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05Oct

95% Normal

The launch of the government’s Help To Buy Guarantee scheme in late 2013 gave much-needed help to buyers with small deposits.

The scheme gives an insurance policy to lenders (paid for by the government), to protect them against potential losses in the event of repossessing a high loan-to-value mortgage: with relatively little equity at the outset, the lender risks a much greater loss if things go wrong, and after the credit crunch they were naturally wary.

So before the launch of the Help to Buy scheme, borrowers with only a 5% deposit had very few options indeed. By bringing the guarantee into play, much bigger names were happy to join in with Halifax being both the biggest and the first out of the blocks but most of the high street soon joining in.

Nationwide has been a notable absentee in this, only offering 95% products to existing borrowers moving home. Until now.

In early September Nationwide finally launched a range of 95% products. They’ve always had a very strong reputation for movers and first time buyers, and the new deals are well placed compared to the other big names so this – coming with a £1bn lending commitment – is very welcome news.

And interestingly they’re doing it outside the government’s Help to Buy scheme. That’s due to finish at the end of 2016 anyway, but it’s encouraging that Nationwide feels confident enough to take 5% deposits with no extra security. They’re not the first to do this (Yorkshire BS and TSB, for example, both operate outside the guarantee) but are certainly the biggest.

At the same time, Santander have announced they’re taking their 95% mortgage products out of the guarantee, though this will be phased over time.

But with the end of the scheme still over a year away, it’s a very good sign that lenders are feeling confident enough to return 95% mortgages to a more normal footing.

 

Guild Mortgage Service, Provided by London & Country Mortgages

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

05Oct

Buy to Let continues to grow

The popularity of the Buy to Let market shows little sign of slowing.  According to the Council of Mortgage Lenders’ (CML) figures for July, lending to Buy to Let landlords saw an increase of nearly 12% on the previous month and 52% year on year.

Demand for good quality rental property remains high, particularly as first time buyers continue to grapple with the need to pull together substantial deposits.  With low rates available on savings accounts, investors are attracted by the income that a Buy to Let property could generate after taking account of all running costs.  In addition there is potential for capital growth if house prices rise over the longer term.

Any aspiring Buy to Let investors will typically need a deposit of 25% or more and will need to demonstrate that the rental income will be adequate to cover the mortgage interest by an adequate margin, typically 125%.

Bank of England Base Rate is currently at a record low and more lenders have entered the Buy to Let market in recent years, which has heightened the level of competition.  As a consequence mortgage rates are very attractive at the moment.

The CML figures also highlight that it’s not just new landlords that have created the growth in Buy to Let but also existing investors remortgaging their properties.  In fact remortgage lending for Buy to Let rose by 69% year on year.

Many landlords are reviewing their mortgage deal to see if they can cut the cost of their borrowing.  There are plenty of options available but it’s crucial to shop around for the right all round deal, taking account of criteria and the fees involved as well as the initial rate.

Getting the right combination could make it possible to not only reduce the level of interest on the mortgage but also to lock into a rate and protect against any potential increase in Base Rate in the short to medium term.

Guild Mortgage Service, Provided by London & Country Mortgages

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

The FCA does not regulate most Buy to let mortgages.

05Oct

Economic News 24 September 2015

At its meeting in early September, the Bank of England’s Monetary Policy Committee (MPC) voted to hold interest rates at 0.5 per cent by an eight to one majority; Ian MacCafferty was the dissenter who voted for an increase in the interest rate by 0.25 per cent. Andy Haldane, the Bank of England’s economist and another of the nine MPC members, voted to maintain the interest rate but has recently been expressing concerns about the disinflation and deflation recorded around the globe and has suggested that a cut in interest rates may be needed to combat low inflation. Other members, however, including Martin Weale and Kristin Forbes, have indicated their belief that interest rates will need to rise sooner rather than later.

Just a few days after the MPC meeting, the Office for National Statistics (ONS) announced that the UK’s inflation rate fell to zero per cent in August, down from July’s rate of 0.1 per cent, apparently due to a smaller rise in clothing prices from a year ago and cheaper fuel prices. The Retail Prices Index (RPI) measure of inflation rose to 1.1 per cent from 1.0 per cent in July.

Hard on the heels of that news, the ONS further reported that the unemployment rate for the May to July quarter was 5.5 per cent, unchanged from the previous quarter but down from 6.2 per cent last year. It also announced that average earnings grew by 2.9 per cent between May and July compared with the same period last year – some analysts have speculated as to whether this news might bring forward a hike in the interest rate.

Meanwhile, The British Bankers’ Association (BBA) reported a pick-up in mortgage activity in August, believed to be due to expectations that an interest rate rise was in the offing. 80,221 home loans were approved by the major High Street banks of which more than half were for house purchases, while remortgaging accounted for 32 per cent of the loans, the highest level for four years.

Seasonally adjusted figures from HM Revenue and Customs (HMRC) show that 106,480 homes were sold during August, more than in any month since February 2014; it is the third month in a row that sales of more than 100,000 were recorded.

05Oct

Interest Only Borrowers need to plan

Citizens Advice has warned that there could be almost a million mortgage borrowers with an interest only mortgage but no plan as to how they will repay the mortgage.

Interest only mortgages do exactly as the name suggests with the monthly payments only covering the interest charge.  As a result the capital balance is not reduced and the borrower will need to repay the whole of the mortgage amount at the end of the term.

Traditionally, the borrower would have made regular contributions into an alternative repayment vehicle to run alongside the mortgage.

These are typically investment backed vehicles such as endowments or stocks and shares ISAs.  The hope is that the vehicle will grow sufficiently over time so as to reach the target amount required to pay off the mortgage.

However, some have taken no repayment vehicle at all, relying instead on the sale of the property to cover the balance.  The fear is that they could reach the end of the term with no means to pay off the mortgage, which could result in them having to sell the property to pay off the mortgage.

Anyone in that situation would do well to try and put a plan in place sooner rather than later, as the longer they leave it the harder it can become.  Switching the mortgage to repayment will mean that monthly payments increase but shopping around for a keener rate can help minimise the impact as much as possible.

If that looks too much to take on, putting funds aside or overpaying the mortgage as and when it’s possible will at least start the process of reducing the mortgage.  Just be careful to check that any overpayments will be within allowed limits so that no early repayment charges are incurred.

Even those with a repayment vehicle in place should regularly review their plans, in order to ensure that they remain on track to meet their target.  If there is any potential shortfall then, again, it makes sense to try and deal with that sooner rather than later.

 

Guild Mortgage Service, Provided by London & Country Mortgages

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

05Oct

LAND REGISTRY DATA: AUGUST 2015 (released 28 September 2015)

The August 2015 Land Registry data showed a monthly increase in average house prices across England and Wales of 0.5 per cent. In London prices increased by 1.7 per cent, exceeding all other regions; the East Midlands, Yorkshire & The Humber, and the North West experienced falls, the greatest being the North West at minus 1.4 per cent.

The East once again showed the highest annual change in prices at 8.4 per cent, followed by the South East at 7.6 per cent, London at 6.6 per cent and the South West at 5.4 per cent. The North West saw the lowest annual change at 0.2 per cent but no region experienced a fall. The overall annual price change now stands at 4.2 per cent, making the average house price in England & Wales £184,682 and in London £493,026. By property type, semi-detached properties showed the highest annual increase at 4.7 per cent; the lowest was seen in terraced properties at 3.7 per cent.

In greater detail, 14 counties and unitary authorities saw an annual fall in prices, the greatest being Darlington at minus 6.2 per cent; Reading again experienced the highest annual rise at 14.6 per cent. Both Reading and Southend-on-Sea saw the strongest monthly growth with an increase of 2.4 per cent, while Merthyr Tydfil had the most significant monthly drop at minus 3.4 per cent. Nine counties and unitary authorities saw no monthly price change.

Of the metropolitan districts, Sandwell showed the largest annual price increase at 9.8 per cent; five saw a fall, the greatest being Bradford again at minus 2.4 per cent. Bolton saw the highest monthly price increase at 1.6 per cent, while ten saw a drop, the largest again being Wolverhampton at minus 2.0 per cent.

Of the London boroughs, Newham saw the highest annual price rise at 15.5 per cent, while Hammersmith & Fulham and Camden experienced falls at minus 0.3 per cent and minus 1.7 per cent respectively. On a monthly basis, Barking & Dagenham showed the highest increase at 2.2 per cent, while Kensington & Chelsea saw the biggest fall with a movement of minus 1.1 per cent.

The volume of properties sold in June 2015 was 13 per cent lower than a year earlier in England and Wales and 19 per cent lower in London; falls were seen across nearly all price brackets. Properties sold for more than £1 million across England and Wales as a whole fell by 17 per cent and in London by 22 per cent over the same period.

Month on month, the total number of properties sold across England and Wales increased by 7.3 per cent from 65,619 in May to 70,404 in June – chiefly in properties valued above £250,000. The number of property transactions from March 2015 to June 2015 averaged 65,550 per month, compared to 73,985 over the same period a year earlier.

05Oct

Mortgages for older borrowers

With the UK population living longer and working later in life, it comes as no surprise that our mortgage requirements are also beginning to change.  High house prices have made it all the harder for first time buyers to get on the ladder and many will not buy their first home until they are in their thirties. 

In addition many of those entering the market for the first time are choosing longer mortgage terms, possibly as long as 35 or 40 years, in order to make their loans more affordable.

The Council of Mortgage Lenders recently published figures revealing that there are currently 11 million people in the UK aged 65 and over – representing around 17% of our population. By 2034 this is expected to rise to 17 million, or 25% of the population.

That could see more borrowers with a mortgage beyond the current standard retirement age.  Lender criteria has got tougher and lenders have typically capped the maximum age to which they will lend, even when it can be show the mortgage would be affordable. 

After deciding to relocate in order to be closer to their grandchildren, our clients approached the mortgage service for the Guild of Professional Estate Agents looking for advice. Both applicants were already retired and in receipt of a combination of private and state pension income.

The couple were looking for a mortgage term that would take them up the age of 75.  Using the proceeds from the sale of their current property, the couple were able to put down a sizeable deposit.  After discussing costings with their mortgage adviser, they felt comfortable that their pension income would be sufficient to support the mortgage payments.

While some lenders would not allow a mortgage term running past the age of 70, the couple’s mortgage adviser recommended a competitive 5 year fixed from a high-street building society.  It was able to take a more flexible approach enabling them to secure the mortgage term up to the age that they required.

Guild Mortgage Service, Provided by London & Country Mortgages

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

11Sep

With the tougher mortgage rules in place since 2014 getting a mortgage perhaps seems to be a more complex process than ever.

Lenders are focused on establishing that a mortgage will be affordable for the borrower, not only now but also in the future.  As a result they will ask questions not only about your level of income but also about your outgoings.

That will include expenditure on other credit commitments like loans and credit cards but will also look at other items like regular travel costs, utilities and childcare.  This helps the lender calculate how much you can borrow so it makes sense to sit down and map out your monthly budget.

This will mean that you have all the figures to hand and help you to gauge the amount you might be able to borrow more accurately. It might also help you see where you might be able to make savings.

You will also need to be able to prove your income to the lender, so be prepared to come up with plenty of paperwork to back up your application.  They might typically require payslips, accounts for the self employed, P60 plus bank statements, proof of address and ID as well.  It’s not possible to predict everything a lender may request but gathering together what you can in preparation could help the process run more smoothly and quickly.

If you have any concerns about your credit history, either because of a possible blip in the past or because you have been previously declined, then you can get a copy of your credit record.  This could help identify any issues and if there are errors then you can get those rectified before you make an application.

It’s important to remember that just because you can’t meet one lender’s criteria that another will not be able to help.  Shopping around can help match your circumstances to the right lender as well as help identify better rates.

11Sep

Lenders have always had differing distribution strategies, from relying entirely on mortgage brokers, to having different pricing for branches and brokers, to not accepting introduced business at all.

For many years HSBC has been in the latter camp, preferring to restrict mortgages to their own branches and website. But that has now started to change and we’re very pleased to be one of the first firms to be able to arrange their mortgages.

It’s a sign of growing support for the intermediary market generally. Since the Mortgage Market Review brought in the need for virtually all mortgages to be formally advised upon, the importance of high quality advice (and the work brokers have always done) is increasingly recognised by lenders.

It’s also the case that giving advice is a rather bigger job than giving “only information”, so lenders have also seen that not only do their own staff need greater training, each mortgage now  takes longer to arrange.

So the fact that there is a readily available, already trained body of mortgage advisers out there is increasingly valuable to lenders seeking to grow their business in a highly competitive market.

At the time of writing HSBCs range looks well suited to movers and first time buyers, with competitive rates for those with deposits between 10% and 20%, giving a welcome additional option for hard-pressed buyers. How the lending policy and service supports that, only time will tell; but you don’t get to be the biggest bank in the land by accident and having extra options can never be a bad thing.

11Sep

The hot topic of the moment is once again when will Base Rate start to rise.  That was stoked up initially by the comments by The Governor of the Bank of England that the need to consider an increase would come into “sharper relief” around the turn of the year.

The August meeting of the Monetary Policy Committee saw one member vote for a rise of 0.25%, although that was heavily outweighed by the eight that preferred to once again hold the rate at its current record low.

Although there may not be an imminent change to the Base Rate it underlines once again that the current ultra low rate of 0.50% cannot stay that low forever.  Even though most expect that any change will not be forthcoming until next year mortgage borrowers should still be considering their options now.

As expectation of a rate move heightens the funding cost for lenders is lifting and we have already seen some fixed rate deals edging up as a result.  Although the market remains extremely competitive, which helps to keep rates attractive, lenders can only deal with higher costs for so long.

Some major lenders have increased some of their fixed rates already and some of the very lowest fixed deals have gone.  Borrowers that fail to take action until the Base Rate has risen should expect to find that the lowest fixed rates will have already gone.

There’s no need for panic just yet as rates are still very competitive and the Governor has again emphasised that even when rates do start to rise it will be a gradual increase rather than rocketing costs.  Nonetheless, anyone that is considering the benefits of locking into a fixed rate may want to review their options now.

11Sep

Compared to the Stamp Duty overhaul last time round, the July budget was less dramatic for the housing market but still had a couple of notable changes.

Inheritance Tax

A new “family home allowance” is being introduced, to remove inheritance tax from families whose wealth primarily consists of the home. This adds £175,000 per person to the existing £325,000 IHT allowance.

Like the standard allowance this is transferrable across married couples and civil partnerships to give a total theoretical allowance per couple of £1m.

The “family home” element is important though: since it’s ringfenced, estates with a home valued less than £350,00 (£175,000 per person) cannot transfer that allowance to other assets. That said, it seems unlikely that many £1m+ estates will have a home under the £350,000 limit.

There’s one exception to this: where homeowners downsize to a smaller property they will be able to retain the allowance from their previous residence – effectively the cash they realise from that sale is still protected from inheritance tax.

That’s a welcome move in that it won’t make older homeowners feel they have to stay in larger properties than they need (taking them out of the market for younger families) but still some critics argue that by creating a tax incentive for property over other assets, this may drive up house prices further.

 

Buy to Let Interest Relief

On the flip side to the inheritance tax cut, landlords face a tax increase.

Currently landlords can offset the cost of their BTL mortgage interest against income tax: so a mortgage costing, say, £5,000 per year in interest allows for an extra £5,000 of income to be earned tax-free.

Under new rules that tax relief will be limited to the basic rate of income tax, currently 20%. So landlords paying higher (40%) and additional (45%) rates will end up paying income tax at 20% and 25% respectively on that money, where previously they paid nothing. Basic rate taxpayers will be unaffected.

There’s no need to panic yet though. The change is to be phased in over 4 years, and doesn’t start until 2017. While the precise structure hasn’t been announced yet, clearly the impact is designed to be gradual and give landlords plenty of time to review their options. And after all, there is still that 20% tax relief not available on other investments.

However limiting the tax relief adds strength to the argument that landlords need to keep on top of their funding, and make sure they’re not paying more interest than they need to.

11Sep

At a time when borrowers are enjoying record low interest rates, but savers are struggling to make their money work for them, offset mortgages can really come into their own. This type of scheme allows homeowners to link their savings or current account balances to their mortgage and only pay interest on the difference between the two.

In simple terms, instead of earning interest on their savings, the borrower pays less interest on their mortgage. That means that the effective rate of return on the savings is at the mortgage rate but because no interest is earned, there is no tax to pay.  As a result offset can be especially effective for higher rate tax payers.

Lenders may then offer 2 options – borrowers can either keep their mortgage payment the same in order to reduce the overall term of the mortgage, or reduce the monthly payments. Importantly, mortgage-holders retain access to their savings at all times, and can add to or withdraw from their accounts as needed. The interest charge will simply be adjusted accordingly.

After deciding to capital raise on their residential mortgage in order to fund a Buy-to-Let purchase, our clients approached the mortgage service for the Guild of Professional Estate Agents looking for advice.

With a significant level of savings, representing around 20% of their new mortgage, they were keen to secure an offset product. Their adviser carried out calculations and found that by offsetting their savings and current account balances, the clients should be able to pay off their mortgage almost 2 years earlier, saving thousands in interest.

Their adviser was able to secure them a 5 year fixed rate deal at less than 3%, and using their savings alongside the mortgage would mean paying less interest over the 5 years than if they had chosen a traditional scheme with a lower rate.

11Sep

Fixed rate mortgages have been the most popular type of mortgage by far, which is not likely to come as a surprise given the ultra low rates on offer.  With Bank of England Base Rate at rock bottom borrowers like the certainty that fixed rates offer, especially when interest rates look set to climb at some point.

The vast majority have therefore elected to lock their rate down with a fix, given the very competitive deals and the fact that there is little to no chance of Base Rate falling.  Against that backdrop why might a variable rate mortgage be a good choice?

It’s not just fixed rates that have improved in the lender rate war and some tracker and discount rates can offer very low rates, slightly undercutting those on corresponding fixed rates.  Those that feel there is still a way to go before interest rates start to climb may therefore feel a tracker offers good value.

Secondly, trackers and other variable rate options are far less likely to carry any early repayment charges, which generally apply on fixed deals.  These charges tie the borrower in so those that need more flexibility, either to overpay or to keep their options open, will find the freedom of many variable products attractive.

Of course, any borrower that is considering a variable product will need to check that they are well equipped to cope with higher payments, if interest rates do start to climb sooner and/or more quickly than they expected.  Looking at the impact of higher rates on the mortgage payment will help a borrower test just how much they value flexibility over security.

It’s unlikely that we will see a big shift from fixed rates towards trackers and borrowers understandably like to know where they stand.  However, variable products should not be dismissed and can be a good option for the right borrower.

11Sep

According to the July 2015 Land Registry data, there was a monthly increase in average house prices across England and Wales of 1.7 per cent. The East region experienced the greatest monthly price rise at 2.8 per cent, followed by London at 2.5 per cent, while only Wales experienced a fall at minus 0.3 per cent.

The East also showed the highest annual change in prices at 8.9 per cent, followed closely by London and the South East. The North East saw the lowest annual change at 0.4 per cent but no region experienced a fall. The overall annual price change now stands at 4.6 per cent, making the average house price in England & Wales £183,861 and in London £488,782. By property type, semi-detached properties showed the highest annual increase at 4.9 per cent; the lowest was seen in flats and maisonettes at 4.2 per cent.

In greater detail, 14 counties and unitary authorities saw an annual fall in prices, one more than in June, the greatest being Blaenau Gwent at minus 5.5 per cent; Reading experienced the highest annual rise at 13.6 per cent. The strongest monthly growth was seen on the Isle of Anglesey with an increase of 3.4 per cent, while Pembrokeshire had the most significant monthly drop at minus 3.2 per cent. Eight counties and unitary authorities saw no monthly price change.

Of the metropolitan districts, Trafford again showed the largest annual price increase at 7.1 per cent; four saw a fall, the greatest being Bradford at minus 1.7 per cent. South Tyneside saw the highest monthly price increase at 2.3 per cent, while seven saw a drop, the largest being Wolverhampton at minus 1.4 per cent.

Of the London boroughs, Hillingdon saw the highest annual price rise at 14.6 per cent, while Camden experienced the lowest at 0.1 per cent. On a monthly basis, Barnet showed the highest increase at 2.6 per cent, while Hammersmith & Fulham saw the biggest monthly fall with a movement of minus 0.4 per cent.

The volume of properties sold in May 2015 was 15 per cent lower than a year earlier in England and Wales and 24 per cent lower in London; falls were seen across nearly all price brackets. Properties sold for more than £1 million across England and Wales as a whole fell by 21 per cent and in London by 26 per cent over the same period.

Month on month, the total number of properties sold across England and Wales rose from 57,180 in April to 65,619 in May, an increase of 14.8 per cent, chiefly seen in properties valued under £500,000. The number of property transactions from February 2015 to May 2015 averaged 61,283 per month, compared to 70,029 over the same period a year earlier.

11Sep

The Office for National Statistics (ONS) reported that in the second quarter of 2015, the UK economy grew by 0.7 per cent, compared to 0.4 per cent in the first quarter. The Bank of England forecasts that, for the year as a whole, the UK economy will grow by 2.8 per cent, maintaining the same momentum as shown last year, when the economy expanded by 3 per cent – its best result since 2006. The Confederation for British Industry (CBI) has also upgraded its forecasts for this year at 2.6 per cent and next year at 2.8 per cent, based on an expectation of increased household spending, robust investment growth and an interest rate increase to 0.75 per cent in the first quarter of 2016.

The CBI’s revised forecast arose from recent ‘more hawkish’ comments by the Bank of England’s Monetary Policy committee (MPC). At the beginning of the month, the MPC voted by eight to one to leave the Bank Rate at 0.5 per cent, while unanimously agreeing to maintain the size of the Asset Purchase Programme at £375 billion. At the same time, the Bank of England Governor, Mark Carney, warned that the first base-rate rise in more than six years was drawing closer, possibly by February 2016, and that it would climb higher sooner. The Bank simultaneously released its latest Quarterly Inflation Report, which indicated that it expected inflation to be back to its target rate of 2 percent in two years’ time.

In mid-August, the ONS announced that inflation turned positive again in July, with the Consumer Prices Index (CPI) measure rising to 0.1 per cent from zero in June; a smaller fall in the price of clothing was reported to be the main reason, although it was partially offset by falling food and non-alcoholic drink prices. The CPI has been almost flat for the past six months, having turned negative in April for the first time since 1960. The Retail Prices Index measure of inflation was unchanged at 1 per cent.