Transcript: Mortgage clinic — your questions answered

This is an audio transcript of the Money Clinic podcast episode: ‘Mortgage clinic — your questions answered’

Claer Barrett
Good news about mortgages. If getting or renewing a home loan is your biggest financial worry this year, then rejoice. More and more lenders are cutting their rates. It’s a welcome news for anyone trying to buy a property, as well as more than 1.5mn people in the UK whose fixed rate mortgage expires in 2024. Nevertheless, dozens of you have contacted me with questions about what on earth is going on. The Bank of England isn’t cutting rates. So why is borrowing getting cheaper? Could interest rates have further to fall? And if you’re already in the process of switching your mortgage, should you now try to grab a cheaper deal?

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Welcome to Money Clinic, the weekly podcast from the Financial Times about personal finance and investing. I’m Claer Barrett, the FT’s consumer editor.

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This week we’ve turned Money Clinic into mortgage clinic. I’ve taken to Instagram and asked listeners to send in their mortgage questions and was nearly mown down in the rush. So I’m joined by three fantastic experts in the FT studio today who are going to help answer them all. Starting with Rachael, introduce yourself to our listeners, please.

Rachael Sinclair
Hello, I’m Rachael Sinclair. I’m managing director for mortgages at Nationwide Building Society.

Claer Barrett
And next up, a voice you’ll recognise from our last mortgage podcast. It’s Monty.

Andrew Montlake
Hi. Thank you for having me. My name is Andrew Montlake and I’m managing director of Coreco Mortgage Brokers.

Claer Barrett
And finally, all the way from the north-east, we have Dan.

Dan Knott
Hello. My name is Dan Knott, known online is Dan Does Mortgages, and I’m a mortgage adviser who works primarily with first-time buyers across the country.

Claer Barrett
Well, a fantastic panel. Let’s start with some of the bigger picture questions. Now Rachel, the Bank of England hasn’t cut rates. The next time they might is the first of February. But why have nationwide and other lenders cut theirs?

Rachael Sinclair
The reason why we’re seeing these rate reductions is because investors have become increasingly optimistic that the Bank of England has raised interest rates far enough to return inflation to target. And at the same time, what we’re hearing and seeing is analysts predicting that bank rates could — and I’m saying could — reduce further this year. And this shift is really important. This optimistic view is bringing down the longer-term interest rates, the swap rates which underpin the fixed rate mortgage pricing. And that’s what you’re seeing flowing through. So it’s really, really good news. Ultimately we don’t know what’s going to happen. But if this stability continues and conditions are right, then we’ll see better news for buyers throughout the year.

Claer Barrett
Well, good news, but Monty, the most popular question I received was of course: will interest rates drop further? Now, I do appreciate it’s a difficult one to lob on you as soon as I’ve got you through the studio doors. But what could swing things one way or the other?

Andrew Montlake
Well, there’s a whole range of things that could swing it one way or the other. At the moment, we do expect inflation to continue to fall, and that’s good news there. The latest expectations are that we will see inflation hit the 2 per cent level this year. As long as things stay that way, which is the big question, then I would expect we’ll see rates continue to fall, but we shouldn’t get carried away with the recent large-scale falls we’ve seen. So I think there will be a levelling out and a plateau when lenders feel and the markets feel that actually we’re at a level where things will stay stable for a little bit. Well, what’s interesting is we’ve actually seen a couple of lenders increase their products today because the cost of funds has gone up again. So it’s not going to be, as everyone hopes, a really nice straight fall.

Claer Barrett
A race to the bottom.

Andrew Montlake
A race to the bottom. But it’s more gonna be a bit of a rollercoaster up and down as lenders come in and out of the market and try and play tit for tat at the top. It’s important for them to get off to a good start this year, so I suspect that rates will level off between the sort of the three and a half to four and a half per cent level over the course of the year.

Claer Barrett
OK. I mean, obviously lots of competition between the lenders. But there’s also a school of thought, Dan, that you might get a bigger cut now as they’re all competing with each other. And then when the Bank of England does cut rates it won’t come down that much further.

Dan Knott
Yeah. So it’s important to remember that, you know, most mortgage holders or new mortgage holders, especially in the residential market, would be looking to secure fixed rates. Now, the fixed rates aren’t necessarily directly impacted by the Bank of England base rate. If people are waiting for rates to continue to come down, maybe they’re not going to go as low as where they were in 2020 or 2021. We need to be realistic and keep it within context. So if that’s what you’re waiting for, you may be waiting a while. But absolutely, it’s a very, it’s a brighter time at the moment.

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Claer Barrett
OK. Time to hear from some of our listeners and what they had to ask. Now, I’ll just remind listeners that Money Clinic is not offering specific advice here. Listeners should do their own research before making any decisions about their mortgages or their finances in general. Now, we had the most questions from those whose fixed-rate mortgages are coming up for renewal in the year ahead. Now if that’s you, you’re in good company. Over one and a half million people will need to refinance this year. This question from listener Katie is one I’m sure will apply to many of you.

Katie
I agreed a new fix before the recent rate cuts, but my existing mortgage still has two months to run. How easy or difficult might it be to switch to a cheaper deal now?

Claer Barrett
Now, she wasn’t the only one to ask this. I’m going to come to you first, Rachel because you’re smiling at me.

Rachael Sinclair
Now everyone’s asking this question at the moment. And there’s two things I would say. First of all, I’d say, well done, Katie, for knowing and understanding your mortgage. It’s really important that people take time to understand the term and rate they’re on. And every lender’s got an online servicing portal. Nationwide’s got a mortgage manager. Everything you need to know, that’s on there. So it’s great to know when your term is coming up. The majority of lenders now, allow a new product to be reserved up to six months out, with the option then to switch to another deal prior to maturity of your existing product. So what does that mean? This means that we’ve all got the best of both worlds now, so you can, up to six months out of your deal maturing, you can lock in, reserve a deal. That gives you knowledge, certainty of what that future cost is going to look like. But what it also means is when you get close to that maturity deal, you can then switch to another deal. If you have seen a cheaper one available. So again, it’s the best of both worlds. But if you’re unsure, you should talk to someone about this and know what the best path is.

Claer Barrett
Now Dan, I’d imagine quite a lot of people are talking to you about this.

Dan Knott
Yeah. So to add some real-life context to that, so actually, just on Friday last week, I switched six of my buyers who were post-offer with HSBC on to lower rates that were now available. That was in one day. And the monthly savings varied between £20 and £100 per month. And yeah, there’s plenty of opportunity out there.

Claer Barrett
And Monty?

Andrew Montlake
Yeah, we’re seeing a lot of that. I think our record is eight times. We’ve switched the client’s mortgage to make sure they get the best product. One of the beauties of going to a broker is actually we will look at the whole market all the time up until around about a couple of weeks before completion, which is usually when you can switch products. So for anyone doing that, it is a good idea to fix in early now. But if you have fixed in, don’t worry. Speak to a broker and they will be able to review the market for you. It does vary from lender to lender in terms of ease of doing so, of cancelling what you have already. But it’s definitely worth doing so, especially in the current market.

Claer Barrett
OK, so note to everyone listening: contact your lender to see if you can get a better deal. And if you want to hear more detail about what to do if you can’t afford the increase to your monthly repayments, then listen to our last podcast about mortgages. There’s a link for that in today’s show notes.

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Now, another very common question was if it makes sense to hold off looking for a new deal in case rates drop further. Here’s what listeners Laura and John had to say.

Laura
Our fixed runs out on the 30th of April. Is it better to wait until closer to that date to remortgage?

John
Mortgage rates seem to be plummeting. Is it worth going on to our lender’s variable rate when our deal ends? To wait for them to fall further?

Claer Barrett
OK, so two similar questions there. Monty, do you want to be first to triage?

Andrew Montlake
Yeah. It’s playing the market. I would say it’s fraught with danger. And it’s really difficult to say whether or not you’re definitely going to be better off waiting. Going on to the variable rate, if you really do think that rates are going to get better over the, in the fullness of time, maybe in six months’ time, and you’re happy to spend some time on the variable rate and take that risk, that is definitely an option. I would argue that actually you should probably look for a tracker product with no penalties in the meantime, which will give you a better rate and still the same option to switch because there are no penalties.

Claer Barrett
Yeah. So I mean, if your mortgage deal just expires, you know, you’re not on it, let’s say. You don’t know your expiry date, you will move on to what’s known as the SVR, your lender’s standard variable rate. I mean, what are the rates like on those, Dan, across the market? They’re pretty pricey.

Dan Knott
Exactly. So a standard variable rate will typically be significantly higher than the fixed-rate products that are available or also the tracker rate products that may be available. Most homeowners do value security. Variable rate or standard variable rate is indeed variable. So you need to bear that in mind. There’s no guarantee where that will go over the next month, two months, six months. So be conscious of that. And yeah, explore all options.

Claer Barrett
OK. And what would you add to that, Rachel?

Rachael Sinclair
Well, I would share the point that, you know, I wouldn’t try and bet on the market. I think these decisions need to be made on depending on your personal circumstances. and they vary from individual to individual. Some people will take more risk and be more comfortable with a tracker product over a period of time. You know, they do give flexibility, but they do come at higher cost. And therefore you need to weigh up options around the fixed products to variable products. But yeah, SVR is a more costly option. And that’s what, you know, these guys are here to help customers out and choose the right product for them.

Claer Barrett
OK. So don’t leave it too late and roll off on to that really, really high rate.

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Now change of topic here. Listener, Hannah, believes in the mantra improve, don’t move. Here’s her question.

Hannah
Our fixed term ends in July, but we want to release some equity for a home extension. What are the panel’s top tips?

Claer Barrett
OK, so releasing equity for home extension. Rachel, this is a big feature of the market when interest rates were low and people were borrowing against the increasing value of their homes to fund all kinds of projects. How about now? Has it really reined in?

Rachael Sinclair
So we are seeing quite a lot of people wanting to invest in their homes, and there’s different things that are happening. Most lenders will allow you to switch your deal and at the same time take out further lending or you can remortgage to another lender and take more borrowing. That’s one of the paths you can go. There’s quite a lot of products out there that are also linked to the green agenda, specific on certain work that you’re wanting done. But we’re seeing the growth in the uptake of these.

Claer Barrett
Things like heat pumps.

Rachael Sinclair
Exactly. And also insulation windows, certain extensions as well. But also I would say you should look at personal loans and not just, you know, they are an option. For some people they are the right product. But again, it’s one of those, depending on the type of, you know, work that you’re getting done, there’s a plethora of products out there. Choose the right one, that’s for you.

Claer Barrett
And of course, inflation has also hit building costs. Just a couple of my colleagues upstairs are finding with their own improve (inaudible) projects. And Monty?

Andrew Montlake
Yeah. I mean, it’s all about checking your affordability and checking that you can actually borrow the amount that you need to add and that you’ve got enough equity in the property to do so. Some lenders will lend you up to 90 per cent. Some will only lend you up to 80 per cent. It really does depend. And if you are doing a whole-scale change to the property, especially if it’s structural, then you might want to make sure you’ve got plans and some of the estimates and quotes that sometimes the lender will want to see what you’re doing and how that’s going to affect the property.

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Claer Barrett
Now, finally, here’s a curveball from listener Crystal. She’s actually got two mortgages on her property. She’s a first-time buyer who’s then bought a bigger home.

Crystal
We have two mortgages with Virgin Money as one was ported over from our first property. Both are fixed rates. But one expires six months before the other. What strategy should we take?

Claer Barrett
OK, first things first. In case you haven’t heard of it, porting is when you sell your house, but you take your existing mortgage with you and borrow a bit more on top to get a new property. So really useful if you’ve got a fixed-rate mortgage on a good rate. Now in Crystal’s case, she’s done this and she’s got two mortgages on her home, but the deals don’t expire at the same time. So, Dan, what should she do?

Dan Knott
Yeah. So when porting a mortgage, it can sometimes be the more suitable option for somebody. However, you should do so on an advised basis because as mentioned in the question, if you do port a current product and then get additional borrowing on top of that, sometimes those products will then run out of sync. What that means is, if you want to continue in the future to access the cheapest deals on the market, potentially switching lenders, you will always either have an early repayment charge hanging over you on one product or potentially have to spend a period on the variable rate. So yeah, just because you are maintaining your current rate on one of your products when porting, it doesn’t always mean it’s going to be the cheapest option overall. So yes, if you are considering that, do so on an advised basis and also explore just getting a whole new mortgage with a different lender.

Claer Barrett
Any advice that you would give us on that, Mont?

Andrew Montlake
This is surprisingly common. This is something that we get quite a lot. Sometimes it does just make sense just to stay on the variable on one part of the loan until you can remortgage the whole product together. But sometimes it is available that you could take a no penalty tracker variable mortgage with that part. So you could be on that for six months until there’s a chance to actually align the two products together. And it’s definitely something that we do a lot is advise people to take out and track a rate on that product, wait until six, seven months when the products can be aligned again, and then remortgage the whole thing either with the same lender or take that away.

Claer Barrett
And of course, you’ll have to pay a product fee to take out a tracker mortgage, but the kind of interest rates that you’ll get on it would almost undoubtedly be better than the expensive standard variable.

Andrew Montlake
Yeah. It’s about doing the maths and adding in those fees. That’s a really, really important point.

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Claer Barrett
OK. Next we’re going to tackle questions about choosing different types of mortgages, a decision that’s proving tricky for home buyers as well as those who are refinancing.

Amy
We have less than £100,000 to go on our mortgage. So my question is, are tracker mortgages the new way to ride the volatility rollercoaster?

Claer Barrett
OK. So an interesting one there for Amy. Less than 100 to go on her mortgage. Well done. So could a tracker benefit her? Monty.

Andrew Montlake
Yes. So trackers are great for people who want that extra flexibility and are OK taking some interest rate risk. If you’re going to be the type of person who’s going to lie awake at night sweating over every Bank of England base rate decision because you’re on a variable tracker because they can go up as well as going down, then potentially a fixed rate is better. And interestingly, at the moment, as Rachel said, is fixed rates are cheaper than tracker rates. So you actually, in order to start winning on a tracker rate, you actually need rates to go down quite substantially before you’re undercutting a fixed rate. So if you’ve only got £100,000 left, you might just say, well, actually, because I can overpay each month without penalty to a certain degree depending on the lender, then maybe that’s a better way of doing it, putting it on, maybe even a 10-year fixed rate, depending on how long you’ve got left. Get the cheapest fix available now and then you can just forget about what happens with interest rates. Because on a 100,000, you’re not going to really get massive benefits unless interest rates really fall dramatically.

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Claer Barrett
Let’s move on to listener Helen. Now, she was one of many people to ask this question.

Helen
How long to fix for: two years or five years? How low could rates go?

Claer Barrett
So the perennial question. A two-year fix or a five-year fix? How low could rates go? Now, we did speak about this question, Monty, on the podcast a few months back. How’s your answer changed since then?

Andrew Montlake
Well, it hasn’t really changed because it is down to personal circumstances when you’re looking at a two-year versus a five-year. Five year fixes are cheaper at the moment than two years. So for a lot of people, a five-year fix will still be a good option, unless you do think that actually in two years' time rates will be substantially cheaper. And at the moment you’re looking at two-year fixes are available from 4.34 per cent. So they have fallen quite a bit and five-year fixes are just starting to edge below that magical 4 per cent level. So we now have 2 or 3 lenders who have five-year fixes starting with a three. So I suspect that you’ll see maybe a five-year fix touching the 3.5 per cent level sometime this year, but I don’t expect them to get much cheaper than that, at least not this year.

Claer Barrett
Because as we said before, lenders are pre-empting the Bank of England cutting rates. So when we do see a cut, if we see a cut, there’s no guarantees that they’ll drop even lower.

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Now, of course, many people turn to a broker to help them decide which mortgage deal to pick. But Emma had a more pertinent question.

Emma
Are there any cons to mortgage brokers? Would they just recommend the lenders that they get the most commission from?

Claer Barrett
OK, so downsize the mortgage brokers. Now of course, Rachel, we’re sitting in the studio with two mortgage brokers, fairly evenly matched. But I do think this is an important question first of all, to address because I have always recommended to people that they get professional advice. And in the mortgage world, you can, which is important, but let’s go to you first. What do you think the downsides of having a mortgage broker could be, or what people should think about when they’re choosing one?

Rachael Sinclair
I personally think it’s about choice. And what I see in the business in nationwide is that a lot of customers choose to get the advice because it’s available and it is whole of market, as I said, earlier on. So it’s really important that if you feel like you need that independent advice, someone you can trust, you go and talk to an adviser. But there are also options available where people, if they are confident in the options they’re choosing, they can self-serve and do things yourself, particularly around more simple transactions like switching a product they can do themselves. But getting advice when needed, talking through those personal circumstances and really working through in detail the cost of having a home. This is why these guys are there and they’re excellent at it, I think. (laughter)

Andrew Montlake
I would say. (laughter)

Claer Barrett
Well, I mean, people in the studio, except for me, are all mortgage brokers created equal? Are there times where people could be more likely to recommend the products of one bank or another bank because there’s a commission involved? What would you add?

Andrew Montlake
We are a very, very highly regulated industry. And a lot has changed over the years. So directly to your question, are all brokers created equal? No they’re not. However, it is very hard, almost impossible, to just consistently recommend the product because it pays a higher profit. We wouldn’t get it through compliance. It would stick out like a sore thumb. It’s really easy in mortgages to see when someone is not providing the right advice.

Claer Barrett
So the short answer is yes, brokers can get commission, but it’s a very regulated market. So in theory, this shouldn’t be a danger. Dan, you wanted to add something.

Dan Knott
Absolutely. So especially as a first-time buyer, you have to bear in mind that you could be working with your mortgage adviser for the next 30 years. With remortgaging and home moves. So it’s important that you choose an adviser or a company 1) you like and 2) who you trust. Because that person is going to be involved in some of the biggest financial transactions of your life. I mean, yeah, you do need to choose one who you like and who you trust. And that may look different for everybody, whether that is a large corporate company, a smaller local business or just an individual, who you maybe find online. Yeah. It’s important to choose the right adviser for you.

Claer Barrett
Finally, we have some really, really good questions from first-time buyers who are nervously eyeing the market. Firstly, we’re going to hear from Dave and Hikka.

Dave
Should I even be buying a house right now? If I wait, could house prices and interest rates come down?

Hikka
I’m a first-time buyer. Should I be seeking deals now or wait for interest rates to come down?

Claer Barrett
OK, Dan, I’m going to come to this on you because you’ve probably got the most experience with first-time buyers in your client base. Sound familiar?

Dan Knott
Absolutely. So what I tend to say to my first-time buyers is that if it’s the right time for you to buy in your life, maybe you’re coming to the end of a rental agreement, maybe you’re ready to move out of your parents’ house, if you feel it’s the right time and you want to buy a home, and you can achieve your goal in the current market so you can buy the house that you want to buy on an affordable basis that’s within budget, then it’s a good time to buy. The reason being, if you are waiting for the perfect market, that perfect market may never come and you don’t know how long you’re going to be waiting. So these are all considerations. But yes, in my opinion, if you can achieve your goal in the current market and buy the property that you want on an affordable basis, then it’s a good time to buy.

Claer Barrett
But nevertheless still a very nerve-racking time, Rachel, for first time buyers.

Rachael Sinclair
It is. I mean, it’s great news that the cost of getting a home is reducing, but it doesn’t mean that it’s any easier for first-time buyers to raise a deposit or be able to afford the mortgage. I completely agree with what Dan said. I think as a first-time buyer, what’s important is to take time to understand both the process of buying a home. What does that mean? What are the steps look like? The initial upfront cost of getting, you know, the home and the mortgage there. And then the ongoing costs, which is that ongoing affordability that’s really, really important. So, you know, talk to friends, talk to family, talk to advisers to understand that. But it does kind of come back to are you ready? Can you afford this? Both now the upfront costs and the ongoing cost of having a home.

Andrew Montlake
Yeah.

Dan Knott
Yeah. So I will say there’s four questions you need to ask. One, as we mentioned, can you afford the upfront costs? Two, can you afford the ongoing costs? Three, will home ownership add value to your life? So do you value the security or are you somebody who prefers the flexibility of other options? And four, what are the other options? So can you stay at home longer with your parents? What does that look like? Or what are your rental options?

Claer Barrett
It’s a very, very good way of putting it. Monty, what would you add?

Andrew Montlake
No, I totally agree with that. I mean, I’ve been dealing with first-time buyers for 25 years, and the one thing I would agree with, it’s never a good time to buy, there’s never a bad time to buy. It is all about what is right for you now. Can you afford it now? Can you afford it in the future? And is it the right property? And then why wait? It’s my opinion. I think hindsight is a wonderful thing. If we all had the gift of hindsight, we don’t know exactly when to buy and when not to. And actually, I think you could look back at 2024 and think it was a good year to buy because you’ve got house prices easing slightly, you’ve got mortgage rates easing. And actually, once demand starts to come back into the market, you’ll quickly see house prices recover again because there just aren’t enough properties for people to buy, especially in high demand areas. So I actually think this year as a whole, people will be looking back in five, six years’ time and saying, yeah, that was a good time to buy.

Claer Barrett
Well, that is a really good point at which to bring our mortgage clinic to a close. Thank you so much to everybody who sent in questions on this topic. We’ve covered such a lot of ground on the podcast today. I really hope that the answers have been helpful to listeners everywhere if you gear up to make your next move. Thank you, of course, to our wonderful panel, to Dan, to Rachael, and to Monty. Hope to see you back here soon again.

Andrew Montlake
Thank you very much.

Rachael Sinclair
Thank you.

Dan Knott
Thank you very much.

Claer Barrett
That’s it for Money Clinic this week. And we hope you like what you heard. We’re always looking to chat with people about their money issues on the show. So if you’re interested in being part of a future episode, then email us. Our address is money@ft.com. You could also take a peek at our website ft.com/money, grab a copy of the FT Weekend newspaper or follow me on Instagram. I’m @ClaerB. Money Clinic was produced in London by Philippa Goodrich and Persis Love. The sound design is by Breen Turner and our editor is Manuela Saragosa. You heard original tunes this week by Metaphor Music. And Cheryl Brumley is the FT’s global head of audio. Special thanks this week to Freddie Martin, Finley Davies, Zehra Munira, Akila Quino and Lulu Smyth. And finally, our usual disclaimer: Money Clinic podcast is a general discussion around financial topics and does not constitute an investment recommendation or individual financial advice. For that you’ll need to find an independent financial adviser. That’s all the small print for now. See you back here next week. Goodbye.