Blog Archives

Interest-only mortgage options

31.05.2016

The interest-only market has contracted massively over the past decade as the mortgage market review (MMR) resulted in lenders withdrawing from the market. Before the MMR was introduced, interest-only mortgages were an option for practically all borrowers as there was no focus on how they would repay the mortgage. But now there must be a credible repayment strategy in place, which often includes savings and investments.

Interest only is available if you are able to manage a 50 per cent loan-to-value as sale of the property is deemed an acceptable repayment strategy because it gives people a potential to downsize in the future. While there is good choice for borrowers at 50 per cent LTV, above this it gets trickier.

The previous lending climate was irresponsible so the changes are welcome. But there are still some borrowers who interest only suits perfectly – such as those in receipt of predominantly bonus-driven remuneration – who will now struggle to get an interest-only mortgage because the pendulum has swung too far the other way.

Interest only is appropriate for borrowers with a genuine repayment strategy – whether it be bonuses, sale of investments or an inheritance. Some of the more specialist lenders will lend on interest-only basis but want annual bullet reductions in the lend so this will satisfy the regulator that the loan is being structured on a repayment basis.

There are concerns that there will be swathes of borrowers unable to repay their interest-only mortgages but this is unlikely to be the case. The interest-only lending that was done was quite historic so most borrowers have time to sort it out and most will be addressing the issue. It is important to take action and to seek advice if you are concerned that you won’t be able to repay the capital at the end of your interest-only mortgage term.

Jonathan Harris
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Jonathan Harris

Anderson Harris on the FT Money Show

19.05.2016

With a number of lenders including Halifax and Nationwide increasing the maximum age at which they will lend, is there still a place for equity release?

Adrian Anderson, director of mortgage broker Anderson Harris, is one of the few brokers who advises on both conventional mortgages and equity release. He was invited on the FT Money Show to discuss the pros and cons of each.

 

Jonathan Harris
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Jonathan Harris

Anderson Harris offers equity release

16.05.2016

A rise in property values, coinciding with the low interest rate environment, has made equity release a more viable and popular solution for an ageing population, which is ‘asset rich, cash poor’.

Increasingly, we found ourselves being approached by older people who found themselves in a predicament – lenders unwilling to lend because they didn’t have much in the way of income while they didn’t want to downsize and leave the home they had lived in for many years to free up cash. We decided to enter the equity release market to specialise in arranging mortgages for high-net-worth clients as we were coming across many elderly people in London with high-value equity release requirements.

To enable us to offer equity release, I took the Certificate in Equity Release (ER1) examination with the Chartered Insurance Institute. The certificate is a practical solution that develops the understanding of the equity release regulation, products and advice process.

Specialist training is required because advising a lifetime mortgage solution is usually a far more time-consuming process than advising on a regular mortgage. The client would usually be classed as ‘vulnerable’ due to their age so in order to recommend a lifetime mortgage a great deal of fact finding is required. The decision to apply for a lifetime mortgage is often a ‘family decision’ and the borrower’s children or family members may often be involved in the advice process so that all potential solutions can be considered. The borrower should also take independent legal advice before proceeding with an equity release mortgage.

The equity release requests that have crossed my desk include a couple in their seventies who required the funds to extend the lease on their Mayfair apartment. Another elderly couple needed to remortgage as they no longer ticked the Mortgage Market Review boxes when their mortgage with a private bank came up for renewal. Another couple in their eighties wanted to explore releasing money to gift to children for their grandchildren’s school fees.

Demand for equity release is increasing and providers are becoming more competitive. An equity release mortgage is a big decision for any potential borrower and even though it isn’t a cheap solution it can still be the right one for certain borrowers.

Adrian Anderson
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Adrian Anderson

Barclays scraps deposit on Family Springboard mortgage

06.05.2016

Barclays announced this week that its popular Family Springboard mortgage is set to become even more attractive to borrowers. Applicants will no longer be required to put down any deposit (previously they were required to put down 5 per cent of the purchase price) as long as parents or other family helpers lodge 10 per cent of the purchase price in a savings account with the lender. The borrower can take out a fixed-rate mortgage pegged at 2.99 per cent and providing they make the repayments, the parents get their money back after three years. In the meantime, they earn 2 per cent interest per annum.

While critics have argued that this is a return to reckless borrowing with a 100 per cent loan-to-value mortgage, the reality is rather different. Underwriting criteria is more stringent thanks to the Mortgage Market Review, which was introduced in 2014, plus there is a buffer of 10 per cent in the form of the parents’ savings.

Other lenders could well follow Barclays’ lead which will widen the options available to first-time buyers who can’t save up for a big deposit. However, they will still need to save up the costs of buying – stamp duty, mortgage valuation fee, legal costs etc – so they will need to make some financial commitment. The advantage from the parents’ perspective is that they can help their children onto the housing ladder but still get their money back at a later date.

 

Jonathan Harris
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Jonathan Harris