The mortgage market has not closed! Phew!

The good news is that, despite the launch of a huge number of new regulations (Mortgage Credit Directive, MCD), in an already heavily policed mortgage market, we are still trading and lenders are still offering mortgages!  Phew!  Two to three years of preparation has paid off.  I am surprised such a huge change in our world was not covered by the national newspapers.  But then, the last big change in 2014, called MMR (Mortgage Market Review), didn't get picked up until days before launch and not much coverage there after.  Originally, that was to stop the crash of 07/08 happening again.  But the new MCD rulings bring us inline with European regulations.  Don't get me wrong, there are some worthwhile new rules, but preparing for a constant barrage of new rules over the last three to four years has been a large distraction (and extremely costly) and may have hampered the markets ability to innovate and provide mortgage options and help to customers.  Let's hope we will now see an increase in volumes and offerings from the lenders.

Following the budget, not too much to report that we didn't already know.  Yes we say goodbye to the Money Advice service, but I can't say that I'm sorry to see it go.  There's plenty of impartial and independent advice available across all sectors and the money that will be saved can be used better elsewhere.

The new Stamp Duty Land Tax (SDLT) changes are still set to confuse people.  In the main, a 3% additional fee will apply to all second properties or investment properties (Buy to Lets).  But the confusion will be around the 'main residence' definition.  In the pre budget release of the rulings, if you decided to rent out your current property and purchase a new one, this would have inherited the additional surcharge. However a new list of complex rules have been issued and you need to make sure you understand all the rules around the second property STDL so as not to have a 3% surprise fee to pay at a later date..

 

We would be grateful for your assistance in voting AToM as a winner!

Very rarely do I promote AToM in my columns, but this week is an exception!  I wanted to say a huge thank you to everyone who has voted for AToM over the last few weeks in two national consumer magazines.  I'm delighted that AToM have been short listed in the top six, for 'Mortgage Broker of the Year' in the Moneyfacts Awards 2016 and also 'Best Specialist Mortgage Broker' in the What Mortgage Awards 2016.  Two huge accolades for our family run and owned company (now entering it's 25th year!) and great recognition to our hardworking and fabulous  team of staff.  We need further votes though and we would be grateful for your assistance in voting AToM as a winner.  Please visit the websites to find out more.  Thank you in advance.

In other news, next week is a big one for the mortgage industry as new European Directives are embedded into the UK mortgage market. We are without doubt the most heavily regulated market, probably in the world!  Some would say too over regulated, however we have to live with it, take the new rulings on board and try to make it as straight forward as possible for you, the end customer.  There's already plenty of jargon and paperwork when arranging your mortgage.  Whether it be direct with the lender, or via a whole of market mortgage brokerage, you need to make sure you understand everything you are taking on, so don't be afraid to ask. 

Finally, there's been quite a bit of movement on product criteria and innovation over the last week or so with various lenders.  Examples include Leeds Building Society who have launched a ten year fixed rate at just 2.75%.  This product comes with a £1,499 fee and is available to loans up to 65% of the property value.  Whilst Saffron Building Society has launched a 5% deposit product, fixed for five years with the rate slightly under 4%.  With a manual assessment, rather than a credit scoring system, this is an ideal product aimed at First Time Buyers.  Obviously both products have terms and conditions that need to be reviewed, but many lenders like these are looking at ways to gain new customers, as well as increasing their market share!  

  

Buy to Let loans can depend on the valuers rental estimation.

With the new stamp duty changes only just around the corner, I though it prudent to look at some of the areas that are currently affecting the Buy to Let sector.

In the main, and with First Time Buyers struggling to get on to the property ladder, a Buy to Let or investment property is a good way to gain both a monthly income as well as capital growth over the longer term.

But the mortgages assigned to these types of properties tend to be provided by different lenders from the normal residential lenders and not normally household names.

They are also calculated differently.  So a residential mortgage will use your income and expenditure to work out what loan you can afford and the lender available to you.  Whereas with a Buy to Let mortgage, the lender will rely on a valuer confirming what the value of the property is and also what the monthly rentable value the property may achieve.  

Most high street Buy to Let lenders will look at a rental amount achievable of 125% of the monthly mortgage payment at a nominal rate, usually of 5%.   So if a rent of £1,000 a month was paid, this would generate a loan of £192,000.   If the rent was £1,250 a month, a loan of £240,000 is possible.   But what we have seen recently is that lenders are increasing the calculation rate of 5% to 5.5%.   This would mean that for the two examples above, £1,000 rent now only achieves £174,545 and £1,250 per month equates to £218,181.  These make a big difference.  Thankfully, there are still a number of specialist lenders, accessed through a limited number of brokers, who offer much more accommodating calculations, with some as low as 3.5%.  However, I suspect as volumes increase with these lenders that they also will have to increase their calculations to stem business volumes.  Time will tell.

Finally, let's recap on the stamp duty changes:

From April, for Second Properties, or Buy to Let purchases, stamp duty rates will be 3% higher.  This means that we have the following:

• Value of property £40,000 to £125,000 – additional stamp duty surcharge of 3% 
• Up to £250,000 – SDLT increased to 5% 
• Up to £925,000 – SDLT increased to 8%
• Up to £1.5m – SDLT increased to 13% 
• Over £1.5m – SDLT increased to 15%

This will even include when you let our your current property to purchase a new one.  As you become a two property owner, you will pay the extra 3% on the new purchase! 

This can make quite a difference to budgets and overall planning, so if you are looking at the Buy to Let sector, there's still time to beat the tax man!