Blog Archives

Complicating simplicity or simplifying complexity – when tax affairs get in the way of obtaining a mortgage

13.11.2013

We have all read about the high-profile comedian, or famous MP, or household name, BBC anchor newsreader, who have been cited as having questionable or amoral tax affairs.

But it’s also the next-door neighbour who may be caught out unwittingly, by clever schemes, hatched to save money.

Too many overzealous accountants and tax advisers are hampering the chances of their clients getting a mortgage. Accountants and tax experts, with the sole objective of minimising the amount owed in tax, are offering advice which is likely to be to the detriment of a client getting a mortgage. Take-up of the complex tax-saving schemes mean the professional self-employed, such as surveyors and architects, are having a hard time proving their income, a prerequisite to getting a mortgage in most circumstances.

For example, a client with a healthy income of £300k may be finding it a challenge to get a mortgage because her income is paid via a directors’ loan account and in the form of dividends. The actual PAYE income is a tiny fraction of this, yet this is what the lender will use to assess if a client is mortgageable.

We also see clients who have set up nominee companies to hold their assets, or have bearer shares – where whoever physically holds the certificate, owns the shares. Banks don’t see this as much security at all and this has proven problematic for clients.

Increasingly, we are seeing clients with more and more elaborate tax structures, where they are distancing themselves from their assets, to the point where they can’t actually demonstrate their income anymore, or the assets they own. This is a huge problem when they are trying to obtain a mortgage.

If you ‘hide’ your assets in this way, then you can’t demonstrate your income, unless the bank can track back to your ownership of that asset. The bank then needs guarantees from the asset to support any lending, whereas normally clients would have to provide a personal guarantee.

Saving tax is all very well and legitimate, but there has to be a trade-off between this and being able to demonstrate income, for those who want a mortgage. It goes to show it is worth taking a balanced view of your financial affairs. Even if you can’t see a need for a mortgage now, everyone’s circumstances can change and it may well be more expensive to simplify those complex financial arrangements, which once looked as though they were saving so much money and trouble.

Contact Anderson Harris for further advice and to see whether we can help.

Jonathan Harris
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Jonathan Harris

Why opt for a middleman when arranging property finance?

07.11.2013

With property prices continuing to rise and activity in the housing market flourishing, Anderson Harris is busy working through some very complicated mortgage applications. Many of these deals would not have stood a chance of being considered without the level of knowledge and perseverance that is being applied to them.

Why are we telling you this?

Many of our clients are wealthy but typically short of the time needed to demonstrate that wealth to the point where banks are persuaded to lend to them. So while on the face of it a client’s wealth should convince a lender that they are a good risk, some element of proof is required.

Private bankers are busy and do not always have time to assess new enquiries properly if they are approached directly.  Fortunately the bankers know us well and know that if we introduce a client to them, we have already done our due diligence. If we propose a client to them, it’s because we believe they are the best fit for that client.

We spend a lot of time with clients, really getting to understand their financial position. Clients do not always want to provide documentary evidence of their assets, while for banks this is pretty much a prerequisite. We are able to draw the relevant insight from our client discussions and present this in a manner which is acceptable to the bank. We cut down on time wastage both for the client and the bank. We tease out the salient financial points, so that the banks feel more comfortable.

The value of our broking skills and connections with the private banks are making some tricky-looking applications a possibility and at the same time increasing the success ratio of obtaining a mortgage for our clients, with less hassle.

It is not only the private banks who are worth considering. A number of high-street lenders are producing large loan offerings which may suit the client better. We can advise whether this is the case and direct your application accordingly. Contact us for more information.

Adrian Anderson
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Adrian Anderson

Help to Buy 2 brought forward – but which lenders will get behind it?

01.10.2013

The Government announced at the weekend that the second phase of the Help to Buy scheme will be launched on 7th October, rather than January 2014. This will enable borrowers to buy a new or period home costing up to £600,000 with only a 5 per cent deposit. The Government will offer lenders a mortgage guarantee for 15 per cent of the purchase price.

While there is still some detail which has not been ironed out, such as the cost of the mortgage guarantee to lenders and whether they will get capital relief or not, lenders are equipped to cope with applications and there are many would-be buyers requiring high loan-to-values (LTVs) champing at the bit to participate in the scheme.

Lenders have learnt a lot from the downturn and we are highly unlikely to see a return to reckless lending. Instead, underwriting will be tight because even with a government guarantee in the background the lender is still advancing a very high loan-to-value and will want to see evidence that the borrower can afford the mortgage. A squeaky clean credit history will be a must.

Which lenders will participate in the Help to Buy 2 scheme and what will rates be?

Part of the problem for lenders declaring their intent lies in the number of unknown factors. Even though RBS and Lloyds are committed to the scheme, they have not yet decided how much their products will cost. To participate in the scheme lenders will pay the Government a commercial fee for each mortgage. And if it is unclear what the Government is going to charge for the mortgage guarantee element, it is to be expected lenders can’t decide on their final pricing. It is worth noting there is likely to be differentiated fee pricing for different LTV brackets, reflecting the sliding scale of risk.

Some are predicting the rates are likely to sit between 4.5 and 5 per cent for a two-year fix at 80 per cent LTV. This is roughly 2 per cent more than the current market-leading rate for a two-year fix, however it gives the borrower the chance to get on the housing ladder. Ultimately,  increased competition among lenders should help push mortgage  rates down.

Buyers will need to weigh up the cost benefit of going for the Help to Buy scheme versus alternatives such as rising rental values in some areas. Property finance specialists Anderson Harris can help if you need advice: please get in touch.

Jonathan Harris
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Jonathan Harris

Older borrowers seek mortgage help from property finance specialists

13.09.2013

Anderson Harris are seeing a significant rise in the number of silver borrowers or older borrowers coming to them for property funding. These mature borrowers tend to be mainly in their late sixties or seventies and considered too old by the vast majority of banks. They also don’t have the income requirements needed to qualify for funding, yet they often have a substantial asset i.e. their home, including other investments, such as a significant property portfolio or maybe an art collection, but can’t get a mortgage from their own bank.

There has been plenty written about these mature borrowers downsizing and freeing up cash to buy a smaller property – some are doing this, but many older borrowers are looking to stay where they are and raise money that will give them an income, or time to sell up and downsize (for one client this meant extricating a property held in a trust, before it could be sold).

So the main older borrower options are equity release (expensive and tends to upset the relatives) or a private bank facility. The latter tends to work out more cost-effective, providing a five-year facility in which borrowers can wind down a trust in order to sell a property, or secure a smaller property to move to and give them time to sell without rushing things.

Getting a Private Bank Mortgage – Case Study

A retired client living in a substantial property in Knightsbridge, which is valued at £10m, with no mortgage, but has substantial other assets. This older borrower wished to downsize to a smaller property but needs time (3- 4 years) to make the transition and manage his tax position.  Suddenly he finds the ideal property (£2m purchase price) to retire to but needs to buy immediately as there is fierce competition. This older borrower needs to  borrow £2m quickly, without liquidating any of his existing investments (not tax efficient). His incumbent bank of 45 years will not assist due to age.

Anderson Harris arranges a private bank mortgage within 2 weeks at 2.25 per cent over LIBOR.  Bank takes custody of his pension fund to satisfy their AUM requirement but the client retains the exact same investment structure and manager. The fees for custodianship of the pension fund are the same as his existing administrator.

Mortgages for older borrowers – Best Buys – two-year fixes –correct at 11.9.13

1.89% with £1,499 fee. Up to 60% LTV [maximum age at end of term: 75]

1.94% with £1,845 fee plus £130 processing fee. Up to 65% LTV [all loans must be repaid by age 75 of oldest applicant]

2.14% with £995 fee. Up to 60% LTV [won’t lend beyond retirement age. Maximum age 75]

2.19% with £1,499 fee. Up to 60% LTV [Maximum age at end of mortgage term 75]

2.39% with £199 fee. Up to 65% LTV [for borrowers up to 75]

4.49% with £199 fee. Up to 70% LTV [for borrowers aged 75 to 80]

Source: Anderson Harris (www.andersonharris.co.uk)

For more Mortgage Best Buys

For more Silver Borrower, or Older Borrower Services

Jonathan Harris
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Jonathan Harris