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Equity release for landlords

21.08.2017

A lender has launched an equity release product which can be taken out on a buy-to-let property or second home, rather than your main residence.

Landlords will receive a lump sum upfront with interest rolling up for the duration of the loan, enabling them to release money from a buy-to-let and not pay the mortgage interest each month. There are no affordability checks so it may appeal to the owner of a buy-to-let property who does not qualify for a standard buy-to-let mortgage. However, borrowers should be warned that the rate of interest is higher – from circa 6.24 per cent AER – than on a regular buy-to-let.

The minimum age for applicants is 55-years-old, which is low, but the lender will only lend circa 9 per cent loan-to-value to someone that age; otherwise, interest would potentially compound over a very long period. Older borrowers can borrow higher LTVs so a 70-year-old can borrow circa 24 per cent, while an 80-year-old can borrow circa 34 per cent. We believe this product will be targeted at those in their seventies and beyond as this is where conventional buy-to-let lenders do not tend to accept new applicants. The maximum age of a borrower is 90 – again, most buy-to-let lenders would not contemplate lending to someone this old.

The maximum property value against which the product can be taken out is £6m, which is encouraging, as many equity release providers will not lend against such an expensive property.

Borrowers should be aware that there are early repayment charges for the first eight years of the loan so it is not a short-term solution and the mortgage can’t be ported to another property. Independent advice from a broker who specialises in equity release such as Anderson Harris, is vital before taking out such a product to ensure it really is the most suitable solution.

While the product is expensive, it is innovative and could lead to other lenders following suit, which would bring the pricing down. There is an option to service the interest will also appeal to some borrowers.

Adrian Anderson
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Adrian Anderson

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

Are interest rates on their way up?

26.06.2017

Interest rates are back in the news – and whether they should rise from 0.25 per cent sooner rather than later. The Bank of England’s chief economist Andy Haldane said last week that he could soon change his position on the rate setting committee from hold to rise. His comments came just a day after Governor Mark Carney warned that now is not the time to raise rates.

So what should borrowers think and what should they do? We still think an interest rate rise remains some way away. There is still too much uncertainty around, both politically and otherwise. The housing market is soft, particularly at the top end.

However, borrowers should always be cautious about over-stretching themselves, particularly in a market where the only way is up when it comes to interest rates. Someone with a £300,000 mortgage on a variable rate of 1.18 per cent would pay an extra £1,396 per year if interest rates were to rise by 2 per cent. If you are really concerned about budgeting, then a fixed-rate mortgage makes a lot of sense.

While the low interest rate environment cannot last forever and you should always factor in some form of stress test to ensure you are not overcommitted, any rise in rates is likely to be phased and slow so there is no need to panic. The big question is what will the new ‘normal’ look like? It will be a long time until we are back up to base rate at 5 per cent again, with a more likely level around the 1 per cent mark.

As always, it is worth seeking advice as to what to do with your mortgage. With a third of borrowers currently on their lender’s standard variable rate, that is a lot of people who will be paying more when interest rates start to rise.

Adrian Anderson
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Adrian Anderson

Post-general election calm on the mortgage front

15.06.2017

A hung parliament wasn’t the outcome most of us were expecting from the general election but now that the surprise has subsided it’s clear that the mortgage market hasn’t been rattled by the result.

It really is business as usual. Swap rates – the rate lenders pay to borrow from each other – barely moved in response to the outcome. Lenders remain keen to lend and there continue to be some exceptional mortgage rates to choose from as they compete for business.

With a lack of urgency among buyers to purchase property, lenders are concentrating on the remortgage market, with some excellent rates available with the valuation and legal fees paid by the lender. Given that we may be close to the bottom of the market in terms of rates and near the top of the market with regard to property values, it is a good time to consider remortgaging, particularly if you are sat on your lender’s standard variable rate (SVR).

Jonathan Harris
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Jonathan Harris

Why joint borrower sole proprietor mortgages are becoming more popular

02.06.2017

Incomes cannot keep pace with house prices, creating a problem for first-time buyers desperate to purchase their own home. Consequently, more first-time buyers are clubbing together with partners, friends, siblings and parents to buy, with two deposits and incomes helping bridge the gap between salaries and property prices.

However, since the government introduced a 3 per cent stamp duty surcharge on second homes last year, this has created a potential problem. The first-time buyer who is purchasing jointly with a parent who already owns a property, for example, will have to pay an extra 3 per cent stamp duty. On a £500,000 property, this means a stamp duty bill of £30,000, as opposed to £15,000. At a time when first-time buyers will be scraping around for every penny they have to put towards the deposit, buying furniture and other moving costs, this is an unwelcome extra expense.

The good news is that there is a solution, which is where the joint borrower sole proprietor mortgage comes in. A limited number of lenders offer these, allowing two borrowers to combine their borrowing capacity to maximise mortgage lending but with only one of the applicants listed on the deeds. So parents who already own their home can help a son or daughter onto the property ladder: the child can take advantage of the parent’s additional income and get a bigger mortgage, while retaining sole ownership of the property so legitimately avoiding the 3 per cent stamp duty surcharge.

We expect more lenders to offer joint borrower sole proprietor mortgages in answer to increased demand. Please get in touch for further information.

Adrian Anderson
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Adrian Anderson

Cheap mortgage rates attract first-time buyers and those remortgaging

17.05.2017

The number of first-time buyers and those remortgaging rose in March compared with February and the same period last year, according to figures from the Council of Mortgage Lenders (CML).

As one would expect, March was a better month for the housing market than February as we move into traditionally what is a busier time of year. First-time buyers borrowed £4.9bn, up 29 per cent on February and 9 per cent on March 2016, as the Bank of Mum and Dad continues to step up to the plate, while lenders offer competitive rates at high loan-to-values.

Remortgage activity was up 13 per cent by value and 14 per cent by volume on February as homeowners took advantage of record low mortgage rates. With lenders still keen to lend and overall transaction levels fairly subdued, they will have to continue offering competitive deals in order to drum up business, which is good news for consumers.

As always, meeting lenders’ affordability criteria can be tricky which is where good independent mortgage advice comes in.

Jonathan Harris
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Jonathan Harris

Bank of Mum and Dad becomes ninth biggest ‘lender’

04.05.2017

It is difficult to remember the last time Anderson Harris arranged a mortgage for a first-time buyer who didn’t have some form of assistance from parents or had inherited a large sum for a deposit. House prices have increased significantly over the past few years while salaries have risen at a much slower rate, making it extremely difficult for first-time buyers to purchase a home.

Research out this week from Legal & General reveals what we already suspected – that parents are significantly helping their offspring onto the housing ladder, to the tune of £6.5bn this year. This is similar to the amount lent by the Yorkshire Building Society, the country’s ninth biggest mortgage lender.

Hopefully, these parents will be gifting the deposit rather than lending it, as lenders will take a loan into account when calculating affordability. Because of this, parents may be interested in other options, such as becoming party to the mortgage to help their child to borrow more, assuming the parent has a strong income. Metro and Barclays offer ‘joint borrower/sole proprietor’ mortgages which have proved popular with first-time buyers as the parent is on the mortgage and liable for it, along with the child, but does not have to be party to the property deeds. This means the parent can avoid potential capital gains tax on disposal of the property and the extra 3 per cent stamp duty will not be applied when the property is purchased. The other advantage is that as long as the child can prove to Barclays that they can afford the mortgage in their own right at a later date, then the parents can be released from their obligations.

Another popular product is the Barclays Family Springboard mortgage where the first-time buyer doesnt need a deposit as long as a family member or helper can provide 10 per cent of the property price as security in a savings account. This is returned after three years. 

Jonathan Harris
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Jonathan Harris

How low can mortgage rates go?

27.04.2017

Just when we thought mortgage rates could not get any cheaper, lenders prove us wrong. The five-year fix from Atom Bank pegged at just 1.29 per cent and 0.89 per cent two-year discount from Yorkshire Building Society – the lowest ever mortgage rate – prove that lenders are determined to lend and prepared to reduce their margins to do so.

While these cheap deals tend not to last long – the Atom Bank rates were pulled less than a week after launch as the challenger bank was inundated with applications – the good news is that the general trend for mortgage rates seems to be downwards. Just this week, Santander and Accord have reduced their mortgage rates; Nationwide offered its lowest ever 90 per cent loan-to-value mortgages; Leeds launched a record low five-year buy-to-let rate; and Kensington cut over 70 per cent of its residential rates. With a range of lenders keen to compete – not just the biggest banks – the outlook for borrowers is encouraging.

It is possible that we will see more headline-grabbing rates such as those offered by Atom Bank as a lender tries to get some attention and drum up some business. But borrowers cannot take this for granted. Even if it were to happen, these deals soon disappear so anyone hoping to get in on the action would have to act extremely quickly. And with tougher affordability criteria since the Mortgage Market Review was introduced in 2014, there is no guarantee that borrowers will be able to qualify for a deal anyway, which is where good advice is crucial.

We are close to the bottom of how low mortgage rates can feasibly go so there is not much point in borrowers trying to ‘time’ it so that they get the very cheapest deal, particularly if they are sat on an expensive standard variable rate in the meantime. There is so much potential uncertainty with the Brexit negotiations that it is hard to predict what will happen over the next few months.

The total cost of any deal is also important – those with the cheapest rates also can also have the heftiest of fees and a broker will keep an eye on the overall cost when deciding which is the most suitable mortgage for your circumstances. Please get in touch for further information.

Jonathan Harris
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Jonathan Harris

Could an offset mortgage work for landlords?

13.04.2017

Offset mortgages – where you offset your savings against your mortgage to reduce the interest you pay – have been around for ages in the residential market. But one lender has launched an offset for buy-to-let landlords to help them mitigate the tax changes that came in from this month.

With a rate of 2.99 per cent and £999 fee, the rate is not bad in itself but landlords should beware as it is discounted so it is linked to the lender’s standard variable rate (SVR) rather than the base rate. The SVR is set at the landlord’s discretion so even if interest rates don’t rise, the rate on the mortgage could. After two years at the discounted rate, the deal reverts to the SVR, which is currently a rather high 5.29 per cent. It might be even higher at that time.

An offset mortgage could work for landlords if they have significant savings as by offsetting these against their loan, they can reduce the interest charged. This won’t cut their costs as such but does mean at a time when many landlords are looking at ways to maximise the return on their investments, the mortgage may cost them less.

Any landlord considering this deal should compare it to what else is available on the market, ideally using the services of an independent mortgage broker such as Anderson Harris who is well placed to advise as to the best mortgage for your circumstances. Offsets tend to be priced higher than standard deals so unless you have considerable savings to offset – so can effectively bring the rate down – you might be better off going for a standard deal. With buy-to-let fixes starting at 1.54 per cent for two years with £1,995 fee, for example, with the added advantage is that the rate is fixed, there are some very competitive rates out there.

Adrian Anderson
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Adrian Anderson