Whether you’re a first-time buyer, a second stepper, a homeowner looking to remortgage or a buy-to-let landlord, 2020 is sure to be another rollercoaster ride in the world of mortgages.
After an uncertain time for the property market, tough competition between banks has resulted in cheaper home loans at almost all levels of the market – but you’ll need to be savvy to get the best deal.
Here, Which? predicts the mortgage trends we’re likely to see in 2020 and explains how you can work them to your advantage.
Will 2020 be a good year for first-time buyers?
Mortgage rates fell across the board in 2019, and first-time buyers with small deposits enjoyed some of the biggest drops.
Here’s what we think might happen in the mortgage market for first-time buyers in 2020.
Affordability rules could be relaxed
Last year, Barclays increased its maximum lending multiple from four and a half times to five times the annual income for first-time buyers earning more than £30,000.
This was a notable move, as Bank of England rules only allow lenders to offer 15% of their loans at what it calls ‘risky’ multiples.
If property prices rise in 2020, that could change. A working paper published by the Bank last July suggested that a significant increase in house prices could see some affordability restrictions relaxed.
In the meantime, we could see more lenders offering higher income multiples to select groups of first-time buyers, based on either their profession or income.
Two-year fixes might make a comeback
Five-year fixed-rate deals were huge last year, with cheap rates and economic uncertainty leading buyers and remortgagers to lock in their deals for longer.
However, there’s only so far that rates can drop before banks begin to look elsewhere for profits.
You’ll be able to borrow for longer
Mortgage terms of up to 40 years are becoming more common, and with first-time buyer affordability remaining stretched, it’s likely that this trend will continue.
In 2020, we could see more lenders loosen their upper age limits to make longer-term borrowing options available to more that just the youngest first-time buyers.
- Find out more: guides for first-time buyers
Could a rate war tempt remortgagers?
Last year was great for people who wanted to remortgage, with both two and five-year fixes dropping in cost over the course of the year.
We also saw some innovative deals, with Virgin Money becoming the first lender to offer a 15-year fix since the financial crisis of 2009.
Here are our top three predictions for the remortgaging market in 2020.
The January sales will be a good time to switch
The January sales aren’t limited to the high street: in the first month of 2019 we saw a host of lenders cut the cost of their fixed-rate deals.
A January sale could be good news for anyone looking to remortgage in the first half of the year, as you’ll usually be able to lock in a new rate up to six months before your current deal expires.
When comparing mortgages, ensure you consider upfront fees and early repayment charges, and don’t just focus on cheap initial rates.
- Find out more: mortgage repayment calculator
Homeowners will remortgage to borrow more
With mortgage rates likely to remain attractive, we could see more homeowners look to stay put and borrow money for renovations.
Data from UK Finance shows that nearly 18,000 people remortgaged with additional borrowing in September 2019, up 6% on year-on-year.
If you’re considering extending your home, make sure you also consider other financing options such as personal loans, as there’s no guarantee remortgaging will be the cheapest option for everyone.
Ten-year fixes will get cheaper
The average cost of 10-year fixed-rate mortgage hit a record low in December, but it’s likely that rates will continue to drop, especially for borrowers with small deposits.
The current best initial rates of 2.85% at 90% loan-to-value and 4.09% at 95% are unlikely to attract many first-time buyers to fix for a decade, so it would be no surprise to see lenders cut the cost of these deals early in 2020.
10-year fixes can come with high early repayment charges, so weigh up your options before jumping in.
- Find out more: remortgaging to save thousands in repayments
Will landlords have a better year in 2020?
2019 marked another year of increased regulation and dwindling profits for many landlords, but the mortgage market offered a rare bright spot.
The average buy-to-let fixed-rate mortgage dropped by nearly a third of a percent in 2019, and lenders continued to plug cashback and fee-free products to entice investors.
Here’s what embattled buy-to-let landlords can expect in 2020.
Landlords will lock in for shorter terms
There were signs in the second half of 2019 that landlords were increasingly looking for shorter fixed-rate deals, amid uncertainty over the long-term profitability of buy-to-let.
Regardless of what happens with Brexit, this could continue in 2020.
Two-year fixes are still attractively priced at many levels, with very little to choose between the best rates at 60% and 75% LTV.
With the final round of mortgage interest tax relief cuts set to kick in from April and confusion around the future of no-fault evictions, it’s likely we’ll see landlords keep their options open by taking out two-year fixes in 2020.
- Find out more: buy-to-let mortgages
Investors will need to look at the small print
Lenders are competing to offer headline-grabbing rates and cashback deals, but you’ll need to be sure they’re not giving with one hand and taking away with the other.
Which? research conducted in October found that a third of buy-to-let mortgages came with cashback of up to £1,000, as banks started to move away from offering fee-free deals.
But all is not as it seems. Getting £500 or £1,000 cashback might sound like a good thing, but table-topping deals currently come with upfront fees of between £1,495 and £1,995.
When comparing mortgages, ensure sure you look at the overall cost rather than being drawn in by low initial rates or cashback incentives.
Remortgaging will drive the market
In the year to September 2019, the number of new loans granted to buy-to-let purchases fell by 3.5%, and overall lending dropped by 11.1%, according to data from UK Finance.
Remortgaging activity, however, remained steady and made up around 70% of the buy-to-let market.
The current climate of cheap remortgaging rates is a a good time to check whether you’re really getting the best deal on your portfolio.
If you own several properties with different mortgage terms, it may make sense to enlist the help of whole-of-market mortgage broker.
A broker can access hundreds of mortgages that aren’t available on the open market and ensure you’re getting the right deal.
Find out more: mortgage advice guides from Which?