A new 'Retirement Mortgage' for the over 50s

The Buckinghamshire Building Society has launched a new mortgage aimed at borrowers aged 50 and over who have an interest only mortgage but do not wish to sell their property when their current mortgage term expires. 

The Retirement Planning Mortgage has no maximum age and will allow customers to borrow up to 70% of the property value, 40% of which can be on an interest only basis.

Interest rates are calculated based on the borrower’s individual circumstances but are variable in all cases and start from 5.24%.  A minimum property value of £300,000 applies and this product is only available through a handful of distributors, including AToM.   Terms and conditions apply.

We’re hearing that a number of lenders are struggling to get enough qualified mortgage advisers into their branches in time for MMR (Mortgage Market Review) which comes in to effect on 26^th April.  This means that with such shortages on advisers, some borrowers are having to wait as long as a month to see an in-house mortgage adviser.  Remember that ‘whole of market’ mortgage brokerages could possibly offer these lenders products, and quickly, so review your options.
The number of house purchase loans shot up by 33% on an annual basis in February, according to the Council of Mortgage Lenders.  The value of purchase loans in February reached £7.8bn, an increase of 47% from the same time in 2013.   A total of £3.5bn was advanced to remortgage borrowers in the month, up 29.6% from a year earlier.

Finally, The Newcastle Building Society has launched two new 95% loan to value products with no reservation or booking fees.  With rates starting from 5.39% (and a five year fixed at 5.49%), they will not set the world alight, but do present another option to a consumer needing a manual assessment, rather than a tick box high street lender.  At the same time the Mansfield Building society has reduced its 95% loan to value products by 0.5% down to 4.49% but only for those who live in their designated postcode areas.  Slightly restrictive lending!

Have a great Easter break!

The new world of MMR - calculating affordability in to the future

I have mentioned in recent weeks the advent of Mortgage Market Review (MMR) and the impact it will have on lenders approach to submitted applications. At the risk of being boring, I feel strongly that this is a subject  worth continuing as the impact on acceptance of mortgage applications could be considered as seismic.  MMR places far more responsibility on the lender for making fully informed decisions on new applications and with a particular emphasis on affordability. Not just for now but taking into account the foreseeable future too! Lenders will require the applicant and their advisor to assess what may happen financially in the next five to ten years and their underwriting decisions will be based around this. So, the message is ensure that when you start the application process you have a full schedule of income and expenditure to hand. Advisors and lenders worth their salt will require this.

That said, business remains brisk and lenders are keen to move their mortgage funds quickly and have targets to hit in the remainder of the year.  So, if everything about your application makes sense then there should be a lender and product ready to fit your requirements. With this in mind a very important part of the application process is the completion of a Fact Find. No self respecting mortgage broker will be without one! This is a data capture document which examines everything about the applicant in a financial sense ensuring that the advisor has as full a picture about you as possible before  providing formal advice and recommendation. At that time, your advisor will also require a great deal of supporting documentation as part of the process. This will include the need to prove identity and residency, usually by way of a passport and utility bill. Other required documents will include proof of income by way of pay-slips or accounts and three months personal and business statements. The list is not exhaustive and will be determined by individual lender requirements and these can vary quite widely. Don't be surprised as the lenders are entitled to gather sufficient information about you to make a reasoned and sensible lending decision.   

I regularly close with the suggestion that you talk to a qualified advisor before you start the application process. This has never been more important than now given the new world of MMR

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.

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!    

Help to Buy New Build extended and FTB mortgages increasing!

Good news for those looking to buy a new build property, Help to Buy phase one is being extended to the end of the decade.  The first phase of Help to Buy allows borrowers with a 5% deposit and  75% mortgage to secure up to a 20% loan from the Government for the remainder. The loan will be interest-free for five years and will be repayable on sale.  To qualify, new build homes must be worth less than £600,000.  The Government say this extension will allow a further 120,000 homes to be built. 

Lending to First Time Buyers reached its highest quarterly total since Q3 2007, according to figures released by the Bank of England.   The value of lending to those taking their first steps on the housing ladder grew 41% from the fourth quarter of 2012 to quarter 4 2013 amounting to £10.6bn.

Virgin Money has increased its borrowing limits from 70% to 75% loan to value on a Buy to Let property.  This is good news and rates start in the mid 3% range, depending on circumstances and their products have £750 cash back to help towards costs.  Lender fees on these products range from £995 right up to 2.5% of the loan amount.

Halifax has revealed that is cheaper to buy than rent.  The average monthly costs associated with owning a three bedroom house stood at £645 in December 2013, 16% lower than the typical monthly rent of £769 on the same property type.  This is a significant shift since 2009 when the average monthly costs for owning were £646 and renting £652.

Finally, 83% of non homeowners aspire to join the property ladder, but despite the return of 95% mortgages under Help to Buy 2 (mortgage guarantee scheme), 62% of these ‘would be first time buyers’ still cannot afford the necessary deposit.   The study, by leading mortgage insurance provider Genworth, also highlighted there is widespread ignorance about Help to Buy 2 with 40% of aspiring homeowners having no knowledge of the scheme or no understanding of how it works!!   This does surprise me and I would always say seek independent advice to find out the best options.   

Good time to remortgage

The remortgage market is awash with lenders actively looking to attract new customers.  Whether you want to fix your monthly payments for a period of time, or you fancy a low rate tracker mortgage, or maybe both - a tracker rate with the option to fix later on, there are plenty of great products currently available.  Many lenders are offering superb remortgage opportunities with minimal costs to change, including free standard valuations (lender survey on your property) and legal costs (solicitors or conveyancer to register the charge in the new lenders name).  Rates are competitively low and mortgage product choice is at its highest for some time.  So pull out that paperwork and have a no obligation conversation with your local, independent and whole of market mortgage advisers!

Alternatively, if you are looking for additional funds, but are already on an attractive rate with your lender, there are other options rather than a full remortgage.   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, right up to 95% of the property value.   A secured loan is a 2nd, or subsequent charge which allows the equity in a property to be used as security.  There are also no 'up-front' fees to find although costs are added to the advance.   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.   Second charge lenders are also in the midst of a price war.  Many have reduced rates, one or two new lenders have entered the market and another has increased their maximum loan size up to £2m!  Rates vary depending on the customer’s circumstances and current level of borrowings.  Make sure you review all options available to you and always seek advice.

In either of the above the lenders are looking more carefully at affordability, not just for now but also any potential changes that may affect your income in the next five to ten years. Be ready for some fairly details questions when submitting an application!

Are you financially prepared for a rate rise over the next two years?

Many first time buyers engage the involvement of family members when it comes to purchasing their first property.   Either parents look to act as Guarantors to the mortgage, so giving the lender additional financial security.  Or it could be that they are ‘gifting’ the deposit towards the new purchase.

Gifted deposits can come from immediate family members, this can include step family, aunts and uncles and is acceptable for first time and subsequent buyers.  The money must be a transparent gift that has originated in the EU and can be easily traced back to the originating source.   A letter from the family member will usually be required and needs to advise the gift amount, relationship the person gifting the monies is to the applicant, confirmation that it is a gift and not a loan and therefore is not repayable, confirmation that they do not currently own the property being sold and that they will not live in the property or have any interest in the property post completion.

The average first time buyer purchase price climbed 16% over the last year, hitting a record high of £155,832, according to the latest First Time Buyer Tracker from LSL Property Services.  The average first time buyer deposit has also increased to £27,519.

Nationwide’s House Price Index has reported that UK House prices increased by 0.6% in February and were 9.4% higher than February 2013.  The average house price now sits at £177,846 across the UK and £345,186 in London.

Legal & General have found that two thirds of consumers are not financially preparing for a rate rise over the next two years.  Their Mortgage Mood quarterly survey highlighted that many borrowers are missing an opportunity to secure a long term low rate now, rather than regret later.

Finally, AToM was delighted to be recognised in the latest Mortgage Strategy Awards.  At an event deemed ‘The Mortgage Oscars’, held at the Grosvenor Hotel on Londons Park Lane and attended by over a 1,000 guests, AToM were placed second in the ‘Best Specialist Mortgage Distributor’ category.  Thank you to all who voted for us and well done Team AToM!