Blog Archives

Landlords need advice like never before

26.01.2016

Rates remain stable and historically low as lenders compete for market share. However, it is a challenging market for investors with the government restricting tax relief on mortgage interest, removing the wear and tear allowance, and introducing additional stamp duty from April.

Several lenders have changed their criteria accordingly, moving away from the industry standard of 125 per cent of the mortgage interest payment at a notional stress rate of 5 per cent to a rate of 5.5 per cent and above. This has a significant impact on the level of debt investors can secure when purchasing new property. London rental yields remain modest, so borrowing more than 60 per cent loan-to-value in the capital is a challenge.

We are aware of a small handful of lenders who, if the borrower can demonstrate excellent personal financial standing, will forgo this stress test, allowing for significantly higher levels of borrowing.

Please get in touch if you feel we could be of assistance.

Jonathan Harris
Posted by
Jonathan Harris

The rise and rise of the 35-year mortgage

11.01.2016

New research from the Halifax reveals that a quarter of first-time buyers are opting for longer mortgage terms of 35 years, rather than the more traditional 25-year term. This comes as no surprise to mortgage brokers who have seen a steady increase in the number of first-time buyers opting for longer mortgage terms in order to make monthly payments more affordable.

Some of our first-time buyer clients will choose the longest mortgage term possible. The irony is that by the time you get to your mid-40s say, the chances are the bank will be dictating a shorter term to match your state retirement age unless you can evidence income in retirement.

First-time buyers, who have never had to run a house and are used to calling their landlord in the event of the boiler breaking, should seriously think about factoring in upkeep of the property into their monthly budgets. If they keep their mortgage payment as low as possible, any spare cash can be used on other expenses, which inevitably arise as a homeowner.

While a longer mortgage term means cheaper monthly payments, you make many more of them, costing you more in the long run. One way round this is to overpay when you can. Most fixed-rate mortgages (which the majority of first-time buyers tend to opt for) allow borrowers to overpay by up to 10 per cent of the mortgage amount per year without penalty. So if you can pay overpay each month you can pay the debt down at your own pace, but are not contractually obligated to, which allows you flexibility.

For example:
Purchase price £300,000
Mortgage £150,000 on the Halifax 2-year fix at 1.49%

Over 25 Years = £599 pcm
Over 35 Years = £458 pcm

The longer term constitutes a monthly saving of £141. The purchaser has borrowed £150,000 so is allowed to overpay £15,000 in year one without incurring penalties. If they wanted to pay the full £599 (as if they were on a 25-year term) this would constitute £1,692 overpayment on year one. If, however, halfway through the year they wanted to hold some cash back for other purposes (home improvements/investments) they can simply revert to the £458 monthly payment.

Critics have suggested that taking a longer term reduces the options available to the lender if you do get into difficulty with your mortgage (because it can’t extend the term to give you longer to pay back the debt). But making overpayments creates the opportunity to take payment holidays with most products, meaning if you do run into serious trouble (loss of a job, for example) you can then stop paying your mortgage altogether for a period of time.

Jonathan Harris
Posted by
Jonathan Harris

Good news for older borrowers as lender removes age restrictions

08.01.2016

In removing the upper age restriction across its mortgage range, Dudley Building Society is the latest lender to make life easier for older clients. The building society says that older borrowers are no more risky than younger ones providing that underwriting is carried out by humans, rather than computers. This is a refreshing development and a welcome approach to credit, treating each application on a case-by-case basis.

On the whole, building societies are better at lending to older borrowers than high-street banks, although the challenger banks are looking to make headway in this market.

National Counties Building Society, for example, will lend to borrowers over 90-years-old if they can demonstrate that they can afford the mortgage. It will also allow several applicants on the application, so younger people can use their income to help out parents if required or vice versa.

Furness and Harpenden building societies also look favourably on older borrowers. Critically, Metro Bank has now started lending to older borrowers where income is guaranteed, such as a good final salary pension or rental income. Metro entering the market is significant, as it offers these deals at market-leading rates, whereas the smaller building societies may charge a premium on the rate.

These deals often have to be interest only, due to the short terms, so a credible repayment strategy is essential.

Other mainstream lenders such as Santander, Barclays and Halifax won’t consider older borrowers because their lending books are already full of interest-only loans, many of which may have no credible repayment strategy. Therefore, there is less appetite to help out this demographic of borrower.

We are also seeing an increase in the numbers taking up equity release, which can, if advised correctly, be a really useful product, allowing borrowers access to funds in their properties to live out their days more comfortably.

If the borrower is significantly wealthy, private banks are also happy to lend, even if they are nearing retirement or have actually retired.

Jonathan Harris
Posted by
Jonathan Harris