Blog Archives

Mortgage lending edges up in May

18.06.2015

With the uncertainty caused by the General Election out of the way, gross mortgage lending has edged up by 2 per cent in May compared with April, according to the Council of Mortgage Lenders. This is in line with other forecasts, pointing to a gentle recovery in a housing market which has been paralysed for many months.

Lenders are doing their bit; they are keen to lend and offering rock-bottom mortgage rates to entice borrowers. These low rates are likely to continue into the autumn and once the traditional summer lull is out of the way, we could see a real pick-up in activity.

The main problem is lack of housing stock, which will continue to support prices. The gap between what people earn and what they can afford to buy continues to be an issue. There is little incentive to sell when there is a lack of choice as to what to buy, while tougher affordability criteria as a result of the mortgage market review may also make it harder for borrowers to get the mortgage they need.

Jonathan Harris
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Jonathan Harris

Popularity of buy-to-let continues to grow

10.06.2015

An increasing number of borrowers are investing in buy-to-let due to the attractive rental yields and potential for capital growth. Most will gear up with a mortgage to help make the investment more tax efficient.

As with residential deals, buy-to-let rates have fallen but borrowers should be aware of products with large up-front fees if they are only fixing for the short term. Borrowers should look at the overall costs including initial fees and the rate over the term.
There are two-year fixed rates available from 2.24 per cent with a £1,999 fee for those with a 40 per cent deposit.

For those requiring a longer-term fix, it is possible to secure a rate of 3.29 per cent for five years, although this is only really suitable for larger mortgages as there is an arrangement fee of £2,495. The same lender offers a 3.44 per cent five-year fix with a more modest £800 arrangement fee.

The criteria for buy-to-let mortgages is still relatively relaxed with most banks requiring the borrower to have a minimum income of £25,000, plus the rental income must meet the bank’s affordability stress test. However, we are increasingly seeing banks asking more questions than they used to around overall affordability and suitability, which is partly a backlash in response to lax lending before the downturn.

Some regulation will come into force in March 2016 but only a limited number of those applying for a buy-to-let will be affected, such as ‘accidental landlords’.

For advice on buy-to-let mortgages, please get in touch

Adrian Anderson
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Adrian Anderson

Self-employed and need a mortgage? It is getting easier

05.06.2015

Since the Mortgage Market Review was introduced last year it has been harder for everyone to get a mortgage. But if you are self-employed, you are likely to find it even trickier than you would if you were employed.

In theory, you should be able to get a mortgage as long as you can prove that you can afford it. However, the reality is that the self-employed are discriminated against as banks would rather lend to an employed applicant with a lower salary than someone who has started their own business. The latter is still viewed as being riskier than a paid position.

Lenders tend to take an average of the last three years of accounts but if the most recent year’s income is lower than the previous two years, the bank may use that and not necessarily take an average. The problem as the lender sees it is that if you have a consistent two-year history and then the most recent year’s income dips, it might be indicative of an issue with the business or the market specific to that business. Lenders will always look for an upward trend to demonstrate the sustainability of income.

In this type of situation, a full explanation of why the figures have dipped would help and if there is a good reason, a lender may be willing to take a positive view. For example, it might be a single bad debt or that fees were delayed by a month or so and are due imminently, thus bolstering next year`s figures.

A drop in income might also be a result of a tax strategy. Lenders are not very appreciative of tax strategies and are more formulaic since the arrival of MMR. There is a big disconnect between accountants who are there to declare as little income as possible to avoid tax and lenders who want to see as much as possible. If you are self-employed it is worth bearing this in mind and ensuring decent income is declared.

On the plus side, if income has been steadily increasing over the past three years, the bank may not take an average but just the most recent year, which is higher. Some of the challenger banks may consider one year’s accounts but the rate may be more expensive.

If you are self-employed and need a mortgage, it is vital that you speak to an independent mortgage broker, such as Anderson Harris, as it can get quite complicated.

Jonathan Harris
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Jonathan Harris