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First-time buyers call on Bank of Mum and Dad more than ever


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

Bank of Mum and Dad becomes ninth biggest ‘lender’


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

Offset mortgages make sense in low interest rate environment


With savings rates pitifully low – a situation unlikely to change anytime soon – an offset mortgage makes a lot of sense. An offset allows borrowers to link their savings and sometimes their current account to their mortgage so that instead of earning a negligible rate of interest on their savings, they pay a lower mortgage rate.

Offset mortgages make up a small proportion of all loans because many people haven’t heard of them or don’t understand them. But if you are self-employed or a contractor they are particularly useful because of the flexibility and tax advantages on offer, while any borrower with a sizeable amount of savings on deposit should be able to reduce the interest they pay on their mortgage.

The big advantage of an offset is that they enable borrowers to retain access to savings while also reducing their mortgage term or monthly repayments. So if you have a £500,000 mortgage and £100,000 in savings, you pay interest on the difference – in this case, £400,000.

The benefits of overpaying on your mortgage – paying less interest in the long run and clearing the balance early – are well documented. But an offset is a more flexible way of doing this because you can access your savings at any time whereas money overpaid is often tricky, if not impossible, to access again.

Rates can be higher on offsets than on conventional mortgages but if you have significant savings or will benefit from the added flexibility, it could still be worth it. Offset mortgage rates start from 1.49 per cent fixed for two years, compared with the non-offset equivalent of 1.17 per cent from the same lender, so there is not much in it.

Please get in touch for more information.

Adrian Anderson
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Adrian Anderson

How to protect yourself when buying a home with a partner


With such a gap between property prices and income it is highly likely that most people will end up buying their first home with someone else – whether it is a partner, friend, parent or sibling. Two incomes and two deposits will mean your money goes a lot further.

However, there are issues to bear in mind when buying property with somebody else. In terms of the mortgage itself, all the typical issues around affordability and meeting the lender’s stress testing still apply. Lenders will look in great detail at each applicant’s income and expenditure, especially fixed outgoings such as personal loans and credit cards. It makes sense for those buying to ensure their finances are in good order before making a mortgage application.

The other issue is that with a joint mortgage the liability for each borrower is joint and several. This means that the lender can pursue each applicant individually and jointly if the mortgage falls into default so if your buying partner doesn’t pay their bit, you are also responsible for it. This element, combined with the affordability issues, means that if a couple split up or a friend wants to go their own way, the lender will need convincing that the remaining borrower can afford the mortgage before the other party is relieved of their obligation. There will also be considerations of buying the other party out and the potential need to release equity to do this. There are plenty of potential pitfalls so applicants need to consider these before committing and seek independent mortgage advice.

Jonathan Harris
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Jonathan Harris

Things to remember when applying for a mortgage


This week, many people are returning from holiday and the children are going back to school. It is also time to tackle that ‘to do’ list, which may mean looking at your finances. Given that your mortgage is likely to be your biggest outgoing, it makes sense to check that you aren’t paying more than you need to. Or if you are thinking of buying a property, it pays to be aware of the information lenders are looking for.

What every borrower needs to remember now is that while mortgage rates are the lowest they have ever been, criteria is also the strictest we have ever seen.

The cost of a mortgage compares very favourably with the cost of renting, leading many would-be borrowers to expect to easily qualify for a mortgage when there is no difference between the monthly cost compared with the rent they pay. But banks are stress testing affordability at much higher rates than the actual pay rate to ensure you can still afford the mortgage when rates rise.

The same is true of remortgaging: just because a bank lent you £500,000 three years ago does not mean that the same bank or another bank will lend the same amount today. Criteria are much stricter now.

Things you need to know…

–          Your credit score is crucial. Carry out an Experian or Equifax check before applying for a mortgage to check it is correct. The main purpose of the credit check is to ensure everything is in order as this is a very important part of the application with any lender. The better the credit check, the more mortgage options will be available to you.

–   Think carefully as to how you can evidence your income. If you are self-employed, do you have three years of accounts or three years SA302 (Tax return summary pages)? Some lenders will lend based on less information but it is tougher and you will need to speak to an independent mortgage broker to find out which lenders are more flexible.

–          There has been a shift from old-fashioned salary multiples with lenders now working off an affordability model instead. A lender will assess your last three months’ bank statements with a fine toothcomb so check your contractual and discretionary outgoings.

–          What level of deposit do you have or equity in your current property? The lower the loan to valuation the better the rate you can get. If you have savings earning little or nothing in interest and are just a few hundred pounds off a lower valuation band, it may be worth putting those in to access a better rate. For example, 60 per cent LTV or 75 per cent LTV.

–          You may be able to afford the mortgage now in this low interest environment but can you afford it if rates increase? A mortgage is a long-term commitment.

–          Speak to an independent mortgage broker who should be able to search the mortgage market for the most competitive terms based on your requirements/circumstances.

–          How old are you and how do you intend to pay off the mortgage?  Some lenders will lend more to a 40 year old than a 50-year-old on the same salary as the 40-year-old has more time to pay the mortgage off by retirement age. Again, some lenders are more flexible on this than others so seek advice.

–          The bank will be taking security over the property asset. Is there anything about the property a lender may not like? Ex local authority, subsidence, is the property above a commercial premises?

–          If you are purchasing a new property do you have enough monies for all the associated costs?  I.e valuation, solicitor costs including disbursement and stamp duty etc and then money to furnish the property?

Adrian Anderson
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Adrian Anderson

How first-time buyers can get on the housing ladder


Property prices continue to rise in much of the country, and with salaries failing to keep pace, it is tricky for first-time buyers to get the deposit they need to get on the housing ladder. The Bank of Mum and Dad is increasingly being called upon to help, with lenders becoming more creative when it comes to parents assisting their children.

Most of the first-time buyer mortgages we arrange have been for those with large gifted cash deposits from their parents. The advantage of a big deposit is that you can also access much cheaper mortgage rates. In the past, if the child’s income was not enough to obtain a big-enough mortgage, then parents would also act as guarantors but lenders are no longer keen on such deals.

One option is for parents to be party to the mortgage and property deeds. However, the downside is that the parents will also usually have their own main residence so may be subject to capital gains tax on the sale of the property in the future. The extra 3 per cent stamp duty on second homes from April may also be charged as the child’s property could be classed as a second home for the parents, even though it is unlikely that the parents will actually occupy the property.

A better option may be Barclays’ Family Affordability Plan, which is a joint borrower/sole proprietor mortgage. Parents are not party to the property deeds but are liable for the mortgage, along with the child. This gets around any extra stamp duty or CGT and as long as the child can prove to Barclays that they can afford the mortgage in their own right at a later date, the parents can be released from their obligations.

Another option, also from Barclays, is the Family Springboard mortgage. The borrower takes out the mortgage, while family members open a Helpful Start account into which they put 10 per cent of the property price. The borrower needs only a 5 per cent deposit and gets a 95 per cent loan-to-value mortgage for the rest but at a lower rate than they would otherwise have done. After three years, the Helpful Start account is closed and the family members get their money back, plus interest.

If parents have equity in their home they can still use this to assist their child without remortgaging to do so. The National Counties building society’s Family Mortgage will take wider family assets into account as security so that a child with only a 5 per cent deposit, for example, can benefit from a better mortgage rate than they would otherwise have done. For example, they buyer may be able to get a three-year fix at 3.34 per cent or five-year fix at 3.64 per cent – lower rates than would normally be the case for someone requiring 95 per cent LTV – if the lender takes a charge on a portion of the parent’s home.

Adrian Anderson
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Adrian Anderson

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?

Jonathan Harris
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Jonathan Harris

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.

Jonathan Harris
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Jonathan Harris

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 for more details and to find out whether this is right for you.

Adrian Anderson
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Adrian Anderson

Why Clegg’s pension pronouncement is wrong for property


We try and steer clear of politics in this Blog as it’s supposed to be about mortgage lending and all matters related. But on occasion, politicians have been known to suggest daft things that, if implemented, would have an impact on the housing market. Nick Clegg’s recent pronouncement suggesting that parents and grandparents should be dipping into their pension pots to help their children or grandchildren onto the housing ladder is a very good example of this.

There is very little detail, surprise surprise, so it is not easy to dissect exactly what is being proposed. As we understand it, Clegg is suggesting that some of the tax-free lump sum – equal to 25 per cent of the pension pot – the parent expects to take on retirement could be used as a guarantee to help a family member get a mortgage. The Lib Dems expect that only those with £40,000 or more in savings would be likely to take part. If we use a £40,000 pot as an example, that would equate to a lump sum of £10,000, so we are not talking about a great deal of money.

While £10,000 towards a deposit would no doubt be useful, what of the pensioner who is parting with a significant proportion of their retirement income? £40,000 doesn’t buy much of a pension as it is. Clegg is suggesting that even those pensioners who are not wealthy could dip into their retirement income to help out their offspring. Yet not that long ago the government was telling us that we need to save more for retirement, which is the idea behind auto-enrolment in pension schemes. Now it is being suggested that the money we do save could be used to prop up the property market.

It is all a bit confused, particularly as it is already possible to take the lump sum from the age of 55 so highly likely that many parents and grandparents are already contributing some of this towards their child or grandchild’s deposit fund.

Many people already see property as a pension, whether it’s their own home, a second or holiday home they let out, or a buy-to-let. To muddy the waters by suggesting that money saved in a pension should also be ploughed into property runs the risk of making that classic investment mistake: putting all your eggs into one basket.

More needs to be done for first-time buyers. Parents are already using savings and equity in their own homes to help with deposits. Dipping into pension pots as well? That could create a whole other host of problems.

Jonathan Harris
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Jonathan Harris