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Gross mortgage lending at highest level in 5 and a half years, says BBA


Banks lent more to mortgage borrowers in February than at any time in the past five and a half years, according to the British Bankers’ Association (BBA).

With new mortgage lending and approvals also up 50 per cent on a year ago to the highest level since August 2008, demand for borrowing continues to soar. While borrowers tended to overpay throughout 2013 and reduce their mortgages, since the beginning of this year the amount of net borrowing has risen, demonstrating increased demand.

Government initiatives such as Help to Buy continue to boost the market and even though Funding for Lending is no longer focused on individuals, the market goes from strength to strength. Fixed-rate mortgages are by far and away the most popular form of borrowing as borrowers realise interest rates won’t stay low forever, and rush to take advantage of some of the cheap fixed rates.

Remortgaging is popular as those on cheap standard variable rates are finally taking the plunge and locking into a low fixed-rate mortgage. We expect this trend to continue as borrowers worry about rising interest rates.

Rising property prices are a concern for buyers, particularly first-timers who have saved hard for a modest deposit and are worried about being priced out further. The lack of stock is the main issue and while the Budget emphasised the need to build more homes, they simply can’t be built quickly enough.

With the Mortgage Market Review being introduced in little over a month’s time, there are concerns that mortgage processing will slow down. However, many lenders are already MMR compliant so the transition should be relatively painless.

Jonathan Harris
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Jonathan Harris

Will the Budget provide a much-needed boost for interest-only mortgages?


Although he may not have realised it at the time, the Chancellor potentially gave interest-only mortgage borrowers a huge boost in the Budget. By enabling savers to access their entire pension at any time after the age of 55, subject to income tax at marginal rates, interest-only borrowers heading for retirement may decide to use their pension to pay off the capital on their mortgage, particularly if they have an underperforming annuity.

It is also possible that lenders look more favourably on a pension pot as a viable repayment strategy for an interest-only mortgage. We have had clients with large pension pots who have struggled to get the funding they need on an interest-only basis because lenders have not been prepared to accept the pension as a means of paying off the capital. But with more flexibility on the use of pension funds, banks may be prepared to revisit their criteria.

Many of our clients have mixed investment portfolios and strategies, with the pension pot just one aspect of these. They may have other investments that can be used to fund retirement, such as investment properties, or may consider investing in buy-to-let for the first time, using their pension funds, to provide a regular and steady income. The generous tax breaks that buy-to-let attracts, such as the ability to offset the mortgage interest, maintenance and management costs against rental income, would further boost the appeal of investment property.
However, before any decisions are made it is essential to seek independent advice. Contact us for more information.

Adrian Anderson
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Adrian Anderson

Mortgage lending at highest level since 2008, says Bank of England


Gross mortgage advances reached £51.5bn in quarter four of last year, the highest amount advanced in a quarter since Q3 2008, according to the Bank of England.

The Bank also said that an increasing number of borrowers are worried about the threat of an interest rate rise, with more than 80 per cent of mortgages taken out in Q4 2013 on a fixed-rate basis. However, another reason for the migration towards fixed rates is the fact that they are so cheap: they may have edged up slightly in the past few weeks but in Q4 2013 the average fixed rate fell to 3.25 per cent.

The proportion of lending to first-time buyers increased as borrowers took advantage of the early introduction of the second phase of Help to Buy, and lenders who are not participating in the scheme extended their range of high loan-to-value products. The value of loans advanced to first-time buyers hit the levels last seen in the third quarter of 2007, illustrating that this important sector of the market has well and truly returned.

Buy-to-let lending also continued to pick up, as investors shunned poor rates on savings accounts, choosing instead to invest their money in property. With rental yields higher than savings rates, and lenders offering cheaper mortgages with looser criteria, it is no surprise that the buy-to-let sector continues to expand. Of course, this makes it harder for first-time buyers to get on the housing ladder as they are competing with landlords for property and in cities such as London there is limited supply in the first place.

The mortgage market has continued to perform well into this year, with plenty of competitively priced products available. However, the Mortgage Market Review will be introduced next month and there are fears that this will make it much harder to get a mortgage. While we believe there will be a slowdown as lenders ensure everything is functioning as it should be, many of them have already introduced the changes so it should largely be ‘business as usual’ for good quality borrowers who don’t have issues with their credit history. It will also provide a welcome boost for brokers who will be able to interpret the new rules and guide borrowers through them.

Jonathan Harris
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Jonathan Harris

Managing your mortgage as part of your overall financial planning


The housing market continues to go from strength to strength with a 57 per cent increase in mortgages taken out for house purchases and 51 per cent increase in remortgaging in January compared with the same month last year, according to the British Bankers’ Association.

This jump in lending is partly due to Government initiatives plus the rise in number of high loan-to-value products available outside the Help to Buy scheme. This is making it easier for first-time buyers to get on the housing ladder, while rising property values are enabling homeowners to remortgage and buy their next property.

Remortgaging is growing in popularity as the Funding for Lending money has enabled lenders to offer some of the lowest ever five-year fixed rates. Borrowers sitting on high standard variable rates have locked into lenders with more competitive pricing. More borrowers are overpaying on their mortgages, taking advantage of ultra-low interest rates in order to improve their equity stake before a possible interest rate rise next year.

The Mortgage Market Review will be introduced at the end of April and we expect lenders to further tighten up their criteria in response. Lenders are already looking at how borrowers manage their finances, which will affect how much they will lend you. It will also have an impact on the rate you pay: if you are a good risk and have a sizeable deposit then the most competitive rates will be available to you. If not, you may have to pay a higher rate.

Anderson Harris is happy to advise on the best way to get personal financial circumstances in order. Please get in touch.

Adrian Anderson
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Adrian Anderson