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Why the Budget means the future is brighter for first-time buyers

27.11.2017

In his Autumn Budget, the Chancellor of the Exchequer announced that first-time buyers would no longer have to pay stamp duty on properties costing up to £300,000 – or on the first £300,000 of properties costing up to £500,000.

Abolishing stamp duty for the vast majority of first-time buyers is a welcome move but while it will result in some savings, affordability is still the real issue for many. It might enable a first-time buyer to purchase a new sofa but will it really make the difference between being able to buy a home or not?

The reality is that most first-time buyers cannot get on the housing ladder without significant financial assistance from the Bank of Mum and Dad. Practically all of the first-time buyers we assist at Anderson Harris have had some help with the deposit from their parents. The alternative is to save for many years because the gap between incomes and property prices is simply too great. Until that issue is addressed, home ownership will remain just a dream for many people.

However, lenders are being more flexible towards those with relatively small deposits. Barclays announced last week that it will now lend at up to 95 per cent loan-to-value, which means less time needed to save for that crucial deposit. We expect other lenders to do the same in time.

If you are a first-time buyer, get in touch to find out more about the schemes and products available to you.

Jonathan Harris
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Jonathan Harris

Why an agreement in principle gives buyers the advantage

20.11.2017

Being prepared is one of the most important things a property purchaser can be. An agreement in principle is a good place to start, indicating to you, the vendor and estate agent, how much you are likely to be able to borrow from a lender. The mortgage application is still subject to full underwriting but in this competitive market where very little stock is available, it could just put you ahead of the competition.

Of course, you may expect a mortgage broker to say that but don’t just take our word for it – buying agent Henry Pryor stresses the importance of an agreement in principle for his clients and how it gives them the advantage.

‘Like the best boy scouts, it pays to be prepared,’ he advises. ‘If a buyer takes the time and trouble to get organised it can make a huge difference to the outcome. If a vendor wants £1m for a property but needs to sell because of divorce or death, and you are offering £800,000 with an agreement in principle in place, in my experience they may well accept your offer.’

Crucially, an agreement in principle seems to give buyers more bargaining power. Having a mortgage broker also strengthens your position because you have taken advice as to how much you can borrow and which lender is likely to lend it to you. We are often asked to give vendors and estate agents an indication of whether a purchaser can afford to transact based on their level of deposit and mortgage capacity.

With mortgage rates continuing to remain low – despite the rise in interest rates, some big lenders have been cutting their fixed-rate mortgages – it remains a good time to get a mortgage. Two-year fixes are available from 1.24 per cent, while five-year fixes start at 1.74 per cent.

Please get in touch for more information.

Adrian Anderson
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Adrian Anderson

Interest rates rise for first time in ten years

03.11.2017

The Bank of England has raised interest rates by 25 basis points to 0.5 per cent. This rate rise, which was widely expected, is the first in more than a decade.

While a rate rise after such a long period of time comes as a shock to the system, it is important to put it into perspective. This quarter-point rise still only brings rates back to where they were before the vote to Brexit and historically they are still very low. What’s more, with the economic recovery tentative at best, it is likely that any further rate rises will be slow and modest.

Older, more experienced borrowers who have seen it all before are likely to take this rate rise in their stride. But those borrowers who have never known a rate rise may be spooked. It may make them question their spending and worry as to how far these increases may go.

The trend recently among borrowers is to opt for a fixed-rate mortgage and this is unlikely to change. A rate rise will encourage more people to remortgage as there is nothing like higher monthly mortgage payments to focus the mind. There may be some borrowers who believe they are mortgage prisoners – trapped and unable to remortgage – but it is worth checking whether this is the case, particularly if you are on your lender’s standard variable rate and paying over the odds.

Jonathan Harris
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Jonathan Harris

With a potential rate rise on the horizon, what next for borrowers?

27.10.2017

With Britain’s economy growing faster than expected in the third quarter of the year, according to the Office for National Statistics, the likelihood of an interest rate rise at the Bank of England’s meeting next week has increased. But what does this mean for borrowers?

Whether the base rate rises or not is largely academic, as the expectations of higher interest rates have already filtered through to mortgage pricing. Many fixed-rate mortgages have already become more expensive with most lenders increasing the pricing on some, or all, of their product ranges.

However, it is not necessarily as straightforward as that. Challenger lender Metro Bank this week reduced its five-year fixed rate for up to 90 per cent loan-to-value deals by 10 basis points to 2.54 per cent. At the same time, the lender marginally increased pricing on two- and three-year fixes, while five-year fixes at 65 and 70 per cent LTV were withdrawn. It is clear which areas of business the bank is keen to promote.

Another lender, TSB, increased rates by up to 0.2 per cent on seven of its fixed-rate remortgage deals and removed its three-year fixed-rate deal at 90 per cent LTV.

As lenders jockey for position, independent advice is more important than ever. There is no need to panic as the rate increases we have seen so far have been relatively  modest but equally borrowers should not hang around, particularly if they need the security of a fixed rate to help with budgeting.

Adrian Anderson
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Adrian Anderson

Lending options improve for the self-employed

04.10.2017

With almost five million self-employed workers in the UK, according to the Halifax, and almost 40 per cent of employment growth coming from the self-employed or small business owners over the last decade, self-employed borrowers should be big business for lenders. However, this sector has been poorly represented and supported by banks for some time.

The good news is that the situation is changing with the availability of mortgage options for the self-employed improving in recent months. Halifax is the latest lender to act, reducing the income information required for self-employed customers from three to two years.

The main issue for lenders has been a general lack of understanding regarding the way that the self-employed take their income and minimise unnecessary personal tax. However, lenders are upping their game, recognising that the self-employed are heavily invested in their businesses and therefore represent a low risk to them.

A handful of lenders are catering well for the self-employed, such as Kensington, Coventry Building Society, Metro and Santander. The key areas where underwriting has improved centre on recognising all forms of income i.e. salary, dividend, retained profits in the business.

So whether you have just one year’s accounts, an accountant’s reference, are a lawyer or doctor buying into a practice or are becoming self-employed or becoming a member of a limited liability partnership (LLP), there should be a lender who can help. Get in touch for more information.

Jonathan Harris
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Jonathan Harris

A mortgage for life – Daily Telegraph podcast

02.10.2017

Anderson Harris director Adrian Anderson was asked to talk to the Daily Telegraph about the various options for older borrowers and whether plans to introduce a mortgage for life, rather than insisting that all lending is paid off by retirement, is a good idea.

Click here to listen to Adrian (from 19.45 minutes in)

 

Adrian Anderson
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Adrian Anderson

Remortgaging frenzy as lenders cut rates

19.09.2017

Record low mortgage rates have led to a surge in the number of borrowers remortgaging. Figures from UK Finance reveal that the number of people remortgaging in July was up 10 per cent on the same month last year as lenders slashed their pricing and borrowers took advantage of these cheap deals.

While summer was busy on the remortgaging front, the autumn is set to see even more activity. Some £35bn worth of mortgages are due to mature by the end of October, meaning thousands of borrowers will be coming to the end of their fixed rate or discounted tracker period. If these borrowers don’t remortgage onto another fixed rate or base-rate tracker, they will automatically move onto their lender’s often much higher standard variable rate, meaning a significant jump in mortgage payments.

With the cost of living continuing to rise, making savings where you can makes a lot of sense and nobody wants to pay more than they need to on their mortgage. The good news for borrowers is that lenders competing for business have the remortgage market in their sights, as the house purchase market remains subdued. One lender cut its two- and five-year fixed rates to 1.39 per cent and 1.79 per cent respectively this week for those with a 40 per cent deposit – and that’s without a fee as well. Other lenders are offering even cheaper rates with two-year fixes available from 1.03 per cent and five-year fixes from 1.59 per cent.

It is also worth self-employed applicants noting that from October lenders will require a 2017 SA302 (issued to those who file a paper tax return) to support new lending, whereas they are currently accepting 2016 figures. Borrowers may wish to seek advice as to whether they are better off applying for funding now or waiting until October.

While affordability criteria are tougher than in the past, thanks to the fallout from the credit crunch and subsequent introduction of the Mortgage Market Review, it would be wrong for borrowers to assume that it will be impossible to remortgage. There are options available for most and we can point you in the right direction.

Adrian Anderson
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Adrian Anderson

Jay-Z and Beyonce’s $53m mortgage…

30.08.2017

It seems that even wealthy people need mortgages with news that hip-hop star Jay-Z and his singer wife Beyonce financing the purchase of their $88m Los Angeles mansion with a whopping $52.8m mortgage.

A 60 per cent loan-to-value mortgage is pretty high, taking into account the quantum of the loan. Lenders – in the UK, this would undoubtedly be a private bank – would normally limit LTVs on such a loan size to circa 40 to 50 per cent. In terms of the monthly cost, assuming a pay rate of 3 per cent, the couple would pay $132,000 per month on interest only or $250,000 on a repayment basis.

Assuming an income multiple of five times income, we can also assume that the couple have a minimum annual income of $10.56m.

It is likely that the bank would insist on having assets under management (AUM) for a loan this size so it is possible that they have also invested assets to the value of $26.4m with the lending bank. An eye-watering amount for us mere mortals but presumably a drop in the ocean for one of the richest couples in the world.

Jonathan Harris
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Jonathan Harris

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