Will interest rates rise in 2022? Can I secure a mortgage if I'm self-employed? How has COVID-19 impacted lending? To gain insight on what to expect next year in the mortgage market, IP Global interviewed Rebecca Pickard of Liquid Expat. The Senior Mortgage Consultant answered the most frequently asked questions specific to bank and mortgage interest rates, the availability of expat products, and the ease of securing a mortgage in 2022.
1. Do you expect to see bank interest rates rising in 2022?
There have certainly been more 'hints' on rate rises in the last few weeks. The Monetary Policy Committee (MPC) voted against a rise in early November as they said there was "value" in waiting to see how the jobs market coped with the end of the furlough scheme. However, they have not ruled out a rise in December – they meet every six weeks (or eight times a year to be accurate) and whilst no date has been marked for a rate rise, there does seem to be more indicators that a rate rise could happen at any time now due to a surge in inflation. It has to be reminded that there has never been a period in history whereby the BOE and mortgage finance interest rates has ever been this low.
2. Do you expect to see more or fewer products available to expats in the next 2/3 years?
Over the past three years, there has been a constant increase in expat products on the market, and I see no reason for this to change – an increasing number of lenders are becoming more comfortable in the space and are offering a broader selection to applicants living overseas. Over this period, this has resulted in higher loan to values being available to apply for, lower interest rates and more wide-ranging lending criteria for British Expats and Foreign Nationals.
3. Is it harder to get a mortgage buying via a company even if I’m the sole director?
No, the application process is very similar, so it’s no harder to obtain the mortgage versus purchasing in a personal capacity – not all lenders will lend to an LTD company structure, so it’s just about knowing which providers are able to assist, but that is where LEM come in. It is always prudent to get independent tax advice on the positives and negatives of obtaining mortgage finance inside an Ltd company versus in your personal name.
4. Can I get a mortgage if self-employed?
Yes, absolutely, albeit the number of lenders willing to accept is smaller versus someone on a full time employed position. One reason for certain lenders not accepting self-employed applications is the additional lender and underwriter resources required to clarify their actual self-employed earnings. If you are self-employed, the more independent verification of your earnings/company profitability via an accountant the lender can obtain, the simpler the process will be with any lender.
5. If I own other UK property already is this a help or hindrance to getting another mortgage?
It can be a help as some providers would prefer applicants to have landlord experience or a history of making mortgage payments in the UK. That being said, we work with plenty of lenders who can help first-time buyers. The finance options that are available to first-time landlords/buyers often offer very reasonable rates and terms.
6. Where do I find the cheapest mortgage?
You speak to Liquid Expat (LEM), we have the most extensive panel of Lenders, and these include UK High Street Banks and Buildings Societies, UK Private Banks and Lenders that are based offshore. We have exclusive products/fees with a range of providers and so can help clients obtain the best possible product for them with many of the products not available either directly to the public or through other brokers.
7. How do I choose whether to pick a 2/3/5-year tracker or fixed rate? What’s the difference?
Again, that is what LEM is for; we can help establish the best product for each client based on their individual circumstances – lots of things can impact the decision; the rate itself, if a client will relocate to the UK in the future, future plans with the property etc.
A tracker mortgage is a variable mortgage linked to the Bank of England base rate. Typically lenders will apply a certain % over above this, i.e. 2.89% + Bank of England base rate. The Bank of England’s base rate can fluctuate – it is currently 0.1%. Therefore your mortgage rate would increase if the external Bank of England base rate goes up; this leaves a level of uncertainty for borrowers. If interest rates go up, the amount they will need to pay on their mortgage could increase to an unaffordable level.
A fixed-rate mortgage has a fixed rate of interest for an agreed period of time during the mortgage term, i.e. a 2/3/5 year period. Some homeowners prefer the predictability of knowing that their rate is secure with a fixed mortgage, as this means that the amount they pay on their mortgage will stay the same throughout. This can result in some people paying more on their mortgage than if they had opted for a tracker mortgage, but this is not always the case.
There are also options for taking finance whereby you can obtain the security of having a fixed rate product without any early repayment charges for paying off the whole of the finance inside this period without incurring any penalty whatsoever. This is often attractive to someone who wishes to take advantage of both the five years fixed rate security but having the option to sell or refinance the property within this term and incurring no penalty costs.