A good time for first time buyers?

Recent changes to the stamp duty threshold have attracted a growing number of enquiries from First Time Buyers (FTB) looking to take advantage of this short-term tax break in order to get their foot onto the property ladder.

This is a great time for FTBs to take the leap but as we continue to operate in a transitional lending marketplace, there are still many things to consider.

So, here are some tips for FTBs.

• Let’s start with a simple piece of advice. If you are an FTB considering purchasing a new car and a new house – purchase the house first. Financial commitments such as car finance repayments can quickly limit affordability on FTB applications.

• FTBs should also be aware that they need to declare ALL credit commitments. Income and credit-related scrutiny has, quite rightly, been ramped up from a lending perspective in recent times and clients must share all relevant financial commitments.
  

• An area highlighted by one of our top advisers is that FTBs can often overlook student loans as being a credit commitment, as these are automatically deducted from pay packets. However, most lenders will include this in their affordability calculations.

• It is often not necessary to instruct an independent surveyor for a Home Buyers Report and savings can be made by using the lender’s valuer to complete the report.  There are pros and cons to this, which any good adviser can walk you through.

• When purchasing the biggest asset of your life, invest in the right professionals and undertake some due diligence. Online conveyancers can appear to be a good low-cost option but may not necessary be the best option as this is purely a process driven approach. As opposed to a solicitor which acts in your best interests and provides professional advice. 

• An estate agent’s in-house broker can offer a simple solution to keep the mortgage and purchase with the same company. However, these are rarely independent “whole of market” brokers and tend to work from a restricted panels of lenders. This may limit your mortgage options and you may not get the best deal or most suitable mortgage.

This is a great time for FTBs in the right financial position to take the plunge but the importance of good, professional mortgage advice should not be underestimated in what remains a challenging time for many. If your interested in finding out more, why not speak to one of our advisers about how we can help you on this journey.

Another budget over and some good news for First Time Buyers!

Well that was not the most of exciting of Budgets, although it could have been a lot worse.  It does seem like the spending taps have been turned slightly on, rather than off!

On the up side, Stamp Duty Relief has been extended to first time buyers purchasing shared ownership homes valued up to £500k.  Shared ownership meaning that you buy a percentage share of the property and rent the remaining amount from the housing association, normally with the option to ‘staircase’ (buy more of a share) at a later date.  This can be a good way to get onto that first step onto the property ladder, although you do need to cater for the additional rent payments and normally there are ground rents and service charges relating to the property to also take in to consideration.

The Government backed Help to Buy scheme, which was due to expire in 2021, is to be extended to 2023 for First Time Buyers.

Landlords took another hit as private residence relief on Capital Gains Tax is now only available if the landlord lives in the property with the tenant!  Landlords and tenants sharing properties is something currently not well catered for by mortgage lenders!

In other news, Virgin Money have scrapped their guarantor mortgage citing lack of use and that many lenders now prefer parents to be joint borrowers on the mortgage itself.  A number of lenders now offer joint borrower, sole proprietor mortgages.

Finally, there have been a number of changes over the last few days with some rates increasing and some decreasing.  TSB, Secure Trust Bank, Precise Mortgages, Nationwide, Family Building Society, Together Money, Kensington Mortgages, Coventry and Accord Mortgages have all issued product updates.  It is a volatile market currently and the uncertainty of Brexit is making an impact across the whole market.  Therefore, if you are looking to review your mortgage and have been offered a respectable and appropriate deal, do your homework, review all options, but don’t hang around!

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! 

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!  

Big month for Divorces and many rates have dropped..

Happy New Year!  I hope it is a successful and enjoyable one for you all.

Over the Christmas period, we have seen a number of rates drop as lenders seek to attract new business. One example is from the nice people at Virgin Money who have reduced rates on their first time buyer products to under 4.30% for a two year fixed rate.  This is aimed at those with just a 5% deposit and includes a £1,500 cash back to help pay the stamp duty costs on a property up to a value of £200k.  Positive thinking. Let's hope others follow suit.

I do think we will see some fierce lender competition in the opening quarter of the year.  Lenders are preparing for new regulations that will hit the market in late March, and with only a small amount of stock currently available to purchase, the remortgage market especially will be singled out as a quick source of business. 

Sadly, with January often proving the biggest month of the year for divorces, re-mortgaging can be a key part of the separation process.  It is a difficult time for all parties, especially when children are involved, but the need to pay the joint mortgage is imperative.  If the payments are not made, you may find it difficult, if not impossible, to obtain a mortgage in sole names.  For the newly single, many lenders will take in to account child maintenance, working tax credits and so on.   Affordability is key and any lender will base their decision to lend around this.

The bank of Mum and Dad, or even Grandma and Grandad, can also be bought in to consideration.  There are various ways in which the older generation are helping their children.  Some are gifting deposits, to help them get onto the property ladder.  With most products, the larger the deposit, the lower the interest rate. Others have agreed to the placement of a collateral charge on the parents or grandparents property.  This gives a lender more security and maybe a better credit risk rational to the deal, than originally might have been the case.

Whichever way, always explore the options and have a conversation with a professional as there may just be an alternative way to do the deal.

Increased Stamp Duty for Second Properties and Buy to Lets.

So, quite an easy start to this weeks column as the Chancellors 'Autumn Statement' has written most of my column for me!  If you haven't seen the news, 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%

Therefore, for a property valued at £175k, stamp duty is currently £1,000 and this will now increase to £6,250.  Quite a hike!  For a property valued at £300k, the additional increase amounts to an eye watering £9k!

The Chancellor says this is in order to help first time buyers.  Some would say that landlords will still buy properties whilst first time buyers struggle to get on to the ladder, but rentals charges may be increased to cover the additional cost.  And whilst this does not come in to force until April 16, some estate agents are predicting a short-term surge in property purchases.

With the recent stamp duty changes and increases in taxation on profits being introduced over the next few years, the Buy to Let sector has taken quite a beating over the last couple of budgets.  Yet with interest rates so low and demand for rented properties increasing, and no clearly defined solution to help first time buyers, I can't see these changes killing off the buy to let sector just yet!

What it does do is ‘stutter’ interest from those who might have been looking to invest in property compared to plunging savings rates and volatile stocks.  If the Chancellor's long term vision is to kill offer the buy to let sector entirely, then those who may have been looking at income from Properties as a viable alternative to a pension arrangement may well be slightly more wary given these latest developments.

Stamp Duty changes are a good thing.

There's really only one place to start this weeks column and that's with the superb news released by the Chancellor in regard to changes to Stamp Duty.

With effect from Thursday 4th December, stamp duty will be applied as a progressive tax.  Buyers will pay no tax up to the first £125,000, they will be charged 2% on the additional portion up to £250,000, then 5% on any additional portion up to £925,000 and 10% on the additional portion up to £1.5m and 12% on any portion above.

This is a big step forward and very positive for house purchasers.  On the old scheme, a person buying a property at £300k would have paid 3% equating to £9,000.  On the new scheme, there is nothing to pay on the first £125k, 2% to pay on the £125k to £250k (£2,500), and 5% on the remaining £50k (£2,500) making the new total £5000, a saving of £4,000 in total. 

Although this is a hugely positive and much applauded move, there is still much uncertainty about customers actually being able to achieve a mortgage.  Until lenders criteria is truly relaxed and funding becomes more widely accessible, cash buyers are likely to be the main benefactors of these rewards rather than the first time buyer or home mover. 

Recent data published by the Bank of England has reported that the average Lender Standard Variable Rate, the rate that which many customers revert to after their promotional or fixed rate period ends, has risen to 4.53%.  This is up 0.16% over the last year, despite the average two year fixed rate dropping by over 0.75% in the same period and the Bank of England base rate not changing for over five years. They have also noted that the largest proportion of mortgage borrowers have not experienced a rate rise for more than five years (some for more than seven) and are concerned about the possibility of what is generally known as ‘payment shock’. For example, on a £100k mortgage a 1% rise in rate will mean a monthly increase of circa £83.33! For some, this points towards the possible need to consider a fixed rate to avoid this possibility.  Maybe time to talk to your independent mortgage adviser? 

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

Mortgage 'prisoners' need protection

I’m really trying to move on from the number of lenders shying away from interest only as a style of mortgage repayment offering, yet more and more keep joining the band wagon! Coventry Building Society followed Nationwide last week in restricting interest only lending to 50% loan to value. This week, Skipton Building Society has limited their interest only offering to 60% of the property value. However, they have been more positive than some, in that they will allow 60% on interest only and a further 20% on repayment, taking the total to 80% of the property value. Well done Skipton! This is a much better option than with those lenders who insist that anything over 50% must be all on a ‘repayment’ only basis. Customers must be allowed to take some responsibility for their own decisions in these matters.

Last week’s budget was something of an anti-climax. As we all sat waiting for the big fix to aid an increase in mortgage lending and a boost to property sales, only the NewBuy scheme really got a mention. We saw an increase to 7% stamp duty land tax (SDLT) implemented on properties of £2m and an eye watering 15% SDLT for those buying a property over £2m in a company
name. But that was it! Nothing obvious to help get the ball rolling for property sales in the middle sector. I’m also still unsure why the Government are concentrating on New Build
properties for First Time Buyers when there are, allegedly, over one million properties currently sitting empty in the UK and over two million people are sitting as mortgage ‘prisoners’ due to recent changes in lenders mortgage criteria making it nigh on impossible for them to change mortgages. I therefore beg to question where the responsibility may lay for this torrid state of affairs! As we’ve seen recently, lenders are hiking their Standard Variable Rates to existing customers and someone needs to protect those with nowhere else to go, otherwise there are more huge issues yet to come. Watch this space……..

Finally, house prices rose by 0.6% in February after falling for the previous two months, with the average UK house price now at £162,712, according to the Nationwide House Price index.