Buy to Lets and long term fixeds!

Long term fixed rates are currently very popular across the mortgage range as customers look to fix monthly budgets for the coming years.   These rates are attractive across the residential sector, but there have not been many long term fixeds in the Buy to Let mortgage arena.  So it is with open arms that a recent launch by Saffron Building Society, offering five year fixed rates on Buy to Lets, is welcomed to their already popular suite of products.   This lender manually assesses cases, so no credit scoring, and they have the ability to think outside the box on more complex applications.  Hopefully, other lenders will follow suit.

Most second properties that are rented out as Buy to Lets will be valued on their bricks and mortar worth, but more importantly on the rental income achievable.  In nearly all cases, the lenders will calculate the mortgage loan amounts based on the rental income achievable and confirmed by their valuer.  This rental figure will need to be over and above the monthly mortgage payment.  A normal calculation suggests that the rental must be 125% of the mortgage payment, based on an average interest rate of 5%.  Any less and the lender will reduce the mortgage loan according to the reduced rental income.  For example, if you wanted to borrow £100k, a reasonable test would be to multiply this by 5% (a fairly average calculation) and divide by 12 to get the monthly cost. This needs to be multiplied by 125% to determine the required monthly rental!  In this example, £521 per month will need to be confirmed as reasonable by the valuer in order to achieve the full £100k loan from the lender.  Please note that this is an example only and that varying lenders will have alternative calculations.   Also, that in most cases the actual rate paid to the lender will be less than the rental stress test calculation mentioned above.

The moral of the story is to ensure that you do your homework before embarking on an investment property to let out.  Always have a discussion with a local and reputable letting agent who can advise on the probable rental achievable from the outset, do the calculations and make sure the deal works before spending out on valuation / survey fees.

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!

Saffron back, House Prices up, Consumer confidence on the rise!

We’re delighted that the Saffron Building Society has relaunched in to the mortgage market after a few weeks rest.  The new suite of products include a 95% First Time Buyer product along with a range of other niche products such as an Expat Buy to Let, a mortgage aimed at Professionals and Contractors, a Self Build mortgage with 100% of build costs and a Buy to Let that allows light refurbishment before renting out!  All of these have no redemption penalties at any time.  Although not a house hold name, this is a really positive move from the lender and well worth a review if their products are of interest.   

The Help to Buy mortgage schemes have certainly bought back some confidence to the consumer market.  We’re also seeing some positive moves from lenders across the country as they look to help out with small deposit loans.   In addition to the Saffron previously mentioned, two other examples come from the Hanley Building Society and Cambridge Building Society.   The Hanley have reduced their 95% loan to value product interest rate by a huge 1%.  The Cambridge has now widened their product access to mortgage brokers across the whole of England allowing more people to access their 95% products. Both a welcome boost to market product offerings.

Finally, House Prices are up!  Over the year to July 2013, according to the Office of National Statistics, UK House prices had increased by 3.3%.  In London alone, there was a 9.7% increase.   Halifax said that house prices increased in August 2013 by 0.4% and Nationwide suggest in September there was an increase of 0.9%.  The average house price in England is reported to stand at £255,000 (as at July 2013).  For First Time Buyers, this is £183,000.  For sellers, Hometrack say that the average time for a property to be on the market has fallen to 7.9 weeks, the lowest for six years! 

Have you heard of......

A quick test to start this week!  Have you heard of the Mansfield Building Society?  What about the Saffron, Manchester, Buckinghamshire, Furness, Shepshed, or the Stafford Railway Building Society?  Not necessarily household names, but not ones to be ignored either.  We are seeing these names and a lot more like them launching innovative products.  Not necessarily looking for huge volumes, but looking to fill gaps in the market and this should be applauded. 

One such lender has an option available to those in retirement and above the age of 65. They’ve realised there’s a huge gap (unless it’s an equity release mortgage required) and have launched a variable rate mortgage product specifically designed to assist this type of consumer. This can be on an interest only basis and up to any age.  Income must be provable, whether this is from pensions, investments, rental income, even earned income or off-spring support and must fit the lenders affordability criteria.  A max of 50% of the property value can be advanced and there are only redemption penalties in the first year.  This makes it reasonably flexible and an ideal solution for when the normal mortgage is coming to an end and the existing lender has requested their funds are repaid.  Remember, this is a standard mortgage and not a lifetime/equity release type solution.

What this all demonstrates is that there is an appetite to lend in a still very tough market.  However, many consumers are turning to the internet as it’s such a superb tool.  But it can also be a disadvantage as so much information, news, product and detail can make it more confusing than planned.  A good ‘old fashioned’ face to face conversation with your local specialist independent mortgage brokerage might be the answer. They will, in most cases, have a relationship with the lenders (even those you’ve never heard of!), understand their requirements and ensure all the correct information is submitted from day one.  There really is no better time to utilise the expertise and staffing levels they can provide for you in what’s becoming an over informed and more recently, highly competitive market place.