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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It’s true that some providers have withdrawn their higher loan to value (LTV) mortgage products.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 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

Keeping one eye on a 2015 interest rate rise

It is now six years since emergency measures were put in place to protect the global financial markets from imploding when the banking crisis spiked in 2008. To stave off a liquidity disaster, many global policy makers decided to cut interest rates to record low levels.

At that juncture most experts, commentators and the investment community assumed this would be a short term effort; an emergency measure, maybe lasting months, if not months then just a year or two. Virtually no one could see interest rates remaining so low for so long.

We have been waiting for a reversion to the mean ever since; surely, normal interest rates have to come back into play at some point. However, this begs many questions: what is a normal rate of interest? Are we still, in effect, in the aftermath of the banking crisis, with limited, real corrections to market conditions yet to come? Aren’t governments still as indebted (if not more?) than they were in 2008? Is a secondary banking crisis, or crash, a possibility?

Put another way, have those “temporary” emergency measures done nothing more than put some difficult decisions out into the long grass? And was the 2008 crisis actually a multi-year one, which could drag for years to come from here?

There is a simple premise here to consider… maybe nobody knows the answers! In the past few weeks, oil prices have tumbled; falling at the time of writing to around $80. Just a few weeks ago, the consensus of the major oil analysts was that the short term outlook for oil was in the range of $100-$110. Even those people whose job it is to sit behind a desk and study the fundamentals couldn’t see the fall that has taken place.

Markets and market prices are notoriously unpredictable and are virtually uncontrollable (over time). Interest rates are no exception. Central bankers and governments cannot ultimately control interest rates; they can and do control them to a point and most certainly for a time but as John Major found out in the early 1990s, if markets dictate then governments can get caught out. This lesson is found time and time again in the history of markets.

Market conditions have been perfect for central bankers to maintain low base rates; most notably the lack of any inflationary pressure has taken away the one economic condition that would force interest rates higher.

As we enter 2015 there is little doubt that the consensus is to stick with low interest rates and to try and maintain the wider UK economic recovery, which seems fragile at best. It is likely therefore that we will see more of the same for some time to come. But watch out for any sign that inflation is starting to take hold; as any sailor will tell you, a storm can appear more quickly than you can move your boat and so it is with inflation – it can rise from seemingly nowhere. Any signs that inflation may be rising would suggest that policymakers would have no option but to start increasing rates and this could happen far quicker than anyone may realise.

The message here? Make sure your financial planning is structured to cater for the unexpected.

 

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