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!

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!

Activity increases, but interest only dealt another blow

Both HSBC and Yorkshire Building Society have distanced themselves from interest only this week.   HSBC has decided that only ‘premier banking’ customers will be allowed the privilege of this option where as Yorkshire Building Society has withdrawn the option completely and all residential mortgages will be on a repayment basis moving forward.  This does not affect Buy to Let mortgages via their brand Accord Mortgages as interest only will still be an available option.

These decisions were announced on the day of the Chancellor’s budget speech (possibly hoping that the budget would take all the headlines..!).   I will not review the new Help to Buy scheme this week as some details still need to be fully understood within the sector, but it does appear that Government are putting a pretty big reliance on the housing market to get the economy back on to its feet and ensure some stability with their plans.  Only time will tell.

Lending figures were down again in February as mortgage lending dropped 3% from January’s figures, according to the British Bankers Association.  Approvals fell to £7.1bn from the previous months £7.3bn.   The number of approvals also fell from 56,595 to 55,399. 

I find these figures somewhat surprising as rates are incredibly low, there’s a large amount of activity across the whole sector and nearly every lender is reporting a huge volume of business with some experiencing service level issues as a result. 

With this in mind, try not to give a lender any excuse not to lend to you.  Keep your payments up to date where possible and this also includes utility bills (gas, mobiles, etc).  There are a small amount of lenders who will assist those who have missed payments, or have had credit issues, but you will tend to find that the rates offered are at a premium as they will tend to ‘price according to risk’.

Finally, AToM is taking part in the Horsham Rotary’s ‘Great Easter Bunny Hunt’, along with a number of shops in the town.  The idea is that children visit each shop, play the ‘find the carrot’ game, write down the bunny name next to the shop and once all completed enter their form for a chance to win £40!  See the Rotary website for more information and terms, but most of all, have fun!

Much has changed since 2007...

Someone said to me this week its five years since Northern Rock crashed the ‘mortgage boom’ party and to be honest, I did ponder on where those years have gone!  Much has changed since 07 and lenders now appear to be run by their credit risk personnel, who in turn report to the Financial Services Authority, our regulators.   Let’s be honest, most feel that the FSA now run the lenders too!  As a directly authorised mortgage intermediary, we have had our fair share of ‘guidance’ by the regulator and with the fees involved just to trade in the mortgage market, it’s no surprise that so many have jumped ship and started new careers.  However, what this has left is huge gaps and I often wonder where the market will be in two or three years time as many more retire and fresh blood seems to be so scarce on the horizon.  What will be will be!  But in the meantime, there’s no substitute for honest, transparent professional advice and recommendation, based on your exact needs and requirements.   Online computer systems just can’t compete with that!

Halifax has launched a 5.89% (APR 6.1%) seven year fixed rate mortgage up to 90 per cent of the property value, exclusively for first time buyers.  There is no product fee and customers are eligible to receive £500 towards their moving costs.  Might be right for some very cautious people who like to fix payments long term.  However, rates are lower on shorter term fixes and with rates predicted to be static for some time, alternative products at the end of the short term are likely to still be more competitive.  But, the principle of trying to help First Time Buyers is to be applauded.

Finally, the 2^nd Charge Secured Loan market showed huge growth in July.  Second charge mortgage lending shot up by 11% according to the latest figures from the Finance & Leasing Association.   Many who require a loan to carry out home improvements or for other luxury items, but are currently sitting on very low lenders variable rates are opting to add on a second charge to their current property (sits behind the first charge mortgage).  Again, right for certain people but rates start from 6.9%, so will need to ensure its beneficial in the short to medium term compared with a complete remortgage to another lender/rate.

Low rates and new lenders!

As we enter the final months of the year, we are starting to see more positives from some lenders as they relax their previously strict underwriting criteria. New lenders are also knocking on our doors to see if we can distribute their products. Hoorah! An appetite to lend! I suspect others will make a last ditch attempt to end the year on a high by offering lower rates to attract decent volumes of business in order to hit targets. Rumours are that we shall see some low and attractive tracker rates, but only available for a limited amount of time (i.e. one week, etc). Watch this space! But be wary that if you are after a fixed rate, these are currently more volatile and rates are moving rapidly, some up and some down, depending on the term of the deal.

That said, long term rates have been considerably higher than where they are now. If you are on a long term fixed rate, in excess of 5%, then it may just be worth having a review to see if re-mortgaging now could save you money. With many lenders offering low rates and some offering fee free re-mortgage deals, there’s no harm in reviewing your current mortgage product to see if money can be saved. Even if you are to incur redemption penalties to change lenders, a new mortgage could still work out financially beneficial although this is an important calculation in the overall process. Speak to your local independent mortgage advisers to find out more. It could be a very worthwhile conversation in the run up to Christmas and looking to the future!

Finally, the Buy to Let market has had a busy week. The Post Office withdrew its entire range of Buy to Let products. The lender says it plans to concentrate on helping First Time Buyers and Residential mortgages. And Kensington, the only lender in the Buy to Let market to offer an 85% mortgage, has withdrawn their product. After a bumper few weeks, the lender has allocated their tranche of funding on this great product offering. They will continue to offer mortgages up to 80% of the property value.

Are you loyal to your current Lender?

The Bank of England has released figures reporting that 49,815 loan approvals for house purchases occurred in May, slightly lower than April’s figures and below the last six month average of 51,856.

May’s remortgage approvals were also lower than Aprils at 25,759, and below the six month average of 26,443.

Neither report is much of a surprise due to the uncertainty of the emergency budget held in early June and the limited availability of attractive long term mortgage products. I suspect Junes figures may be little better.

The Land Registry House Price Index has confirmed that house prices dropped by 0.2% from April to May this year despite an annual rise of 8.2%.
The average property price in England and Wales is now £165,314 with all regions experiencing increases in their average property values over the last 12 months. London has had the biggest increase of 14.2% while the North East saw just 1.8%. The South East also had the biggest monthly rise at 0.9%. Great news for sellers, not so much for purchasers.

However, now that we know the full details and probable impact of the emergency budget, the pundits are predicting that we could see a bank base rate rise in the 3rd quarter of this year.

So, with rates relatively low and some longer term fixed rates being launched recently, now is probably a good time to review your current mortgage and see what options are available.

Most lenders want new customers, but are less likely to offer you attractive options to stay with them. This, in the main, is due to the different fees and charges that can be added to the new mortgage at the outset. In the current climate, the lenders bottom line tends to be more profitable with new clients, rather than old. So don’t feel loyal, if a better option is with another lender, then think of number one!
However, we’re still stuck with the fact that many lenders do not want to lend in huge volumes. Therefore, you may find that actually getting a mortgage becomes the main obstacle and you may have to stay with your current lender anyway! Seek advice……