Blog Archives

Property prices rise in February, says Nationwide

01.03.2017

The pace of house-price growth picked up in February, according to Nationwide, with property values rising by 4.5 per cent in a year. But while monthly and annual rises were greater than in January, Nationwide believes that prices will not soar this year.

February was a busy month for the mortgage market as we saw an uptick in new enquiries from buyers keen to get on with the business of moving. Article 50 will come whether we like it or not and buyers and sellers who need to move are mostly carrying on regardless, assuming they can find a property to move to.

While Nationwide reported that the proportion of cash buyers is higher than it was a decade ago, the vast majority of people still need a mortgage and are taking advantage of the fact that rates are so low. What’s more, lenders seem keen to lend and that competition should lead to the continuation of cheap rates through the spring.

Jonathan Harris
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Jonathan Harris

How to protect yourself when buying a home with a partner

21.02.2017

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

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

Will your mortgage be paid if you die?

14.10.2016

Death may not be a particularly uplifting subject but the devastation it can cause from a financial point of view means it must be addressed. Many joint mortgages are built on the income of one applicant so ensuring that debt is repaid in the event of that person passing and the home can be kept rather than sold to pay back the mortgage, is vital.

It is also worth purchasing life cover for a spouse who doesn’t work because if they were to die, and leave young children who need looking after, the ability of the surviving spouse to work the same hours and generate the same level of income may be compromised.

When deciding what protection you need, life cover really should be at the top of the list. It is relatively inexpensive but provides an incredible amount of peace of mind. As you might imagine, life cover goes well alongside a mortgage and particularly if you are taking out a high-value home loan, it is essential.

At Anderson Harris we are well versed in putting life policies in place, accessing the best insurers in the market. Even clients who already have life cover can benefit from a health check as premium costs have fallen significantly in recent years as average life expectancy has increased.

For example, one client took out £1.2m of life cover five years ago at the age of 42. It was a 33-year level term policy with a monthly premium of £164. He asked us to find something better – we were able to negotiate a new policy with the same level of cover but a reduced monthly premium of £121. That equates to a saving of £43 a month or £14,448 over the course of the 28-year policy. There was no cost to the client and minimal paperwork, with the new policy in place within two weeks of the case being presented to the insurer.

Many of our clients may think they don’t need life cover because they have death-in-service benefit, usually to the tune of four times their basic salary, which pays out a lump sum if they die while employed by the firm. But with many of our clients receiving bonus income as well as borrowing high multiples, these policies are often inadequate and were never designed to cover mortgage debt in the first place so a specific life cover policy is strongly advised.

Please get in touch for more information.

Adrian Anderson
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Adrian Anderson

Three things every first-time buyer should know

14.09.2016

Buying your first home is an exciting time but it can also be daunting. Below we offer three top tips to get you started:

  1. Start monitoring and cutting back on your spending 3-6 months in advance of applying for a mortgage. Keep your bank account operating in credit or within its limit and stop high levels of discretionary spending. Also, let go of any regular committed expenditure, such as the gym membership that you don’t use. Lenders will scrutinise your bank statements to assess conduct and spending patterns to establish affordability so present yourself in the best possible way.
  2. Start thinking about the sort of property you want to buy and set yourself a realistic budget and stick to it. Consider the re-sale of the property‎. It’s your first property and your circumstances are likely to change over time, so being able to sell this property without too much difficulty will help move you on to your next move/purchase.
  3. Be prepared to take the advice of the professionals you engage with in the buying process, such as an independent mortgage broker like Anderson Harris, and don’t always go for the cheapest option. In life, you often end up getting what you pay for and if you go for a cheap solicitor, for example, you may find they are inundated with work and can’t deal with your purchase in a timely fashion.
Jonathan Harris
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Jonathan Harris

Things to remember when applying for a mortgage

08.09.2016

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

Post Brexit: no need to panic when it comes to your mortgage

27.06.2016

There is no better time to get a mortgage than now as nobody knows for sure what is going to happen to rates in coming weeks or months. What we do know is that fixes and trackers are currently at all-time lows.

We also know that the private banks we have spoken to all confirm that their appetite, pricing and lending policy is exactly the same as it was before the outcome was known and they don’t expect that to change over coming weeks or even months.

Those borrowers who want security may wish to opt for a fixed rate as this will give certainty for at least a couple of years which will see us through some of these unchartered waters. Two-year fixed rates are pegged from an incredibly low 0.99 per cent for two years while five-year fixed-rate deals start at 1.99 per cent.

Those who can afford to be wrong – that is if rates rise they could still afford to pay their mortgage – may wish to opt for a base-rate tracker, perhaps with no early repayment charges so they could switch to a fix were interest rates to start rising. Rates start from 0.89 per cent above bank base rate, giving a pay rate of 1.39 per cent.

Adrian Anderson
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Adrian Anderson

Watch out for mortgage gimmicks

20.06.2016

Buying a home is expensive, which is why Halifax is offering first-time buyers and home movers a £500 gift card for Currys PC World when they apply for a mortgage. The idea is that this perk will ease the financial pressure on buyers as they furnish their new homes.

Perks and freebies may be tempting, particularly if you are buying a home on a budget, but when you are making a decision as important as which mortgage to go for you need to look beyond such gimmicks. Look at the overall cost of the mortgage over time to compare like with like and see how much the perk is actually costing you. It may work out cheaper in the long run to opt for a mortgage with a cheaper rate and no perks, for example.

For example, if you borrowed £250,000 to buy a £500,000 property, then Halifax offers a two-year fix pegged at 1.74 per cent with £999 fee, £465 valuation fee and £2,000 cash back. This costs £24,534 over the two years. The next best-priced deal is Nationwide’s two-year fix pegged at 1.59 per cent with the same £999 fee, a free valuation and £500 cash back. This costs a total of £24,770 over the two years, so the Halifax deal is cheaper.

However, if the mortgage is bigger, then the cost over two years changes. If you are borrowing £400,000 on a value of £800,000, for example, then the Nationwide deal costs £39,320 over two years and is cheaper than the Halifax deal with a total cost of £39,493.

If you are struggling with the sums, a broker can help.

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

The Mortgage Credit Directive – should borrowers be worried?

12.02.2016

The Mortgage Credit Directive will be implemented in the UK on 21 March but is it something consumers need to be worried about? Not necessarily but it is something consumers need to be aware of as there are some quirks that could catch people out when they are applying for a mortgage.

Borrowers are only just coming to grips with more stringent criteria as a result of the Mortgage Market Review so further hoops to jump through will be unwelcome. Getting a mortgage may become more tricky but will not necessarily be impossible and it’s more important than ever to seek independent advice from an independent mortgage broker such as Anderson Harris.

Under the new rules, accidental landlords, who rent out a property they used to live in, will be classed as a consumer buy-to-let customer and will have to go through similar application and affordability tests as with a residential mortgage. Unlike professional landlords who operate a buy-to-let portfolio as a business, accidental landlords are considered to need consumer protection. There has been a surge in people taking out let-to-buy mortgages ahead of the implementation of the MCD to avoid this tougher criteria. This coming on the back of the hike in stamp duty for landlords from April, the reduction in mortgage interest tax relief and the abolition of wear and tear allowance, is a further blow to the sector.

A significant number of lenders have said they will not offer foreign currency mortgages after the introduction of the MCD because it is a niche area and the cost of changing their systems and procedures to deal with the new regulations would not be cost-effective. There will be less choice for those requiring foreign currency mortgages but several lenders will continue to offer them so there will still be some options.

The second charge market is also being brought into line with residential mainstream mortgages, which is good news as it may be a better choice for the borrower than remortgaging.

Most lenders are already MCD-compliant so borrowers shouldn’t notice a considerable change post-March. However, anyone seeking a mortgage should take independent advice to guide them through the new rules and regulations.

Adrian Anderson
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Adrian Anderson