Interest rate war in the 'Near Prime' arena

As we enter the final few weeks of the year, a number of lenders have entered into an apparent 'interest rate war' assisting First Time Buyers, Residential mortgages and the Buy to Let sectors.  But this is also happening in the ‘Near Prime’ arena. I’m calling it ‘Near Prime’, but it has many other names including, Credit Repair, Almost Prime, Adverse and so on.  In short, it’s an area of mortgages that cater for those who have had some sort of financial issue in the past.

This is a growing sector and many lenders will now cater for missed mortgage payments in the last 12 months, Defaults, County Court Judgements (CCJs), discharged bankrupts/IVAs and those who are in a debt management plan.

This area of the market took a battering back in 2007 as many lenders who offered these types of mortgages were shut down or mothballed.  Today, the regulatory lending restrictions are more stringent than back then and the new breed (some never really left) have a whole new outlook on the term ‘responsible lending’.  Where there is demand, there will always be supply.

Rates start from the late 1%s and go right up to the early 8%s, depending on individual circumstances. Some lenders will lend up to 90% of the property value in some instances and will cater for both employed and self employed.

Financial issues do adversely affect credit scores (the normal assessment process used by a lender to decide whether to lend or not), and as such, some Near Prime lenders will manually review on a credit search, rather than resort to a credit score.

Of course, a lender will only consider those who have endeavoured to right the financial issues of the past. They will not entertain those who continue to flout good financial management.

Finally, the Near Prime lender is a ‘stepping stone’. Most issues tend to disappear from a credit search after a few years. Therefore, the aim would normally be to cater for current requirements on a short to medium term basis with the longer term outlook being structured to enable the customer to get back onto high street mortgage offerings, as quickly and cost effectively as possible.

Home owning cheaper than renting

Some eye watering statistics from The Money Charity this week.  The Charity has reported that total mortgage lending stood at £1.35 trillion at the end of September.  This is up from £1.275 trillion in 2015.  Averaged over the 11.1m households with a mortgage equates to £118,693 in September.

The average interest rate was 2.74% and according to The Council of Mortgage Lenders, the average for new loans was 2.27%.  They also suggested that the average First Time Buyer deposit was 15% (£28k in July) and the average house price amounted to £184k (August) for first timers.  Yet First Time Buyers borrowed on average just 3.45 times their income! 

There were 40,533 loans approved for house purchase in September, according to the British Bankers Association, similar numbers to a year earlier.  The average loan approved was circa £176k. 

This is interesting as it is a common knowledge that owning a home can be cheaper than renting.  The report goes on to suggest that inclusive of all benefits, private renters spent an average of 43% of their income on rental payments.  In comparison, owner occupiers spent on average 19% of income.

And as we enter the run up to Christmas, it's also useful to note that the average interest rate on credit card lending in September was 18.49%, which is 18.24% above the Bank of England Base Rate of 0.25%!   Remember, doesn't matter which type of credit you use to fund seasonal spends, at some point they all need to be repaid!

And finally, a number of lenders including Platform (Part of Co-op), Virgin Money, Nationwide, Coventry Building Society, Barclays, Halifax and TSB have all changed rates in the last ten days.  The majority with rate cuts and attractive options for new customers including cash back for purchases and free valuation and free legals on remortgages.  There are certainly some fantastic deals available in the current climates.  So if you are thinking of reviewing your mortgage options, now might just be a good time to find that paperwork!

New products and new lender - Vida Homeloans

I start with Kensington Mortgages this week.  The lender has launched a number of new products including options to cater for those looking at investing in Houses of Multiple Occupation (HMOs).  Similar to a normal Buy to Let, bought for investment, capital growth and income potential, yet these products allow for more than one family occupation and each on a separate assured short-hold tenancy agreement (AST).  This can increase the rental yield return achievable for the owner and these products allow for properties with up to six bedrooms.  HMO's normally require a licence from the council and investment will be area specific.  Good for near colleges, universities, commuter facilities etc.  This is an increasing market as more and more people rent a room, over renting a whole house.  Demand for specialist products which require a more individual approach will grow as investors look for ways to derive greater value from their investment.

Kensington have also launched products which allow for property conversions in to multi units, that still remain on one title.  For example, where a house has been converted in to three self contained flats.  Or where a property has a separate annexe etc.

New Lender Vida Homeloans has also expanded their distribution this week to include AToM.  Their products include HMOs, Buy to Let lending in a Limited Company name, Portfolio landlords, ExPats, and Buy to Lets for those with impaired credit, so County Court Judgements, Missed payments, etc.  

The Buy to Let sector generally is becoming very competitive and despite an increasing number of options and new lenders launching in to the market, demand is still increasing.   Whilst first time buyers struggle to get on the property ladder and savings interest rates remain low, many continue to invest long term in to property and there's no immediate reason why this should change.  However, with all of the recent tax changes on Buy to Lets, you should not only seek professional mortgage advice, but tax advice from an accountant who understands property. 

Mortgage approvals on the increase

Following a dip in July and August, mortgage approvals bounced back in September.  According to the Bank of England's Money and Credit statistics, mortgage approvals totalled 118,470 in September with a value of £19.1bn, compared to 113,524 and £17.6bn in August.

The number of approvals for house purchase reached 62,932 with the value at £11.1bn, up from August, but still lower than the six month average of 64,481. Remortgage approvals totalled 42,440, also down on the six month average of 41,882 but also higher than August.

AToM saw a busy October and we don't expect much to change with the run up to the end of 2016.  And of course, with Help to Buy 2 finishing at the end of the year, we do expect to see a slight rush as people with small deposits seek to gain approval on the product before it's withdrawal. 

Nationwide has increased the maximum loan to value (LTV) for customers remortgaging from other lenders on a like for like basis from 85% LTV to 90% LTV.  Rates for the two year remortgage product start from 2.39%.  As always, terms apply….! 

TSB has removed its mortgage application fee, which previously cost £265, from all of its residential and buy to let mortgages.  This lender has also launched new products including a three year fixed rate starting at 1.84% for a 60% LTV.  They also have products right up to 95% LTV.

No doubt we'll see similar from other lenders as they seek to increase volumes pre Christmas.

And finally....New figures from HMRC report that one in four properties bought in the UK in the third quarter of 2016 was a buy to let or a second home.  The introduction of the 3% Stamp Duty surcharge in April has seen figures published for the first time indicating how many properties are bought to rent out.  The data published by HMRC shows that it has collected some £670m in Stamp Duty since the additional 3% charge was introduced.   With First Time Buyers still struggling to get on the ladder, I can't see this changing anytime soon!