At the end of a recent interview on project planning with Ian Harvey of Harvey Norman Architects, I asked how business was. His reply was heartening: ‘Never better’. He explained that mortgage rates are low, ‘which has meant that many who want to renovate and have equity in their property, can.’
But, will mortgage rates stay this way? There’s no definite answer, but figures show that UK inflation fell to two per cent in December 2013, the first time in four years that the Bank of England has met its inflation target.
The rate of inflation indicates how quickly prices on everyday goods increase, and is calculated in the UK by the Consumer Price Index (CPI), which measures the change in price of an average ‘basket’ of goods and services bought by us – the public. Although CPI fell to two per cent in December, it still means prices went up by two per cent over the year, meaning that we are paying two per cent more for things now than we were 12 months ago.
However, this doesn’t necessarily mean that the Bank of England will put the base rate up, or that lenders will hike interest rates, but it is worth being aware that it could happen. But how soon? Most economists do not expect a rise in base rate from the current 0.5 per cent until 2015 at the earliest, with others saying 2016.
My advice is to research and hunt down good deals on mortgages and loans now, while lending is still cheap. For large renovations costing more than £25,000, look at finding the best fixed, tracker or offset mortgage. If you are already on a fixed rate mortgage, start looking for a new finance option six months before it ends.
But what’s the best way? It all depends on how much you need and what the project is. Anyone sitting on an Standard Variable Rate (SVR) mortgage is free to move lenders without paying a penalty fee. So, a borrower with a £200,000 repayment mortgage over 25 years, paying a typical SVR of 4.79 per cent, switching to a two-year fixed rate with Norwich & Peterborough Building Society at 1.99 per cent with a £295 fee would save £3,577 over 12 months.
If you are on a low SVR, it may be best to stick with it and take out a personal loan for renovation work, instead. For a new bathroom or kitchen costing £10,000, loan rates are historically low – Sainsbury’s Bank and M&S Bank, for example, are currently offering 4.6 per cent to anyone with a good credit rating. Personal loans are easy and quick to be approved compared to mortgages, but only up to £25,000. So, if you need less, it’s worth considering them.
Are you currently looking for ways to finance a project?