Are Higher Mortgage Rates Deterring Home Movers from Upsizing?
Written on 4 September 2024 by
In recent times, there has been a notable shift in the way people approach buying and selling properties. During the years when mortgage rates were historically low, many home movers aimed to borrow as much as possible to secure their dream homes. However, the rise in mortgage rates has changed this dynamic significantly.
Now, rather than focusing on upsizing, many home movers are prioritising affordability. The cost of borrowing has increased, making larger mortgages less attractive. As a result, we're seeing more people opting for lateral moves - changing properties but staying within a similar price range - rather than stretching themselves financially to move up the property ladder. This shift in mindset reflects a more cautious approach, as people look to balance their desire for a new home with the realities of higher mortgage repayments.
Do Second Steppers Still Look for Bigger Mortgages?
For many second steppers, the aspiration to move to a larger home remains strong. These home movers are typically looking to accommodate a growing family, a new job, or simply desire more space. As a result, many would like to seek larger mortgages to fund these bigger properties, however they’re also aware that they must carefully consider how much they can afford to borrow.
So what can be done? Well, while the desire for a larger home is understandable, it's essential to balance this against the short and long term affordability of the mortgage. Consulting with a mortgage broker such as John Charcol can be invaluable in navigating these decisions and ensuring that a new mortgage is manageable as well as the key to helping you move up the property ladder.
Key Considerations for Home Movers: Mortgages and Moving Home
If you're planning to move home, several critical mortgage-related factors need to be considered. These elements can have a significant impact on your financial stability and the overall cost of your move.
Here’s what you should keep in mind.
Early Repayment Charges
One of the first things to consider is whether you’ll incur ERCs (early repayment charges) if you decide to pay off your existing mortgage early. These charges can be substantial, often running into thousands of pounds. It's vital to check your current mortgage agreement and fully understand any penalties you might face. If possible, timing your move to coincide with the end of your mortgage term can help you avoid these charges and make the financial transition smoother.
Porting Your Mortgage
Porting a mortgage allows you to transfer your existing mortgage to a new property, which can be an effective way to avoid ERCs and keep your current interest rate. This can be particularly useful if you want to upsize, as you can take out a new mortgage on a higher rate on only the additional borrowing required to secure a new, more expensive property, while keeping your existing lower mortgage rate on the majority of the loan.
However, it’s important to note that porting is not always straightforward. Your lender will reassess your financial situation and the value of the new property, and the porting process itself essentially involves reapplying for your existing mortgage on a new property. Make sure to discuss this option with your broker to understand the potential benefits and any associated costs.
Additional Mortgage Fees
Beyond the property price, moving home often comes with a range of additional fees. If you switch to a new mortgage deal, there might be arrangement fees to consider. You'll also likely need to pay for a valuation of the new property, legal fees for the conveyancing process and potentially a survey to check the property's condition. It’s important to factor these costs into your budget to avoid any surprises.
Mortgage Affordability
Assessing your financial situation and determining how much you can afford to borrow is essential. Take a close look at your income, outgoings and any future changes, such as family growth or new job opportunities. It’s also wise to consider how potential interest rate rises might affect your monthly payments. This thorough assessment will help ensure that your new mortgage is sustainable in the long term.
Choosing the Right Mortgage Type
Different types of mortgages offer various benefits, and it’s crucial to choose the one that best suits your needs. Fixed rate mortgages provide the security of knowing your payments won’t change, while variable and tracker mortgages can fluctuate with interest rates. Your choice should align with your financial situation and your tolerance for risk. Discussing your options with a broker can help you make an informed decision.
Timing Your Move: Fixed Term Deals and Porting
Many homeowners aim to time their move around the end of their fixed term mortgage to avoid ERCs. This strategy can be effective in minimising costs. However, porting may allow second steppers to move earlier without facing ERCs, which can be especially beneficial if current market rates are higher than their existing deal.
While timing your move perfectly can save money, it’s also important to be flexible. Delays or changes in the process could result in moving onto a lender's SVR (standard variable rate), which is usually higher. Therefore, planning and budgeting carefully are crucial steps in ensuring a smooth transition.
Key Conversations to Have with Your Mortgage Broker
When planning to move home, having detailed conversations with your mortgage broker is vital. Below are some important topics to cover.
Your Financial Situation
Be transparent with your broker about your financial situation. This includes your income, outgoings, debts, and any expected changes in the near future. The more information your broker has, the better they can tailor their advice to your circumstances.
Reviewing Mortgage Products
Ask your broker to review a range of mortgage products available to you. This should include fixed rate, variable rate and tracker mortgages, as well as any special deals or incentives that might be on offer. Comparing different products and understanding their terms will help you find the best deal for your needs.
Common Mistakes Home Movers Make with Their Mortgage
Home movers can sometimes make mistakes that end up costing them both financially and emotionally. Here are some common pitfalls to avoid.
Overlooking Early Repayment Charges
One of the biggest mistakes is not accounting for ERCs. These can be significant, so it's essential to check your current mortgage agreement and calculate any potential costs before deciding to move.
Failing to Consider Porting
Many home movers overlook the option of porting their mortgage, particularly when upsizing. Porting can save you from ERCs and allow you to keep your existing interest rate on the vast majority of your total borrowing. Furthermore, those that overlook porting may think they have to wait until the end of their existing mortgage deal to move home, which isn’t necessarily the case.
Make sure to explore whether porting is an option early in the process with your mortgage broker.
Not Fully Understanding Affordability
It’s crucial to get a clear understanding of how much you can afford. This includes not just the mortgage payments but also all the associated costs of moving. Without a comprehensive assessment, you risk taking on a mortgage that could become unaffordable.
Skipping Professional Advice
Navigating the mortgage process without professional advice can lead to missed opportunities for better deals and terms. A mortgage broker like John Charcol can provide valuable insights and help you avoid costly mistakes.
Ignoring the Impact of Interest Rate Changes
Interest rate fluctuations can significantly affect your mortgage payments. Failing to consider this could lead to financial difficulties down the line. Discussing your options with a broker and considering fixed rate deals if you want stability can help mitigate this risk.
Final Advice for Home Movers
If you’re planning to move home this year or early next year, start your planning early and ensure you fully understand your financial limits. Consulting with one of our mortgage brokers here at John Charcol will help you navigate the complexities of the mortgage process. Staying informed about market trends and interest rate changes will also allow you to make better decisions. With careful planning and the right advice, your home move can be a successful and stress-free experience. Contact us today on 0330 433 2927 to find out more.
Category:Nicholas Mendes