towards the principal loan. Instead you retain the total amount of the loan and pay only the interest charge each month. 

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This may seem counterproductive, however, interest only has it's uses. 

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Many people will use interest only mortgages to reduce costs. They are used prolifically in the Buy to Let market for landlords that want to extract as much as they can as an income and are not worried about repaying the mortgage. 

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They can also be used on property renovation projects to keep payments to a minimum while they complete the build and then remortgage or sell. 

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Interest Only mortgages are rarely used for residential mortgages, if they are, borrowers would need to have a large portion of equity in the property and be a high net worth individual. 

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The reason they are not usually used for a residential property is because they are so risky. Before now, they were used a lot for residential mortgages, we're still finding that homeowners are getting to retirement and still have their entire loan intact. In later life with only pension income this is a problem. 

 

Another measure put in place to mitigate this risk is the lenders requiring details of the repayment strategy to ensure that the loan will be repaid by retirement. 

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I hope that helps to give a little bit of insight into the differences with these types of mortgages. 

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As always, please do give us a ring if you would ever like to talk this through along with any other options. 

Jen Boulter

Schedule a Time to Discuss Your Options Today

Boulter Mortgages

Mortgage Advisors

This website is for UK residents only 

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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR OTHER DEBT SECURED ON IT.

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Jennifer Boulter trading as Boulter Mortgages is an appointed representative of The On-Line Partnership Limited which is authorised and regulated by the Financial Conduct Authority.

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A fee is payable at Mortgage application, this is a lifetime fee which entitles you to advice over the lifetime of your mortgage at no further cost.  

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Boulter Mortgages may receive financial compensation when referring clients to other service providers, including but not limited to Conveyancers, Surveyors and Will Writing Services. When this relates to you as a client of Boulter Mortgages, details of the amount received can be provided to you upon your request

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