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01 Feb 2023

Could a bespoke mortgage help with affordability?

In a high interest rate environment, a tailored mortgage could give you the reassurance you need to make your next property purchase.

 

Since 2022, high inflation and political uncertainty has contributed to rising interest rates which have impacted mortgage costs. However, our recent economic update predicted that rates would fall later this year.

“In 2023, it is expected that the UK, USA and Europe will be in recession,” says Investec Chief Economist, Phil Shaw. “Our forecasts suggest that inflation has passed its peak in most developed economies and is likely to come down as energy prices flatten out. Although interest rates are likely to rise in 2023, they will do so at a slower pace than in 2022 and might come down at the end of the year.”

Against this backdrop, some homebuyers may be tempted to delay a property search while waiting for mortgage rates to fall. However, if you’ve found your ideal home or investment property, there may be ways to boost mortgage affordability in the interim.

Here, Investec Private Banker Neil Raja explores some of the factors to consider.

1. Using a tracker rate

“In a changing interest rate environment, some clients are exploring our Variable Lifetime Tracker mortgage,” says Neil. “Our tracker rate comprises our own rate, which mirrors the Bank of England base rate, with a margin added,” he continues. “This means that if the bank rate falls, monthly repayments would too. Of course, if bank rate rises, so would monthly payments.”

 “If a client is on a Lifetime 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 Lifetime tracker to a fixed rate without incurring a fee,” says Neil.

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.  

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Neil Raja, Private Banker, Investec

Tailored repayment plans allow clients to make mortgage repayments at a time that suits them. For instance, some of our clients choose to coincide capital reductions with liquidity events.

2. Working with a lender that understands complex incomes

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, due to the economic backdrop, some individuals may receive a lower income this year. But by looking at circumstances holistically, we may still be able to meet clients’ LTV expectations where appropriate,” says Neil.

3. Exploring a tailored repayment plan

Lastly, it may be possible to use a tailored repayment plan.   

“Tailored repayment plans allow clients to make mortgage repayments at a time that suits them. For instance, some of our clients choose to coincide capital reductions with liquidity events,” says Neil. 

It may also be possible to incorporate at 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.” 

Ready to discuss your mortgage options? Please get in touch to speak to an Investec Private Banker to discuss your lending needs.

 

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.