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Falling rates and easing criteria: it’s getting easier to obtain a mortgage

Mortgage rates continue to fall on the back of the Government’s Funding for Lending scheme, while lenders are crucially now also loosening criteria. It has never been easier – certainly not in the past five years – to get a mortgage.

This is great news for those who have been holding back from moving, concerned that it’s not worth applying for a mortgage because they wouldn’t get one anyway. It is also good news for those who haven’t bothered looking into remortgaging for much the same reason. Now is the time to act, and while rates may fall further still, they are already at historic lows. What have you got to lose?

On the rate front, two-year fixes are available at less than 2 per cent, five-year fixes at less than 3 per cent and now even ten-year fixes at less than 4 per cent. Of course, you will need a sizeable deposit of around 40 per cent of the purchase price to qualify for the best rates but further up the loan-to-value curve, pricing has also fallen.

What is really encouraging is that criteria are easing too. For every lender tightening its interest-only criteria or making it tougher for older borrowers to get a mortgage, there are others who are realising that the way to bring in more business and grow their loan book is to be more flexible, not less.

The private banks have continued to lend throughout the financial crisis and are still often the best option for the right sort of client. They have an understanding of borrowers with complex income streams – taking retained profits in a business or bonuses into account – that is simply not the case on the high street.

We’ve also seen some improvements for contractors and on buy-to-let, with several lenders loosening previously tight criteria in the past few weeks. It all adds to a more positive market that is well worth exploring if you have been holding off applying for funding.

However, as usual, caveats apply. While lenders are demonstrating more of an appetite to lend, it is still worth seeking independent mortgage advice. There may be more options available at better rates but sourcing them all yourself is a tricky business. Why not speak to an expert who spends their working day sifting through what’s available and who can advise you accordingly?

Mortgage lending continues to edge higher

Mortgage approvals for purchases and remortgaging edged upwards slightly in April, according to the British Bankers Association (BBA), as banks continue to offer a range of competitive mortgage rates. The BBA expects this to continue, with first-time buyers in particular benefiting from cheaper rates via the Funding for Lending scheme in coming months.

However, many borrowers continue to overpay on their mortgages, taking advantage of record low interest rates, and pay down debt where they can. This makes sense – why leave savings languishing in accounts paying such poor rates of interest when you can reduce your borrowing instead? There is also a reluctance to take on extra borrowing because of the uncertain economic and jobs climate.

This trend also illustrates that we remain some way off a sustained recovery in the housing market as caution continues to prevail. However, mortgage brokers and estate agents report the highest level of enquiries seen since the downturn so we expect this to feed through to improved official figures in coming months.

The difficulties in funding a period home

We often provide funding advice to readers of Period Homes & Interiors magazine. Coming up in July’s issue, we advise on the funding of a 16th century timber-framed, thatched cottage:

Question: ‘A local agent has tipped me off that my dream home – a 16th century timber-framed, thatched cottage – is about to come on the market. I’ll need a 50 per cent mortgage but have heard that some lenders are reluctant to touch properties which aren’t of a standard bricks and mortar construction. Is this the case?’

Our answer: It sounds beautiful but you do need to bear in mind that getting funding for such a property may not be straightforward. Lenders tend to prefer standard bricks and mortar construction and while more are lending on timber-framed properties, the problem with this property is that it is an old one rather than a modern dwelling. The added risk here is the thatched roof, which makes it a fire risk.

In your favour, the property sounds as though it will be of a reasonable value and you have a 50 per cent deposit, which will make lenders more willing to consider offering you a mortgage. You will probably still need a specialist lender, a private bank or perhaps one of the building societies in the local area who will have an understanding of that particular property.

Speak to an independent mortgage broker for more advice.

Interest only – not so much of a ticking time bomb

The Financial Conduct Authority, the new regulator, warned this week that almost half of those with interest-only mortgages may not have enough money to pay off their loan when it matures. This suggests some 1.3 million homeowners face a shortfall.

However, for many this isn’t really a time bomb as there is still time to do something about it. There is no need to panic but there is a need to take action. Look at your situation and see whether the numbers add up. If they don’t, it’s time to do something about it and there might be several options open to you:

* Switch to a repayment deal: This might mean a significant jump in monthly payments if you don’t have many years left on your mortgage but it would guarantee clearing the capital by the end of the term if you could afford to do this.

* Overpay: Most lenders will let you overpay by up to 10 per cent of the mortgage amount per annum so you could start chipping away at the capital.

* Extend your mortgage term: If you have to repay the capital on  your mortgage in say five years’ time and are unable to raise the required funds in time, one option may be to remortgage and extend the term. However, this may be tricky if you are nearing retirement as a number of lenders don’t like to lend into retirement. Speak to us as to which lenders are more flexible than others when it comes to age.

* Save or invest more: You might not wish to throw good money after bad if your endowment is underperforming but there might be other investments and savings worth considering.

* Downsize: Sell up and move to a smaller property, freeing up capital to clear the outstanding balance on your mortgage.

We have been inundated with requests from borrowers in the past few months for interest-only mortgages, as mainstream lenders further tighten their criteria. Interest only is turning into a niche product. It may still be possible to borrow on interest-only terms via the high-street banks but much trickier than in the past. The majority of borrowers who need interest only will now have to look at the private banks – if they meet their criteria. Clients must be wealthy or on track to become wealthy at some point.

As long as a client has a considered repayment strategy in place that they can comfortably meet, interest only is arguably no riskier than a repayment mortgage. If the borrower has a remuneration structure which has a significant element paid in annual bonuses or stock and share allocations, or there is a realistic and viable anticipation of a future capital event, or they will sell a property to pay off the capital, then I would argue that they should be able to borrow on an interest-only basis.

For example, if a client who relies heavily on bonuses for a significant proportion – perhaps the majority – of his income, can’t borrow against all of it, he will be severely penalised. A high-street lender may lend against no more than 50 per cent of the bonus, meaning a large and valid part of the borrower’s annual income would be ignored. If the client earns £100,000 basic and £200,000 bonus, he might be able to borrow four times income or £800,000, if all his base salary were taken into account and half his bonus. But there is an annual £100,000 that is not being considered.

In theory, this forgotten £100,000 per annum could enable him to pay off the mortgage in eight to ten years. What would be the point of a capital and interest mortgage over 25 years? Luckily for this client, he may qualify for private banking and therefore get his interest-only loan. Not everyone will be so lucky.

Contact Anderson  Harris to discuss your interest-only requirements.

ONS: House prices increased 1.9% in 12 months to February

House prices continue to climb as far as the national average is concerned, although not as high as in the previous 12 months, according to the Office for National Statistics (ONS) but this masks significant regional differences. London continues to lead the way, with a 5.9 per cent rise, while prices fell by 7.7 per cent in Northern Ireland. Strip London and the South East out of the equation and you get a very different picture. The national average is therefore useful as a very general indicator of what is going on but not much more than this.

Worryingly, first-time buyers continue to pay more for their first home, with prices 1.6 per cent higher than in February 2012. While homeowners will welcome higher house prices, those struggling to get on the housing ladder for the first time are unlikely to feel the same. There was good news from the Council of Mortgage Lenders yesterday suggesting a rise in the number of first-time buyers which does suggest that funding is easier to come by for those with more modest deposits. But can it keep up with the rise in property prices? If property prices continue to edge up, this is not going to help the situation.

The outlook for the housing market is increasingly positive, with Funding for Lending and the Help to Buy schemes fuelling interest and optimism that now may be the time to get a mortgage. We expect this to continue throughout the year.

Advice increasingly crucial as mortgage fees reach 25-year high

The average mortgage arrangement fee has risen to £1,522, according to research out this week from Moneyfacts – the highest figure recorded since the company started monitoring such data.

Record low mortgage rates

While mortgage rates have fallen to record lows, particularly on fixed-rate deals, arrangement fees have continued to rise. A typical five-year fixed-rate mortgage for those with a 25 per cent deposit now has an average fee of £1,258 compared with £964 at the start of the year.

However, borrowers shouldn’t necessarily let hefty fees put them off: those with large mortgages may find that it is worth paying the bigger fee in order to access a rock-bottom rate.

Do the sums – or better still, get someone else to do them for you

What is important is to look at the bigger picture when it comes to choosing a mortgage, and look at all the fees associated with the deal as well as the rate in order to compare like with like. But it’s not just what you pay that is important: will the lender consider complex income streams, such as retained profits in a business and share dividends, when deciding how much you can borrow? Is interest-only available or what about a loan greater than £5m – can the lender accommodate that?

Anderson Harris can do the sums and point you in the right direction when it comes to choosing the lender most suited to your situation. It may be that a private bank proves to be a much better fit than a high-street lender – we have access to many private banks and specialist lenders as well as the mainstream high-street lenders.  If you are asset rich but have limited income and are purchasing or remortgaging a high-value property, and require discreet advice, we can help.

House prices continue to rise, according to Land Registry

It might not be a lot to shout about but house prices continued to rise in February by up to 0.2 per cent compared to January, according to new figures out today from the Land Registry.

This helped offset more negative lending figures from the Council of Mortgage Lenders and British Bankers Association for the same month.

However, before we get too carried away it’s important to realise that the national average masks significant regional differences, with prices falling in parts of the country and London continuing to outstrip the rest. We expect this situation to continue throughout this year.

On the lending front, the picture is increasingly positive with some of the cheapest mortgages ever seen. Lenders continue to cut rates and offer more choice at higher loan-to-values as well, which is steadily boosting the number of first-time buyers.

There was a welcome drop in the number of repossessions in December 2012 compared with the same month a year ago but any repossession is one too many. It is also worrying that the number of repossessions in London actually rose, suggesting that the high cost of living in the capital is proving too much for some homeowners. The fact that this is happening even though interest rates are at historic lows is a real concern. It is vital that lenders continue to show forbearance towards borrowers.

Private bank mortgages: better than the high street?

Yesterday’s Sunday Times took at look at whether wealthy borrowers are turning to high-street lenders for large loans. The article concluded that private banks were being spurned due to strict terms, namely the need to transfer assets under management in order to satisfy the bank’s requirements to build more than simply a lending relationship.

The Sunday Times points out that there are some very cheap rates available on the high street, such as Chelsea Building Society’s two-year fix at 1.74 per cent with £1,825 fee, for those with a 40 per cent deposit. Chelsea will lend up to £5m directly from branches, while Woolwich has also increased its maximum loan size to £2m, up from £1.5m.

My fellow director Adrian Anderson was quoted in the article, saying: ‘Private bank mortgages often have conditions that might not be in the contracts of conventional mortgages.’ This is true of the private banks but it is also true of high-street lenders. If many of those borrowers with regular high-street mortgages were to read the small print they too would be spooked.

For example, Bank of Ireland recently decided to aggressively hike the margins on its base-rate tracker mortgages, despite no movement in the Base Rate. The Bank was able to exploit a loophole in the small print that many borrowers would have been unaware existed.

Private bank mortgages: room to negotiate

While private bank contracts can come with lots of clauses, this is often only a starting point. It is up to the broker to negotiate with the bank on behalf of the client to remove or alter some of the clauses until a point is reached where everyone is happy. It varies considerably from client to client: we recently had a client who was offered a deal with more clauses than usual but he made an informed decision to proceed as the pricing was so good.

Many of the clauses are in place to prevent a new client taking a mortgage and then not making any attempt to develop a relationship. Many private banks feel they have gone too far down the lending route since the financial downturn and are trying to claw back more of a relationship with the client.

So does this mean the high street is now a better option for large mortgages? We’ve said before that it might be but in our experience of large loans, it usually isn’t. This is mainly because wealthy borrowers need certain things that high-street lenders are not good at delivering:

1) Wealthy borrowers often need speed of service – something never guaranteed and often not available via high-street lenders.

2) Wealthy borrowers need a lender who understands their complex income streams – something the high-street lender which doesn’t take into account bonuses, share dividends or retained profits in a business, simply doesn’t.

Interest-only mortgages

3) And wealthy borrowers often need interest-only mortgages – again, something the high street does poorly. For example, Halifax will lend up to £7.5m but does not offer interest-only on larger loans. This is a typical stance on the high street.

We’re not convinced those borrowers requiring large loans are shunning private bank mortgages in favour of high-street lenders. But it is always good to have some healthy competition.

Prime central London: the ultimate investment for overseas buyers

There is a fascinating article in today’s Daily Telegraph which asks whether investing in property in London is the nearest you can get to safe bet. Drawing on research from estate agents Savills, the article examines the fact that the gap between property values in the capital and the rest of the country is wider than ever.

In the past five years, house prices in London have risen by 6 per cent, while elsewhere in the country they have fallen by 11 per cent, according to estate agents Knight Frank. In prime central London boroughs such as Kensington & Chelsea, the price differentials are even greater, with prices rising by 37 per cent in the past five years.

Overseas buyers

The Telegraph suggests that overseas buyers are boosting property values in prime central London, which is something we are seeing a lot of. Many of our clients are from overseas, looking for a safe haven for their money in London. Many of these buyers don’t wish to bring all their money into the country, particularly if they are planning on returning ‘home’ at some point, or only want to own property in the UK for a few years while their offspring are at university.

Private bank mortgages

Many of these overseas clients are prime candidates for private bank mortgages. The private banks are better able to understand overseas borrowers’ particular requirements and are often able to accommodate them when it comes to large mortgages. Walking into the local branch of a high-street lender is unlikely to get you very far.

Some of our overseas clients will utilise offshore trusts in a lower tax jurisdiction such as Guernsey, Jersey, the British Virgin Islands or Gibraltar. An offshore mortgage is a more tax-efficient way of buying property for many overseas clients.

Is Funding for Lending failing?

Figures from the Bank of England show that lending fell by £2.4bn in the fourth quarter of last year, despite the introduction of the Funding for Lending Scheme (FLS), which is supposed to unlock the log-jam in the market. The banks have been roundly criticised for not doing more lending, while the Government has also been slated for not forcing them do more.

The Bank of England did say that it expects credit conditions to improve throughout 2013. Certainly, there is plenty to entice borrowers, with mortgage rates the cheapest we have ever seen. Wealthy borrowers requiring large loans, who are not always catered for by high-street lenders, will also find that private bank mortgages remain extremely competitively priced.

Criteria: an issue for private bank mortgages?

One concern is that high-street lenders’ criteria remain extremely tight, with interest-only, mortgages for older borrowers and those with complex income requirements, extremely difficult to come by. While some high-street lenders have started considering offering large mortgages, they are not as flexible as the private banks.

With private bank mortgages, the private banks take the time to get to understand the client and what he or she is about. As long as the client has a certain wealth, or potential for this level of wealth, the private banks may be happy to consider their case, move quickly and offer pricing that even undercuts some of the best deals available from high-street lenders.

Large loans: why service is crucial

While many articles about mortgages focus heavily on rate, we find that what is often the most important factor to our clients is speed of delivery. Often, clients are in a contract race and need a million-pound plus mortgage quickly. In order to beat the competition, they may need to know within hours whether funding is possible. This sort of answer isn’t really obtainable via the high-street banks; instead, it really is the remit of the private banks.

The FLS has got off to a slowish start but rates are falling and there is some real optimism, which is good to see. Now we need to see lenders follow through and do more lending, as they have said they will. This is particularly true of those lenders who are taking advantage of the cheap borrowing rates available via the scheme.

Large mortgage specialists

If you need advice about large mortgages or private bank mortgages, get in touch. Anderson Harris deals with many private banks and specialist lenders, and can get you an answer quickly.