Category: Mortgage

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Is the UK mortgage market still open for business?

You may be wondering what the current situation is with the mortgage market. Have providers stopped lending altogether? Are all new mortgage deals off?  

It’s true that some providers have withdrawn their higher loan to value (LTV) mortgage products.  Nationwide, Santander and Skipton Building Society have recently announced that they’re only going to be offering loans to borrowers with a 75% LTV ratio. So only people who have a 25% deposit or equity in their home will be approved for a mortgage.   

Other lenders, including Barclays, Halifax, Virgin Money and The Family Building Society, have gone even further, reducing the LTV ratio to 60%, while the Coventry Building Society has reduced thiers to 65%.   

As a result, first-time borrowers or those with low equity in their homes won’t be able to proceed with their plans.  

Support for existing customers

Nationwide has stressed the change in policy won’t affect deals in progress. In fact, they say the step has been taken so that they can focus on helping existing members to process ongoing applications.They will still be offering mortgage deals of up to 95% LTV to existing customers.

It’s hoped the changes will be temporary but they were taken to limit new applications so that  providers could concentrate on their existing customers. Many are dealing with thousands of calls from worried borrowers requesting mortgage payment holidays while at the same time coping with staff shortages due to the virus. In addition, as valuers can’t get out to see properties under the current restrictions, it’s not possible for the more complex property purchases to go ahead anyway.  

What’s still possible?            

Despite the difficulties, however, industry experts stress that the mortgage market is very much open for business. Lenders are still working with existing borrowers, advisers are still contacting existing clients to offer support and conveyancers are still communicating with people over whether their housing transaction will complete. Mortgage products are still available, albeit with lower LTVs, and online or automated valuations are still possible for some cases. 

So no one should feel that the mortgage industry is in lockdown. Providers are urging anyone who is concerned to talk to them, whether it’s about taking a mortgage holiday, reducing a payment, remortgaging, doing a product transfer or even starting a mortgage journey. There are many options available, even in the current circumstances.  

Sources
https://www.bbc.co.uk/news/business-52106119

https://www.financialreporter.co.uk/blogs/e-mortgage-market-is-as-far-from-lockdown-as-it-is-possible-to-be.html

How to get your child on the property ladder

It’s a tough environment for first time buyers. Rising house prices and stagnant wage growth have pushed up the average age of buying a first property to 33. What’s more, first time buyers need to borrow 18 times more than those in the 1970s.

Given this context, it’s unsurprising that more and more parents and grandparents are giving their loved ones a helping hand to get on the property ladder. However, because there are several ways of doing this – all with their distinct advantages and disadvantages – it can be hard to find the right way to help out. Here is a breakdown of a few common ways of giving the next generation some extra support:

Gifting a deposit

Gifting a deposit might seem like the most straightforward way of helping your child, but there could be unexpected tax implications. For instance, cash gifts of over £3,000 in one year may be subject to inheritance tax, if you die within seven years of making the gift. 

If you do think gifting a deposit could be a good option, you might want to act sooner rather than later. A cross-party group of MPs is currently proposing an overhaul of the IHT system where all gifts over £30,000 will be subject to a flat 10% tax rate.

Guarantor mortgages

A common alternative to directly gifting cash is to use a guarantor mortgage. These mortgages are sometimes referred to as 100% mortgages because they don’t require the borrower to put down a deposit. Rather, a parent will lock up cash in a savings account with a lender or agree to use their property as collateral if the buyer defaults on repayments.

If you use savings as security, you’d normally need to place either 5% or 10% of the cost of a new property into a savings account with the lender for several years (three or five years are the standard). The interest returned varies from lender to lender, with some not paying any at all.

Joint mortgages

These mortgages allow you to buy a property together with your child. Notably, this option increases your child’s chance of getting a mortgage in the first place as your income will be taken into account. 

However, it can be expensive and risky. As your name will be on the deeds of your child’s home, you’ll need to pay the stamp duty surcharge if you already own a property. What’s more, you’ll be jointly responsible for repayments. 

Sources
https://www.which.co.uk/news/2020/02/from-gifted-deposits-to-guarantor-mortgages-how-to-help-your-child-buy-a-home-in-2020/

What’s a Rio Mortgage?

Sadly, this type of mortgage won’t help you jet off and buy a pad in Rio de Janeiro. It can, however, be a useful option to provide you with more flexibility in later years.      

A RIO mortgage stands for ‘retirement interest-only’. It’s valid for people over 60 who are keen to release some equity from their home. With this type of mortgage, the borrower only makes  monthly interest payments until they die or go into long term care, at which point the lender will get their loan repaid by the house being sold.

It allows the homeowner to remortgage their existing loan under similar terms to their current agreement. So if you’re on a pension income, the fact that you’d only have to repay the interest can make it an attractive proposition. If there’s any value left in the house once the property is sold and the mortgage repaid, that would become part of your estate.

RIO mortgages are relatively new on the market. They came about in March 2018 when the FCA relaxed their rules and separated them from equity release, by re-classifying them as standard mortgages rather than lifetime mortgages. 

The FCA wanted to make ‘affordable borrowing’ more widely available to an older population as long as they had a steady income.Take up of the new mortgage was initially slow but it has been growing in popularity. It’s simpler than equity release, offers an attractive alternative to downsizing and also means the interest isn’t racking up.  

Despite being called RIO or interest-only, some lenders are also offering an option where the borrower can repay part of the capital as well, which means they can leave more of an inheritance to their loved ones. Other providers are offering set repayment dates.

When are RIO mortgages suitable? 

A RIO mortgage can be worth considering if you are reaching the end of a standard interest-only mortgage in retirement and are concerned about how to repay the loan due to a shortfall in your savings. Rather than having to consider a house sale or expensive loan repayments, it offers flexibility and stability.            

This type of mortgage also provides an effective way of managing intergenerational wealth as it can enable you to help younger members of the family buy their first home. In addition, it can act as a means of reducing any inheritance tax burden.   

Points to consider

On the plus side, the monthly repayments on a RIO mortgage are likely to be cheaper than with   alternative repayment mortgages. It also provides a way you can stay in your own home without the worry of repaying the capital sum during your retirement. 

However, you will have to pass an affordability check to show you can afford the interest-only repayments. Bear in mind that it may be difficult to subsequently change mortgage provider or move house. You would also not be protected from short-term dips in the housing market.

It’s important to make a will and let your beneficiaries know about the mortgage so they will be aware of the reduction in the proceeds of your estate on death.

Sources
https://www.ftadviser.com/mortgages/2020/01/06/does-your-client-need-a-retirement-interest-only-mortgage/?page=2

What is a green mortgage, and what can it do for you?

Back in 2017, the UK government published their Clean Growth Strategy, a report that included plans to work with lenders in order to create “green mortgage products,” that are able to “take account of the lower lending risk associated with more efficient properties and the reduced outgoings for customers living in more efficient homes.”

More recently in June 2019, The World Green Building Council Europe launched a new report: ‘Creating an energy-efficient Mortgage for Europe: the supporting role of the green building sector.’ So steps are certainly being made all over the world to introduce green mortgages into the market, but what exactly are they?

Green mortgages in the UK are mortgages that support energy-efficient homes. Barclays launched their first green mortgage back in April 2018, partnering with construction companies all over the UK in offering green mortgages on energy-efficient new builds. The home has to have an energy efficiency rating of 81 or above, or be in energy efficiency bands A or B, to be eligible.

Analysis by the Bank of England in October 2018 found that homeowners living in energy-efficient properties are less likely to be in payment arrears. The study of 1.8 million properties found that around 1.14% of energy-inefficient homes are in mortgage payment arrears, compared with 0.93% of energy-efficient properties, concluding that “energy efficiency of a property is a relevant predictor of mortgage risk.”

In support of these new energy efficient mortgages, providers are offering reduced rates for those looking to purchase property. The premise is simple: those owning energy-efficient homes are less likely to be in arrears, therefore carrying reduced risk to the lender.

These new mortgage options herald a more ethical, mutually beneficial approach to lending that fits within the new swathe of greener policies being enacted by governments around the world. Craig Calder, Director of Mortgages at Barclays, says that: “Green Mortgages need consistent support at the highest levels if they are to become the norm rather than a strand of alternative lending.”

With more and more companies seeking to improve their energy efficiency and their carbon footprint, financial opportunities such as green mortgages may become the norm. However, with such schemes still being relatively new, it seems that only time will tell.

Sources
https://www.mortgageloan.com/environment
https://www.barclays.co.uk/mortgages/green-home-mortgage/
https://bankunderground.co.uk/2018/10/16/insulated-from-risk-the-relationship-between-the-energy-efficiency-of-properties-and-mortgage-defaults/
https://www.worldgbc.org/creating-energy-efficient-mortgage-europe-access-report
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/700496/clean-growth-strategy-correction-april-2018.pdf

financial planning in your forties

It’s well known life begins at forty. Doesn’t it?

It should be an exciting decade, full of plans and aspirations. It’s also likely to be a time of optimum earning potential.

What’s more, it’s a crucial decade to take a step back and make sure your finances are on track to meet your goals.

There’ll be some decisions you’ll already have taken in your twenties or thirties, which will have had an impact. You may have bought your own home, for example, or put some savings away in cash, investments or pensions.

If things don’t look quite as rosy as you’d hoped, though, your forties are a good time to take stock, as there’s still time to make adjustments and give your investments time to grow.

Don’t forget, whatever savings you can make now will enable you to pursue your dreams later on.

Here are four key tips for shrewd financial planning at this important time of life.

Budget ruthlessly

Just because life may feel comfortable with regular pay rises and bonuses don’t fall into the temptation of spending more than you need. Do you really need that Costa coffee or M&S lunch every day?

Apps like Money Dashboard or Moneyhub can be helpful in showing you where your money’s going. Simple steps like cancelling subscriptions or switching bill providers can make a significant difference.

Historic studies show that investments usually outperform cash savings so any disposable income you can invest will be beneficial. If you can put money aside in a pension you’ll also be taking advantage of the tax relief available. Make sure you use your ISA allowance too for more accessible funds.

Carry out a protection audit

Think about what if the unexpected happened. Your forties are a time of life where you may find yourself part of what’s known as ‘the sandwich generation’ i.e. caring for elderly parents at the same time as looking after young children. This can put extra pressure on you. Make sure you’re protected should the worst happen by ensuring you have a good emergency fund in place. Also think about critical illness cover and life insurance.

Property plans

Your home will be a fundamental part of your financial planning at this time of life. If you feel you need a larger property, these are likely to be your peak earning years so now is the time to secure the best mortgage you can and find your dream home. On the other hand, if you’re quite happy where you are, it may be a good time to remortgage to get a better deal.

Family spending

Everyone’s situation is different. You may have children at university or you may still be having to pay for nursery fees. Whatever your position, make sure you budget accordingly and allow for inflation, especially if you’re paying private school fees. Work out the priorities for your family – the best education now or a house deposit in the future. It’s important not to derail your own life savings for the sake of your children as no one will benefit in the long run.

By doing some sound financial planning now, you’ll have more hope of continuing in the style you want to live, well beyond your forties.

Sources
https://www.telegraph.co.uk/money/smart-life-saving-for-the-future/financial-advice-in-your-forties/?utm_campaign=tmgspk_plr_2144_AqvZbbk8gXHK&plr=1&utm_content=2144&utm_source=tmgspk&WT.mc_id=tmgspk_plr_2144_AqvZbbk8gXHK&utm_medi

interest rate rise: what does this mean?

goldfish jumping from small bowl to big bowlThe Bank of England has raised interest rates from 0.5% to 0.75%, only the second rise in a decade. Currently, interest rates stand at their highest since 2009 and reflect what the Bank of England perceive as a general pick-up in the economy.

The Bank said that a rise in household spending has strengthened the British economy. Economic growth for the year is predicted to be 1.4% this year and the unemployment rate is expected to fall further below 4.2%, where it currently stands.

How does the rise affect you?
If you are on a variable rate ‘tracker’ mortgage, your repayments will increase. For example, if you have a £100,000 mortgage, this will add £12 to your monthly repayments.

It’s important to highlight that if you are on a fixed rate mortgage, your payments will stay the same until your base rate comes up for renewal. The Bank of England’s announcement does not mean that your rates immediately rise.

For prospective borrowers, the interest rate rise signals a change in the Bank of England’s tone. Further rate rises are a definite possibility. However, the Bank’s governor took a rather cautious tone which indicates that there are unlikely to be any more rises until 2019.

For the time being, base rates on mortgages are unlikely to rise above 3%. That said, the demand for rate fixes will be higher than usual this year.

Unfortunately for those of you going on holiday, after the announcement the pound fell by 0.9% against the dollar. This is due to the extreme political uncertainty surrounding the sterling with Brexit taking an unchartable track.

Reactions from U.K. businesses have been a mixed bag. The Institute of Directors, which represents about 30,000 members in the U.K., has said, ‘the Bank has jumped the gun’, whilst the British Chamber of Commerce similarly described the decision as ‘ill-judged’ at an uncertain time.

This negative perspective wasn’t unanimous among all lobbying groups. The Confederation of British Industry, the country’s biggest business lobby, welcomed the rise saying the case for higher rates had been building.

A small rise of 0.25% is likely to have a minimal impact on your finances. However, larger hikes down the line could have a substantial effect on the British financial landscape.

Sources
https://www.bloomberg.com/news/articles/2018-08-02/pound-fails-to-shake-off-blues-despite-unanimous-boe-rate-hike
https://www.theguardian.com/business/2018/aug/02/how-will-interest-rate-rise-affect-mortgages-savings-and-property
https://www.bloomberg.com/news/articles/2018-08-02/-mark-carney-what-have-you-done-cry-u-k-business-bodies?utm_source=google&utm_medium=bd&cmpId=google

over 60s are jumping off the property ladder. Here’s why….

In 2007, there were 254,000 older people living in private rented accomodation. According to research by the Centre for Ageing Better, over the last decade that figure has skyrocketed to 414,000. If things continue the way they’re going, they estimate that over a third of those over 60 will be privately renting by 2040.

So why the shift? Renting comes with some clear benefits. Having to pay stamp duty becomes a thing of the past, as does worrying about managing property maintenance. A certain sense of freedom comes with renting too, particularly in terms of location. It’s a great opportunity to finally live on the coastline or in the city centre that you’ve always wanted to, but have not been able to afford to.

For example, one couple had previously owned a retirement flat in Torquay which they subsequently sold for £55,000. They dreamed of moving to Bournemouth, where a modest one bed apartment would have set them back closer to £150,000 and so was out of their reach. They found a home to let on an assured tenancy, allowing them to remain in the property for life for a fee of £775 a month including service charges. Selling to rent has allowed them to liquidate their biggest asset, and free up their capital to spend on travel.

Renting needn’t be forever, and for some people it’s a great opportunity to stop and think about your next move. It can give you time to really look at the options out there if you intend to get back on the housing ladder. Your requirements will change as you grow older and downsizing can be a great idea for some. Before you find the perfect property which will suit your needs going forward, renting gives you the chance to release some capital and decide what to do with it.

It’s worth bearing in mind, though, that by selling up and moving into private rented accommodation, your estate could receive a higher IHT bill. The inheritance tax exemption introduced in 2017 allows parents and grandparents an additional IHT allowance when their children or grandchildren inherit their main home, and so selling your home could remove your eligibility for the exemption.https://www.telegraph.co.uk/property/retirement/renting-retirement-over-60s-jumping-property-ladder/
https://www.telegraph.co.uk/financial-services/retirement-solutions/equity-release-service/should-you-sell-up-and-rent-in-retirement/

Is the bank of mum and dad ‘feeling the pinch’?

The bank of Mum and Dad’ will lend enough money to the next generation of UK homeowners in 2018 to make it the equivalent of a top 10 Mortgage Lender. With £5.7bn expected to be handed over to help family members get a foot on the property ladder this year, you could be excused for thinking that things were on the up. Everything is relative, however, and when compared to 2017’s enormous lending figures of £6.5bn, the numbers tell a different story.

L&G are still expecting more than a quarter of home buyers to be getting financial assistance from relatives, with the amount actually seeing a small increase from 25% to 27%. So with close to 317,000 housing transactions expected to take place with parental help this year, how do we account for the £800m drop in lending?

The short answer is that, due to the current position of the economy as a whole, people are feeling the pinch. Although the sheer volume of individual transactions is increasing, the amount lenders are able to provide is going in the opposite direction. In 2017, the average contribution was £21,600, in 2018 that figure is expected to be down 17% at £18,000.

Interestingly, although unsurprisingly, this is a regional phenomenon, with a higher percentage of buyers in London (41%) receiving help from their relatives.The age of the buyer also affects the likelihood of lending, but by no means is it exclusive to younger buyers. Three in five under-35s are expected to receive help, but so are 20% of those between the ages of 45 and 55.

We’re also seeing a growing trend of parents ‘gifting’ their children money that they would otherwise have received years later through inheritance. Not only does this make the money less likely to be liable to inheritance tax, it also means that the buyer can get on the property ladder earlier and thus avoid future increases in house prices. For many in financially comfortable positions, this may well be an avenue worth considering.

https://www.bbc.co.uk/news/business-44283507
https://www.bbc.co.uk/news/uk-37220688

where did house prices increase and decrease the fastest in the UK in 2017?

Research into the housing market throughout 2017 has revealed the areas of the UK where property prices increased and decreased the most last year. Cheltenham in Gloucestershire was the place where prices grew at the fastest pace, with the average price of £313,150 marking a 13% rise – nearly five times the UK average increase of 2.7%. At the other end of the scale was the Scottish town of Perth, where prices dropped by 5.3% to make the average property price tag £180,687.

The places which saw the biggest growth were in southern England, with Bournemouth and Brighton coming in second and third place with rises of 11.7% and 11.4% respectively. At the other end of the scale, Scotland, Yorkshire and the Humber were the areas where the biggest falls were seen. The second-biggest fall in house prices was seen in Stoke-on-Trent (4%), with Paisley in third position (3.6%).

Fifteen out of the top twenty areas for house price increases are located in London and southern England. This is in spite of the capital overall seeing its average house price fall by 0.5%, thanks to the economy slowing down and consumers continuing to feel the effects following the Brexit vote of 2016.

The outlook for the year ahead offers little reprieve: many in the property sector, including the Royal Institution of Chartered Surveyors, predict that the market in 2018 will, for the most part, remain flat, with some expecting property price growth to slow even further. Whilst this would be good news for those looking to take their first steps onto the property ladder, it’s more worrying news for people hoping to invest in the market.

It’s expected that the story will differ geographically, but property portal Rightmove has also predicted that different property types are likely to grow at different rates. They have forecast prices for homes with two bedrooms or fewer will rise by 3%, whilst three and four bedroom homes will see growth of only 2%.
Sources
http://www.bbc.co.uk/news/business-42539137
http://www.independent.co.uk/news/business/news/uk-house-price-increases-biggest-2017-cheltenham-bournemouth-brighton-london-housing-market-david-a8137366.html
http://www.bbc.co.uk/news/business-42555351

what does the first interest rate rise in ten years mean for you?

After months of speculation, the Bank of England finally raised interest rates in the UK for the first time in over a decade. The increase from 0.25% to 0.5% might seem small, especially when you consider that the last time the interest rate was increased in July 2007 it was up to 5.75%, but the fact that interest rates are going up at all after more than ten years at rock bottom is significant.

The rates rise will have an impact on the finances of millions of people in the UK, with those on variable rate mortgages likely to lose out the most. 46% of households with a mortgage are on either a standard variable or tracker rate, which are likely to move at the same time as the official bank rate.

These mortgages have an average of £89,000 left to pay off, resulting in a monthly payment increase of around £12. Those with higher variable rate mortgages will of course see their outgoings increase by a higher amount: payments on a £300,000 mortgage will go up by about £39 a month. Homeowners with fixed rate mortgages meanwhile can expect their payments to remain the same for some time following the interest rate lift, as can those with loans and credit cards to pay off.

Savers are likely to benefit from the rates increase having seen little growth on their savings for a number of years. On average, an easy-access savings account currently pays interest at 0.14% annually, meaning that £10,000 worth of savings would generate just £14 every year. If providers choose to pass on the rates rise in full, this will add another £25 to earn £39 annually. A typical ISA meanwhile will see the annual growth of £10,000 increase from £30 to £55.

Pensioners who have purchased an annuity can also expect to benefit from the rates rise. Annuities follow the yields on gilts, or long-dated government bonds. In anticipation of a rates rise, these have also increased, meaning those purchasing an annuity for retirement will receive better value for money on their investment. In November 2016, a joint annuity bought for £100,000 would receive an annual income of £4,086. That figure has risen this month to £4,468 and could continue to go up depending on how likely further base rate increases are – something which the Governor of the Bank of England, Mark Carney, has indicated is likely over the next few years.

Sources
http://www.bbc.co.uk/news/business-41846330
http://www.bbc.co.uk/news/business-41831777
http://www.telegraph.co.uk/money/special-reports/will-happen-investments-interest-rates-rise/