Could a bespoke mortgage help with affordability?

Inflation, interest rates and the wider economic environment remain important considerations for property buyers. Many individuals continue to look carefully at the outlook for affordability when considering their next property purchase.

Against a backdrop of disruption in the Middle East and potential UK policy changes in the Autumn Budget, some homebuyers may be tempted to postpone a move while waiting for greater certainty around market conditions. However, if you’ve found your ideal home or investment property, there may be ways to improve affordability or structure your borrowing more effectively.

Here, Neil Raja, Head of Product and Proposition at Investec, explores some of the factors to consider.

“In a changing interest rate environment, some clients with a long-term outlook are exploring our variable tracker mortgage. If interest rates fall in future, monthly repayments would too. Of course, if interest rates rise, so would monthly payments,” says Neil.

“If a client is on a tracker and interest rates do come down, they have the option to lock in a lower rate for a set period by switching to a fixed-rate deal. Some banks charge rearrangement fees for doing this, but Investec clients can often move from a tracker to a fixed rate without incurring a fee,” Neil explains.

Those on tracker products can also make overpayments or capital reductions. “Investec allows borrowers to make capital reductions if they want to reduce their loan-to-value (LTV) ratio. However, clearing an entire balance may attract an early repayment charge.” Neil says.

It’s also worth seeking a lender who can take a holistic view when assessing affordability, particularly for individuals who receive their income from multiple sources. “Some high street banks are unable to take complex earning profiles into consideration,” explains Neil. “But at Investec we measure affordability with bonuses, profit shares, foreign currency and investment portfolios and other income in mind.”

Taking an overarching view of wealth can help in times of economic volatility. “We recognise that income can fluctuate from year to year, particularly for entrepreneurs, business owners and individuals with complex remuneration structures. But by looking at circumstances holistically, we may still be able to meet clients’ LTV expectations where appropriate,” says Neil.

“Tailored repayment plans allow clients to make mortgage repayments at a time that suits them. For instance, our tracker mortgages have no early repayment charges, allowing clients to make capital reductions when liquidity events occur.”

 It may also be possible to incorporate an interest only element to the plan. “Under the right circumstances we can offer interest-only mortgages with scheduled capital reductions,” Neil explains. “This can help people preserve cash flow for a period of time.”

Important information:

Your property may be repossessed if you do not keep up repayments on your mortgage. Investec residential mortgages are only available for residential properties in England or Wales and are primarily available to UK residents and subject to eligibility. This article is for general information purposes only. The opinions featured are not to be considered as the opinions of Investec Bank plc and do not constitute financial or other advice. It is advisable to contact a professional advisor if you need financial advice. Your use of and reliance on any of this content is entirely at your own risk. Minimum eligibility criteria and terms and conditions apply.