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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

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