Blog Archives

With a potential rate rise on the horizon, what next for borrowers?

27.10.2017

With Britain’s economy growing faster than expected in the third quarter of the year, according to the Office for National Statistics, the likelihood of an interest rate rise at the Bank of England’s meeting next week has increased. But what does this mean for borrowers?

Whether the base rate rises or not is largely academic, as the expectations of higher interest rates have already filtered through to mortgage pricing. Many fixed-rate mortgages have already become more expensive with most lenders increasing the pricing on some, or all, of their product ranges.

However, it is not necessarily as straightforward as that. Challenger lender Metro Bank this week reduced its five-year fixed rate for up to 90 per cent loan-to-value deals by 10 basis points to 2.54 per cent. At the same time, the lender marginally increased pricing on two- and three-year fixes, while five-year fixes at 65 and 70 per cent LTV were withdrawn. It is clear which areas of business the bank is keen to promote.

Another lender, TSB, increased rates by up to 0.2 per cent on seven of its fixed-rate remortgage deals and removed its three-year fixed-rate deal at 90 per cent LTV.

As lenders jockey for position, independent advice is more important than ever. There is no need to panic as the rate increases we have seen so far have been relatively  modest but equally borrowers should not hang around, particularly if they need the security of a fixed rate to help with budgeting.

Adrian Anderson
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Adrian Anderson

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

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

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

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

Options increase for older borrowers

17.03.2017

Lenders are finally waking up to the fact that there are a growing number of older borrowers who need a mortgage well beyond their fifties. Shawbrook Bank is the latest lender to address this market, launching a 55 Plus Interest Only product for borrowers nearing the end of the mortgage term with an outstanding balance. Variable rates are available from 5.25 per cent from five years up to 15 years, while fixed rates are available over three or five years at 5.5 per cent.

There will always be someone who needs this sort of product and increasingly so as people work and live longer. It shows that banks realise that they need to be more innovative with products for older borrowers. There is a gap in product provision for those who have passed 60 but aren’t yet old enough for a significant equity release loan.

The pricing is not the cheapest so it is worth considering what else is on the market for older borrowers. If you have unquestionable long-term ability to service and repay the loan (rental income/trust income/investment income/royalty income/pension income) then Metro Bank does not have a maximum age that the mortgage needs to be paid back by. Other good options are Family Building Society, which lends up to age 90 and has a flexible interest-only policy (sale of property/downsizing). The issue does come, however, when borrowers try to use their earned income in the calculations as underwriters won`t accept that people working at say 70, will be doing the same thing at age 90. Santander will lend up until age 75 on earned income alone. However, the deal has to fit on affordability on a repayment basis over the term so this can be good for borrowers in their 50s but perhaps not beyond.

There has also been a significant improvement in the equity release markets that will benefit this next generation as they advance in years and at pricing not dissimilar  to that being offered by Shawbrook.

Please get in touch to discuss your options with an independent mortgage broker.

Jonathan Harris
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Jonathan Harris

Are buy-to-let’s days numbered?

26.01.2017

Buy-to-let is under siege with the phasing out of mortgage interest tax relief from April, a 3 percentage point surcharge on stamp duty for landlords and changes to affordability requirements.

Even so, it is not all doom and gloom as there are still many lenders keen to lend. While affordability criteria are tougher, mortgage rates are extremely low, helping landlords keep costs down. Some lenders are proving more flexible than others and will allow personal income to support rental income shortfalls, which can be useful for landlords.

While most lenders are adopting a rental stress test based on 145 per cent at a notional rate of 5.5 per cent, there are more bespoke solutions available. For example, one lender will assess rental cover starting at 125 per cent at 4 per cent for those borrowers opting for a five-year fix. Other lenders will allow 125 per cent for basic-rate taxpayers.

It makes a big difference to the amount a landlord can borrow: with a rental stress test of 5 per cent at 125 per cent, you could get a mortgage of £192,000 on a property with a rental income of £12,000 per annum but this would fall to £150,470 if the calculation increases to 5.5 per cent at 145 per cent. It means most landlords will be able to borrow far less than they have been used to, which means they may find it harder to remortgage, particularly if they need to capital raise.

There are options out there if you seek independent advice. With many people still keen to invest in buy-to-let, whether it is in your own name or within a limited company, that advice is more crucial than ever.

Adrian Anderson
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Adrian Anderson

What next for mortgages in 2017?

20.12.2016

As 2016 comes to a close, it is natural for thoughts to turn to next year and what might happen with the housing market. As far as mortgage rates are concerned, it is hard to see much at all happening. With interest rates unlikely to rise anytime soon, I wouldn’t be surprised if they stayed pretty much where they are, give or take the odd fluctuation along the way.

Swap rates, the rate lenders pay to borrow from each other, have risen in the past couple of months but despite this mortgage rates have remained fairly consistent, with some lenders even reducing their five-year fixed rates in particular. This suggests that some lenders are prepared to suffer reduced margins in an effort to attract business. It is likely that this will continue into next year as lenders compete for borrowers so even if Swap rates do fluctuate on the back of bad economic news, lenders will be prepared to make less profit.

With mortgage rates already so low, we don’t expect them to become much cheaper but lenders are likely to continue to offer incentives and other freebies such as no arrangement fee or cash back in order to attract borrowers rather than compete on rate. As always with your mortgage it is vital that you seek independent advice from a mortgage broker to ensure you don’t pay more than absolutely necessary as it is likely to be your biggest outgoing.

Jonathan Harris
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Jonathan Harris

Remortgaging on the rise as lenders cut rates

18.11.2016

There has never been a better time to remortgage with rock-bottom rates to attract borrowers. With lenders vying for business ahead of the year-end and demand for mortgages for house purchase steady but not spectacular, banks and building societies realise there is plenty to be gained by slashing the pricing on remortgage deals.

With plenty of uncertainty following the referendum, it is no surprise that longer-term fixed rates are so popular. With the average five-year fixed rate falling below 3 per cent for the first time according to Moneyfacts, and the best priced deals a lot cheaper than that, borrowers can get security for a decent period of time at an excellent rate.

The real issue for buyers is trying to find a property they wish to buy at a price they are prepared to pay. In the meantime, we are likely to see more people staying put and improving the home they have, remortgaging to release equity and build an extension or go up into the roof or down into the basement.

Jonathan Harris
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Jonathan Harris