Skip links

Remortgage panic causing buyers to get creative with funding, amid inflation spike

Official figures from the Office of National Statistics show that the cost of living saw the biggest increase in August since records began in 1997, as the economy continues to recover from the effects of the pandemic.

The Consumer Prices Index, a measure of the average price of a basket of goods and services, has risen to 3.2%, largely as a result of the measures introduced to reinflate the economy after the initial lockdown in 2020.

Higher prices in restaurants and for recreation and food were behind the spike, up from 2% the previous month, with the spike year-on-year largely linked to the ‘Eat Out to Help Out’ scheme launched last August by chancellor Rishi Sunak, to provide a boost to the hospitality market amid the economic depression of COVID.

Inflation now comfortably exceeds the government target for 2021 of 2%, leading to increased debate about whether interest rates need to rise in order to curb spending and control inflation.

CALCULATE HOW MUCH YOU COULD BORROW

A knock-on effect of such a move would be the long term cost of borrowing increasing for many of the nations’ homeowners, with remortgage rates likely to be the first hit in the market.

“Remortgage rates have been the most attractive in recent history for a number of months now, with multiple lenders offering sub-1% rates on even five-year deals” says Andy McBride, director of Professional Contractor Mortgages. “It has never been cheaper to borrow money. However, with inflation rising rapidly and the real possibility of measures needing to be introduced to curb this, these rates are unlikely to be around for long.”

CALCULATE HOW MUCH YOU COULD SAVE BY REMORTGAGING

Looking long term, Contractors are beginning to think outside the box when it comes to mortgage options, leading to an increased uptake on a lesser-known area of the market, allowing buyers to have their cake and eat it.

“We have seen a marked increase in clients using Let to Buy mortgages to enable them to move quickly on purchases in such a crowded market, and effectively put themselves in the same position as a first time buyer” adds McBride. “This affords them the best of both worlds, by retaining current properties and converting to rentals, as well as buying with a smaller deposit, but at lower rates than were on offer at significantly lower loan-to-value levels even five years ago.”

With many contractors having significant cash reserves held in Limited Companies, there are even lenders who will allow this process using mortgages in the name of trading businesses, meaning less tax liability when withdrawing funds from the company as either salary or dividends.

“Retaining existing property and taking advantage of a booming rental market can also bring added benefits further down the line if you decide not to become a full-time landlord, with the additional 3% stamp duty payable on second and subsequent properties able to be reclaimed if you sell within three years” concludes McBride.

“Thinking outside the box can lead not only to massive savings, but also significant gains in future when you reassess your finances. Not only will you have a significant asset as an investment, but you will likely be able to have locked into a significantly better value residential rate than would be on offer in future.”