Budget could lead to a Buy to Let boom?

Last weeks budget raised a few eyebrows as the Chancellor included a surprise change to pension withdrawal requirements.  From April 2015, there will be no requirements to purchase an annuity (providing ongoing monthly income) from built up pension contributions.  This was an interesting amendment as effectively the Chancellor is allowing and trusting the consumer to invest their life investment wisely!  However, the immediate response is that many will put their funds in to property and this could lead to a Buy to Let boom.  Details are still not confirmed, but customers will need to take professional advice as this could lead to a number of different tax implications if the full funds are withdrawn in one go.  Nevertheless, the move should also create competition across both sectors as the annuity market will need to become a choice compared to a Buy to let, as it will no longer be an obligation.

Gross mortgage lending was up 43% in February compared to the same time in 2013 report the Council of Mortgage Lenders.  Lending in the region of £15.2bn was advanced to customers, although this was slightly down on January’s £16.1bn. 

Finally, we’re just a month away from 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.

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.  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.

But this also means that from April onwards, 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 are also noticing the phasing out of income multiples and the introduction of affordability models.   So, no more 4 x income discussions.  The amount you can borrow will depend on your monthly net income against expenditure and living costs. 

Lenders are just starting to release their new systems and income and expenditure calculation models to us.  I will update you on any progress over the coming weeks.  However do be advised that the time in research and recommendation for a suitable mortgage product might just start to increase as each lender advises their differing requirements!    

Read the small print and don't get searched

Some comparison websites are causing a stir.  We’ve had a few customers contact us for a mortgage recently who have been totally unaware that they have had a number of credit searches carried out having recently searched for competitive renewal quotes on their home or car insurance.   I’m sure it will be stated somewhere in the small print, but the customers have researched a number of comparison sites and ended up with a number of credit searches on their profile.  This, in a small amount of time can have a marked affect on your credit score, and as such, affect your ability to obtain finance, so read the small print and be aware!  

The Council of Mortgage Lenders (CML) has reported that July’s figures for mortgage lending were up 12% compared to June.  This amounted to £16.7bn and compared to July last year, was an impressive 29% increase.  Positive figures indeed and it will be interesting to see August’s figures as this was also an incredibly busy month.  Interestingly, the First Time Buyer sector has proved one of the larger increases in volume, circa 5%, with an average deposit of 18% and an average loan amounting to 3.31 x income.

We’ve also 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 £100k. 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.  

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.

Lenders targeting those with small deposits.

According to the Council of Mortgage Lenders (CML), gross mortgage lending fell in January by 9 per cent.  Lenders advanced £10.4bn, compared to £11.4bn in December.  This surprised me as with rates so low, the mortgage market has been buoyant with activity.  AToM reported our third best month, for four years, in January!  February was slightly quieter with a half term and a shorter month making a difference in figures.  However, overall, the continuing price rate war between the high street lenders is putting a huge amount of confidence back in to the mortgage market.

The higher loan to value (LTV) products are making an apparent comeback, especially for First Time Buyers.  We’re also seeing different ways in which a lender is looking to assist.  The most recent is from the Bath Building Society who has launched a 100 per cent home loan.  However, the brief details include the ‘bank of Mum and Dad’ allowing a charge on their own property to the equivalent of 25 per cent of the borrower’s property value.   This is pretty similar to a deal that Aldermore Mortgages recently launched.   Both signs that lenders have an appetite to lend and are being innovative in providing solutions.   Other lenders have lowered rates recently to those with small deposits.  Accord Mortgages recently reduced rates by 0.4% on their 90 per cent products (10% deposit).

With so many rate changes and reductions, lenders will look closely at recent payment profiles, how many recent credit searches you have incurred by financial institutions and more.  So don’t give any excuses not to lend to you.  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.   The best rates will almost definitely go to those with the best credit scores.   If you’ve not checked your credit file before, it is well worth a review.  Experian and Equifax tend to be the main two providers used in our market with both offering free trials and you can find links to these on the AToM website.

Credit Rating Downgrades...

Lots of news this week surrounding banks and how some have had their credit ratings downgraded by ratings agency, Moody’s.  These moves are a consequence of the on-going Eurozone crisis and weak economic performances.  Despite low interest rates and falling LIBOR (London InterBank Offered Rate), the impact on the costs of borrowing funds, for the banks that have been downgraded, will increase.  And of course, the increase will only be passed in one direction - the end consumer.

Royal Bank of Scotland, Barclays and HSBC were three banks in the UK among the downgrades, which ranged from one to three notches.  Moody’s also downgraded 28 Spanish banks, including giant Banco Santander.  Three were downgraded by one notch, 11 downgraded by two notches, 10 banks by three and six banks by four notches! 

The Council of Mortgage Lenders has reported that the number of first-time buyer loans dropped by 48% in April, compared to March.  They put this as a result of the Stamp Duty concession coming to an end.   According to the latest figures, 12,600 loans were advanced to first-time buyers in April with the average loan being £98,000 and first-time buyers typically borrowed 3.12 times their income (down from 3.34 in March).

According to zoopla.co.uk, it’s cheaper to own than rent!  It now costs 14% more per month on average to rent a home compared to servicing a mortgage on an equivalent property, say the property website.

And finally…. AToM has been heavily involved in the local Set4Success initiative.  Working in partnership with Horsham District Council, Horsham Rotary Club, Horsham Schools and local businesses, Set4Success assists Horsham District’s young sportspeople with funding for training and competing.   It was great to see so many people at South Lodge recently as the sporting achievements of 21 young local sports people were celebrated, with special guest Sophia Warner, Paralympic sprint champion, presenting the Awards.  AToM are delighted to be a founding business sponsor of this charity.  Patrons include Chris Nash, Gemma Spofforth, Sarah-Jane Honeywell, Dave Benson-Philips, Lord Lytton and others!  To find out more or to see how you can get involved, visit www.set4success.org

A lot of Mortgage activity in the run up to Christmas

There has been substantial mortgage activity happening across the country as we roll
towards the Christmas break and festivities. This is slightly unusual for this time of year, but then nothing surprises us any more in the current climate! I certainly shall not complain at being very busy!

As mentioned last week, Abbey for Intermediaries (part of Santander) has launched
into the buy-to-let market with a range of products for non-professional
landlords. The products are available exclusively through mortgage brokers/intermediaries and require a minimum purchase price of £100,000. The launch products are by no means market leading, but appear to be more of a ‘dipping toes in the water’ exercise and getting systems set up. I suspect Abbey for Intermediaries will be a major player in the Buy to Let sector in the coming months and, from a market perspective, having another lending giant in this arena is great news.

Halifax have forecast that House Prices will remain stable next year. Despite many others suggesting a large property price decrease, the lender’s housing market outlook for 2012 predicts little change in property values over the next 12 months, with price movements of
between -2% and +2% expected.

The low interest rate environment has made monthly mortgage payments for first-time
buyers the most affordable for nearly eight years, according to figures
released from the Council of Mortgage Lenders (CML). Although first-time buyers’ deposit
requirements have remained stable in recent months at an average of 20%, their
monthly interest payments have continued to fall and now typically consume
12.3% of income, the lowest level since January 2004. Don’t forget that the stamp duty exemption for First Time Buyers up to £250,000 ends on 24 March 2012.

Finally, the CML have also estimated that there are some £8bn worth of mortgages due for
renewal in January 2012. Many reverting from long term fixed rates, or discounted products. If you’re one of those whose product period is ending, it’s definitely worth a review over the festive period and even a conversation to see what other options are available to you. It could be very beneficial!

What about a secured loan?

With all the recent headlines appearing in the national press on mortgage rates, are you looking to remortgage? Most lenders look to attract new customers, but are less likely to offer 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; 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!

The other option, if you’re looking to raise cash for home improvements, to consolidate debt (although not encouraged) or for another legal purpose, is a secured loan.

A secured loan is a 2nd, or subsequent charge, designed for homeowners which allows the equity in their property to be used as security. Loans are usually between £3.5k and £100k. There are also no 'up-front' fees to find.

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.

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.

As with all finance, seek advice and think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other loan secured on it!

Foreign Mortgages? AToM win BMA!

Lenders seem to have been the focus of my articles more recently and in more of a positive light! Having had lengthy talks with many lenders over the last few weeks, I believe we will see more aggressive products in the coming months as lenders aim to finish the year on a high and with volume business. Fingers crossed and watch this space!

We’ve seen a huge increase in foreign mortgage applications over the last 10 days or so with people purchasing abroad, some for residential purposes, but in the main for investment or as a holiday home. As we emerge from a global recession, many countries have been hit just as hard as the UK has, if not more. We recently had an enquiry from an individual purchasing a residential property in Spain. They were re-mortgaging their UK property to raise the deposit and were letting this out. The real eye opener was that the Spanish appear to be very proactive for house sales and the Spanish lender offered an 80% loan to value and gave them the first 3 years interest free! Scary!

Back in the UK, there have been positive movements by some specialist lenders. Although not necessarily household names, most of them have large parents. Such an example is a company called igroup (owned by GE) who have recently increased their loan to value from 75% to 80% on some products. They have some superb rates of interest and an appetite to lend. They will also allow first time buyers but will only deal with the employed. However, they will take a view on any historic minor financial problems and price to risk accordingly.

And, finally…I’m delighted to announce that AToM have picked up our fourth major industry award of 2010! We were thrilled to be awarded a British Mortgage Award at a recent event held in the London Hilton, Park Lane. Attended by over 500 mortgage professionals, AToM came top of the class in the Specialist Mortgage Distribution category and the award was presented by Sir Geoff Hurst MBE. This is a great accolade and testament to the great team we have here at AToM.

AToM win mortgage industry 'Oscar'

AToM attended the Mortgage Strategy annual awards ceremony at the Grosvenor House Hotel in Park Lane last week. These awards are the ‘Oscars’ of the mortgage world and an opportunity for those who have managed to survive the incredibly tough climate in the mortgage market, to meet and be recognised. I was aware that AToM had been short-listed but was pleasantly shocked to hear the host, Alun Cochrane (8 out of 10 Cats) announce to the 650 attendees, that the award for “Best Specialist Distributor 2010” goes to…….. AToM! Wow! Two major industry awards in the same week with the latter being the big one! Superb news and really well deserved by all the team at AToM.

Coming back down to earth with a bump, other news this week reveals lenders look like they are starting to enter into price wars. BMSolutions (part of Lloyds Banking Group) recently reduced their Buy to Let rates and, only a few days later, The Mortgage Works (Nationwide) also reduced theirs. These two lenders probably write the majority of Buy to Let mortgages currently and, with both owned by larger organisations, this shows that their appetite in the investment property arena is warming up. Without doubt, there is a huge rental market out there and this is enhanced as more first time buyers struggle to raise deposits to purchase their first properties. With no other options, renting becomes their priority whilst trying to save deposits.

With this in mind, the Council of Mortgage Lenders this week released a report indicating that 80% of all under 30 year olds now need financial help from parents or relatives to make that first step on to the property ladder. With today’s first time buyer needing around £34k deposit, which also tends to be the average annual household income, there seems to be no end in sight for the first time buyer and their ambition to get onto the property market. Whilst there remains no remedy or demonstrable assistance from lenders, the Buy to Let market will continue to flourish.

Rates down and Lenders are attractive!

Two weeks into the working year and the mortgage market is looking incredibly positive! Many lenders, including Abbey, Chelsea, Coventry, Halifax and Nationwide have reduced their fixed rates recently. Others have increased the amount you can borrow against the value of the property and another lender has launched an 80% tracker rate with no redemption penalties, meaning you can leave when you like at no extra cost. It appears the active lenders are becoming somewhat nervous at the ‘alleged’ number of applications received by the FSA from prospective new lenders as well as the competitiveness appearing between those already there! As a result, increasing market share has become priority and lower rates and competitive products can only be good for all!

We have also noticed a number of lenders becoming somewhat more relaxed in arranging mortgages that don’t fit the normal credit score mould. Some while ago, I mentioned that AToM had re-launched its ‘Complex Prime’ proposition. Complex Prime looks at applications which, ‘for whatever reason’ do not fit the normal high street mentality or need something of a more complex underwriting nature. A short list of examples include applicants with no credit, too much credit, a desire to pay up front or add additional security in the form of another property increasing their ability to borrow more. We have five lenders on our panel already looking exclusively at this scenario for AToM. One has awarded AToM a £10m tranche of funds, so there is no better time to visit our offices in the Carfax, Horsham, to see how we can assist you.

Finally, why not visit our website at www.atomltd.co.uk and review all of our financial offerings. These range from the ability to apply online for mortgages from the whole of market, secured loans, credit cards, right up to switching your mobile phone, gas and electricity bills or simply to review your current insurances. Give it a try, you’ve got nothing to lose, but a possibly a lot to save!

Future's still not bright....

02/10/09 - The Land Registry has confirmed this week that house prices decreased in August by 0.1%. Slightly unsurprising news as their data is from property sales some months previous. However it is also stark reality that despite signs we are on the way out of recession, the market recovery is going to be slow and enduring!

In fact, Creditaction figures for October report that the average Brit is just £155 away from a money meltdown. 12m Brits (25%) are currently struggling to cope with their monthly bills and 39% of people would be in trouble if they had to find just £50 extra each month. Essential bills now equate to £1,378 on average each month per person and £2,001 for families.

House purchase mortgage approval numbers for August were 81.4% higher than a year ago, despite data from the Bank of England confirming that 20% of all applications for mortgages for house purchase by major UK lenders were rejected!

The average current Mortgage Interest rate is reported to be 3.58%. The average house price in the UK in July 2009 for first time buyers was £143,454 which is an annual decrease of – 9.1%.

There were 11,400 cases of house possession (equivalent to one mortgage in 1,000) in the second quarter of 2009. According to the Council of Mortgage Lenders, this equates to 125 properties being repossessed every day or 1 property being repossessed every 11.5 minutes.

UK house prices will not reach their autumn 2007 peaks for at least another five years, according to the Ernst & Young ITEM Club. They also expect that house prices will fall again in the first half of 2010.

So, where is the good news? Well, AToM have experienced a 22% upturn in new enquiries over the last month. We have been able to secure products for more than 80% of applicants and this is a dramatic increase. We are experiencing more flexible underwriting from a number of mortgage lenders and the signs are that interest rates for fixed term products are reducing again. All the more reason to visit us to discuss your personal mortgage requirements.

Buy now, Fix now!

Not only is it a great time to buy, but remortgaging is becoming attractive too. There are some very competitive 3-10 year fixed rates available and the continued uncertainty in the financial markets is causing borrowers to review and stabilise outgoings longer term.

A few weeks back, I mentioned that fixed rates were set to increase and they are showing signs of doing so! Woolwich have increased their 3, 4 and 5 year fixed rates by up to 0.40% yet, at the same time, have reduced 2 year fixed and tracker rates by some 0.30%. Interesting, as general costs to lenders acquiring fixed rate monies (swap rates) had decreased! Yorkshire Building Society also increased fixed rates by 0.40% for loans exceeding 75% of property value. If this is the sign of things to come, then a trip to AToM in the very near future could be a financial masterstroke!

The Council of Mortgage Lenders estimates that 900,000 homes are in negative equity (house value lower than mortgage balance) and that prices have fallen around 16pc during the past year, although this figure might be open to question! Notwithstanding this, some lenders are showing a willingness to assist. Halifax and Bank of Scotland (members of Lloyds Banking Group) are offering 95% loans to selected remortgage customers and up to 120% of the property value in certain cases. You won’t find these schemes advertised as they are discreet offerings to existing customers. However, anything which helps stimulate the market is encouraging.

Halifax have also launched a scheme where they will pay 50% of your first years council tax bill (to £1,000) to attract first time buyers (available until 23/5/09 - conditions apply).

Continuing the “good news”, mortgage products now available increased to 3,700 in March, a 25% increase on February. And there’s more! Lombard Street Research declared that housing is now affordable and the slump will be over by Christmas!

And finally…The Confederation of British Industry (CBI) says. "The UK recession was more extreme than expected during the first three months of 2009, but the worst is now behind us. The recession is expected to last until the end of 2009 with sluggish growth resuming in Q2 2010. The Bank of England is expected to start raising the UK Bank Base Rate from its current 0.5% level in spring 2010.”

As I started, so will I finish…Buy now…Fix now!

Mortgage lending restricted to 3 times income?

This weeks announcement from the Council of Mortgage Lenders advises that mortgage lending figures for February were down some 60% against the same time last year. Hardly surprising when available products had dropped some 85% in the same period and most lenders criteria has changed dramatically! Due to the continued pressures that lenders are placed under, they are finding many ways to refuse applications, even for those with large deposits and good credit ratings. In addition, some high street lenders have recently reduced their maximum loan amounts to £250k, and others lending above £500k are charging an additional 1% per annum for the increased “risk”!
The US government recently announced plans to buy over $1trillion of toxic mortgages from struggling US banks. Mortgages that should not have been granted in the first place and were always unlikely to be paid consistently by the consumer. No surprise there then! However, this is a positive move forward and is intended to stimulate US lenders in to funding again albeit supported by the public sector!
In contrast, the UK Financial Services Authority (FSA) are expected to announce plans to look at restricting the amount of mortgage loans advanced to consumers by capping income multiples. Only 2 years ago you could obtain a mortgage loan at 6 to 8 times your income, depending on your status. This has already reduced to the 4 to 5 level but is heavily reliant on the computer not saying “no”! The new plans are to restrict lending to just 3 times income….
This is partly justified by recent reports from the FSA that mortgage arrears are up 31% for the last quarter of 2008 compared to the same period in 2007. It’s interesting to note that arrears statistics are only reported when the mortgage account reaches 1.5% of the balance. So, on a £100,000 mortgage, the account needs to be in arrears of £1,500. Therefore, the true picture of mortgage arrears is probably substantially higher.
With an average house price in the south east of £248k (BBC statistics) and borrowing at 75% loan to value on 3 times income, you will need to prove annual income of £62k! The days of mortgage rationing are looking more like reality!
Following the success of our Mortgage Clinic we are holding another on Saturday 4th April, from 9am to 2pm, at our North Street office, Horsham. Please do come along!