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.

The issues facing first time buyers, homeowners and potential movers!

To say that the government is currently under a substantial amount of pressure is something of any understatement. Keeping political points of view or persuasion on the sidelines, the handling of the coronavirus pandemic and Brexit remain huge issues which are dominating time, resources and attention.

I fully appreciate the importance of tackling these concerns and the major toll they are having on the health – physically, mentally and financially – of the UK population. However, there are also a number of other areas which the government can ill-afford to ignore across the housing and mortgage market.

The problems facing mortgage prisoners are mounting and a recent report from the London School of Economics (LSE) has put the onus and ethical responsibility on the government to solve the mortgage prisoner crisis quickly and recommended a package of measures to do so.

Another situation which is cause for great concern revolves around cladding, and finding appropriate solutions for such deputes should also be high on the government’s agenda. Through no fault of their own, all too many people continue to find themselves in a position where it is neigh on impossible to sell certain property types or even remortgage them - which is an unacceptable outcome.

There are also question marks in the air around whether the government will extend the stamp duty deadline in light of some lending, survey and conveyancing backlogs which are having knock-on effects on a growing number on housing chains. A trend which will only intensify in the coming weeks.

These are just some of the issues facing first-time buyers, existing homeowners and potential homemovers. In the current economic climate, there are many extra layers of complexity for all those involved in the mortgage journey. And this really does outline the importance of impartial, independent financial advice when it comes to  overcoming a growing number of challenges and ensuring that people have access to the right kinds of financial options to match their current, and future requirements.

So, speak to a specialist, impartial, independent adviser about your property related needs in this increasingly uncertain marketplace.

The Mortgage market is vibrant!

Having written this column every week since early 2009, a lot of people ask me “how do you know what to write each week, it must be difficult?” But actually, there’s so much going on, I could easily fill more than my 350 word column consistently.  The mortgage market is vibrant with both activity and positivity.  Mortgage product offerings are at their highest for some time and lenders appear to want to lend!

The bottom line is that a mortgage is the biggest debt you’re likely to ever take on, so you need to do your homework and understand more than just what the national press decide to publish about the Bank of England base rate being held at 0.25% again, or how much profit the banks are currently making! Or what a mate says in the pub!

Advice is crucial and ideally from a company who can offer ‘whole of market’ mortgages, not just products from a limited panel of lenders, like some Estate Agency chains or a Bank/Building Society who only offer their own or a limited set of products. 

Most lenders have a set of rules and criteria that need to be met even before requesting a decision in principle (stage at which you are credit searched for pre-approval). For example, one lender has a debt utilisation rule at 70%. So, if you had a credit card with a £1k limit and you had a balance of £701, you will be in excess of their 70% rule which means you would be ineligible for this lender. Another stipulates you can have no more than 8 unsecured credit cards or loans at the point of application. We tend to see customers have a number of debts within this ruling, but who keep open old debts with zero balances. This can push them over the lenders stipulations. Others won’t look at gifted equity, or assist where the customer has had a break in employment in the last twelve months, or lend on properties with a flat roof, and so on.

All of these are little idiosyncrasies that should be known by anyone advising on a mortgage. Thus saving time and probably unnecessary credit searches being carried out. Remember, the more credit searches you have against your name, the more likely your credit score will decrease, which may affect your ability to obtain finance. Whoever you talk to about your financial requirements, make sure you say at the outset that you do not want to be credit searched, unless you give them the authority to do so or a product has been thoroughly researched.

See if a remortgage to a fixed rate might benefit you..

We are in the middle of the Easter school break and this is traditionally a time when many people do one of three things in the mortgage sector. They start looking at new properties to move to: they are already committed and are packing ready for the removal lorry or, they take time to review what mortgage they have and question if there is anything better out there. It might be argued that huge numbers of people simply take a holiday, and why not?

Certainly, once the holiday is over, then it makes sense to review the current mortgage deal and see if there is a better option and perhaps look to secure a competitive rate for a few years. Whilst I always err on the optimistic side of a rates argument we are entering a truly unknown era. We have never left the EEC before and so there is no history to prompt what the immediate and longer term implications will be.

It may well be that we need to be prudent and a medium to long term fixed rate will allow the head to drop comfortably onto the pillow each night if rates do rise as a result of Brexit (whoever thought of that word to describe it?)

So do take the chance to look and see if a re-mortgage to a fixed rate might benefit you. Actually, it is wise to consider this anyway, regardless of Brexit as there are millions of people on lenders standard variable rates enjoying complete and deafening silence from their current mortgage lender. Why the silence? Simply because lenders are comfortable with you paying over the odds and increasing their margins! They are under no obligation to offer you a better deal when you come to the end of an incentive term and you automatically flip onto their variable rate. It is worth looking for a better deal and many lenders will welcome you with free valuation and legal initiatives and a difference of 1% can save you a substantial sum over few years.

Talk to an independent mortgage adviser and see what they can offer.

69% of all mortgages written by advisers!

The importance of mortgage advice has never been greater and it is an interesting fact that, according to the Council of Mortgage Lenders, 69% of all mortgages were written through professional advisers during the second quarter of the year. This is a substantial uplift on previous quarters and there are probably a number of reasons for this including long delays we are advised are happening with some lenders both in interview availability and processing times. 

The professional mortgage adviser reviews the whole market for you and can identify the best lending options and then deal directly with the lenders central processing units, speeding up the process from application to offer. That said, even in this area we know of at least one lender that is eleven days behind on post or electronic updates. A good adviser will listen to your specific needs and timescales and ensure that they line you up with a lender who will match both. So, if speed is crucial then you may need to consider working with a lender where the rate may not be the keenest on the market but where you get what you want. Your adviser will discuss this in detail with you before you make any decision.

On a different subject, a number of mortgage lenders are looking ruefully at their performance against target for the current calendar year and casting sideways glances at their competitors. At the start of the year, no one was really sure what the effect of the 2014 Mortgage Market Review would have. A number of lenders are, allegedly, well below target and we will probably see a price war in the next few months as they look to gain ground before the year end

Two days till MMR! Time to use a broker..

I don’t think I can talk about anything else this week apart from the launch of MMR.   The Mortgage Market Review comes in to effect on April 26^th and will fundamentally change the way a lender looks at a mortgage application.   Amongst a number of new rulings, one area being reviewed is affordability, a key element when arranging a mortgage.  The MMR takes this a step further in also requiring a lender to predict affordability into the future.  For example, will any material changes occur in the next five years; how much will you spend on seasonal commitments this year; will you need to consider an increase in property size to meet family requirements?  These are just some of the more intrusive questions that are to be explored when budgeting for a mortgage.

As lenders new systems are released, we are also noticing the phasing out of income multiples and the introduction of affordability models.   So, no more “4 x income” conversations!  The amount you can borrow will depend on your monthly net income against expenditure and living costs and the lender will be the judge of what they think you can afford! 

One thing is for sure in that the time taken up in research and recommendation for a suitable mortgage product might just start to increase as each lender advises their differing requirements!   

As such, we’re hearing that mortgage appointments with local banks or building societies are now taking well in excess of an hour (some up to three hours!).  Sadly, if for whatever reason, that lender cannot not offer the customer what they want, the customer may have to approach another lender and sit through another hour or so possibly to find that they too cannot help, and so on.  This raises the spectre of a large commitment to time for the consumer without a satisfactory solution.  This is where independent and whole of market brokerages come into their own.  They will be able to offer you access to a number of lenders, including the high street names, if appropriate, and you only need to have one conversation with the same person.  In addition, they should have access to lenders who will manually assess your needs rather than a ‘computer says no’ type scenario, if required.  Independents, like us, have access to a number of limited distribution lenders and exclusive products not readily available to the wider mortgage market!

Shop around before committing

There seems to be a lot of positive activity in the market currently with many lenders reducing rates.  Just in the last few days, we’ve seen Nationwide, Virgin Money, Accord, Santander, Yorkshire, Newbury and Hinckley & Rugby Building Society reduce rates or launch new products.  In the current climates, you should not be scared to deal with a lender who is not a readily known household name.  As many lenders fight for customers in a tight market, we are seeing some of the smaller lenders offering market leading rates to build up their portfolio and attract new business. 

Of course, this is the beauty of using a mortgage broker.  They will have access to many lenders that you have probably never heard of and products that are not usually visible to the public eye.  On average, a good mortgage broker will have access to over 3,000 mortgage products, from a huge number of lenders.   As with everything you purchase, it’s always worth shopping around as although you might think you have a great deal with your current provider, there may be better products out there that you are missing out on.

This also goes for the Solicitors where they are needed to act for both yourself and the lender in a mortgage transaction.   Remember that on some re-mortgage products the lender will cover the cost of standard legal work and valuations.  But for all other requirements there are a huge number of legal firms in both local and more regional areas.  Prices vary from company to company and you can decide exactly who to deal with (assuming they are acceptable to the mortgage lender).  Shop around before committing and as with everything, make sure you read the small print!

Positive news as First Time Buyer loans increased in 2012 by 11%, for those with deposits of less than 15%, according to Mortgage Monitor from esurv.  This amounted to just fewer than 64,000, compared to 58,000 in 2011 but still a way off the 179,000 in 2007! 

Finally, Castle Trust suggests that the average homebuyer now provides a deposit of £26,500 and this equates to an average of 20% of the property value across the country.  In comparison, those in London need nearer £73k as a deposit.