New Help to Buy and Shared Ownership schemes for First Time Buyers due in April

 

With changes to both the Help to Buy and Shared Ownership schemes due to come into force at the beginning of April 2021, it’s vital that you remain fully up to speed on how you may be affected by these impending changes.

The latest figures from the Ministry of Housing, Communities & Local Government outlined that a total of 291,903 properties were bought between 1 April 2013 and 30 September 2020 using the Help to Buy equity scheme. The data also showed that 82% of all completions were by first-time buyers. The total value of the equity loans was £17.4bn and the value of the properties sold under the scheme equated to £79.2bn. In addition, between 1 July and 30 September 2020, 13,211 properties were bought with an equity loan.

So, how does the new scheme differ from the old one?

The new Help to Buy scheme, running until 2023, will be restricted to first-time buyers and will operate with regional price caps in place (maximum property price in London £600k and South East £437,600 for example).

You can borrow a minimum of 5% and up to a maximum of 20% (40% in London) of the full purchase price of a new-build home.  You do not pay interest on the equity loan for the first 5 years (interest starts in year 6 on the equity loan amount you borrowed). The equity loan, the deposit you have saved, and your repayment mortgage cover the total cost of buying your newly built home.

Help to Buy is not an all in-compassing solution but it can prove to be a viable option for a variety of first-time buyers, even for those who may have had a credit blip in the past.

Meanwhile, the new Shared Ownership scheme will allow buyers to purchase a minimum share of 10% compared to 25% previously, and will permit staircasing in instalments of 1%, rather than 5% or 10% currently.

In addition, a new 10-year period will be introduced for maintenance and repairs, whereby the landlord or housing association will be required to cover costs rather than homeowners.

Due to the complexity of both schemes, it is vital to seek good, impartial, independent, and professional advice before entering into any agreements.

Shared Ownership popular outside of London

Help to Buy has benefited from an increased profile in recent times (probably due to the impending closure date!) and this has helped more FTBs recognise its attributes – which is a good thing - although it’s prudent to point out that it should not be considered an all in-compassing solution.  And, on the flip side, despite this rise in lending prominence there are still pockets within the market where it can prove valuable for a certain type of borrower which often goes overlooked.

I believe this type of product is seen by most borrowers, as being one which sits squarely in the domain of mainstream or high-street lenders. Meaning the role of specialist lenders can often go ignored, which is a shame. There are specialist lenders who can provide Help to Buy solutions for borrowers with an adverse credit history, IVA’s or even bankruptcy issues, and this is an important part of the scheme which we tend to hear very little noise around (T&Cs obviously apply!). 

The other area we are seeing increased enquiries from, especially more locally with the amount of building works taking place, is Shared Ownership.

Shared Ownership Schemes are normally provided through housing associations.  You buy a share of your home, between 25% and 75% of the property value, and pay rent on the remaining share to the housing association.  You usually have the opportunity to purchase a bigger share of the property later on (normally called ‘staircasing’).  Local housing associations must confirm your eligibility in order to join these types of schemes.

According to research by the Leeds Building Society, this is rising in popularity outside of London.  The report suggests that the South West has seen the greatest rise in the use of shared ownership between 2009 and 2018.  This was followed by the East Midlands and the West Midlands.  London saw the largest decline, falling from 34% to 13% over the same period.

The specialists might not be applicable for everyone, and still form a small proportion of the overall lending figures, but they should be playing a bigger role in supporting more complex or low credit scoring borrowers get a foot on the property ladder for the first time or even back onto it after falling off.

Product innovation - Hero Mortgage, 95% Loan, Large income multiples and Help to Buy

Innovation is key in the current climate and we must applaud the lenders who are defining the way of the industry and providing mortgages for certain types of customer.

The main issues currently result around income multiples, loans size compared to the value of the property and catering for those over the age of 55.

Two recent examples come from one of our specialist lenders, Kensington Mortgages.  I don’t normally single out a lender, but these guys are doing a great job.

Firstly, they’ve launched the ‘hero’ mortgage. National and Govt stats suggest that:

·       Over 150,000 people are employed in the Army, Navy and RAF.

·       More than 1.5 million work in the education sector

·       Nearly 300,000 men and women are working as police officers and firefighters.

·       Over 1.7 million people work for the NHS 

They aim to help these ‘heroes’ to own their ideal home.  This can include over 5 x income and thinking outside the box when it comes to complex scenarios.

Secondly, they will cater for those with just a 5% deposit who may have had a blip or two in the past.  This can include CCJs, Defaults, Payday loans and Debt Management Plans.  Terms and conditions apply and some need to be older than twelve months. 

Help to Buy is increasingly in demand and again, it does not matter if there has been a small financial blip.  There are lenders looking to assist and will look at a wide range of customers.

Finally, we have seen a couple of lenders publish that they will consider loans of 6 x income.  The lender has a duty of care to make sure you can afford your mortgage today, as well as when rates rise, and specifically to it being considered affordable over a five year period.   We have seen the introduction of affordability models.  The amount you can borrow will depend on your monthly net income set against expenditure and living costs. 

This works positively for the right loan to value, right affordability and right customer, as lenders are willing to offer a little bit more if you fit their specific affordability model.  Some we’ve seen have been well in excess of 6 x income.  So speak to a specialist who has access to the whole market, can offer such opportunities and make the right impact!

What's available for your first property purchase?

Looking at purchasing your first property?  First Time Buyers will usually require a minimum 5% deposit, but product availability increases with a 10%+ deposit.  Some lenders will allow a 5% builders deposit, but this must be confirmed as a gift and non-repayable. Some lenders will allow the deposit to come as a gift from the Bank of Mum and Dad, or an immediate family member.  This can include step family, aunts and uncles and is acceptable for first time and subsequent buyers.  The money must be a transparent gift that has originated in the EU and can be easily traced back to the originating source.  A letter from the family member will usually be required and needs to advise the gift amount, relationship the person gifting the monies is to the applicant, confirmation that it is a gift and not a loan and therefore is not repayable, confirmation that they do not currently own the property being sold and that they will not live in the property or have any interest in the property post completion. 

Some lenders may allow a loan of up to 100% of the property value if parents or another immediate family member will act as guarantor or provide additional security. Those guaranteeing, in the main, will need to show evidence of affordability for both their current residential mortgage and the one they are intending to guarantor and possibly allow a charge to be taken on their own home.

All positive indeed and that’s not even touching on the number of Help to Buy, Right to Buy and Shared Ownership schemes available.

Rates have reduced lately in a bid to assist this under-served market segment and criteria is definitely more accommodating.  Income multiples tend to be between 3.75 to 5 x joint income and terms and conditions always apply!  However, Lenders are showing a willingness to assist First Time Buyers and in the current market, that can only be a good thing.

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!

Interviews over 2 hours and keep an eye on your Interest Only mortgage..

So the new MMR (Mortgage Market Review) regulations are now in force and the mortgage market has not ground to a halt, despite what some pundits insinuated it might!  It’s business as usual, albeit a little more intrusive and the process may be taking a little longer than before.  Some customers are reporting that the high street lenders mortgage interviews are taking well over two hours and more than a week to book appointment (no such problem with your local independent mortgage advisers!).  Others are reporting some absurd questions being asked such as how much do you spend on alcohol per month, how much on pet food and have you got a national lottery direct debit?  As with all things, whilst the new rules settle in, there will be some teething problems, but be patient with them as they are here to stay and for everyone’s protection.   Just ensure that you have all your monthly costs laid out accurately from the outset and ready for when requested.  If you spend £500 a month on food, then that’s the figure to advise.  If you don’t and the lender reviews your bank statements and finds discrepancies, this will not be looked upon favourably.

Coincidently, we have seen some rates increase over the last week.  Both NatWest and Santander have increased rates on their Help to Buy Mortgage Guarantee schemes.  NatWest increased some of their 95% loan to value rates by 0.4% on two year fixed deals.  Santander increased their 5% deposit rates by 0.1%.

The British Bankers Association has confirmed that purchase figures for March 2014 were up 45% compared to March 2013.  Gross lending amounted to £6.4bn.  

Remortgaging amounted to £2.9bn for the month, the same as in February, but an increase of 32% compared to the same time in 2013.

Finally, I’ve mentioned this matter a number of times, and make no apology for doing so again!  If you have an Interest Only mortgage, do make sure you keep reviewing the options for repaying it back. Where a customer reaches the end of their mortgage term still owing exactly the same as when they took it out, with no form of repayment apart from selling their property, this creates a major headache for the lender. Especially when they want their money back! This is a major aspect of the new regulations which are now implemented, so be on top of your options, before the lender calls! If in doubt, seek professional advice.

Help to Buy New Build extended and FTB mortgages increasing!

Good news for those looking to buy a new build property, Help to Buy phase one is being extended to the end of the decade.  The first phase of Help to Buy allows borrowers with a 5% deposit and  75% mortgage to secure up to a 20% loan from the Government for the remainder. The loan will be interest-free for five years and will be repayable on sale.  To qualify, new build homes must be worth less than £600,000.  The Government say this extension will allow a further 120,000 homes to be built. 

Lending to First Time Buyers reached its highest quarterly total since Q3 2007, according to figures released by the Bank of England.   The value of lending to those taking their first steps on the housing ladder grew 41% from the fourth quarter of 2012 to quarter 4 2013 amounting to £10.6bn.

Virgin Money has increased its borrowing limits from 70% to 75% loan to value on a Buy to Let property.  This is good news and rates start in the mid 3% range, depending on circumstances and their products have £750 cash back to help towards costs.  Lender fees on these products range from £995 right up to 2.5% of the loan amount.

Halifax has revealed that is cheaper to buy than rent.  The average monthly costs associated with owning a three bedroom house stood at £645 in December 2013, 16% lower than the typical monthly rent of £769 on the same property type.  This is a significant shift since 2009 when the average monthly costs for owning were £646 and renting £652.

Finally, 83% of non homeowners aspire to join the property ladder, but despite the return of 95% mortgages under Help to Buy 2 (mortgage guarantee scheme), 62% of these ‘would be first time buyers’ still cannot afford the necessary deposit.   The study, by leading mortgage insurance provider Genworth, also highlighted there is widespread ignorance about Help to Buy 2 with 40% of aspiring homeowners having no knowledge of the scheme or no understanding of how it works!!   This does surprise me and I would always say seek independent advice to find out the best options.   

Great time to be a First Time Buyer...

First Time Buyers are in the limelight again this week as lenders adjust criteria in order to assist.  The Saffron Building Society offers a 95% loan to value product which used to require the customer to have a twelve months rental history with a professional letting agent.  The lender has now removed this requirement entirely and the product is now available to those living with parents!  Even better news in that this product has no redemption penalties at any time, should the customer wish to change providers.

The ‘Bank of Mum & Dad’ continues to be a major player in a large number of enquiries received at AToM HQ.   Many options are available to first time buyers and parents, including guarantors, cross collateral charges (using parent’s property as additional security and grandparents in some cases!), gifted deposits or equity and more.  It is important to note that, in most cases, a guarantor must be a blood relative.

One such example causing quite a stir is provided by the Coventry Building Society.  Called the ‘step up’ mortgage, this allows parents/guardian or close relative to also add in their income when calculating the loan amount available to the applicants.  The lender then deducts the parent’s annual mortgage commitment and any other credit to reach a total loan available (this cannot exceed 7 x the First Time Buyers income).  The product requires a ten per cent deposit and all parties are named on the mortgage deed.  Other terms and conditions apply, but these show the innovative levels lenders are considering to assist people purchasing properties and, for this, they should be applauded. 

Let’s also not forget that the number of lenders now offering the Governments Help to Buy Mortgage Guarantee schemes has expanded.  Over the last few weeks, we have seen Aldermore, Woolwich (Barclays), Virgin Money and Santander all launch products to assist those with a 5% deposit.   In addition some lenders who are not on the Government Help to Buy register have also been offering good alternative product ranges, including remortgage options.

All in all, the number of options available to those with a small deposit or who are a first time buyer is on the increase and that can only be a good thing for the wider market!

Is now the right time to Fix?

Activity remains high in the financial sector.   Halifax has reduced some two year deals by up to 0.2%.  Santander have launched two year tracker rates in the region of 1.79% (40% deposit) and Woolwich (Barclays) has launched products on the Governments Help to Buy Mortgage Guarantee scheme, available up to 95% loan to value.  We’ve also heard Richard Sharp, an external member of the Bank of England’s Financial Policy Committee, suggest that now is a good time to fix in to a long term deal.  Is he right?  Who knows!   There’s no denying that five year fixed rates are incredibly attractive and we have seen some rates start to creep up on these longer term deals.  However, it is personal preference.  If you wanted the certainty of knowing your mortgage payments won’t change for the next sixty months, then they are certainly worth a review!

The New Year has seen a large increase in requests for secured loans. A secured loan is a 2nd, or subsequent charge, designed for homeowners and which allows the equity in their property to be used as security.  Loans are usually between £3.5k and now up to £2.5m!  There are also no 'up-front' fees to find although costs are added to the advance.

We tend to find that many customers looking to remortgage to raise additional funds are already on an attractive rate with their lender. To move away could be costly and they could end up on a much higher interest rate.  Depending on the amount already lent as a mortgage, compared to the value of the property, most lenders will allow a secured loan to be added as additional borrowing, right up to 95% of the property value.

The secured loan is usually repaid over a shorter term than a mortgage, circa 3-7 years, but the term can be longer, although this will increase the amount of interest repaid. Rates vary depending on the customer’s circumstances and current level of borrowings.  Always seek advice.

More offering Help to Buy as others change rates and criteria

Santander is the latest lender to launch products to assist those with a small deposit via the government backed Help to Buy Mortgage Guarantee scheme.  All products are arrangement fee free, have a free valuation and £250 cashback to help towards solicitors costs.  NatWest is also due to launch a suite of products via brokers in the coming days.  A positive start to the new year for those with small deposits!

Even lenders who are not part of the Help to Buy schemes are trying to compete.   As such, competition in the 5% deposit arena is the best it has been for some time, so do review all the options available to you.   

Other products have also seen rate movements in the last few days:   In the Buy to Let sector, Mortgage Trust (part of the Paragon group) has launched products with no early redemption penalties at all. Their rates have reduced to around the 4% mark and fees are also reasonably low at around £995.

GE Money Home Lending have launched a large loans proposition (£250k and above) for those who have had a historic financial issue in the past, including defaults, CCJs, etc.  With rates sub 3%, these are a good alternative for when the high street lender says no.  GE and some other specialist lenders are only accessible via certain mortgage brokers or distributors.   

This years Budget will be closely anticipated to see if the Chancellor will offer anything to incentivise and stimulate the market further.  Stamp duty is a key factor and would benefit from payment commencing at a higher level than current, say £250k and smaller increases as the price bands increase.  Is this too much to hope for?   

Finally, a recent report from TSB suggests that nearly 38% of house hunters are concerned they will be rejected for a mortgage.  Levels of income required topped the charts with poor credit rating being the second most common anxiety.  Always keep any eye on your credit reports.  These are your financial history to any prospective transaction and any decisions will take these in to account.  Most are free and relatively simple to understand, but most importantly will highlight any issues that may need rectifying.       

More lenders offering Help to Buy. Activity at AToM huge!

There has been substantial mortgage activity happening across the country as we roll towards the Christmas break and festivities.  November was AToM’s second best month over the last four years for new business levels!  This is slightly unusual for this time of year, but then nothing surprises us any more in the current climates!  I certainly shall not complain at being very busy but do express our heartfelt thank you to all those who are using AToM and making use of some of the fantastic exclusive mortgage products available via our Horsham branch!

It is good to see that more lenders are offering the Help to Buy schemes.  Virgin Money is the latest to launch products through the Government’s Help to Buy Mortgage Guarantee.   Virgin Money will offer customers with smaller deposits two year fixed fee saver deals up to 95% of the property value.  In addition, all of their 90% and 95% deals now come without a product fee, and remortgage deals are available up to 90% of the property value.  The first challenger bank to join the initiative, Aldermore Bank will launch with the scheme on December 16^th.  Obviously terms and conditions apply and APRs will be dependent on the product chosen.

It always surprises me how few people actually know what rate they are on, the type of mortgage, i.e., fixed rate, tracker rate, etc, and whether they are paying interest only, or capital repayment. Unsurprisingly, almost everyone knows what it costs per month to the nearest penny!  They will haggle for a £10 discount on a new washing machine whilst letting ‘sleeping dogs lay’ when it comes to their mortgage where they might save hundreds!  It’s very easy when the promotional rate period comes to an end to keep your mortgage with the same lender, ‘brush it under the carpet’, and deal with it ‘tomorrow’.  But, we all know tomorrow never comes.  A review of what’s on offer from other Lenders could give you a nice start for 2014, especially if you’re currently on a Standard Variable Rate, or equivalent.   Many lenders are offering superb remortgage opportunities with minimal costs to change, including free standard valuations and legal costs.  Rates are competitively low and mortgage product choice is at its highest for some time.  So pull out that paperwork and have a no obligation conversation with your local, independent and whole of market mortgage advisers!

Help to Buy picks up pace

The Help to Buy Mortgage Guarantee scheme is picking up pace.  It has now officially launched with Natwest, RBS and Halifax launched some products last Friday.

We’re also informed that Santander, Barclays, Aldermore Bank, Virgin Money, One Savings Bank and Nationwide also intend to offer products for the scheme in the coming months.

Key points regarding the scheme:

• Applies to mortgages up to 95% LTV.
• Lender purchases a 15% guarantee from the government
• £600k property price maximum.
• Available for First Time Buyers and home movers for purchase of main residence only and remortgages.  NOT available for Buy to Let or second homes.
• Clients must meet the lenders standard affordability guidelines and criteria.
• Clients with a history of credit issues will NOT be eligible for the scheme.

Rates on offer from the state owned lenders start from 4.99% and require just a 5% deposit.  But do your homework on these, terms and conditions apply.   

I mentioned this briefly in a previous column, but for those who can achieve a 10% deposit, there are other options.  Rates are fixed at sub 3% and 20% of the loan will be on an equity loan basis, repayable on sale of property with no repayments or interest payments required prior to this.  So effectively, customers are paying monthly interest amounts on a 70% loan, yet have the benefits of just a 10% deposit.

Lenders are certainly looking for niche areas to lend in and are showing a great appetite to lend.

With this in mind, lenders will look closely at an individual’s recent payment profile, how many recent credit searches have been incurred by financial institutions and more.  The more credit searches you have on your profile, over a recent amount of time, the more likely your credit score will be lower as a result. Try and ensure there’s no missed or late payments as these will also decrease your credit score.  In short, your credit search / score are the basis on which most lenders will initially decide whether to lend to you or not.  If you’ve not checked your credit file before, it is well worth a review. Experian, Equifax and Noddle tend to be the main providers used in our market with some offering free initial trials and you can find links to these on the AToM website.

Help to Buy 2 launch bought forward!

The Prime Minister has bought forward the launch of the Help to Buy (mortgage guarantee) scheme to October, instead of January 2014.  But let’s review the small print before we all start celebrating the launch of the (some say) controversial scheme and how it may create a housing bubble.

The Help to Buy MG scheme will help people buy a home up to £600,000 with just a 5 per cent deposit.  The government will then provide the lender with a guarantee for the next 15 per cent of the property’s value, charged as an interest free equity loan to the consumer, for a fee (after year five).  A lender will offer the remaining amount as a first charge, subject to normal mortgage terms and underwriting and the scheme will be open for three years.  This is to purchase any property and is not restricted to new build properties as per the existing Help to Buy scheme.  So 5% deposit, 15% equity loan (interest free) and 80% mortgage.

Secondly, at the time of writing, many questions were still yet unanswered and only three lenders had committed to the scheme – Natwest, Royal Bank of Scotland and Halifax.  All government backed lenders..

Finally, we are led to believe that despite the doors being open for business, the actual 15% government guarantee to the lender, will still not be available prior to January 2014 and this may be a slight restriction to other lenders who might have wanted to offer these mortgages initially. 

Unfortunately, at this time, Help to Buy MG will not be available to those who have had any historic credit issues.

A similar proposition for those with a 10 per cent deposit is already on offer in the specialist sector.  A first charge lender takes a 70 per cent loan and a second lender adds a further 20 per cent as an equity share.  However, the latter has no monthly required payment, no fee after the fifth year and is only repaid once the property is sold, or client redeems early.

All of these schemes can be confusing, so always seek professional and independent advice to ensure you are getting the right deal to match your requirements.