Blog Archives

Interest-only mortgages: a ticking time bomb?

31.07.2017

Around a fifth of outstanding residential mortgages are interest only, according to the Council of Mortgage Lenders, with many borrowers having no plans to repay them. The problem is that many borrowers took out interest-only mortgages at much higher loan-to-value ratios than would now be granted, and without thinking as to how they would pay them off.

But while there has been talk of a ticking time bomb, there is action borrowers can take if they are on an interest-only mortgage and are worried:

  • If there is a repayment strategy, check it is on target to pay off the capital at the end of the mortgage term.
  • If there is no repayment strategy, you need to start thinking about how you can pay the capital back. Seek independent advice.
  • Most lenders will let you overpay by up to 10 per cent of the mortgage balance per month without penalty so consider setting up a direct debit to do this and chip away at the balance.
  • Speak to your lender to see whether it will consider extending the term of the mortgage, giving you longer to pay it back. However, you will need to evidence that you can afford to pay the mortgage in retirement.
  • If your lender won’t let you extend the mortgage term, seek independent advice to see whether another lender will do so. However, another lender will only do this if the mortgage is affordable and you have a repayment strategy that it is comfortable with.
  • If you do not have the ability to pay back the mortgage and would prefer to stay in the property rather than selling up and downsizing, equity release may be an option. Again, independent advice is crucial.
Adrian Anderson
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Adrian Anderson

First-time buyers call on Bank of Mum and Dad more than ever

17.07.2017

First-time buyers are putting down an average deposit of £32,899, according to the Halifax. But this masks significant regional differences: in London, the average first-time buyer deposit is three times that at £106,577.

It is no surprise then that the deposit is the biggest barrier to home ownership for first-time buyers as wages fail to keep pace with the growth in house prices. Subsequently, most of the first-time buyers who come to us have significant financial assistance from the Bank of Mum and Dad.

There are a couple of things to bear in mind if Mum and Dad are offering financial assistance to first-time buyers. The first is that any help with the deposit needs to be a gift rather than a loan – otherwise the lender will take it into account when assessing affordability and will mean a smaller mortgage.

Secondly, if parents are going on the deeds, there may be extra stamp duty to pay, as there is a 3 per cent surcharge on second homes – and the parents are likely to already own a property. Subsequently, we are seeing a big increase in demand for joint borrower, sole proprietor mortgages, such as the Barclays Family Affordability Plan, which allow two borrowers to combine their borrowing capacity to maximise mortgage lending but only one of the applicants is listed on the deeds. This enables the child to take advantage of the parent’s additional income to get a bigger mortgage but they retain sole ownership of the property so legitimately avoiding the extra stamp duty.

Jonathan Harris
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Jonathan Harris