How to recession-proof your finances Mortgages and the recession

There are now fewer mortgages available

Many of the rules for making sure you're getting the best mortgage deal have been turned on their head. The big changes in the mortgage market have contributed to the recession.

You are less likely to save money by switching mortgage at the end of your current mortgage deal

In the past, the standard variable rate (SVR) your mortgage reverted to at the end of your initial deal could be around 2% higher than the rate you were paying.

However, with the Bank of England base rate at an all-time low of 0.5%, some lenders’ standard variable rates have decreased dramatically. Also, while better deals have always been available to people with bigger deposits, the gap has widened. The best deals are only available to people borrowing 75% or less of the property’s value. This has made it more difficult to get a mortgage, which has slowed the housing market and helped the UK enter recession.

Recession-proof action 

Use the Which? compare mortgages tool to find out whether switching is worthwhile.

A mortgage adviser or broker can’t look at the whole mortgage market to find you the best deal

Visiting a mortgage adviser or broker used to be the best way of finding the cheapest mortgage for your circumstances but many lenders are only offering their best deals to borrowers who apply to them directly.

Recession-proof action 

Use the Which? compare mortgages tool to search the whole market for the best deals. Look at our mortgage tables for a selection of the current best mortgage rates.

Tracker mortgage deals are tracking the base rate at a higher margin

In April 2007 you could have got a two-year tracker mortgage deal with Nationwide at base rate plus 0.11%, with no arrangement fee, with just a 10% deposit.

In January 2010, there were only a few deals for those who have only a 10% deposit. Even if you were borrowing £100,000 to move to a £160,000 property, one of the best deals you could get was from Nationwide at base rate plus 2.44% with a £99 fee.

Recession-proof action 

If you’re considering a tracker mortgage deal, look at the margin at which it tracks the base rate. Work out if you could afford the mortgage repayments if the base rate went up by at least 3%. Consider a tracker mortgage deal that lasts throughout the mortgage term with no early repayment charges. Visit our guide to how to get the best mortgage deal for more information.

Overpaying your mortgage could be more affordable and more worthwhile

If you’re on a variable-rate mortgage, such as a tracker or discounted rate, your repayments will have gone down considerably since the end of 2007, which means you could have spare money to overpay your mortgage. This could allow you to pay the mortgage off early and save money in interest.

If you have any savings you don’t need as an emergency fund, it may be worth using that money to overpay your mortgage if you are getting a lower rate on your savings than you are paying on your mortgage.

Recession-proof action 

Use any spare money to overpay your mortgage if your lender allows you to do this without charge.

House prices are less likely to go up

According to the Nationwide house price index, property prices went up continuously from 1996 to March 2008, but by March 2009 house prices had fallen by 15.7% in a year. The average UK house price was £179,110 in March 2008 but just £162,103 in December 2009.

This slowdown in the housing market has been a contributing factor to the recession.

Recession-proof action 

When taking out a mortgage, don’t assume that property prices will rise.