Mortgage rates play a crucial role in the property market, influencing homebuying decisions and the overall economic landscape. In this article, we will explore the mechanics behind mortgage rates, factors influencing them, and consider the likelihood of rates coming down in the future.

How do mortgage rates work?

Mortgage rates represent the interest that lenders charge borrowers for home loans. These rates fluctuate based on several factors, including:

1. Economic Indicators:

Key economic indicators such as the Bank of England Base Rate, inflation, employment rates, bonds yields and Gross Domestic Product (GDP) growth, impact mortgage rates. Lenders assess these indicators to determine the level of risk associated with lending money.

What is inflation?

You may have heard this mentioned in the news. Inflation is the rate of change in the consumer price of goods and services. It’s most commonly measured using the Consumer Prices Index (CPI) and the Retail Prices Index (RPI). It compares the price of consumer goods in the current year with the previous year.

So how does inflation impact mortgage rates? The Bank of England takes into consideration inflation when deciding interest rates. Previously when inflation has gone up then interest rates have also tended to increase.

2. Credit Scores:

Borrowers’ credit scores play a significant role. Individuals with higher credit scores often qualify for lower mortgage interest rates as they are considered less risky to lenders.

In addition to your credit score personal factors such as your deposit, income and assets can also affect what mortgage rates are available to you.

3. Loan Terms:

The length of the loan term also affects mortgage rates. Generally, shorter-term loans have lower interest rates compared to longer-term ones.

Are mortgage rates likely to come down in 2024?

When the Bank of England’s Monetary Policy Committee met in December 2023, they stated that the interest rate is expected to remain around 5.25% until Autumn 2024 and then decline gradually to 4.25% by the end of 2026.

Predicting future mortgage rates is challenging due to the multitude of economic factors and market conditions. Although some mortgage lenders have started cutting mortgage rates, predicting future rates remains uncertain. Staying informed about economic trends and regularly monitoring market conditions can help individuals make informed decisions about their home financing options.

If you’re a homeowner and you work in the Armed Forces, there may come a time when you have to rent out your home. Perhaps you bought a property in your local area but soon you’re going to be posted elsewhere. Or, you’ve bought a place you’re intending to live in at some point in the future, and you need to rent it out in the meantime.

Whatever your reasons, as soon as you rent out a property, you become a landlord. In doing so, you take on certain responsibilities. So, we’ve written this article to help you understand your obligations, both in terms of your mortgage and towards your tenants.

Contact your mortgage lender and ask about consent to let

If you have a residential mortgage on your property and you decide to rent the property out, you need to let the lender know of your intentions. You may be required to switch from a residential to a Buy-To-Let mortgage – although there’s no guarantee your lender even offers this kind of mortgage. The interest rates on Buy-To-Let mortgages may differ to residential mortgages, plus some lenders may charge you a fee for switching the mortgage. The good news is, often allowances are made for armed forces personnel. You can apply for a special type of ‘consent to let’, which gives you permission to rent out your property without having to change the kind of mortgage you have.

The first step is to get in touch with your mortgage lender and let them know that you intend to let your property. Failing to do so could be a breach of your mortgage conditions. 

Four things to consider before renting out your home

As a landlord you have certain obligations that you need to fulfil. Here are four things to consider before handing the keys to your first tenant. 

1. Sort out an Energy Performance Certificate

An EPC basically lets a potential tenant know how energy efficient your property is. You’ll need to arrange for an accredited assessor to come and assess your property and issue a certificate for your property.

2. Sign a tenancy agreement and protect your tenants’ deposit if you take one

A tenancy agreement is the contract you have with your tenants. It puts down in writing things like how long the tenants can stay and how much the rent will be. If you take a deposit as security against damage or non-payment of rent, you’ll need to place it in a government-approved tenancy deposit protection scheme – a lettings agent can help with this.

3. Taking out landlords insurance

While buildings insurance is compulsory when you take out a mortgage, it’s worth considering having extra cover in place. Landlords insurance is specifically designed for owners who rent out their property. Different policies offer different levels of cover. For example, if your property is being rented out unfurnished, you’re unlikely to need contents cover. You can also get policies which will cover rent and eviction costs if the tenant fails to pay.

4. Get the gas and electric safety checked

You need to get a Gas-Safe-registered engineer in to perform a gas safety check and provide a safety certificate. The same goes for the electrics, too. Make sure any appliances in the home are tested by a professional. You also must provide a working smoke alarm.

Remember your tenants will need an emergency contact

As soon as you rent out your property, you become a landlord. So, if you get posted to a completely different part of the country, your tenants will need someone they can contact in an emergency. A lot of people choose a relative or friend, but you could also consider a letting agent who can look after the property and collect the rent on your behalf. Fees for agents can range from below 10% of the rent to above 20%, depending on the service, shop around to get the best deal for you.

Moving back into the property you’ve rented out

When your posting comes to an end, or you decide to leave the armed forces, and you want to move back into the property you’ve been renting out, there are certain things you have to do.

Always speak to your mortgage lender first, to make sure you’re not in breach of your mortgage terms by moving back in. Some lenders charge you for switching your mortgage from a buy-to-let back to a residential mortgage.

Of course, if you have tenants living in the property, you will have to serve them notice of your intention to terminate their tenancy. How much notice you have to give will depend on the tenancy agreement you have in place. You will also need to give back any deposit within the correct time period too – less any deductions you need to make. One of the advantages of having a letting agent is that they will pretty much take care of all this for you – but at a cost.

With so many mortgage deals available, how can you ensure you find the right one for you?

You could decide to go direct, searching the market yourself and approaching a lender directly for a specific mortgage deal. Lenders may provide advice, but only on the products they offer. Going direct could save you money as you’re not charged fees that some brokers charge for mortgage advice, but only if you know what mortgage is best for you.  You could arrange a new mortgage with your existing bank or building society, but you could be limited solely to their own mortgage products, significantly restricting the deals available to you.

What is a mortgage broker?

A mortgage broker is a person or company that arranges a mortgage between you (the borrower) and a mortgage lender.

They will:

• Help you assess your financial situation
• Recommend the most suitable mortgage for your needs
• Search the market to find deals that match your criteria

What are the benefits of using a broker?

• Convenience – if you’re not sure what you’re looking for and aren’t clear on the mortgage markets, or just don’t have the time to search for deals and speak to lenders, then a broker can be very useful. They could save you a considerable amount of time.
• Access – mortgage brokers will usually have access to a wide range of lenders, with deals that aren’t always available if you go direct. This means they have a wider choice of options to recommend from.
• Expertise – if you’re not familiar with the different types of mortgages available, knowing where to start can be overwhelming. For such an important financial decision, having an expert who can provide impartial advice and explain things, will make the whole process clearer.

What are the disadvantages?

• Cost – some mortgage brokers don’t charge a fee and receive commission from the lender, others charge a fee for their services. This can be charged an hourly or ‘flat fee’ basis and can either be charged up front or on completion of your mortgage.
• Limitations – not all brokers have independent access to the mortgage market, some only use certain lenders. You should ask how many lenders a broker uses and if they have any preferences. Not all mortgage deals offered by banks and building societies are available through brokers.
• Quality – getting a mortgage is one of the biggest financial decisions you’ll make, so it’s important to make sure you choose one carefully and get recommendations where possible

What types of mortgage brokers are there?

• Brokers who only offer mortgage from a single lender
• Brokers who offer mortgages from a limited number of lenders
• Brokers who offer a comprehensive range of mortgages from across the market.

Are you struggling to manage your money? Do you wonder where it all goes each month? Then having a budget could help. If you’re not sure where to start don’t worry, we have some helpful information on budgeting right here for you!

Money problems can affect your life in a variety of ways including your mental health* and as members of the Armed Forces, supporting you where possible is important to us. So, to help, we think the below guide to budgeting could be a great way to start when trying to stay on top of your finances.

By keeping track of how much money you have coming in (your income) and how much money you have going out (your spending) you can get a clear picture of your finances and take control of your money.

Please remember, if you are struggling with debt then no matter how big you feel the problem is there is help at hand. We have provided some resources at the end of this article which we believe could be helpful. Our friendly advisors on camp across the UK, Northern Ireland and Cyprus are available to help you with a budget so take advantage and speak to them!

Why budget?

Budgeting can help you:

• See exactly where your money goes
• Spot overspending or when you’re paying for things you no longer need or use
• Live within your means – you can adjust your spending when necessary
• Work out what you can afford
• Plan for big expenses such as Christmas, holidays and annual bills
• Save when you can for the future

Drawing up a budget

You can create a budget using pen and paper, a spreadsheet or with the help of an online budget planner. You’ll find a list of some websites with budget planners available in the resources section of this article.

Budgeting can be harder if you or the person you live with has an income that varies – for example, on a zero-hours contract, are self-employed or on certain benefits. Get tips on how to budget if your income goes up and down.

Gather together useful information: Include details of any income you receive (salary, pension, benefit payments and income from savings and investments), as well as household bills, food bills, credit card statements, insurance costs and so on.

Identify all your income: This is money you regularly receive. Work out your total income after tax to see how much you have to spend. If you receive any irregular or unpredictable income such as over-time or gifts from family, think carefully before including it in your budget as you cannot always rely on it. It may be better to put this to one side.

Work out your spending: Make a list of everything you spend. As well as regular spending, this can include occasional spending such as for Christmas, holidays and meals or days out. Work out how much you spend on average and then calculate how much you need to set aside for each relevant occasion. This can vary so you might only set aside a certain amount and stick to this!

Take your spending away from your income: This may result in you having a surplus each month which is great. If not, and your spending is higher than your income, then you should look to take action where possible. 

Ways to increase your income

There are various ways you may be able to boost your income but we understand all these are not options to many of you in the Armed Forces, but they may be helpful and appropriate for your family or someone you know.

• If you’re working, you may be able to increase your hours or pick up some overtime where it suits your schedule. If you’re not working, you may be able to get a part-time job that suits your needs and gives you an income.
• Check you’re claiming any benefits or other financial help you’re entitled to. If you’re on a low income you may be entitled to some form of income support or help with your housing costs. If you care for someone, are in poor health or your household changes (e.g. someone moves out or dies) you may be entitled to other benefits. To find out more about benefits and check your benefit entitlements use one of the government’s benefits calculators.
• If you have a spare room in your home, you may be able to rent this out. You can earn up to £7,500 in rent before you have to pay tax on this money. Find more about the government’s rent a room scheme. Also, read our article on your options when it comes to renting out your home when you’re in the Armed Forces.

Ways to cut your spending

If you can’t increase your income you may be able to cut your spending.

• Check your budget for any over or unnecessary spending.
• Divide up your spending into needs and wants. Needs are things you have to pay for such as rent and food, wants are things you could do without at a push. Once you’ve worked out your essential spending (your needs) you can then see how much cash you have left for other things (your wants).

If your circumstances change

It’s a good idea to regularly review your budget as your income and spending patterns can change. You may also find that prices go up which affects how much you are spending in total and what money you have left over.

Your circumstances might change if someone moves in or out of your household, you cut your working hours or stop work altogether, your health deteriorates, you start to receive extra income such as the State Pension or a private pension.

Money saving tips

Here are some tips for saving money on household bills.

• Take advantage of supermarket offers, money-saving vouchers and retail discounts. Find out more on MoneySavingExpert.com.
• If you need help with energy bills visit the energy regulator’s website at ofgem.gov.uk. To find ways to save energy in your home visit gov.uk for details.
• Not everyone has savings but if you do, ensure your savings are earning the best rates of interest by a using price comparison website. For a useful guide on using price comparison websites, see the MoneyHelper.

Useful Resources

The Royal British Legion – Armed Forces Charity

Energy Saving Trust – Tips to save energy

MoneyHelper – Advice on budgeting

Which? – Best ways to save money

Get support with debt:

PayPlan^ – Managing Debt

StepChange – Armed Forces Debt Support

Citizens Advice – Debt and money

You can find more on budgeting at:

MoneyHelper

Money Saving Expert

Which?

You can find budget planners at:

MoneyHelper

StepChange

Money Saving Expert

*Source: Mind.org.uk – The link between money and mental health

^ PayPlan is a trading name of Totemic Limited. Totemic Limited is a limited company registered in England, Company Number: 2789854. Registered Office: Kempton House, Dysart Road, PO Box 9562, Grantham, NG31 0EA. Totemic Limited is authorised and regulated by the Financial Conduct Authority. Financial Conduct Authority Number: 681263

With rising prices in almost every aspect of life, many people are struggling to cope as pressure on household finances continue.

In September 2022 Royal London carried out research, amongst 4,000 UK adults, to explore the changes people have already made to help with the cost of living and how they are coping with the current pressures on their finances.

Key Research Findings

• Approximately a third of adults are already spending money they don’t have, by going either overdrawn (often or occasionally) or borrowing to meet everyday expenses.
• Over 9 in 10 adults (93%) said they are worried about energy bills and almost the same number (89%) are worried about the cost of food.
• Approximately one in six people (16%) said they have already taken on an additional job to help pay for the cost of living crisis*.

For more research findings click here.

Top 10 tips that could help

You may already be making changes to feel more in control of your money, but if not, here are some tips to help you get on top of your finances.

1. Find out where your money’s going

Start by finding out where your money’s being spent. It sounds obvious, but many of us don’t realise exactly how much we’re spending each month – and what we’re spending on – until it’s laid out in front of us.

Keep a spending diary for a month where you write down everything you spend or track your spending using your phone. Many banks now have features on their mobile apps that you can use to track spending. Monitoring your money can help you build a picture of exactly where it’s going.

2. Go through your statements

Grab your last three bank statements and credit card bills and spend some time going through them, highlighting any areas where you think you’re spending money unnecessarily or spending too much. This could be on anything from a top of the range broadband package that you don’t need, to a mobile phone contract where you’re paying for data you don’t use.

3. Cancel old subscriptions

A number of households are spending £265 a year on subscriptions for goods and services they don’t even use, according to research by Compare The Market**.

This can include gym memberships, phone contracts and video streaming plans like Netflix or Amazon Prime. Even magazine subscriptions of a few pounds a month are money down the drain if you don’t have time to read the magazine! Take a few minutes and cancel any subscriptions you don’t really use to save yourself a bit of cash.

4. Save money on your bills

Switching your energy supplier used to be a good way of saving money on your household bills, but with energy prices soaring, you may be better off staying on the standard tariff with your existing supplier once your fixed rate tariff comes to an end.

You may also be able to save money on your water bills by having a meter if you don’t already have one. It will depend on the size of your home and how much water you use.

5. Break any bad habits

Take a look at your spending and see if there are areas where you’ve fallen into bad money habits, such as buying a coffee or lunch every day. Cutting that takeaway coffee to once or twice a week, or preparing more of your meals at home, will add up to meaningful savings over a year.

6. Draw up a budget

Drawing up a weekly or monthly budget will help you get your finances under control. There are plenty of templates online to get you started, like the MoneyHelper budget planner.

Alternatively, you can also use budgeting apps to plan what you want to spend and keep track of it. There are plenty available, including Money Dashboard and Moneyhub.

7. See if you can pay less interest

If you owe money on an expensive credit card, it may be worth considering whether you can transfer the balance to a credit card charging 0% interest. Although these cards are interest free, you will normally be charged a balance transfer fee of up to 3% of the amount you transfer. Because you won’t be charged interest on your balance, more of your money can go to repaying what you owe.

These cards aren’t right for everyone, and it’s important to make sure you can pay off your balance by the time the 0% interest deal runs out. It may also affect your credit score, especially if you do it multiple times.

8. Get help with unmanageable debts

If you are struggling to pay for the essentials, you are using one credit card to pay off another, or your debts are causing you worry, then contact a debt advice charity, such as StepChange. They will be able to give you help with your debts, free of charge. They may also be able to tell you whether you are able to claim any state benefits.

We’ve teamed up with PayPlan, one of the UK’s leading free debt advice providers, who offer free and confidential advice to anyone in serious financial difficulties.

9. Check your credit report

Your credit report is a snapshot of the information that’s on your credit file. And this information is used by companies you already have a credit agreement with, and lenders you apply to, to make decisions about how good a risk you are. You have the right – by law – to see a copy of your credit report free of charge. It’s worth doing so you can see the information that lenders you apply to can access. Importantly, if there are any mistakes you can get them corrected.

There are several different credit reference agencies, but the main ones are Equifax, Experian and TransUnion.

10. Check if you’re entitled to state benefits

Billions of pounds of state benefits go unclaimed each year, and you could be missing out. The national charity Turn2us has a free and confidential benefits calculator on its website which can help you work out which means-tested benefits you’re entitled to. It also has a grant search tool and information on grants you may be able to apply for.

Our team of advisors, many of whom come from the Military Family, are Mental Health First Aid trained. They can refer you to PayPlan or help you with a budget.

PayPlan is a trading name of Totemic Limited. Totemic Limited is a limited company registered in England, Company Number: 2789854. Registered Office: Kempton House, Dysart Road, PO Box 9562, Grantham, NG31 0EA. Totemic Limited is authorised and regulated by the Financial Conduct Authority. Financial Conduct Authority Number: 681263

Sources:

* Royal London research – Cost of living report – Royal London

** Compare The Market Source – Compare the Market Research