Blog Archives

Interest rates on the rise: what should borrowers do?

20.07.2015

Mark Carney, Governor of the Bank of England, has hinted that interest rates may rise from 0.5 per cent at ‘the turn of the year’. But before borrowers panic he also added that he expected rates to rise slowly over the next three years, settling at around 2 to 2.5 per cent.

So what does this mean for borrowers? Well, there is no need to panic but it is worth considering how you would cope with an interest rate rise. If you are on a fixed rate there is nothing to worry about as any rate rises won’t affect your mortgage payments but check how long you have left to run on that fix. If it’s only several months it may be worth securing a new fixed rate now.

Once the money markets price in a rate rise, the cost of fixed rates start shooting up. Five-year fixes look particularly good value at the moment but don’t fix for that long if there is a chance you might move in two or three years, or you’ll be hit with a hefty penalty.

If you are on a variable rate and would struggle to pay your mortgage if rates were to rise, then it is also worth looking at a fixed-rate mortgage. While we have probably seen the back of the very cheapest deals, the ones still available aren’t bad.

If you are on your lender’s standard variable rate (SVR), it might be low now but it will go up when interest rates do. What’s more, because the SVR is not linked to base rate like a tracker, it might go up by more than base rate, which has happened in the past. If you are happy with a variable rate but want a bit more certainty, a base-rate tracker is linked to interest rates so will move in line with them. There are a number of penalty-free deals so you can get out of them at any time and they can be cheaper than fixes, at least initially.

Contact us if you would like more information about the mortgage most suited to your circumstances.

Jonathan Harris
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Jonathan Harris

Budget: Buy-to-let changes not as bad as feared

08.07.2015

There had been fears among landlords that relief on mortgage interest payments for buy-to-let landlords would be completely abolished so while the changes will hit higher-rate taxpayers – retaining mortgage interest relief but restricting it to basic rate tax – it is not as bad as it might have been.

It is only fair that there is a more level playing field between first-time buyers and landlords but if this tax break had been completely withdrawn, buy-to-let would have been far less attractive to investors. Thousands of landlords may well have struggled to keep up repayments on their mortgage or struggle to pay the tax, especially when interest rates rise.

It is too simplistic to blame landlords snapping up rental properties for the property shortage. People have to live somewhere, and if they can’t afford to buy, then they must rent. With many first-time buyers struggling to get on the property ladder and growing families unable to find the housing they need, housebuilding should be at the centre of the Government’s strategy so we look forward to see what further planning reforms are proposed. Detailed plans are required as to how effective changes will be achieved.

Adrian Anderson
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Adrian Anderson

The return of the Lombard loan

02.07.2015

Tighter affordability criteria present a challenge for mortgage brokers: how can we help clients who are asset-rich but income-poor get the funding they need?

This is where the Lombard loan is becoming increasingly useful. Debt is secured against personal assets, such as a share portfolio or bonds rather than property. This enables a borrower to access immediate cash to buy the property they want without having to sell any of their assets.

One client, the owner of a mine company in Africa, wanted to buy a property in London but lenders were concerned that his income might not be sustainable because of the risky nature of his business. The lender we approached was willing to lend but wanted to secure the loan on family assets rather than the property. Lombard lending enabled us to do this.

Lombard rates are competitive and compare favourably with a standard mortgage, typically ranging from 1 to 1.5 per cent over bank base rate for five years. Fees are minimal, as you don’t have to pay for a property valuation or conveyancing fees.

The loan-to-value (LTV) that can be achieved will depend on the risk profile of the investment portfolio. Someone with a well-diversified equity portfolio may be able to borrow up to 75 per cent of its value but if you have a racier selection of shares, the maximum LTV may be nearer 50 per cent.

Those who are originally from overseas may be able to borrow against a portfolio held in another country without funds having to leave that jurisdiction. This has tax advantages as well as making it easier if you plan to return to that country at some point.

With the mortgage market review making it tougher for older borrowers to get funding, Lombard lending might offer a solution. Please get in touch for more information.

Jonathan Harris
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Jonathan Harris