Secured loans are not as expensive as you think..

I'm finding it a really good time to be in mortgages!  Rates are low, customers need professional assistance more than they ever have done and competition in the market is at it's highest for some years. This is across all areas of the market place from Residential Mortgages to Buy to Let, and Bridging Loans to Secured Loans.

In fact, the latter has seen a large increase in demand. 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 usually start from £3.5k and now range right up to £2.5m!  There are also no 'up-front' fees to find although costs for valuations and legals (for example) 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, right up to 95% of the property value.

The secured loan is usually repaid over a shorter term than a mortgage, circa 3-7 years, but the term can be longer and up to 25 years, although this will increase the amount of interest repaid. Rates vary depending on the customer’s circumstances and current level of borrowings.  

This market is also predicted to grow in 2016 when a new EU Directive is implemented.  In short, when a customer wants to remortgage to raise additional funds, the intermediary/broker will need to demonstrate the best outcome for the customer and not only look at a full remortgage on a first charge basis, but compare with an appropriate secured second charge loan allowing the customer to keep the existing mortgage or a further advance with the existing funder.  Although the Directive is still a way off, the FCA principles already apply to firms and individuals so best outcomes and best practice for borrowers are at the forefront of any advice and recommendation. This demonstrates more than ever the need to seek professional advice!

More rate fluctuations and lenders dislike payday loans!

Rate fluctuations seem to have been rife over the last few days as lenders continue to compete for business.  Barclays have cut some Help to Buy rates by up to 0.7%, Accord Mortgages cut their five year fixed rates by up to 0.2%, both Skipton Building Society and Santander launched their lowest ever two year fixed rate deals whilst The Mortgage Works (the Buy to Let arm of Nationwide) has launched the first ten year fixed rate mortgage for Buy to Let customers.  This is all good news for the end consumer but also shows how comfortable lenders are in promoting fixed rate monies over variable rates.  To me, this is in line with the general market consensus that the Bank of England base rate is probably not going to change for some time yet.  

Affordability plays a huge part in a lenders decision to assist customers with mortgage finance.  All lenders will look at the customers ability to repay any loan both now and stress tested to higher rates in the future.  As a result, some lenders have restricted the maximum they will lend to customers depending on their deposit.

This week, we have see Woolwich cap their income multiples for all loans over 80% of the property value.  For anyone with less than a 20% deposit, income calculations will now be a maximum of 4.5 x income (previously this was up to 5.5).  This is possibly as a result of recent Bank of England stipulations that only 15% of a lenders mortgage book may be loans with more than 4.5 x income calculations.

And finally, the news streams are saying this week is one of the busiest for customers looking to take out payday loans to pay off post Christmas debts.  I can't advise you either way, but I will say that if you are looking to take out a mortgage in the next twelve months, and you have had payday loans, be aware that lenders are likely not to assist you.  Payday loans are treated much like adverse credit but lenders are more likely to accept someone with historic adverse than someone who has taken out payday loans.  Homework is therefore crucial! 

Activity is high and criteria is changing!

A number of lenders have launched ten year fixed rates!  One even below 3% (up to 60% of the property value).  This is a bold move by the lenders but attractive if you know your movements are going to be minimal over the next ten years.   However, the expectation that the Bank of England base rate may stay at its historic low for some while longer yet might encourage more people to consider a variable or tracker type mortgage rate over a long term fixed rate.  It's a difficult decision to make.

According to the Halifax, more borrowers purchased their first home last year than in any year since 2007.  Some 326,500 first timers purchased a home in 2014, up 22% from 2013.  The lender also reported that first time buyers accounted for 46% of all mortgaged house purchases last year.

Halifax House Price Index suggested that house prices rose at their slowest pace for 11 months in the three months to December.  The average house price hit £188,858 last month, representing 7.8% growth from £175,193 in December 2013.  On a monthly basis, prices grew 0.9 per cent from £187,197 in November and the lender says it expects house prices to grow between 3% and 5% in the next year.

Metro Bank have launched in to the Buy to Let portfolio arena.  As well as looking at individual properties to let out, the lender will now consider funding up to 25 properties with a maximum loan of £5m.  Terms apply but for this type of investor, competitive, long term and flexible funding can be a scarce resource and therefore this is a welcome addition to funding options.

And finally, good news!  Charter Court Financial Services, who currently own mortgage specialist lender Precise Mortgages, has been granted a banking license.  The new bank, which will be called Charter Savings Bank will launch in the first half of 2015 and will be a welcome new addition in the sector.

My wishes for the year ahead..

I didn't make any New Years resolutions, purely on the basis I very rarely manage to keep them!  But if I were to make a wish list for the mortgage market, it would include Lenders becoming more lenient to the self employed, more lending for First Time Buyers and the over 65's and that we could find more builders! The latter point may not enthuse everyone, especially on a personal front living locally, but the economy undoubtedly needs more house building.

That said, there does appear to be much building work going on locally, mainly by large property developers. In addition, we are seeing many enquiries for those looking to build their own dream home. Many have been enquiring about mortgages to buy a property, knock it down and build a new one in the same location.  These are normally called Self Build Mortgages or Development Projects.  Others are looking at substantially renovating their existing properties.  If you are considering either of these, have a chat with a local architect first to see if your plans are realistic possibilities. They will have a good idea as to what the local Council Planning Officers will accept and of course, what they will reject!   Lenders then may look to lend funds on a stage payment basis. Stage one might be the foundations, stage two might be ground level and so on.  Each stage would require sign off by the buildings inspector, and often the lenders own valuer, then funds would be released.  The lender may not lend the full build amount, so be prepared to put in a reasonable deposit, especially at outset to demonstrate your own commitment.  For extensions and renovations, it may well depend on the size of the work and what funds are required. 

Some of the lenders in this sector may not be household names.  As many lenders fight for customers business in a tight market, we are seeing some of the smaller lenders offering market leading rates as well as niche products to build up their portfolio and attract new business.  Nevertheless, they are still there to lend and it is always worth shopping around before committing.  Competition can only be good for the end consumer.

Thank you for reading my columns! Have a super Christmas and relaxing New Year!

Quite unbelievable that this is my last column of the year, where has the time gone?  It's been a busy year but at the same time, frustrating, testing, enjoyable and thankfully full of both hope and opportunities.

As we shut the door on 2014, we look forward to next year and the promise of good things that lay ahead.

We have a new housing minister (again!) who looks like he may understand our markets and could be the right man for the job.   The housing market itself is vastly under delivering the number of properties actually needed, so house building and growth in 2015 will have to be on the increase.

The new Mortgage Market Review regulations have settled down and are now a daily part of our lives.  We look forward to the next big thing to impact our lifestyles - the EU Mortgage Directive, due in 2016!  And, of course, we have the Election just round the corner. Exciting times!

However, lending for 2014 is expected to reach circa £200bn.  Many mortgage pundits are expecting this to increase to £225bn in 2015, an increase of 12% (+).  This will ensure lenders remain competitive to attract new business and meet targets and this can only be a good thing for the end customer.

Finally, a heartfelt thank you for reading my column.  I've enjoyed providing a (hopefully) unbiased weekly insight to what happens behind the scenes in the mortgage market.  What an eventful year it has been to report on!

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 growth in both volume, November saw more than £24.5m in new applications and staff numbers, with our headcount now over 25 between our two Horsham offices! They are a great 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! 

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? 

People over 40 yrs old should be able to get a mortgage!

It was interesting to see many of the national press last week covering stories on how difficult it now is to get a mortgage if you are aged over 40.  The articles suggested that many first time buyers are now not able to purchase their first home until they are 40 years old, or even up to 50 years old, report some lenders.  However, this can then limit the availability of mortgage finance, as many lenders want loans to be paid off by normal retirement age (67).  With the Mortgage Market Review (MMR) rules now firmly embedded in the day to day calculation of mortgage finance and lenders making decisions based on the customers ability to pay back what they have borrowed, age can now affect affordability. Especially for the more mature applicant or if a customer wants to retire before the end of the mortgage term.  Of course a shorter term means a hike in monthly repayments which affects affordability issues, and so on. 

Despite many high street and household name lenders setting a maximum age at the end of the mortgage term, usually circa 70 years old, there are an increasing number of smaller building societies and other specialist lenders who will consider a much older maximum age of 80+.  This will be subject to affordability, lending criteria and the customer working or having a defined income long after normal retirement ages.

The rules and regulations are there to protect the end consumer, and in the main are working as required.  We will see criteria relaxed over time, and they will need to be as many customers are now working long in to their later years.

So the bottom line is that just because you are aged over 40, does not mean that mortgage finance is unavailable to you.   But be wary that any lender will want a full and detailed explanation on how you will continue to make your monthly mortgage payments if the term of your loan exceeds 'normal’ retirement age – whenever that may be!