Blog Archives

How first-time buyers can get on the housing ladder

22.04.2016

Property prices continue to rise in much of the country, and with salaries failing to keep pace, it is tricky for first-time buyers to get the deposit they need to get on the housing ladder. The Bank of Mum and Dad is increasingly being called upon to help, with lenders becoming more creative when it comes to parents assisting their children.

Most of the first-time buyer mortgages we arrange have been for those with large gifted cash deposits from their parents. The advantage of a big deposit is that you can also access much cheaper mortgage rates. In the past, if the child’s income was not enough to obtain a big-enough mortgage, then parents would also act as guarantors but lenders are no longer keen on such deals.

One option is for parents to be party to the mortgage and property deeds. However, the downside is that the parents will also usually have their own main residence so may be subject to capital gains tax on the sale of the property in the future. The extra 3 per cent stamp duty on second homes from April may also be charged as the child’s property could be classed as a second home for the parents, even though it is unlikely that the parents will actually occupy the property.

A better option may be Barclays’ Family Affordability Plan, which is a joint borrower/sole proprietor mortgage. Parents are not party to the property deeds but are liable for the mortgage, along with the child. This gets around any extra stamp duty or CGT and as long as the child can prove to Barclays that they can afford the mortgage in their own right at a later date, the parents can be released from their obligations.

Another option, also from Barclays, is the Family Springboard mortgage. The borrower takes out the mortgage, while family members open a Helpful Start account into which they put 10 per cent of the property price. The borrower needs only a 5 per cent deposit and gets a 95 per cent loan-to-value mortgage for the rest but at a lower rate than they would otherwise have done. After three years, the Helpful Start account is closed and the family members get their money back, plus interest.

If parents have equity in their home they can still use this to assist their child without remortgaging to do so. The National Counties building society’s Family Mortgage will take wider family assets into account as security so that a child with only a 5 per cent deposit, for example, can benefit from a better mortgage rate than they would otherwise have done. For example, they buyer may be able to get a three-year fix at 3.34 per cent or five-year fix at 3.64 per cent – lower rates than would normally be the case for someone requiring 95 per cent LTV – if the lender takes a charge on a portion of the parent’s home.

Adrian Anderson
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Adrian Anderson

Why now is a good time to remortgage

12.04.2016

With interest rates at record lows and some extremely competitive mortgage deals around, it is a good time to consider remortgaging onto a new deal.

Below, we run through a few factors to bear in mind:

  • Take into account the full cost of the deal, including rate plus fees. Many remortgage deals come with free legal fees and valuations, which can help keep the cost down.
  • Check your existing deal doesn’t have any early repayment charges. Many borrowers may be able to find a cheaper rate than their current one but the cost of redeeming a mortgage early can outweigh any savings by quite a distance.
  • Make sure you choose the right product. A number of clients have been asking for five-year fixes where they might be better off with two consecutive short-term fixed rates. Take advice.
  • Don’t forget base-rate trackers. Most of the discussion around mortgage rates is how cheap fixed-rate deals are. But with base rate at 0.5 per cent and no sign of it rising anytime soon, a cheap tracker can offer excellent value. Often these deals have no penalties so you are free to pay down as you like or you could switch to a fixed rate if interest rates start to rise. However, if you can’t afford to be wrong – that is, if rates rise you would struggle to pay your mortgage – then a fixed rate makes sense.
  • School fees can create a huge problem for borrowers as banks no longer regard them as discretionary spending but as a full credit commitment like a car loan or credit card payment. The pressure this puts on the affordability calculation can be massive and throw off some borrowers by hundreds of thousands of pounds that they would have been expecting to be able to borrow. The best advice is to speak to an independent broker before applying for a mortgage as lenders view school fees differently, with one lender taking a very dim view on affordability and others looking more closely at how long these fees have left to run. In some circumstances, if the borrower can show significant enough assets to cover the fee commitment for a period of time then the lender will take this away from the calculation altogether. Alternatively, if there are large bonuses these can be used to cover the commitment.

It is worth speaking to an independent mortgage broker such as Anderson Harris, as criteria are tighter since the Mortgage Market Review was introduced and if you haven’t taken out a mortgage for a few years, you will find that you will be asked many more searching questions regarding affordability.

 

Adrian Anderson
Posted by
Adrian Anderson