Blog Archives

Borrowers pay off mortgage debt, Bank of England figures show

31.12.2012

Figures from the Bank of England show that just over £8bn of the nation’s collective mortgage debt was repaid in the third quarter of 2012.

One of the defining features of the financial crisis has been the difficulty in withdrawing equity from property. It has become much harder as lenders rein back on the maximum loan-to-values they will allow and charge higher rates of interest on smaller equity stakes. With property values falling in many parts of the country, it is proving undesirable to increase the debt against the roof over your head.

The fall in number of people remortgaging is also playing a part as borrowers are not taking the opportunity to increase their mortgage at the same time as taking out a new deal. Low standard variable rates mean many borrowers are content not to remortgage, while tougher criteria from lenders mean many simply are no longer able to do so.

The Bank of England suggests that there is little sign of households paying down their mortgages more quickly than in the past. This indicates that there is a lack of money available to do so, with the high cost of living and rising unemployment paying a part. Where households do have surplus funds there are signs that they are overpaying on the mortgage, particularly as savings accounts are paying such poor rates of interest.

The number of housing transactions is well down on the peak of the market, something we expect to continue into next year as the lack of confidence in the wider economy continues. It will become slightly easier to get a mortgage as the Funding for Lending monies trickle through but many would-be buyers and sellers are more likely to sit tight until circumstances improve.

Jonathan Harris
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Jonathan Harris

Finance bill brings clarity but advice remains crucial

13.12.2012

The Government’s Finance Bill has finally been published, confirming a number of proposals which were announced earlier this year, which will be introduced in April 2013.

* The Annual Residential Property Tax will mean that non-natural persons owning a dwelling worth more than £2m will have to pay between £15,000 and £140,000 per year, depending on which valuation band the property falls into. However, there are reliefs for property rental businesses and trading companies.

* Capital gains tax (CGT) at 28 per cent will also apply to non-resident non-natural persons who sell a dwelling worth more than £2m after April 2013. However, this will not be backdated and will only apply to gains arising after April.

* There will be new reliefs from the 15 per cent Stamp Duty Land Tax rate introduced in March 2012 for property development and investment businesses. However, these won’t be brought in until July 2013.

So what does this mean for clients? If you are affected by any of these proposals, it is important to seek specialist advice rather than automatically assume that ‘de-enveloping’, or dismantling your existing structure, is the only option. If the company wrapper does need to be dismantled, it could trigger a tax charge if not done correctly.

The good news is that if extra borrowing is required, rates are at all-time lows. The private banks are keen to lend to clients with complex requirements with a strong asset base. Contact Anderson Harris for more information.

Jonathan Harris
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Jonathan Harris

Autumn Statement: Property owners breathe a sigh of relief – for now

05.12.2012

Chancellor George Osborne’s Autumn Statement leaves the property sector well alone – for now. He confirmed that next week he will announce details of legislation to stop the richest avoiding tax, which is likely to include an annual charge on property worth more than £2m and held in a company structure, as well as a change to capital gains tax.

But today he rejected calls for a mansion tax – an annual charge on properties worth more than £2m – and promised ‘no new property taxes’. He said a property tax would be ‘intrusive’, ‘expensive to levy’ and raise little in the way of revenue. He also ruled out increasing the amount of council tax paid on more expensive properties or increasing stamp duty on purchases costing more than £1m.

For now, property owners can breathe a sigh of relief. But all eyes will be on the Chancellor next Tuesday when he unveils what he has in store for property in the Finance Bill.

Adrian Anderson
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Adrian Anderson

Interest-only mortgages: increasingly a niche product but there are options

04.12.2012

We have been inundated with requests from borrowers in the past few weeks for interest-only mortgages, as mainstream lenders further tighten their criteria. A couple of months ago I penned a blog on interest only and now seems a good time to update it, as there have been significant changes by some lenders.

Coventry Building Society is the latest lender to pull the plug on interest only for new borrowers. RBS and NatWest recently announced that they would no longer off interest only to new borrowers, while Nationwide and the Co-operative Bank have introduced similar restrictions.

Interest only is turning into a niche product. It may still be possible to borrow on interest-only terms via the high-street banks but much trickier than in the past. The majority of borrowers who need interest only will now have to look at the private banks – if they meet their criteria. Clients must be wealthy or on track to become wealthy at some point.

As long as a client has a considered repayment strategy in place that they can comfortably meet, interest only is arguably no riskier than a repayment mortgage. If the borrower has a remuneration structure which has a significant element paid in annual bonuses or stock and share allocations, or there is a realistic and viable anticipation of a future capital event, or they will sell a property to pay off the capital, then I would argue that they should be able to borrow on an interest-only basis.

For example, if a client who relies heavily on bonuses for a significant proportion – perhaps the majority – of his income, can’t borrow against all of it, he will be severely penalised. A high-street lender may lend against no more than 50 per cent of the bonus, meaning a large and valid part of the borrower’s annual income would be ignored. If the client earns £100,000 basic and £200,000 bonus, he might be able to borrow four times income or £800,000, if all his base salary were taken into account and half his bonus. But there is an annual £100,000 that is not being considered.

In theory, this forgotten £100,000 per annum could enable him to pay off the mortgage in eight to ten years. What would be the point of a capital and interest mortgage over 25 years? Luckily for this client, he may qualify for private banking and therefore get his interest-only loan. Not everyone will be so lucky.

Contact Anderson  Harris to discuss your interest-only requirements.

Jonathan Harris
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Jonathan Harris