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Mortgage lending continues to edge higher


Mortgage approvals for purchases and remortgaging edged upwards slightly in April, according to the British Bankers Association (BBA), as banks continue to offer a range of competitive mortgage rates. The BBA expects this to continue, with first-time buyers in particular benefiting from cheaper rates via the Funding for Lending scheme in coming months.

However, many borrowers continue to overpay on their mortgages, taking advantage of record low interest rates, and pay down debt where they can. This makes sense – why leave savings languishing in accounts paying such poor rates of interest when you can reduce your borrowing instead? There is also a reluctance to take on extra borrowing because of the uncertain economic and jobs climate.

This trend also illustrates that we remain some way off a sustained recovery in the housing market as caution continues to prevail. However, mortgage brokers and estate agents report the highest level of enquiries seen since the downturn so we expect this to feed through to improved official figures in coming months.

Adrian Anderson
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Adrian Anderson

The difficulties in funding a period home


We often provide funding advice to readers of Period Homes & Interiors magazine. Coming up in July’s issue, we advise on the funding of a 16th century timber-framed, thatched cottage:

Question: ‘A local agent has tipped me off that my dream home – a 16th century timber-framed, thatched cottage – is about to come on the market. I’ll need a 50 per cent mortgage but have heard that some lenders are reluctant to touch properties which aren’t of a standard bricks and mortar construction. Is this the case?’

Our answer: It sounds beautiful but you do need to bear in mind that getting funding for such a property may not be straightforward. Lenders tend to prefer standard bricks and mortar construction and while more are lending on timber-framed properties, the problem with this property is that it is an old one rather than a modern dwelling. The added risk here is the thatched roof, which makes it a fire risk.

In your favour, the property sounds as though it will be of a reasonable value and you have a 50 per cent deposit, which will make lenders more willing to consider offering you a mortgage. You will probably still need a specialist lender, a private bank or perhaps one of the building societies in the local area who will have an understanding of that particular property.

Speak to an independent mortgage broker for more advice.

Jonathan Harris
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Jonathan Harris

Interest only – not so much of a ticking time bomb


The Financial Conduct Authority, the new regulator, warned this week that almost half of those with interest-only mortgages may not have enough money to pay off their loan when it matures. This suggests some 1.3 million homeowners face a shortfall.

However, for many this isn’t really a time bomb as there is still time to do something about it. There is no need to panic but there is a need to take action. Look at your situation and see whether the numbers add up. If they don’t, it’s time to do something about it and there might be several options open to you:

* Switch to a repayment deal: This might mean a significant jump in monthly payments if you don’t have many years left on your mortgage but it would guarantee clearing the capital by the end of the term if you could afford to do this.

* Overpay: Most lenders will let you overpay by up to 10 per cent of the mortgage amount per annum so you could start chipping away at the capital.

* Extend your mortgage term: If you have to repay the capital on  your mortgage in say five years’ time and are unable to raise the required funds in time, one option may be to remortgage and extend the term. However, this may be tricky if you are nearing retirement as a number of lenders don’t like to lend into retirement. Speak to us as to which lenders are more flexible than others when it comes to age.

* Save or invest more: You might not wish to throw good money after bad if your endowment is underperforming but there might be other investments and savings worth considering.

* Downsize: Sell up and move to a smaller property, freeing up capital to clear the outstanding balance on your mortgage.

We have been inundated with requests from borrowers in the past few months for interest-only mortgages, as mainstream lenders further tighten their criteria. 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