30 November 2017

How much can I borrow?

One of the most frequent questions to start a mortgage interview tends to be around ‘How much can I borrow?’.   Only a few years ago, that could easily have been up to 8 x income with the minimal of fuss.  Oh, how things have changed, and rightly so!  Those were times with little control and the lengthy recession bore testament!

Today it is so much more intense!  For example, a lender will require to know your monthly budget spend figures, right down to every direct debit on your bank statements, including council tax, insurances, mobile phones, lottery payments and gym membership!  From these monthly outgoings, the lender will look at affordability and decide from there what mortgage amount might be available to you.  However, on the other side, not only can it be restrictive depending on your monthly outgoings, but it can also be very generous depending on what little outgoings you have!   The lender has a duty to make sure you can afford your mortgage today, as well as when rates rise and specifically to it being considered affordable over a 5 year period.

But this also means that what was once an affordable mortgage may suddenly become unaffordable due to the perception the lender has on consumer spending habits, both historically and projected for the future.  
We have seen the phasing out of income multiples and the introduction of affordability models.   So, no more straight forward 4 or 5 x income discussions.  The amount you can borrow will depend on your monthly net income against expenditure and living costs.  

However, this also works positively for the right loan to value, right affordability and right customer, as lenders are willing to offer a little bit more. 

With the increase in requirements, the time taken in research prior to recommendation for a suitable mortgage product has also increased, as have the lenders own underwriting procedures.  So, beware if you are in a rush!    

Finally, whilst the holiday period is up on us, do take time to dig out that paperwork and come and have a chat.  With rates so low, now might be a good time to be exploring these options and it could be a very beneficial exercise!

23 November 2017

HMOs, Ltd Company Buy to Lets and Credit scoring!

There have been a number of competitive launches this week in the Buy to Let sector.  Especially for those buying a House of Multiple Occupation, or in a limited company name.

The more noticeable includes the launch of new products from our friends at Precise Mortgages, designed to assist those looking to purchase investment properties in a Limited Company name.  With Buy to Lets, the loan tends to be calculated based on the rental income achievable. If the product is not a 5-year fixed rate, then this is required to be at a nominal rate of, circa, 5.5% and with rental required at up to 145% of that figure.  With the Precise product, the lender will use the pay rate of 3.09% to calculate the loan, as it is a fixed rate for five years, and with a 125% rental requirement, depending on individual circumstances.  This makes a huge difference to the loan available, and a fixed rate that low is an attractive deal also.

With the recent reduction in mortgage interest relief, since April 2017, landlords are only able to offset finance costs at the basic rate of tax at 20%.  This affects 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 such, we are seeing more and more customers look at a Ltd Company Special Purpose Vehicle 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, Landbay have launched some attractive Buy to Let tracker rates with no redemption penalties at all.  These products are great for those looking at a short term project, or perhaps where they want to re-mortgage after a short period, possibly following some works to the property, and taking money out of the increased value to reinvest in further properties, and so on.

Conversely, with lenders reducing rates and chasing completion volumes for year end, 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 customer’s ability to obtain a mortgage.  All credit scores include a credit search – this reviews your financial history, payments to utility suppliers, mobile phones, etc.  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.  

16 November 2017

Coming to the end of your interest only mortgage?

According to our good friends at Shawbrook Bank, there are an estimated 600,000 people due to come to maturity on their interest only mortgage by 2020.   Many will probably have no way of repaying their interest only mortgage.  Some will have endowments that didn’t meet expectations, or maybe the house has not increased in price as much as hoped.  Stricter mortgage rules and lending criteria has made it harder for those over 55 wanting to re-mortgage. However, despite the high street being almost a closed entity, there are plenty of other options (not that your current lender are likely to advise them - they just want their money back!).

Come normal retirement age, the lender has the right to request repayment of their loan at end of the mortgage term.  If the customer has no way of repaying this and has just continued to pay the interest over the last twenty five years or so, they face the possibility of having their home repossessed or being forced to move out.  On the high street, the end of the loan term will normally hit those aged between 65 to 70.  This is not new news, but does highlight that many people are still burying their head in the sand and hoping this will go away or the lender may be lenient.  No chance on either.  You may get a one or two year extension, but the lender will want their money back and that you cannot avoid.

We all know life doesn't end at age 65-70 and neither should it on the high street!  Often, retired people have managed their finances successfully over the years and enter retirement mortgage free.  At the same time, many, whilst having no mortgage, also suffer from reduced income and there is a saying in our profession that it is not always wise to have everything tied up in bricks and mortar and yet have nothing to spend.  Others may wish to continue their mortgage past normal lender retirement age, whilst they may still be working.  There are schemes where equity can be turned into a mortgage (not necessarily equity release) and where off-spring may be able to assist with the repayments in order to secure and protect their inheritance whilst also ensuring a comfortable retirement for their parents.  This is not right for everyone but it is certainly worth talking to a qualified adviser to review all possibilities.

There are a number of lenders that recognise that 'normal retirement' age is no longer set in stone and people continue to work long in to later life. These are not high street names and as such, rates may be slightly higher than the big super tanker, large volume producing household names that we are used to.  But at least they will consider helping out and could keep you in your home!

09 November 2017

Bank Base has risen...... don't get stuck on the lenders SVR

Last week saw the Bank Base rate rise for the first time in ten years.  It now stands at 0.5%.  The monetary policy, which meets each month to set the base rate, voted by 7 to 2 to increase the rate, in a bid to slow down the rate of inflation which currently stands close to 3%, 1% over its target.
For those with mortgages on a tracker rate, the lenders will probably pass on the full 0.25% increase, with effect from the following month.  So, expect a rate increase letter and a higher payment in December!

For those on fixed rates, nothing will change, until your product fixed rate period ends.  Then it will be down to what’s available at the time.  Unless you are on quite a high fixed rate, in which case sometimes it’s worth looking to see if it’s beneficial to pay any redemption penalties you may have to fix on to a lower rate, that might be available now.  This needs professional advice.

For those on the lenders standard variable rates – WHY?!  The lenders SVR tends to be more expensive than other products available and you should act now as you’re probably paying too much as it is!  Some lenders SVRs are circa 5%!  Lenders will alter their SVRs when they choose. 
The increase in 0.25% will probably take an extra £21 out of your pocket each month, per £100,000 on your mortgage.  Not vast amounts.  However, this could signal the possible end of the cheap rates…

Lenders tend to buy tranches of fixed rate funds from the money markets.  This is then lent to the consumer until the tranche ends.  At that point, they acquire more funds and so on.  However, the latter will inevitably be more expensive and so rates will rise, etc.   As I write, some lenders have increased rates, marginally, but there’s still some amazing products available and I suspect these will be around for some time yet as lenders are desperate for business.  Many products also include free legal costs and free valuations on remortgages, so minimal costs to change lender.  But do remember, although I don’t think they will for some while yet, these products can be withdrawn at any time.  So, if you’re thinking of changing or reviewing your mortgage, now might be the right time to get the paperwork out!

02 November 2017

New Buy to Let with just 15% deposit requirement is launched!

A second Buy to Let with only a 15% deposit requirement has been launched into the Market.  Exclusively through just three distributors in the UK (inc AToM!), BlueZest is a new lender to market and has some superb products. These products are part of a broader range that allow landlords and developers to do refurbishments, conversions and new builds with funds advanced upfront, secured on non-development property that they already own. These mortgage products are available for periods up to 18 months with competitive rates, without the need for bridging finance.  This is a fantastic offering and we look forward to working with them.

Despite the continued talk of rates rising, there is a lot of activity in the market place and some rates have even decreased (Nationwide with some residential rates by up to 0.5%).  Foundation Home Loans has launched a new Buy to Let range with just a fixed fee of £1,999 (most lenders charge up to 2% of the loan amount), for loans up to £1m.  And Accord Mortgages has added a £500 cashback to all of their Buy to Let fixed rate house purchase products.  Obviously, terms and conditions apply.

The Buy to Let sector generally is becoming very competitive and despite an increasing number of options and recent regulation changes 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. 

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.

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 and all the new rules surrounding landlords and, where applicable, portfolio landlords.