Blog Archives

Interest rates – will they or won’t they?

22.11.2013

The big question concerning many borrowers is ‘will the Bank of England raise interest rates anytime soon?’ The Bank has historically decided interest rates on a month-by-month basis but newish Governor Mark Carney has opted for Forward Guidance instead, giving a longer-term view. This  strategy is designed to help markets and businesses plan ahead more effectively, bringing the Bank into line with the US Federal Reserve and the European Central Bank.

Recent figures from the Council of Mortgage lenders show a further rise in lending, continuing to provoke discussion about an interest rate rise being brought forward to the end of 2014 or early 2015, as opposed to the original plan of 2016.

So what does this fresh thinking at the Bank mean for mortgage holders?

Well if the base rate looks set to rise, money market or Swap rates start to edge higher. As lenders use these to help decide their pricing, it means fixed rates tend to go up even before official interest rates.

So let’s take a look at the likelihood of interest rates rising any time soon, by reflecting on the criteria to be used for raising interest rates.

If unemployment in the UK falls below 7 per cent
By the Bank’s calculations, that will require the creation of another 750,000 jobs, which is unlikely to happen for at least another three years. Around 2.51 million Britons are unemployed, giving a jobless rate of 7.8 per cent. Strong employment is seen as a bellwether of a healthy economy. If more people are gainfully employed, their spending power increases, thereby stimulating the economy, which in turn can cope better with higher interest rates.

Take note this is a threshold rate, not an immediate trigger for an interest rate rise. So even if unemployment dips below 7 per cent, the Bank of England will take other measures into consideration as well.

Inflation will also be taken into account. Officials will want to dampen inflation and will watch to see if the Consumer Price Index (CPI) breaches the 2 per cent target. In addition, the Bank of England is not going to want to push borrowers over the edge by raising interest rates at a time when many are struggling with the cost of living.

Economic recovery
Consistent, sustained, economic recovery – which is believed to be underway – would also help the interest rate-rise argument. However, the economy is still weak by historic standards, such has the buffeting by the financial crisis been.

We can also watch out for indicators along the way. What happens on the programme of quantitative easing (QE) will partly signal forward intentions. The Bank has pledged not to scale back its £375 billion economy-boosting programme, while the economy and unemployment figures are less than desirable.

Where do we come out on this mortgage rate debate?

At Anderson Harris we don’t think that interest rates will rise for a couple of years yet, at least, but if you are a risk-averse borrower and want to know the best course of action to take and whether to fix your mortgage, please get in touch so we can advise what’s best for you.

Adrian Anderson
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Adrian Anderson

Complicating simplicity or simplifying complexity – when tax affairs get in the way of obtaining a mortgage

13.11.2013

We have all read about the high-profile comedian, or famous MP, or household name, BBC anchor newsreader, who have been cited as having questionable or amoral tax affairs.

But it’s also the next-door neighbour who may be caught out unwittingly, by clever schemes, hatched to save money.

Too many overzealous accountants and tax advisers are hampering the chances of their clients getting a mortgage. Accountants and tax experts, with the sole objective of minimising the amount owed in tax, are offering advice which is likely to be to the detriment of a client getting a mortgage. Take-up of the complex tax-saving schemes mean the professional self-employed, such as surveyors and architects, are having a hard time proving their income, a prerequisite to getting a mortgage in most circumstances.

For example, a client with a healthy income of £300k may be finding it a challenge to get a mortgage because her income is paid via a directors’ loan account and in the form of dividends. The actual PAYE income is a tiny fraction of this, yet this is what the lender will use to assess if a client is mortgageable.

We also see clients who have set up nominee companies to hold their assets, or have bearer shares – where whoever physically holds the certificate, owns the shares. Banks don’t see this as much security at all and this has proven problematic for clients.

Increasingly, we are seeing clients with more and more elaborate tax structures, where they are distancing themselves from their assets, to the point where they can’t actually demonstrate their income anymore, or the assets they own. This is a huge problem when they are trying to obtain a mortgage.

If you ‘hide’ your assets in this way, then you can’t demonstrate your income, unless the bank can track back to your ownership of that asset. The bank then needs guarantees from the asset to support any lending, whereas normally clients would have to provide a personal guarantee.

Saving tax is all very well and legitimate, but there has to be a trade-off between this and being able to demonstrate income, for those who want a mortgage. It goes to show it is worth taking a balanced view of your financial affairs. Even if you can’t see a need for a mortgage now, everyone’s circumstances can change and it may well be more expensive to simplify those complex financial arrangements, which once looked as though they were saving so much money and trouble.

Contact Anderson Harris for further advice and to see whether we can help.

Jonathan Harris
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Jonathan Harris

Why opt for a middleman when arranging property finance?

07.11.2013

With property prices continuing to rise and activity in the housing market flourishing, Anderson Harris is busy working through some very complicated mortgage applications. Many of these deals would not have stood a chance of being considered without the level of knowledge and perseverance that is being applied to them.

Why are we telling you this?

Many of our clients are wealthy but typically short of the time needed to demonstrate that wealth to the point where banks are persuaded to lend to them. So while on the face of it a client’s wealth should convince a lender that they are a good risk, some element of proof is required.

Private bankers are busy and do not always have time to assess new enquiries properly if they are approached directly.  Fortunately the bankers know us well and know that if we introduce a client to them, we have already done our due diligence. If we propose a client to them, it’s because we believe they are the best fit for that client.

We spend a lot of time with clients, really getting to understand their financial position. Clients do not always want to provide documentary evidence of their assets, while for banks this is pretty much a prerequisite. We are able to draw the relevant insight from our client discussions and present this in a manner which is acceptable to the bank. We cut down on time wastage both for the client and the bank. We tease out the salient financial points, so that the banks feel more comfortable.

The value of our broking skills and connections with the private banks are making some tricky-looking applications a possibility and at the same time increasing the success ratio of obtaining a mortgage for our clients, with less hassle.

It is not only the private banks who are worth considering. A number of high-street lenders are producing large loan offerings which may suit the client better. We can advise whether this is the case and direct your application accordingly. Contact us for more information.

Adrian Anderson
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Adrian Anderson