That's it for 2016 - Have a great festive break!

Amazingly, this is my last column of the year.  I cannot believe where 2016 has gone.  So much has happened and I've enjoyed writing about it, especially with regards to the mortgage world's good and bad!

2016 has been a funny old year.  Not only have we had the impact of new mortgage rules from the European Credit Directive…..we then decide to leave Europe!   As if that's not enough, the PRA rules restrictions have been hanging over our heads most of the year and will impact the Buy to Let sector from January 2017.  First Time Buyers are still yet to get the true help they need and I think that failing to adjust the Stamp Duty was a missed opportunity in the recent budget review. 

Housing shortages are never far away from the headlines, but actually a lot more people have looked at development and expansion this year.  Looking at old office blocks and converting them in to flats, or changing a large house in to two or three self contained units.  Maximising rental yields and opportunities.

The really positive news is the number of new lenders who have launched this year.  A sign of the times and that funding is a lot easier to achieve compared to recent years.  This has also bought in rate price wars and this can only be a good thing for the end consumer and keeps competition rife.

Despite many pundits saying it will be a flat market next year, I'm upbeat for 2017.  I think it will be a positive year and one we can look at that will offer so many opportunities to those looking in the right places for properties as well as funding.

Finally, a heartfelt thank you for reading my weekly columns.  I've tried to provide an unbiased insight to what happens in the mortgage world (and tried to keep it upbeat!).  But I will now enjoy a couple of weeks without a production deadline to meet!

Thank you to everyone who has instructed AToM to source and arrange their mortgage during the past twelve months. It has been a fantastic year and we have enjoyed substantial growth in volume, averaging over £30m in new applications each month. Also, a good increase in headcount in the AToM team located between our two Horsham offices (soon to be three!).  They are a truly an awesome and knowledgeable team. 

On behalf of all the staff and directors at AToM, we wish you and your families a very Happy Christmas and a Relaxing and Prosperous New Year! 

PRA Rules on the horizon, act now.

If you haven't heard the term 'PRA rules', this is one you might hear a lot more of as we come to the end of the year, especially if you have Buy to Lets.  The reason behind this is that the Prudential Regulation Authority (PRA) work alongside the Financial Conduct Authority (FCA) with regards to the regulation and supervision of Banks, Building Societies, etc.  The PRA’s actions are intended to bring all lenders up to prevailing market standards during a period in which firms’ growth plans could be challenged by the changing economic landscape and the impact of forthcoming tax changes.  The new rules were released in September and come in to play on January 1st 2017.

So, what does this mean?  One specific rule change relates to the way a lender calculates the loan available on a Buy to Let mortgage.  Normally, this is calculated with the monthly rental income needing to achieve 125% of the mortgage payment, at a nominal interest rate, normally circa 5%. 

The new rules instruct the lender to use new underwriting standards, which use a stress interest rate of 5.50%, for the first five years of the loan.  This makes a big difference.

Today we can achieve a calculation of 125% of 3.49%.  Therefore, if we take a £1,000 a month rental payment, this would work out as a loan of £275k. 

On the new rules, some lenders will be calculating 145% of 5.50%, which would work out as a loan of just £150k.  An achievable loan of £125k less! 

With deadlines looming, there is some quite serious competition in the Buy to Let sector to achieve business before the changes and some rates can make a huge difference in the amount of mortgage loan achievable, as demonstrated above.  Terms and conditions obviously apply.

The PRA has clarified that holiday lets, bridging loans, property investment lending and corporate lending are all exempt from the new underwriting standards.

Finally, it doesn't matter whether you an experienced landlord, or this is your first time.  Property ownership can be complicated, as can the calculation of loans achievable.  Explore all the options available to you.  With the recent taxation changes to Buy to Lets, make sure you understand everything at the outset so you don't regret it later!  Always seek professional advice.

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!

The valuation on your property is for the Lender

As part of the mortgage application process, lender's will require a valuation of the property on which the mortgage loan will be secured.  Normally, this is carried out by a surveyor who visits the property and they will value it for mortgage security purposes.  i.e, to make sure the value is suitable for the lender to recover their monies should the owner not pay the mortgage and they have to repossess and sell on.  The surveyor is the eyes of the lender and not usually employed by them.  The surveyor gives a valuation of the property and the lender relies on this in their mortgage calculations and offerings.  These may (or may not) compare with the valuation from the Estate Agent...

As this report is for the lender, they have no obligation to tell you what is in the report, or give you a copy! Therefore you should always consider the benefit of an independent survey on the property you are purchasing to ensure all defects are noted before signing contracts. There are a number of types of survey available, aside from the mortgage valuation, however the main two tend to be:

Homebuyer Report - a standard format set out by RICS (Royal Institution of Chartered Surveyors). This will not focus on every aspect of the property like a building survey will, but will advise on urgent and visible matters needing attention such as damp and subsidence. It may advise if items might have an adverse affect on the value of the property.

A Building Survey - an in-depth survey for all properties: listed buildings: buildings that have had extensive alterations, or of an unusual construction. The surveyor will examine all accessible parts of the property and advise on technical information: the condition relative to age: further special investigations required, and provide extensive information on major or minor defects.

In the height of 2007, many lenders used Automated Valuations Models (computer algorithms) to value the security property, rather than sending round a surveyor.  Fast forward to 2016 and we're seeing some lenders move back to this way of valuing. With AVMs, there is a huge reliance on data and an element of trust as a number of properties are not even viewed and unless the recent extension, or alterations to the property are documented in the data research, these may not be taken in to account, or increase the properties value!  These may also not pick up any issues as a more in-depth survey will, therefore consider paying the extra to get the satisfaction you are purchasing a decent property.

Carpool Karaoke.....for mortgages!

The world has gone Carpool Karaoke crazy!  Celebrity James Corden has had a number of top celebrities, including Adele and Michelle Obama, in his passenger seat to sing along to an array of hits.  In celebration of our 25th anniversary, the AToM team have filmed a rendition of the Madness classic ‘Our House’ and this is available for your viewing pleasure on our Facebook page (www.facebook.com/atommortgages).  Hope you enjoy it, as much as we did filming it!! 

In other news this week, a number of new products have been launched as lenders have a big push to finish the year on a high.

Our good friends at Precise Mortgages have launched a Right to Buy range for those eligible to buy their rented property at a discounted price from their council or housing association.  Allowing up to 100% of the purchase price, this is a great offering from the lender as it also allows an element of credit issues, with some defaults and CCJs accepted (Terms apply).

Investment Properties, Buy to Lets, usually have the mortgage loan available calculated based on the rental generated by the property.  Usually this is calculated at 145% of the mortgage on a nominal rate of 5.25%.   However, new lender, Foundation Homeloans, has launched a 5 year fixed rate at 3.45% and can calculate the loan based on this rate and 125%, if buying in a limited company.  It changes to 145% if in a personal name.

Finally, a number of lenders have reduced rates for customers looking to buy a new build property.  Whether it be a house or flat, lenders will assist assuming it has the right building guarantees and will even consider if the builder has an incentive offer, such as contribution towards deposits or stamp duty.  Some of the new build properties around the area are also eligible for Shared Ownership.  This involves the purchase of a smaller share of the property, whilst renting the remainder.  Normally there is an option to purchase the remaining share at a later date.  Explore all the options available to you. 

Lot's of building work happening!

There is a lot of building work going on locally.  In the main, it is by large property developers/builders, but we are receiving enquiries for those privately looking to build their own dream home or renovate and extend their existing properties.   This can also include knocking down the property and building a new one in the same location.  These are normally called Self Build Mortgages or Development Projects. 

If you are considering these, have a chat with a local architect first to see if your plans are realistic possibilities. They will have a good idea as to what the local Council Planning Officers will accept and of course, what they will reject!  Lenders then may look to lend funds on a stage payment basis. Stage one might be the foundations, stage two might be ground level and so on.  Each stage would require sign off by the buildings inspector, and often the lenders own valuer, then funds would be released.  The lender may not lend the full build amount, so be prepared to put in a reasonable deposit, especially at outset to demonstrate your own commitment.  

For extensions and renovations, it may well depend on the size of the work and what funds are required.  If you are altering the property substantially, rebuilding etc, you will tend to find that only specialist lenders will take these on and in some instances, these may be on a short term basis.

Development Finance and Bridging Finance (now also known as short term lending) is money to be used in the short term to facilitate a financial transaction which has either an urgent or short lifespan and which is primarily geared to a property transaction.  The most regular type of transactions include: a property being purchased at auction: the purchase of a new property whilst the current one is still being sold: acquisition of a property which needs substantial renovation before it is suitable for a traditional mortgage or payment of an unexpected expense whilst more regular finance is being arranged, and so on.

Beware though, these lenders will need certainty on the exit route (how will they get their money back?) and with this type of lending and associated fees, it can be more expensive than a normal mortgage. Therefore it makes sense to exhaust all other channels first!

Too much information online can be confusing!

As rates continue to reduce, competition has moved at a pace on the high street.  Most of these lenders can offer attractive low rates with free valuations and free legal costs on remortgages.  This is great if you fit the lender's mould and meet their requirements.  However, if you don’t meet their requirements or if you fail the lenders credit score, where do you go next?

The easy response is a mortgage broker who not only has access to the high street lenders but the whole of the mortgage market.  

According to recent reports in the mortgage media, circa 72% of all mortgages are now arranged through a mortgage intermediary.  A good mortgage broker will not only have access to and understand the high street offerings, they will also have access to smaller building societies and other lending institutions who can think 'outside the box', manually assess applications and lend when the high street lenders might not.  This can include lending in to retirement/over age 70, lending to the complex self employed, ExPat mortgages, buy to lets, holiday homes, multiple properties on one title and so much more.

With technology taking over the world, and so many transactions taking place over the internet, it might be easy to be attracted to products online.  There is so much information readily available and over 11,000 mortgage products to choose from, but these types of things can get lost in translation.  Therefore seek advice.  Yes, it may cost you a small fee to have someone research the market on your behalf and make recommendations, having assessed your short to long term needs and requirements.  More importantly, it could save you thousands in the long run, over choosing the wrong products yourself. In addition, any professional will probably build a long term relationship with you and contact you at the time your current rate is coming up for renewal to ensure you have the best rate available.  It's good to talk..!

Some great rates available in the Buy to Let sector

At the time of writing, there is some quite serious competition in the Buy to Let sector!  Our good friends at Foundation Homeloans have just launched a 5 year fixed rate, sub 3.50%, with a 2% lender arrangement fee.  This is a really impressive move by the lender.  Not only that, but with Buy to Let properties, the mortgage is usually based on the rental achievable.  Lenders calculations vary but generally working on a rental income of 125% at a ‘stress test’ rate of 5%.  Foundation's product works on 125% of the actual pay rate (if you are purchasing in a Limited Company name).  This makes a huge difference in the amount of mortgage loan achievable.  Maximum loan allowed on this product is 75% of the property value. 

With Buy to Lets, the minimum deposit can be as little as just 15%.  At this level, there are only a few products.  With a 20% deposit, the numb er of products increases substantially, as do the options with a 25% deposit, and so on.   And rates are now so low that there's actually not a huge gap between Buy to Let rates and normal Residential rates, as there used to be. 

As the new taxation changes are implemented, we are seeing a lot more people purchase properties in a Limited Company name.  This sounds complicated, but any good property accountant will be able to advise you at the early stages if this is more beneficial to you, rather than buying in a personal name.   The most important thing is to ensure any property investment versus outlay gives you the best return possible. 

Finally, it doesn't matter whether you an experience landlord, or this is your first time.  Property ownership can be complicated, so explore all the options and shop around.  There are a huge number of lenders available to you and all have competitive edges and good criteria options for the right customer.  Make sure you understand everything at the outset so you don't regret it later! Always seek professional advice.

Great products, but processing delays across the market

Supermarket giant Tesco has launched it's mortgage proposition into the intermediary sector this week.  With some very attractive tracker rates, two and five year fixed rates, I can see Tesco Bank being a popular choice in the coming months and years.  And not one mention of a club card! 

Coventry Building Society has launched a competitive ten year fixed rate mortgage.  Available to those borrowing up to 65% of the property value, rates start from 2.99% (3.6% APR) with a £999 lender completion fee, free valuation and free legal costs on remortgages.  The mortgage is also available as an offset mortgage (which allows you to offset your savings against the mortgage interest amount, terms apply) at a slightly higher 3.19% fixed rate (3.8% APR).  The long term deals are great if you know your plans for the foreseeable future.  Speak to an adviser to find out more.

Despite some of these amazing products being launched and lenders looking to attract new business, we are seeing general processing delays across the market.  Some lenders are not taking appointments for two to three weeks, some are up to ten working days behind on processing, and we have experienced recent telephone calls taking over an hour to receive any kind of response!  These are just on the broker side so heaven knows how customers are faring!

Therefore, to make the process as smooth as possible, make sure you have all details to hand at the outset.  With all new mortgages, a budget planner will be required.  Make sure you know and can advise exactly how much you are spending on your lifestyle.  Especially make sure you know your monthly costs on food, household expenses, travel, pension and saving contributions and other likely costs such as hobbies, going to the gym, lottery direct debits and more.  Every lender will review your ability to afford your new mortgage over coming years so all direct debits and most entries on your bank statements or credit report will need to be advised.  This is so the lender can make a viable stress test on future rate rises and ensure that you will still be able to afford your mortgage at that time.  Yes, maybe there is a little guess work, but do make sure you disclose all monthly expenditure as the lender will normally want to review your bank statements and will see it all anyway!

Smaller lenders launching innovative products

A quick test to start this week!  Have you heard of the Dudley Building Society?  What about the Buckinghamshire, Harpenden, Marsden, National Counties, or Newbury Building Societies?  Not necessarily household names, but not ones to be ignored either.  We are seeing these names and a lot more like them launching innovative products.  Not necessarily looking for huge volumes, but looking to fill gaps in the market and this should be applauded.  

One such example is from our good friends at the Saffron Building Society who have a superb product aimed at First Time Buyers.  The lender is offering a 95% mortgage with no credit scoring, to those who have never owned a property.  Customers will still be credit searched but cases are reviewed on a manual assessment, rather than a computer making the decision.  There is a five year fixed rate option and the arrangement fee is just £495.  This is not just aimed at New Build properties either!  Obviously terms/conditions and other fees may apply, but this kind of innovation is exactly what the mortgage market needs! Others will look at complex deals including guarantor mortgages, shared ownership, mortgages for the self employed, contractors, professionals, all types of Buy to Lets and Self Build projects. What this all demonstrates is that there is a huge appetite to lend.  However, many consumers are turning to the internet as it’s such a superb tool.  But it can also be a disadvantage as so much information, news and in-depth product detail can make it more confusing than planned.  A good ‘old fashioned’ face to face conversation with your local specialist independent mortgage brokerage might be the answer. They will, in most cases, have a relationship with the lenders (even those you’ve never heard of!), understand their requirements and ensure all the correct information is submitted from day one.  Some even have onsite underwriters from the lenders, so can turn things around quickly and especially useful if an urgent valuation is required in a contract race scenario.  There really is no better time to utilise the expertise and staffing levels they can provide for you in what’s becoming an over informed and more recently, highly competitive market place.

Lending to those over 70yrs old is not a new thing for AToM!

Rates continue to tumble as the cost of funds remains low and lenders fight to attract your custom. During the last seven days, we have witnessed Halifax reduce some rates by up to 0.30% and Coventry Building Society reduce some of theirs by 0.20%.  Other lenders have reviewed their criteria.  For example, Kensington Mortgages will now consider 100% of a customers annual bonus when it comes to working out affordability (most lenders will only look at 50% of non guaranteed income).  New  lender, Bluestone Mortgages, have reviewed their criteria and will now accept contract workers who only have three months remaining on their contract (normally six months).  In the main, lenders are making positive changes to increase their market share.  Even if you have something you think is 'out of the ordinary' or 'impossible', do explore your options as there might be a lender out there who will assist.
 This does not exclude age either!  Many think that you cannot have a mortgage over the age of 70.  And, on the high street, this may still remain true in some cases as these lenders generally allow a mortgage term to last until the applicants retirement age.  This used to be 65, officially it's now 67, but the reality is it can be much later.  Most lenders increased their maximum age at the end of mortgage maturity to age 70.  However, we all know that people are working a lot longer now and repayment of such a large amount of money may not be possible in these restrictive conditions.  So the option is to raise further finance to repay the original loan or sell the property.  Thankfully, the first option is less onerous as it used to be.  Many non household named lenders will look at lending to customers to a lot later in life, assuming the customers can prove their continued ability to pay.   This can take the maturity age up to age 80, 85 or even 90 and above.  If the customer has a good and regular amount of income, a high level of equity in the property and can satisfy the lenders affordability requirements, then some lenders will be happy to lend.  Seek specialist advice from someone who offers a range of lenders from the 'whole of market', not just a restricted panel or the high street. 

Increasing number of people look at buying 'projects'

We are seeing an increasing number of people look at buying 'projects'.  Just because a property is run down or even classed as 'uninhabitable', does not mean you cannot get a mortgage on it. Nor if you are intending to purchase a property to let out, but it's currently in an 'un-lettable' condition.  Lenders will cater for these scenarios (dependant on the exact type of works required!).  In the main, the work required needs to be cosmetic - a redecoration, maybe a new kitchen or bathroom.  Many lenders now offer 'refurbishment' loans where the work must be carried out within a period of time after purchasing the property, normally three months.  Others will allow the works to be completed, revalue the property and lend based on the newer property value.  Each lender will work on the valuers comments once they have visited the property and adjust their offerings accordingly.  Just because the high street or your current lender says no, does not mean that it can't be done! As the local area continues to become a 'new homes exhibition', there are a number of lenders also assisting customers with more private projects such as development and self builds.  Normally the customer will purchase a property in need of work, knock it down and rebuild, or extensively renovate their existing home.  Either way, the lender who funded the original purchase will need to be advised and made aware of all works as you will be altering their security! If you plan to build your own house (Self Build), the lender will issue the funds on a stage basis. Normally once the foundations have been laid, property built to eaves level, made watertight and so on.  At each stage a surveyor will review and advise the lender of progress and to release payments.  If the property has increased in value as a result, you will tend to find the lender may lend on the Gross Development Value (the end value). On a full refurbishment, again, the lender will want to know the plans and may lend in stage payments against the end value of the property, depending on the extent of the works involved. The lender will require sight of all planning permissions and estimates of costs involved before lending any funds.   Seek out a local architect to assist you with plans and costs and always make sure you set out your budgets from the outset.

Helping First Time Buyers and Contract Workers

Great to see lenders are seriously looking to assist first time buyers positively.  One example is the Saffron Building Society, who have launched a five year fixed rate under 4%, with only a £495 lender arrangement fee.  Available with just a 5% deposit, this is an attractive product to those looking to get their first property. In addition, the lender will manually assess each application, rather than rely on a computer score based decision. 

Contractors have also been targeted.  For those working on fixed term contracts, who have a minimum of 6 months left on the current contract and a good history, it is possible to get up to 90% of the property value.  In the main, the lenders will work on daily rate, multiplied by five days and forty eight weeks to work out income.  This is then used in the lenders affordability calculations.  Some lenders have no early redemption penalties so the customer can move away at any time.

In our heavily regulated marketplace, lenders main area in making a decision whether to lend, or not, is on your ability to pay the mortgage today, and also in the future.  It's difficult to detail when I have minimal words, but in the main, lenders will stress test all mortgages against a possible rate rise and underwrite the customers based on their ability to pay at the higher rates.  The regulators want lenders to ensure the customer can afford their mortgage for at least the next five years.  So, for example, a shorter term deal may be stress tested at a pay rate of 3% plus 3 percentage points higher than the prevailing rate at origination, so in this case 6%.  Whereas a five year (or longer) deal may be stress tested against the pay rate, which might only be 3% in current climates.  This can make quite a difference when it comes to calculating the affordable loan amount over the first five years of the loan, subject to the lenders terms and conditions.  Longer term fixed rates can also be good for the end consumer as they should get the loan they want, but also the monthly payments remain fixed for the next five or more years.

There are a number of attractive five year deals, some six and also ten year deals currently available.  Potentially great value if you know your plans for the longer term and prefer to fix your monthly payments.

The mortgage market has not closed! Phew!

The good news is that, despite the launch of a huge number of new regulations (Mortgage Credit Directive, MCD), in an already heavily policed mortgage market, we are still trading and lenders are still offering mortgages!  Phew!  Two to three years of preparation has paid off.  I am surprised such a huge change in our world was not covered by the national newspapers.  But then, the last big change in 2014, called MMR (Mortgage Market Review), didn't get picked up until days before launch and not much coverage there after.  Originally, that was to stop the crash of 07/08 happening again.  But the new MCD rulings bring us inline with European regulations.  Don't get me wrong, there are some worthwhile new rules, but preparing for a constant barrage of new rules over the last three to four years has been a large distraction (and extremely costly) and may have hampered the markets ability to innovate and provide mortgage options and help to customers.  Let's hope we will now see an increase in volumes and offerings from the lenders.

Following the budget, not too much to report that we didn't already know.  Yes we say goodbye to the Money Advice service, but I can't say that I'm sorry to see it go.  There's plenty of impartial and independent advice available across all sectors and the money that will be saved can be used better elsewhere.

The new Stamp Duty Land Tax (SDLT) changes are still set to confuse people.  In the main, a 3% additional fee will apply to all second properties or investment properties (Buy to Lets).  But the confusion will be around the 'main residence' definition.  In the pre budget release of the rulings, if you decided to rent out your current property and purchase a new one, this would have inherited the additional surcharge. However a new list of complex rules have been issued and you need to make sure you understand all the rules around the second property STDL so as not to have a 3% surprise fee to pay at a later date..

 

We would be grateful for your assistance in voting AToM as a winner!

Very rarely do I promote AToM in my columns, but this week is an exception!  I wanted to say a huge thank you to everyone who has voted for AToM over the last few weeks in two national consumer magazines.  I'm delighted that AToM have been short listed in the top six, for 'Mortgage Broker of the Year' in the Moneyfacts Awards 2016 and also 'Best Specialist Mortgage Broker' in the What Mortgage Awards 2016.  Two huge accolades for our family run and owned company (now entering it's 25th year!) and great recognition to our hardworking and fabulous  team of staff.  We need further votes though and we would be grateful for your assistance in voting AToM as a winner.  Please visit the websites to find out more.  Thank you in advance.

In other news, next week is a big one for the mortgage industry as new European Directives are embedded into the UK mortgage market. We are without doubt the most heavily regulated market, probably in the world!  Some would say too over regulated, however we have to live with it, take the new rulings on board and try to make it as straight forward as possible for you, the end customer.  There's already plenty of jargon and paperwork when arranging your mortgage.  Whether it be direct with the lender, or via a whole of market mortgage brokerage, you need to make sure you understand everything you are taking on, so don't be afraid to ask. 

Finally, there's been quite a bit of movement on product criteria and innovation over the last week or so with various lenders.  Examples include Leeds Building Society who have launched a ten year fixed rate at just 2.75%.  This product comes with a £1,499 fee and is available to loans up to 65% of the property value.  Whilst Saffron Building Society has launched a 5% deposit product, fixed for five years with the rate slightly under 4%.  With a manual assessment, rather than a credit scoring system, this is an ideal product aimed at First Time Buyers.  Obviously both products have terms and conditions that need to be reviewed, but many lenders like these are looking at ways to gain new customers, as well as increasing their market share!  

  

Close shave with Self Cert....and are you covered?

We almost had the return of "Self Cert" this week!  For those of you long in the tooth, back in 07/08, many lenders offered self cert mortgages, giving customers the ability to obtain a mortgage with absolutely no proof of income or affordability.  The history since then is pretty obvious and we must give credit to the regulator for keeping these mortgages out of the market since.  However, for four days last week, one foreign lender appeared to bypass the UK regulations and offered Self Cert loans once again.  And just as quickly as they arrived, they were gone!  Was this just a test and is this the start of things to come?  Having watched the mortgage market brought to its knees and taking over 8 years to recover, let's hope not.

On a brighter note, NatWest have cut some of their rates, available through brokers, by up to 0.49%.  This covers a number of products across their range of offerings, including to First Time Buyers.  Many lenders have cut rates recently and there's even some murmurings that the Bank of England is also under pressure to cut rates, rather than increase them as the economy looks to be 'running out of steam', according to one recent article.  All of this can only be good news for the new mortgagee and budget planning!

Whilst in the 'planning' frame of mind, have you reviewed your current financial arrangements to ensure sure you are on the best deal available?   Whether you require the security of fixing your payments for an amount of time, or whether you are a bit of a risk taker and might look at a short to a medium term tracker, or a discounted option, right now, all are available at attractive rates in the mortgage market.

Other things to consider - Do you have a Will?  Statistics show that only one in three people currently have a will in place, with the remainder leaving the state to take over and determine how their assets and belongings are distributed, if they die.
Do you have Life Assurance, Mortgage Payment Protection, Accident Sickness and Unemployment cover, Critical Illness Cover, and more? Any of these products might be beneficial to your personal circumstances or needs, especially if you have children, and with competition increasing, these types of products are not as expensive as you may think.

Buying a Buy to Let in a Limited Company Name

It has been an interesting week in the mortgage market with many rate changes and new product launches.

Some of the more noticeable include the launch of products, from our friends at Precise Mortgages, designed to assist those looking to purchase investment properties (Buy to Lets) in a Limited Company name. With the forthcoming removal of tax relief, from April 2017, landlords will only be able to offset mortgage interest at the basic rate of tax at 20%.  This will affect higher rate tax payers, but also basic rate tax payers if they are pushed in to the higher rate bracket, perhaps as a result of their rental income.  As a result, we are seeing more and more customers look at a Ltd Company Special Purpose Vehicles to hold their investment properties and provide  more efficient tax benefits under current legislation.  Obviously, tax advice should be sought as individual circumstances vary!

Sticking within this area, AXIS Bank, a relatively new lender, have lowered their rates by as much as 0.30% for their Ltd Company mortgage offerings. We are seeing more and more lenders launch into this arena and price their products very competitively.

More mainstream lenders, such as Santander, Shawbrook Bank, Coventry Building Society and Barclays have reduced a selection of their Buy to Let rates and some of their Residential rates by up to 0.5%. 

Conversely, with lenders reducing rates and volumes for the New Year on the increase, we are seeing more people being declined.  Not necessarily due to adverse credit, but because their credit score is not as high as they thought, and they don't meet the lenders requirements as a result.

Credit scoring is one of the most widely used means to assess a customers ability to obtain a mortgage.  All credit scores include a credit search – this reviews your financial history, payments to utility suppliers, mobile phones, etc. Almost every financial institution from mobile phone companies to insurance companies will carry out a credit search before offering you their services. This can also be a negative though, as the more credit searches you have, the lower your credit score may be. 

The high street lenders, in the main, use credit scoring.  However, do your homework as many smaller lenders will offer just as attractive rates, but they will manually assess your ability to obtain a mortgage and use a human to assess your credit profile, rather than a computer aided credit score decision making system.  

Buy to Let loans can depend on the valuers rental estimation.

With the new stamp duty changes only just around the corner, I though it prudent to look at some of the areas that are currently affecting the Buy to Let sector.

In the main, and with First Time Buyers struggling to get on to the property ladder, a Buy to Let or investment property is a good way to gain both a monthly income as well as capital growth over the longer term.

But the mortgages assigned to these types of properties tend to be provided by different lenders from the normal residential lenders and not normally household names.

They are also calculated differently.  So a residential mortgage will use your income and expenditure to work out what loan you can afford and the lender available to you.  Whereas with a Buy to Let mortgage, the lender will rely on a valuer confirming what the value of the property is and also what the monthly rentable value the property may achieve.  

Most high street Buy to Let lenders will look at a rental amount achievable of 125% of the monthly mortgage payment at a nominal rate, usually of 5%.   So if a rent of £1,000 a month was paid, this would generate a loan of £192,000.   If the rent was £1,250 a month, a loan of £240,000 is possible.   But what we have seen recently is that lenders are increasing the calculation rate of 5% to 5.5%.   This would mean that for the two examples above, £1,000 rent now only achieves £174,545 and £1,250 per month equates to £218,181.  These make a big difference.  Thankfully, there are still a number of specialist lenders, accessed through a limited number of brokers, who offer much more accommodating calculations, with some as low as 3.5%.  However, I suspect as volumes increase with these lenders that they also will have to increase their calculations to stem business volumes.  Time will tell.

Finally, let's recap on the stamp duty changes:

From April, for Second Properties, or Buy to Let purchases, stamp duty rates will be 3% higher.  This means that we have the following:

• Value of property £40,000 to £125,000 – additional stamp duty surcharge of 3% 
• Up to £250,000 – SDLT increased to 5% 
• Up to £925,000 – SDLT increased to 8%
• Up to £1.5m – SDLT increased to 13% 
• Over £1.5m – SDLT increased to 15%

This will even include when you let our your current property to purchase a new one.  As you become a two property owner, you will pay the extra 3% on the new purchase! 

This can make quite a difference to budgets and overall planning, so if you are looking at the Buy to Let sector, there's still time to beat the tax man!  

No maximum age on some mortgages..

Halifax have recently carried out a survey and found that many customers are now choosing a longer term in which to repay their mortgage.  Some lenders now offer up to a 40 year term.  Of the First Time Buyers that were surveyed by the lender, 26% took a 35 year term.  Taking a longer term allows the monthly payments to be lower as the costs are spread over a longer period.  However, this also means that interest on the mortgage will be payable for longer.

From one end of the scale, to the other!  Over 65’s were given a boost this week as the Dudley Building Society has scrapped their maximum age limit entirely.  Older borrowers have struggled for sometime when it comes to mortgages in to retirement or later life.  With no limits, and human underwriting, rather than a computer decision, this will allow people to apply for mortgages when they don't conform to 'normal' retirement ages.  With most of the high street lenders wanting mortgages repaid by age 65 to 70 in the main, it's good to have lenders who will cater for those  who may not want to be released from their mortgage as yet, especially if they are continuing to work on or their pension and investment income is at the right level.

The year has started with something of a bang in the mortgage arena and we are already seeing lenders vying for business with new rates, terms, conditions and criteria changes designed to attract new customers.  The later life mortgages being just one such innovation!  Others include new Buy to Let products for both private and Limited Company purchases or re-mortgages. One lender will now do a 100% mortgage on a residential property as long as the applicants can manage the full payments themselves and that 20% of the mortgage can be charged against the equity of a parental property. This product has rates in the mid 3% range too.

Whatever your circumstances, it is possible that there is a suitable lender and product opportunity for you.  Maxims will always include ability to pay, credit history, deposit available, type of property and term required and the lenders overall assessment of affordability.

Big month for Divorces and many rates have dropped..

Happy New Year!  I hope it is a successful and enjoyable one for you all.

Over the Christmas period, we have seen a number of rates drop as lenders seek to attract new business. One example is from the nice people at Virgin Money who have reduced rates on their first time buyer products to under 4.30% for a two year fixed rate.  This is aimed at those with just a 5% deposit and includes a £1,500 cash back to help pay the stamp duty costs on a property up to a value of £200k.  Positive thinking. Let's hope others follow suit.

I do think we will see some fierce lender competition in the opening quarter of the year.  Lenders are preparing for new regulations that will hit the market in late March, and with only a small amount of stock currently available to purchase, the remortgage market especially will be singled out as a quick source of business. 

Sadly, with January often proving the biggest month of the year for divorces, re-mortgaging can be a key part of the separation process.  It is a difficult time for all parties, especially when children are involved, but the need to pay the joint mortgage is imperative.  If the payments are not made, you may find it difficult, if not impossible, to obtain a mortgage in sole names.  For the newly single, many lenders will take in to account child maintenance, working tax credits and so on.   Affordability is key and any lender will base their decision to lend around this.

The bank of Mum and Dad, or even Grandma and Grandad, can also be bought in to consideration.  There are various ways in which the older generation are helping their children.  Some are gifting deposits, to help them get onto the property ladder.  With most products, the larger the deposit, the lower the interest rate. Others have agreed to the placement of a collateral charge on the parents or grandparents property.  This gives a lender more security and maybe a better credit risk rational to the deal, than originally might have been the case.

Whichever way, always explore the options and have a conversation with a professional as there may just be an alternative way to do the deal.