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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.

Make 2013 the year you get on top of your mortgage

The beginning of a new year, when not much is going on, is a good time for taking a long, hard, critical look at your finances and the biggest outgoing of them all – the mortgage. This is particularly important this year when finances are likely to be a little tight.

First, consider your existing deal. If you are on a fixed-rate mortgage or base-rate tracker, and would incur an early redemption charge for switching to another deal, it may be worth staying put for now. Make a note when your current deal ends – if it is at some point during this year, you will need to take action. Diarise it; about six months before that date, book at an appointment to see an independent finance specialist such as Anderson Harris, to talk through your options. New deals can be secured up to six months before you actually take them out, depending on the lender, so leave plenty of time to find a new one.

If you are on your lender’s standard variable rate (SVR), you need to decide whether to stay put or remortgage. Much depends on the SVR you are paying, your income and how much equity you have in your home. If you are paying more than 3.5 per cent, and have at least 25 per cent equity in your home, you should find a cheaper fix or tracker, so should consider remortgaging. Your lender’s SVR will not get any cheaper: indeed, it will only rise when base rate starts to increase and may do so quickly.

Those who are on really cheap SVRs or ‘go to’ trackers, may want to stay put for now. If you do, it makes sense to use money ‘saved’ each month to reduce your mortgage further.

If you require interest only, have complicated income streams, or are an ‘older’ borrower, seek independent advice. You might find it tricky to source a mortgage on your own but we might be able to help, particularly if you qualify for finance from a private bank.

The important thing is to take action – even if it is only to reaffirm that you are on the right deal for your circumstances at the present time. There is no room for complacency: while forecasters can’t agree when interest rates will rise, they will at some point. The smart borrower will take advice if they are unsure and take time to prepare for whatever 2013 may have in store.

3.09% five-year fixed rate as mortgage sales hot up

Another day, another mortgage sale. From today, one mortgage lender is launching a 10-day sale with six products on offer.

Highlights include a five-year fix pegged at 3.09 per cent for those with a 30 per cent deposit. There is a £995 product fee. The maximum loan size is a very attractive £1.5m.

However, these deals won’t be around for long – applications must be received by 8pm on 6 December so borrowers have just 10 days.

Speak to us on 020 7495 6633 or enquiries@andersonharris.co.uk for more details and to find out whether this is right for you.

The interest-only mortgage – in danger of becoming a niche product?

With the Financial Services Authority set to publish its Mortgage Market Review this week, it is likely that banks will be forced to impose tighter controls on interest-only mortgages.

Yet, interest only is already 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 as lenders have radically tightened their criteria.

It means the majority of borrowers who borrowed on an interest-only basis, would probably no longer qualify. Most high-street banks would prefer not to offer interest-only terms, regarding it as too risky.

The place to go for interest only is the private banks, which makes it a niche product. While the private banks have various terms and conditions they all have one thing in common – they deal with wealthy clients. If you aren’t wealthy or on track to become wealthy at some point, you won’t qualify so in that sense they are niche.

Their reviewable five-year facilities mean a client’s interest-only strategy is revisited on a fairly regular basis so if it’s not on track, an element of amortization can be introduced. While this works well on a small scale, it would be tricky to introduce this level of scrutiny on a mass-market basis.

But maybe interest only should be niche. Critics argue that it is higher risk than a repayment mortgage because there is no ‘guarantee’ that the loan will be paid back at the end of the term. But if a client has a considered repayment strategy in place that they can comfortably meet, is it really any riskier? If the client 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.

Signs that Funding for Lending working as lenders cut rates

Good news for borrowers everywhere – even those on higher loan-to-values (LTVs) – as several lenders have cut their mortgage rates this week, and others look set to follow suit. Swap rates – the rate lenders pay to borrow from each other – continue to fall to new lows as the Funding for Lending scheme starts to have an impact, with lenders able to borrow at rock-bottom rates.

Accord launched a ten-day sale earlier this week, including a five-year fix pegged at just 3.29 per cent for those with a 30 per cent deposit. HSBC has reduced its two, five and seven-year fixes by up to 20 basis points, while even one of the supermarkets has launched a five-year fix pegged at 3.19 per cent for those with a 40 per cent deposit. Nationwide has cut several fixes and trackers by up to 40bps, while Abbey for Intermediaries is cutting a number of two-year fixes by 10bps. ING Direct may be about to be swallowed up by Barclays but it is also cutting its rates this week on two and five-year fixes by up to 75bps.

The best rates are still available for those with the biggest deposits or similar levels of equity in their homes but the good news is that rates are falling on higher LTVs too, although you should still expect to pay a premium for the lender’s perceived added risk. What is less encouraging is the raising of Santander’s standard variable rate (SVR), which takes effect from this month and means that some borrowers are facing higher mortgage payments. Speak to an independent mortgage broker if you find yourself in this position to check whether you could remortgage to a more competitive deal.

The other ‘losers’ are those requiring interest-only loans with Nationwide no longer offering this option to new customers. However, while other lenders have tightened their interest-only offerings, the private banks remain committed to interest-only lending and nearly all of the deals we place with them are on this basis. Talk to us if you require interest only to find out what options are available to you.

Funding threat to the ‘improve not move’ brigade

The Government hopes that its proposal to relax the planning laws, making it easier to add a conservatory or extension, or do a loft conversion, will boost the economy. Rules on shops and offices expanding will also be relaxed as part of the scheme. But it’s not so much planning that’s the issue – for most people it’s lack of finance to pay for the building work.

It’s all well and good suggesting that the answer to the housing crisis is to extend existing homes but unless you have got the £20,000 upwards to pay for it sitting in your bank account, there could be funding issues.

Lending is tougher than before the downturn so getting your mortgage lender to advance the required funds will not be as easy as in the past. Lenders will look at the overall loan-to-value (LTV) once the extra funding is factored in: higher than 75 per cent, and the lender may well refuse the extra borrowing. So those borrowers with plenty of equity in their homes may be ok, but those who have a high LTV already may struggle.

Those borrowers who are enjoying the cheapest mortgage rates may also find that not only will their lender not lend the extra money at the same preferential rate, but that it insists that all the borrowing is remortgaged onto less attractive terms.

On the commercial side, the potential to develop more easily will be attractive to those who can access the necessary funding. More lenders have moved into this space in the past couple of years, including a number of bridging lenders, so there are increased funding options. We may see more investors taking a punt on a commercial purchase with the idea of developing and extending the building but specialist advice will be crucial to access funding options.

We welcome any move that might boost the economy and bolster the housing market at the same time. But borrowers should seek advice to ensure they are financing any project – whether it’s a residential or commercial deal – in the most cost-effective way.

When private banks get tough, seek advice

We’ve recently seen a steady flow of borrowers approaching us who have been called in by their private bank to review their loan facility. It is no longer a sure thing that their loan will be renewed at the end of the five-year term. Market conditions have changed since they took out these deals and banks wish to improve their capitalisation by boosting their wealth management business. In the most extreme cases, the bank has implied that it wants the loan repaid over 12 months if the new conditions are not met, so the borrower must find a new lender.

Just as private banks have different criteria and strengths, these new conditions vary. Some clients must transfer assets under management (AUM), while others must pay a higher rate of interest or the renewal will be for a much shorter term of, say, one to two years, during which time they would be expected to provide the wealth management aspect. There may be an issue with loan-to-values (LTVs); while prime property values have increased, banks may require borrowers to pay down some of the loan to reduce the LTV to reflect the lender’s tighter criteria, introduced since the downturn. Those borrowers who can’t meet these new requirements face a search for another private bank.

At the height of the mortgage boom, all banks – not just private ones – were more flexible and willing to lend. In 2007-08, private banks opened their doors to clients who would normally have approached high-street lenders for mortgages. But terms and conditions have changed. Some private banks didn’t get the investment business they needed as they moved too far down the transactional route, so now want the relationship to be about more than just lending. This is understandable, as the investment side of the business has always been central to what private banks do, and relationship building is always key.

Private banks are often still the best option for high-net-worth borrowers with complicated income streams, such as bonuses, performance-related pay, retained profits in a business and offshore income, and who require interest-only. Those buying a short-lease property will often also require funding from a private bank.

It is vital to seek advice from an independent mortgage broker, such as Anderson Harris, with a good understanding of the private banks and their requirements, which differ substantially. Details are not published so unless you know what each bank wants, it can be impossible to work out which is most suitable. Hardly any have ‘best buy’ rates: rather, deals are bespoke, depending upon the borrower and their circumstances. Even if the bank has a published mortgage rate, it may be prepared to improve its terms to secure the right sort of client.

Interest rates held and more QE on the way

There were no real surprises today when the Bank of England announced that interest rates would be held at 0.5 per cent for another month and that a further £50 billion of quantitative easing (QE) would also be pumped into the ailing economy over the next four months.

There has been so much QE now (today’s contribution takes the total to a whopping £375bn) that even commentators in the press have had enough writing about it. There is nothing much left to say: the economy is in the doldrums and there are few other options. Some are calling for yet another base rate reduction but the preferred course of action, for the Bank at least, is to print yet more money.

But it’s the same old story on the mortgage front. While interest rates haven’t moved, some lenders are raising their mortgage rates. ING Direct has announced that from August, borrowers on its standard variable rate (SVR) will pay 3.99 per cent interest, up from 3.5 per cent. It could be argued that ING Direct borrowers still have access to one of the cheapest SVRs, even after the increase. But that is small comfort to those borrowers who are going to have to pay more each month.

Advice is more crucial than ever. We’re just past the halfway point in the year so it’s as good a time as any to take a look at your mortgage and see whether you could do better. Is it possible to remortgage? Would you get a lower rate? Call us for a chat; you might just find that there is a cost-effective option available to you.

Falling inflation and funding for lending set to boost mortgage market

With so many negative stories circulating regarding the economy, and in particular the Eurozone, it is encouraging to finally see a couple of positives. Today’s announcement that inflation has fallen to its lowest level for two and a half years shows that consumers have some respite from soaring prices, as well as strengthening the argument for another round of quantitative easing (QE). So far some £325bn of QE has been pumped into the economy.

The Consumer Price Index (CPI) fell to 2.8 per cent in May, down from 3 per cent in April, according to the Office for National Statistics. This is the lowest level seen since November 2009. The fall in petrol prices was behind the surprise drop.

Meanwhile, the Bank of England announced last week that it would offer £80bn to banks to encourage them to lend to individuals and small businesses, and pump a further £100bn of cheap credit into the UK economy over the next few months.

These moves should mean more money is available for mortgages – great news for anyone looking to take out a new loan or remortgage. It is not yet clear whether there will be a significant increase in funding for those with modest deposits or whether lenders will continue to favour those with sizeable down payments. For this money to make a real difference to the mortgage market, lenders will have to do more lending to those with small-ish deposits.

Swap rates – the money market rates lenders pay to borrow from each other – continue to fall, as it looks increasingly likely that interest rates won’t rise for the next few years. Indeed, a rate cut could actually be on the cards, which will again be welcomed by borrowers on variable rates.

On balance, these latest developments are encouraging for borrowers. But, as ever, it is important to seek advice before taking the plunge by speaking to an independent mortgage broker, particularly if you have complicated income streams or an unusual property.

The private banks – and assets under management

The private banks have become more aggressive regarding assets under management (AUM) over the past few months. We are delighted to be quoted in an article in today’s Financial Times talking about this and explaining how we help clients find a solution.

While the changes make it slightly trickier to get finance from a private bank, it is still possible as long as you speak to a broker such as Anderson Harris who understands the private banks and their requirements.

As brokers working at the top end of the market, we know how the private banks perform with regard to AUM. We advise clients as to the best way to meet the bank’s criteria without unnecessary upheaval to their financial affairs. For example, if the client has stocks and shares, these could be moved to the custodianship of the bank so that the client doesn’t have to move out of any investments, and the private bank would charge an annual fee for this.

Contact Anderson Harris on 07875 175429 or email enquiries@andersonharris.co.uk for more details.