Blog Archives

Essential tips for first-time buyers

22.03.2018

Getting a mortgage can be daunting if you’ve never done it before but the good news is that there are people out there who can help so that you avoid the worst of the pitfalls. Here, Anderson Harris suggests a few key points that you may not have thought about:

  1.  Begin with a conversation with an independent mortgage broker to find out how much you can realistically borrow, before you start your property search. A ‘decision in principle’ from a lender, setting out how much it is prepared to lend you, is a useful tool and will convince agents and vendors that you are serious because you have checked out how much you can borrow beforehand.
  2. Buy for the long term. Buying and selling are expensive so considering properties that you can stay in for slightly longer could save you money. We had a client who bought a one-bed flat a year ago because she was desperate to get on the housing ladder and it was all she could afford. However, now she is pregnant and needs more space but the property hasn’t gone up in value and there are early repayment charges on the mortgage so it’s going to cost a lot for her to move.
  3. Avoid the temptation to overstretch yourself and borrow more than you can really afford. Mortgage rates are low and while lenders stress-test the loan against a higher rate to protect against rate rises, a sharp increase in the rate you’re paying when you’ve already maxed out your borrowing potential would come as a shock when it’s time to remortgage. Borrowers tend to stretch themselves to the limit but that’s not a good idea.
  4. Get to grips with the legal side – understand the limitations of a leasehold and shorter leases, and what they mean. There is a reason why those types of property tend to be cheaper.
  5. Be aware that lenders can be more reluctant to lend on certain properties, such as studio flats. flats above commercial premises, certain construction types, and ex-local authority property. Even if you really like it and you can find a mortgage to buy it, think about how easy it will be to sell on again in the future.
  6. Make sure you have enough of a credit file for banks to see evidence that you are paying your debts in full every month. You may think it’s in your favour not to have a credit card but if you have one, and pay off the balance in full every month, this will better demonstrate to a lender that you are a responsible borrower.’
Jonathan Harris
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Jonathan Harris

What’s in store for mortgages in 2018?

20.12.2017

The mortgage market held up surprisingly well in 2017 with some of the cheapest fixed-rate mortgages ever seen. Even the first rise in base rate in a decade, taking it to 0.5 per cent, didn’t lead to a significant increase in mortgage pricing. First-time buyers were back with a vengeance (albeit many with some help from the Bank of Mum and Dad) as lenders offered high loan-to-value deals at tempting rates, while the Chancellor did his bit with a stamp duty exemption on properties up to £300,000.

But what lies in store for 2018? Firstly, we don’t expect another interest rate rise anytime soon, as the economic recovery remains tentative at best. On the mortgage front, lenders remain keen to lend and we expect those keenly-priced deals to be with us for a while yet.

Much depends on what happens with the Brexit negotiations and this may continue to impact people’s decisions to buy and sell their homes. Independent advice will be crucial, particularly if borrowers believe themselves to be mortgage prisoners, unable to remortgage to another deal. It may be that there is an option available so it is worth checking this out, particularly if you are on your lender’s standard variable rate, and therefore paying over the odds.

Jonathan Harris
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Jonathan Harris

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

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

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

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

Cheap mortgage rates attract first-time buyers and those remortgaging

17.05.2017

The number of first-time buyers and those remortgaging rose in March compared with February and the same period last year, according to figures from the Council of Mortgage Lenders (CML).

As one would expect, March was a better month for the housing market than February as we move into traditionally what is a busier time of year. First-time buyers borrowed £4.9bn, up 29 per cent on February and 9 per cent on March 2016, as the Bank of Mum and Dad continues to step up to the plate, while lenders offer competitive rates at high loan-to-values.

Remortgage activity was up 13 per cent by value and 14 per cent by volume on February as homeowners took advantage of record low mortgage rates. With lenders still keen to lend and overall transaction levels fairly subdued, they will have to continue offering competitive deals in order to drum up business, which is good news for consumers.

As always, meeting lenders’ affordability criteria can be tricky which is where good independent mortgage advice comes in.

Jonathan Harris
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Jonathan Harris

How to buy property with friends

07.11.2016

With property values rising faster than salaries, an increasing number of first-time buyers are teaming up with friends to get on the housing ladder. While it is extremely challenging for a first-time buyer to purchase on their own, two salaries and deposits can go considerably further than one.

The average income multiple required for a first-time buyer is circa seven times, even more in London. With most lenders offering a maximum of four to five times salary, most first-time buyers require a large deposit if they are going to purchase on their own. With two buyers, lenders will take both incomes into account and it may be possible for two people to borrow twice the amount that one person can borrow.

Buying with friends makes sense as you can borrow more while a two-bedroom property won’t usually cost double what a one-bedroom property would cost. Two people sharing a property can also share council tax, utility bills and the cost of furnishing so it is more cost-effective than one person footing the bill on their own.

However, there are downsides to consider. Two single friends may buy together but one might find a partner and want to move on so the other friend has to buy them out or find someone else to buy them out, or will have to sell. If they have to sell it may not be the best time to do so, so they could lose money, particularly once the cost of selling is taken into account and any early repayment charges on the mortgage. On this note, be wary of taking out a long-term fix as the penalties will run for longer: a short-term fix of say two or three years won’t tie you in for too long.

If you are buying with a friend, choose carefully. Discuss your expectations before you buy regarding how long you want to own the property for. Set out some rules; a legal agreement – usually a declaration of trust – is a good idea, particularly if one friend is putting down a larger deposit or making a bigger contribution to the mortgage. This agreement usually includes details as to how the sales proceeds will be split.

 

Adrian Anderson
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Adrian Anderson

Options for first-time buyers

26.08.2016

Research out this week shows that the number of mortgages available to first-time buyers has dwindled. The number of 95 per cent loan-to-value (LTV) mortgages has reduced, according to Moneyfacts, with a 16 per cent drop over the past five months.

Why is this happening? Lenders may be concerned that property prices will fall following Brexit although it seems rather early to be making this call and the lack of supply suggests that even if there is a dip, they will recover over time. However, lenders can get twitchy about high LTV mortgages when there is uncertainty and it may be that they are reining them in for now.

Less choice for first-time buyers is unwelcome and could make it harder to get a mortgage. But it is important not to panic: seek independent advice from a broker such as Anderson Harris to ensure you are getting the right mortgage for your circumstances and make sure you don’t overstretch yourself in the first instance.

Anyone buying now at a high LTV doesn’t need to panic, however. As long as you aren’t paying over the odds for the property, can afford it and are prepared to stay in the property for a few years, even if prices dip and you find yourself in negative equity, prices should recover over time.

Jonathan Harris
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Jonathan Harris

How first-time buyers can get on the housing ladder

22.04.2016

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