Mortgages, to buy or not to buy ñ Should we be looking to buy a second property with low interest rates and struggling property market

Interest rates are at a record low of 0.5 per cent for over 26 months. This is the longest period of stability since 1939-1951, however the cost of running and owning a home is up by 1.4 per cent. So is now a good time to take out a mortgage and buy a second property?

According to figures from Halifax, house prices for April were 3.7 per cent lower than a year ago.
Britain has been experiencing a steady decline in house prices for the last year as affordability has become a major issue since the recession for many homeowners.  Mortgage payments have fallen by a fifth since 2008 thanks to lower interest rates: the average annual interest and capital mortgage payments have fallen by 21 per cent (£956).

Availability for mortgages is also however, much tighter since 2008, with house hunters typically requiring higher deposits to benefit from good rates. There are a few movements towards better loan-value mortgages, though.  Nationwide and Skipton now have 95 per cent mortgages available and in March £1.7 billion worth of mortgages were granted to first time buyers, 28 per cent more than in February.

Renting V Owning

A combination of low interest rates and falling house prices means that owning a house could be cheaper than renting. According to a report by Halifax bank, the average monthly mortgage payments and maintenance costs for a three bedroom house is £608 where as renting a similar property would cost £706 over the same period.  Buying a home is now 14 per cent cheaper than renting one, Halifax has found. However, experts argue that UK house prices are still 10-15% overpriced in terms of “affordability”, so a downward correction is due.

Despite this Halifax found that the cost of running a home in the UK has risen to its highest level since 2008. The cost of running a home includes mortgage payments, council tax, spending on maintenance, insurance, utilities and furnishings. The average annual cost of running and owning a home has risen by 1.4 per cent from £8,956 in March 2010 to £9083 in March 2011.

Remortgaging accounted for 37 per cent of all lending in the first quarter of 2011 which has increased by 30 per cent since last year.

Buying a second property

If you have enough equity in your first property you might be able to remortgage and use money from that to purchase a second property outright. If not you will need a mortgage. If youíre intending to rent the second property you will need a buy to let mortgage which values how much you can borrow on how much return you get from renting.  If you want to use it for personal use, your mortgage lender will look at whether your income can cover the costs across both your first and second property.

Research by the Council of Mortgage Lenders found that 12.9 per cent of a first time buyers income is spent of interest payments. Buying a second property could add to this figure and increase the proportion of your income that is spent on mortgage payments. 

So do you decide to buy a second property? Affordability is key, so too is ensuring you get a great mortgage rate ñ if you get those right then you could be on to winner. But as always, seeking independent financial advice can help and you should research your financial options thoroughly before going ahead.


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