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Mortgage Prisoners: 800,000 homeowners urged to switch to cheaper mortgages

Many homeowners became trapped as a result of the financial crisis in 2008, whereby their mortgage rates and affordability terms changed dramatically and many had their mortgages sold to private investors as part of bailing out various banks, with no choice but to accept terms given to them.

The Financial Conduct Authority estimates around 800,000 homeowners are currently overpaying for their mortgages and could be saving up to £4,000 each per year.

The City Regulator has put forward recent proposals to help ‘mortgage prisoners’ which currently affects an estimated 120,000 households in the UK. This group are currently unable to get new mortgage deals or remortgage due to a range of circumstances, and it is currently putting them on much higher standard variable rate, charging up to 5% or 6% for their mortgage per month.

Many homeowners became trapped as a result of the financial crisis in 2008, whereby their mortgage rates and affordability terms changed dramatically and many had their mortgages sold to private investors as part of bailing out various banks, with no choice but to accept terms given to them.

Many enjoyed 100% mortgages or being able to borrow 7 times their salary, which has since been slashed to 4.5 times at most. But this has had profound effects on their mortgage terms, and for some, it has made getting a new mortgage deal unfeasible.

You can also become a mortgage prisoner if you see a big fall in salary or fail to meet your provider’s new, stricter affordability checks (due to too many outgoings or bad credit). Or similarly, if you become a first time buyer, but the over the next few years, the mortgage lender reduces the amount you can borrow against your salary.

These circumstances have left many mortgage prisoners paying huge amounts and unable to change their scenario, meanwhile switching to different remortgage deals could offer just 1-2% per month and save the household up to £4,000 per year.

Households ‘unaware’ of cheaper deals
The FCA estimates that up to 800,000 homeowners in the UK could in fact be paying much lower rates, without their knowledge.

The regulator states that people should not get used to paying high amounts for their mortgages and should seek new deals and remortgages, and make the most of introductory offers and consult other lenders where possible.

What options are available for mortgage prisoners?
Meeting the stricter affordability checks for mortgage providers and banks is very important. If you can find ways to increase your salary (easier said than done), this can certainly help. But perhaps lowering your household costs and outgoings will make a big difference too, to show that you have improved affordability. Some simple savings could include reducing your monthly spend on food and takeaways, joining a cheaper gym or quitting smoking.

Whilst not always easy, overpaying on your mortgage will reduce the amount outstanding and therefore be cheaper long-term. The sooner that you can get out of your contract that holds you a prisoner, the better.

Downsizing or increasing any cash in your home can also help. If your children have flown the nest, downsizing to a smaller property can help free up your finances and get your out of the mortgage trap. Around 80,000 homeowners over the age of 55 have used equity release in the last year as a way to release cash from their home. This can be an expensive product, but usually causes you to pay off your mortgage in the process and give you enough cash for the remainder of your lifetime. There is also no tax on this product and will not incur inheritance tax either.

Moving home can be very tricky, unless you are downsizing and borrowing lower amounts. Many households have reverted to bridging loans, which can provide an effective way to borrow money if moving house (without having sold yours). But this can come with huge risks if the housing market crashes and if you fail to sell your home, you could be at risk of repossession.

By Daniel Tannenbaum

Source: Accountancy Age

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Mortgage rates halve in ten years

Mortgage rates are at historic lows, having almost halved in the past decade, according to Moneyfacts.

The Bank of England cut interest rates to 0.5 per cent in March 2009 in a bid to stabilise the UK economy amid the global financial crisis.

The average two year fixed mortgage rate was 4.79 per cent ten years ago, almost double the rate available today at 2.49. The same is true of the average five-year fixed rate which has fallen from 5.62 percent to 2.69.

Moneyfacts said the figures showed there was healthy competition between providers to attract new borrowers.

The drop in interest rates coincided with greater product availability at most loan-to-value (LTV) tiers. The number of LTV products available at 95% has increased 130 times in the past decade to reach 391 today, which should help first time buyers.

At the lower LTV tiers too the number of mortgages available has almost doubled. Borrowers with 40 per cent deposit or equity have 588 products to choose from today compared to 272 in March 2009.

Providers have adapted

Moneyfacts spokesman Darren Cook said: “A decade ago, providers did not seem to want to lend to borrowers who could only raise a small deposit. However, providers have since adapted to the new post-crisis mortgage environment.

“One figure that has remained fairly static over the decade however is the average standard variable rate, having only increased by 0.12% since 2009, from 4.77% to 4.89%. Meanwhile, both the average two- and five-year fixed mortgage rates have nearly halved during this time.

“During the past ten years, not only have the two- and five-year fixed mortgage rates dropped, but the gap between the two has more than halved, falling from 0.83% in 2009 to stand at a difference of only 0.4% today.

“This could be a significant factor for borrowers when considering whether to fix for the short or longer-term, especially with the current economic uncertainty.”

At the same time, Cook pointed out that the Financial Conduct Authority introduced clear affordability measures that mortgage providers are required to follow, meaning lending criteria is much stricter than it was before the financial crisis.

Written by: Max Liu

Source: Your Money

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Mortgage rates on the rise

The cost of the most popular two, three and five year mortgages has increased over the past three months after two quarters of cost reduction, new data have shown.

With a current rate of 2.27 per cent (as of 1 November 2018), the cost of a typical 60 per cent LTV five-year fixed rate mortgage is now 2 per cent higher than it was in August, according to product analysis provider Mortgage Brain.

At the same time some two, three and five year fixed rate mortgages have recorded increases of 1 per cent.

The Bank of England increased the base rate of interest from 0.5 per cent to 0.75 per cent in the beginning of August and has kept it there since.

Since the start of August, the cost of a 70 per cent and 80 per cent LTV two year tracker has increased by 4 per cent, while its 60 per cent and 90 per cent counterparts have increased by 3 per cent over the same period, according to Mortgage Brain.

Based on a £150k mortgage, borrowers looking to take out one of these mortgages now face an annualised increase of up to £288, the provider said.

Mark Lofthouse, CEO of Mortgage Brain, said: “With the Bank of England maintaining the base rate at 0.75 per cent for the third consecutive month, it’s looking more and more likely that any future rate increases will be at a slow and gradual pace.

“A lot of the movement that we saw in our latest product analysis has happened since the start of September, however, so once again, the UK mortgage market could be on the verge of change where we revert back to seeing a period of increases in the cost of residential mortgages.”

For the first time in many months, Mortgage Brain’s longer term analysis also showed a number of annual cost increases.

The cost of the 70 per cent two year tracker, for example, is now 5 per cent higher than it was at the start
of November 2017, while a 2 per cent increase in cost has been recorded for some two and five year fixed rate mortgages too.

Kevin Roberts, director at Legal & General Mortgage Club, said despite the increases mortgage rates continued to remain at near-record lows and there was a growing number of innovative solutions, particularly for first-time buyers and retirees available on the market.

Andrew Montlake, director at mortgage broker Coreco, agreed. He said: “Specialist mortgage lenders, most of whom only go through brokers, have some really good offerings in this arena at present and there is no need for any borrower to feel that they have no options.”

Source: FT Adviser

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Are the lowest mortgage rates relegated to history?

This time last year, recorded the lowest ever average rates for two, three and five-year fixed rate mortgages. However, with two base rate rises under the Bank of England’s belt since then, it seems that the lowest mortgage rates are now part of the history books.

Charlotte Nelson, Finance Expert at, said: “October 2017 will be known not only as the month of the lowest fixed mortgage rates on record*, but also as the turning point in the market. This is because just one month later, mortgage rates were on the rise, as was the Bank of England base rate for the first time since July 2007.

“The past year has been a challenging time for providers as they have had to wrestle with two base rate rises for the first time in years, while at the same time needing to remain competitive to protect their mortgage book. This conflict of interest has meant average fixed mortgage rates haven’t followed the Bank of England’s rate rises entirely. In fact, data from shows the average two-year fixed mortgage rate has risen by just 0.28% in the last 12 months, instead of the full 0.50% base rate increase.

“Despite this, borrowers opting for a two-year fixed rate mortgage today would still be £27.93** per month or £335.16 per year worse off compared to those who were lucky enough to lock into a fixed deal a year ago.

“But it could be worse. Since the August rate rise, many would have expected rates to increase further, but instead they are actually falling, with the average two-year fixed mortgage rate standing at 2.49% today compared to 2.53% in August. Five-year fixed rates have also fallen by 0.02% over the same period.

“The reduction of average 95% loan-to-value rates (reported last week) has some element to play in the overall averages decreasing. However, providers know that many borrowers are starting to think about protecting themselves from future rate rises, and a fixed mortgage does just that. Therefore, lenders are trying to remain competitive, wanting to be seen as offering some of the lowest rates in the market. With the summer now over, providers may also be starting to look at end of year targets, and are perhaps readjusting their rates to meet them.

“However, while rates may be falling now, it is unlikely that the record low levels seen in October 2017 will return anytime soon. With multiple base rate rises predicted for the foreseeable future, it is likely rates will only get higher, so borrowers looking for a fixed deal should act fast avoid disappointment.”

* Moneyfacts average mortgage rate records began in 2007.

**Based on a £200,000 main residence mortgage over a 25-year term on a capital and interest repayment basis. Monthly repayment for the average two-year fixed rate in October 2017 is £868.30 compared with £896.23 today based on this example.

Buy to Let Mortgage system


Source: Property118

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The base rate rise won’t have an immediate effect on rates

The Bank of England’s decision to raise the base rate from 0.5% to 0.75% won’t have an immediate effect on mortgage rates, lenders argued.

The Monetary Policy Committee’s unanimous vote meant that this is the highest the rate has been for nine years.

Paul Broadhead, head of mortgage and housing policy at the BSA,said: “The majority of mortgage borrowers will see no immediate impact on their household finances as two-thirds of existing mortgages are on fixed rates.

“Transaction levels amongst home-movers are already subdued, partly because of Brexit related uncertainty.  How much rates will move in such a highly competitive market remains to be seen.

“Lenders will need to balance the interests of savers and mortgage borrowers when making rate setting decisions.”

Jackie Bennett, director of mortgages at UK Finance, agreed, citing that most new loans are fixed.

She said: “The majority of borrowers will be protected from any immediate effect from today’s increase, with 95% of new loans now on fixed rates and almost two-thirds of first-time buyers opting for two-year fixed rate products over the last 12 months.

“There is no single indicator of the cost of funds to lenders. Lenders have individual funding models, with the cost and mix of funding sources varying considerably from lender to lender.

“As a result, when costing their Standard Variable Rate (SVR) or reversion rates, lenders are not necessarily led by the Bank of England Base Rate so any increase or decrease in the Rate may not be passed on to borrowers.

“Rates are still at an historic low and borrowers remain well-placed to get a good deal from the UK’s competitive mortgage market.”

However David Whittaker, chief executive of Keystone Property Finance and buy-to-let mortgage broker Mortgages for Business, said that it won’t be long until lenders have to look at their pricing with shorter terms likely to come first.

He said: “It won’t take lenders long to nail their colours to the mast and adjust their pricing, particularly those who have spent the last year absorbing costs instead of passing them onto borrowers.  Shorterterm fixed rates are likely to be the first to be punished.

“We may even see lenders hold off a little longer before adjusting five year fixed products.  But mortgage rates will be going up sooner rather than later.  Borrowers will have to expend a bit more blood, sweat and tears reworking their sums and cash flow projections.”

David Hollingworth, associate director, communications, L&C Mortgages, said that despite many borrowers looking ahead and getting a fixed rate, those that haven’t yet may now be finally be triggered to revisit their situation.

He said: “Although rates have been drifting upwards since the run up to the last rate hike, the fixed rate options are still very competitive. Those most vulnerable to rising rates will be borrowers on their lender’s standard variable rate.

“An increase of 0.25% for a £200,000 25 year repayment mortgage could increase monthly payments by around £25 or more.

“Reviewing their rate could offer them substantial cost savings as well as being able to lock their rate down and protect any further rate rises. Assuming that lenders apply any increase to their SVR, average SVR rates could be around 5%, although the range of SVR varies widely between lenders.”

Gemma Harle, managing director of Intrinsic mortgage network said the decision was no surprise because of the speculation that was rife in the market.

She said: “Due to this, many lenders will have already factored into their pricing this hike in interest rates.

“Today’s announcement represents only the second time there has been an interest rate rise in a decade which means many people are in for a shock as they will have not experienced such an increase and will therefore need to adjust their current spending to accommodate this rise.

“The knock on impact of this, is that it may make people’s mortgages become unaffordable. This will be especially true for mortgages that were taken out prior to the 2014 introduction of stress testing at the application stage.

“Those customers whose current fixed rate is coming to an end and were expecting to get a cheaper or the same fixed rate may also be disappointed.”

Source: Mortgage Introducer

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Mortgage arrears fall to record low

Mortgage arrears hit record lows in the first quarter of this year, figures from mortgage trade body UK Finance have revealed.

The figures showed there were 7,800 homeowner mortgages in arrears of 2.5 per cent or more of the outstanding balance in the first quarter, 8 per cent fewer than in the same period of the previous year.

This is the lowest level since records began.

A total of 24,100 people had mortgages with more significant arrears, of 10 per cent or more of the outstanding balance, which is 3 per cent fewer than the previous year.

There were 4,500 buy-to-let mortgages in arrears of 2.5 per cent or more, and 1,100 of them had arrears of 10 per cent or more.

This represented a 6 per cent drop from the previous year.

Despite this fall, the number of homes that were repossessed remained the same, with 1,200 homeowner mortgage properties taken into possession.

Jackie Bennett, director of mortgages at UK Finance, said that while the figures were good, arrears and repossessions could increase due to the change to Support for Mortgage Interest (SMI), which has become a loan rather than a benefit.

Ms Bennett said: “Only a small minority of those eligible for the SMI loan have taken it up so far.

“Lenders will proactively help borrowers in receipt of Support for Mortgage Interest (SMI) to see if there are other ways to make up their payments if they do not want to take out the loan.

“As ever, customers should not hesitate to contact their lender if they anticipate any payment problems and want to discuss what options are available. Repossession is always a last resort.”

Jonathan Harris, director of mortgage broker Anderson Harris, warned that there was “no room for complacency” following the figures.

He said: “Borrowers need to be prepared. We suspect that when it comes to their finances there are many people who don’t have a buffer to tide them over should they get into difficulty.

“Borrowers must plan ahead and consider how they will cope if interest rates rise. Fixed rate mortgages are still great value and remain competitively priced. It is also vital that borrowers keep their lender in the loop if they are struggling to pay their mortgage.

“Lenders are being flexible and showing forbearance but it is much easier and less stressful to come up with solutions early on than further down the line when options may be much more limited.”

Jeremy Leaf, north London estate agent and a former Rics residential chairman, said: “These figures are interesting because they show a housing market which, although softening, is unlikely to collapse anytime soon, despite all the gloom and doom we have seen over the past few days in Halifax and Rics data.

“One of the precursors of a more significant correction in property prices is more forced sales and clearly we are not seeing, or likely to see, that at the moment, particularly while mortgage rates are so low, wages are actually creeping up ahead of inflation and employment numbers remain strong.”

Source: FT Adviser

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Mortgage rates jump to near two-year high

Two-year mortgage rates have hit their highest level since July 2016, analysis has revealed.

The average fixed-rate on a two-year deal now stands at 2.5%, according to Moneyfacts.

Rates have steadily been rising since September 2017, when the average two-year fix was priced at just 2.17%.

In November the Bank of England raised the base rate for the first time in almost a decade, and speculation about another rise in May has helped drive up mortgage market costs in recent weeks.

Charlotte Nelson, from Moneyfacts, said: “The mortgage market is experiencing a period of upheaval, with rates that were once at all-time lows now starting to rise.

“In the lead-up to May’s base rate announcement, both the interest swap and Libor markets have started to factor in a potential rise.

“Just like before the base rate rose in November, providers now have little choice but to factor in these higher costs into their mortgage pricing.”

A number of lenders have been raising rates in recent weeks, with Sainsbury’s today upping costs across a number of deals.

However, Bank of England governor Mark Carney has this week hinted that a base rate rise is not a foregone conclusion.

Nelson added: “As well as the latest fall in inflation, Mark Carney suggested in a recent interview that Britain leaving the EU has cast doubt over an imminent rate rise.

“If the markets do cool off as a result, it will be interesting to see if mortgage rates will follow suit in the shorter term.”

Source: Your Money

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Number of mortgage approvals for house purchase dips

The number of mortgage approvals being made to homebuyers dipped in February according to high street banks, as economists said 2018 was shaping up to be a difficult year for the housing market.

Some 38,120 home loans got the go-ahead for house purchase, compared with 40,031 in January, according to figures from trade association UK Finance.

But re-mortgaging was up slightly, with 28,607 loans in February, compared with 28,327 in January, as households made the most of the low mortgage rates still available.

Commenting on the report, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the latest figures suggested a recent stamp duty cut for first-time buyers had “failed to reinvigorate the market”.

He said: “House purchase demand, which has been weakening since mid-2017, is continuing to decline.

“Demand has been very sensitive to the recent modest increase in mortgage rates.”

Mr Tombs said mortgage rates would likely rise further over the coming months.

He said: “With demand contracting faster than supply, house prices likely will merely flatline during 2018.”

Howard Archer, chief economic adviser at EY ITEM Club, said: “The latest mortgage approvals data do little to dilute the view that 2018 will be a difficult year for the housing market.

“We expect price gains over the year will be limited to a modest 2%.”

UK Finance also said consumer spending in February was mainly reflected in the use of credit cards, with outstanding levels of card borrowing growing at a rate of 6.3% over the year, while use of loans and overdrafts continued to fall.

UK businesses’ deposits grew by nearly 7% over the previous 12 months, while borrowing over the same period grew slightly by 0.5%.

Within business sectors, manufacturers’ borrowing expanded, while that by the construction and property-related sectors contracted.

Eric Leenders, managing director, personal finance at UK Finance, said:    “There has been an increase in re-mortgage approvals compared to last year, as borrowers look to lock in to attractive deals amid speculation of further interest rate rises later this year.

“We are also seeing a continuing rise in credit card spending, reflecting the growing number of transactions carried out using cards, while other forms of borrowing such as overdrafts continue to fall.

“Meanwhile real wages continue to be squeezed by inflation, impacting on consumer confidence and retail sales.

“This pressure on household incomes should ease in the coming months, as the effect of the fall in sterling begins to fade and the strong labour market leads to a better outlook for wage growth.”

Stephen Pegge, managing director, commercial finance at UK Finance added: “Bank lending to businesses saw modest year-on-year growth in February, driven by investment within the manufacturing sector.

“Credit balances have risen at an even faster rate as companies build reserves in the face of economic uncertainty and its effect on longer term business confidence.”

Source: Yahoo Finance UK

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Saver Beware – Mortgage rates threaten your savings in 2018

People and families are warned that the real threat to their savings isn’t stock market volatility this week. The volatility of the stock market this month is creating serious concerns among people, with global indexes tumbling. Corrections on the likes of Dow Jones has seen them fall by over 1,000 points, with European indexes following suit.

Uncertainty on the market shouldn’t concern the average saver, however, but rising interest rates will cause problems. According to The Telegraph, personal wealth and savings are threatened by Interest hitting rates. This rise is especially true when it comes to the mortgage market which rises alongside interest.

Mortgage rises – A threat to personal Savings

The Bank of England’s recent diagnosis of the British economy has opened it up to calls for interest rate increases. While the rate remains static for now, 2018 is sure to see numerous additions to the 0.5% rate. Since September 2017, the level of borrowing for mortgages rose by over 14%, totalling £69.6bn by December.

For many families, multiples increases to interest rate threaten the finances of millions due to increased borrowing. When interest rates rise, any borrowing incurred by an individual/family, repayments increase in line with interest. According to The Independent, households are already seated in financial gloom this January, and likely to continue.

According to the IHS Markitt’s Household Finance Index, Households hit a record low in their financial wellbeing. And with proposals for a plural approach to interest rate increases, this well-being is set to get worse.

Source: Gooruf

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What’s up with mortgage rates?

Last month, we saw economic policy turn a corner, with the first interest base rate rise in the UK since the start of the financial crisis.

Savers now see the light at the end of the tunnel after being burdened with pitiful interest rates for years.

Yet in the same breath, if you’re a homeowner, you’ll probably be apprehensive about the impact of the increase on your mortgage.

On 2 November, the Bank of England raised the rate to 0.5 per cent, up from 0.25 per cent. Since then, the average standard variable rate (SVR) has increased, but falls short of the anticipated 0.25 per cent rise, instead increasing by just 0.14 per cent on average, according to figures from Moneyfacts.

In fact, just over half of mortgage providers have passed on a rise to their SVRs, with seven out of 80 lenders choosing to increase their rates by less than 0.25 per cent. Of course this has caused the average SVR to rise more modestly.

Taking sides

Charlotte Nelson, finance expert at Moneyfacts, says: “historically, a base rate rise would mean that all variable rates would increase too – and it would be more of a question of when, not if, they would do so.”

However, she points out that this time providers might want to seem like they are on the borrower’s side by not increasing the rate by the full amount.

A base rate rise often prompts a surge of borrowers looking to remortgage so they can get a better deal (by opting for a fixed-rate, for example).

Perhaps lenders want to minimise the number of borrowers switching to other lenders by keeping their SVR the same.

Nelson says: “the smaller than expected rise to SVRs shows that the base rate had more of an impact on the mindset of the Bank of England and providers than on the rates themselves, which may set the ball rolling for further rate rises in the future.”

Weighing up the competition

Mark Bogard, chief executive of the Family Building Society, points out that, in one case, a provider even brought their SVR down.

Most of the time, the SVR is of no concern to borrowers, provided they switch to a new deal when their fixed, tracker, or discount deal ends, Bogard says.

“However, the level of SVR does matter when you apply for a mortgage or borrow more on an existing one, because your affordability is tested by the lender using the SVR plus three per cent or more.

“This limits the amount you can borrow even though the rate you’ll actually be paying is much lower.”

But the building society boss also says competition for new business may be motivating some lenders to keep their SVRs down.

“As to the future, the market appears to expect another 0.25 per cent increase in May. Personally I wouldn’t be surprised if the next move is a reduction.”

Delayed reaction

Fewer and fewer people are on SVRs, and according to the Bank of England’s inflation report, around 60 per cent of mortgages are fixed-rate, meaning most people won’t have been affected by the rise yet.

So as it stands, the implication of the rate rise on most consumers has been minimal, because the majority of borrowers have prudently fixed their rates or signed on to a very low base rate tracker mortgage to take advantage of the current low levels.

And of course, a change in the bank rate will feed through to some mortgages more quickly than others.

Fiona Hoyle, head of consumer and mortgage finance at the Finance & Leasing Association, says the overall effect would be relatively gradual, adding: “customers need to consider whether a fixed-rate deal would suit them, and then shop around for the best rates.”

Avoid at all costs

Now is a good time to think about whether you’re on the best rate, particularly if your fixed rate is on the verge of coming to an end.

Figures from online mortgage broker Trussle show that, in one month, an SVR costs the average borrower £327 more in interest than they’d be paying on the best two-year fixed rate.

The firm’s founder, Ishaan Malhi, says you should avoid slipping onto an SVR “at all costs”, and make sure you’re ready to switch deal before the end of your initial term.

But Malhi also warns that fixed rates have shifted in response to the rate rise, with the average two-year fixed climbing by 0.18 per cent since mortgage providers first anticipated the Bank of England’s plan.

“Next year, it’s likely these will increase further as lenders look to pass the full cost of the rise onto customers.”

Back to normal

While this was the first rate rise in over a decade, the rate increase was only a return to the already low pre-Brexit level of 0.5 per cent, which was the norm for eight years.

But it’s also important to remember that the base rate isn’t the only factor contributing to a potential rise in SVRs, says the director of the Legal & General Mortgage Club, Jeremy Duncombe, who points out that stress testing will also make lenders think again about any rise because it impacts the amount they can lend.

It’s not too late to reassess your deal, because there are still plenty of attractive fixed-rate products out there to choose from.

If you’re concerned about rates rising, or you’re unsure of what product to switch to, speak to a broker who can help navigate thousands of mortgage deals to find a product that fits your needs.

Source: City A.M.