The Help to Buy ISA announced in last week’s Budget has caught the public’s imagination. Please click on the link to hear Anderson Harris director Jonathan Harris chatting to Adrian Chiles and Martin Lewis on BBC Radio 5 live: http://downloads.bbc.co.uk/podcasts/5live/consumer/consumer_20150323-1311a.mp3
The Chancellor of the Exchequer today announced that first-time buyers will get assistance with saving for a deposit via a newly-launched Help to Buy ISA. If you save £200 per month, the government will add a £50 bonus. The maximum bonus you can ‘earn’ is £3,000, enabling first-time buyers to put down a £15,000 deposit with just £12,000 of their own money.
It is good news that first-time buyers will get government assistance with their deposit but it would have been better if the announcement had come hand in hand with detailed plans to build more houses. There is a danger that giving first-time buyers assistance with a deposit will only push up house prices further.
It is great news that accounts are limited to one per person rather than per home as many first-time buyers are couples so this will boost their deposit further.
Some might question whether the £450,000 limit in London will be enough but it is important that there is a limit on the scheme and that ambitions are kept within realistic parameters.
The big issue however, is that even if a first-time buyer can get together a deposit, there is no guarantee that they will be able to get a mortgage. Tighter rules under the Mortgage Market Review mean many people who shouldn’t be struggling to get a mortgage are doing so and this requires government intervention.
Since the credit crunch, the self-employed have found it trickier to get a mortgage. Self-certification loans, where a borrower did not have to prove their income, disappeared virtually overnight while lenders started insisting on several years of accounts to prove income.
While it makes total sense that borrowers shouldn’t be borrowing more than they can afford and that they should be able to evidence income, some lenders went too far and became too restrictive. The good news is that the situation is starting to ease, with some lenders prepared to be more flexible and take time to understand a self-employed person’s situation.
As far as contractors are concerned, this is an area where we have been big improvements in criteria from two major high-street lenders. If a client has a contract of significant size (£70,000 or more per annum) then the lender will underwrite the income based upon the contract alone, even if the client is technically self-employed. It always helps if the client has a track record of working in that industry but it is a significant step forward nevertheless.
As far as Limited Liability Partnerships are concerned, some lenders will now treat members of LLPs as employed if their shareholding is less than 20 per cent.
With company directors, some lenders will now look at a combination of dividends and salaried income as well as funds from directors’ loans. This is still challenging as accounts are often complicated in structure to mitigate against large tax liabilities.
There are also lenders who are prepared to take into account retained profits in the business.
In terms of how many years you need to have been trading, some lenders will look at only one year’s figures but tend to be less bullish on loan-to-income (LTI) for this and will lend a maximum of four times. Those who are more aggressive on LTI still need need at least two years of trading figures.
Accord will gross up a dividend for affordability purposes which means you could get more than five times ‘perceived’ income for a client. This makes sense in a way; if the lender is prepared to use untaxed money for employed people, why use taxed money for the self-employed?
Rates are already at historic lows so they can’t really come down further, and bear in mind that Swap rates – the rate banks pay to borrow from each other – are rising so it is highly unlikely that they would anyway. The welcome development is that conditions are generally improving for the self-employed so it should be easier to get a loan. Get in touch for more information.
With new pension freedoms being introduced next month, many of our clients will be considering what is the best home for their investments. The new rules mean anyone over the age of 55 can take what they want, when they want, from their pension fund and won’t have to buy an annuity.
With increased flexibility as to what you do with your money, being forced to hand over substantial assets to a private bank in order to secure a mortgage at a decent rate, can cause resentment. It’s not so much that clients are set against doing it but many prefer to do so in a considered way, once they’ve got to know the people who will be looking after their money.
Many clients would rather give themselves time to get to know the bank and let the relationship evolve, with assets passing across once they are comfortable with the set up. The emphasis is then on the bank to prove its worth and to develop a relationship with the client.
The good news is that attractive borrowing terms can still be secured even if there is a go-slow in transferring assets under management (AUM). Clients must be prepared to develop a relationship: this is not a way of avoiding that but there are other options. Custodianship of assets might be worth considering, for example – keeping your funds with the same manager and transferring the investment to the custodianship of the bank instead.
A professional client we introduced to a private bank recently has started to refer his clients across to the bank demonstrating his willingness to developing a relationship with them. Because of this, the bank was happy not to receive any AUM from the client.
It is certainly worth considering: we know of private banks who may lend from as little as 2.25 per cent over base rate with no assets under management required. Please get in touch for more information.