Podcast: Million-pound mortgages and what the base rate drop means for you
In this interesting and insightful episode of the ESPC Property Show, Megan and Paul are joined by David and Paul from ESPC Mortgages. Topics under discussion include whether or not a 5% deposit is still enough for first-time buyers to get on the ladder, how much you need to earn to qualify for a million-pound mortgage, and will the Bank of England base rate reduction affect your mortgage as a homeowner.
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Key Insights
Impact of the Bank of England base rate cut
The Bank of England recently cut the base rate from 4.75% to 4.5%, but this doesn’t immediately benefit most homeowners who are locked into fixed-rate mortgages. However, those on tracker mortgages will see an automatic reduction in their interest rate, and people remortgaging in 2025 may get better deals.
Future interest rate predictions
Further rate cuts are predicted this year, with the base rate potentially reaching 4% or even 3.75% by 2025. However, these cuts depend on economic factors, inflation, and global events (such as US political changes).
Swap rates & mortgage pricing
While the base rate influences mortgages, lenders rely more on swap rates (the cost at which banks lend to each other) to set fixed mortgage rates. Since swap rates tend to predict future trends, lenders often adjust mortgage rates before the Bank of England makes a move.
Should homeowners pay an early repayment charge to secure a lower rate?
If a homeowner took out a high-rate mortgage a year or two ago, they might wonder if they should exit early to switch to a better deal. The decision depends on the early repayment charge and whether the savings on a lower rate justify the penalty. Some of the new sub-4% mortgage deals come with arrangement fees around £2,000, which should be factored in.
Will the rate cut affect house prices?
House prices seem stable, with most properties selling at their Home Report value rather than overbidding. The biggest factor influencing prices will be housing stock levels. If more homes come on the market, buyers will have more choices, keeping prices stable. If supply remains low, competition could push prices up.
Deposit requirements for first-time buyers
While 5% deposit mortgages are still available, most first-time buyers are putting down 10-15% deposits instead. Many are relying on gifted deposits from family members, sometimes as high as £100,000, to help secure better rates and reduce borrowing costs.
100% mortgages & credit score scrutiny
100% mortgages (where renters can borrow the full purchase price if they have a strong rental payment history) are available but not widely used. Lenders apply strict credit score requirements, making it difficult for some applicants to qualify. A key concern is negative equity risk if house prices drop.
Income requirements for high-value mortgages
Most mortgage lenders use an income multiple of 4-4.5x salary, but some offer 5-5.5x multiples for high earners. For a £1 million mortgage, borrowers typically need a household income of £200,000+, which is common for dual-income professionals like surgeons and accountants.