Close shave with Self Cert....and are you covered?

We almost had the return of "Self Cert" this week!  For those of you long in the tooth, back in 07/08, many lenders offered self cert mortgages, giving customers the ability to obtain a mortgage with absolutely no proof of income or affordability.  The history since then is pretty obvious and we must give credit to the regulator for keeping these mortgages out of the market since.  However, for four days last week, one foreign lender appeared to bypass the UK regulations and offered Self Cert loans once again.  And just as quickly as they arrived, they were gone!  Was this just a test and is this the start of things to come?  Having watched the mortgage market brought to its knees and taking over 8 years to recover, let's hope not.

On a brighter note, NatWest have cut some of their rates, available through brokers, by up to 0.49%.  This covers a number of products across their range of offerings, including to First Time Buyers.  Many lenders have cut rates recently and there's even some murmurings that the Bank of England is also under pressure to cut rates, rather than increase them as the economy looks to be 'running out of steam', according to one recent article.  All of this can only be good news for the new mortgagee and budget planning!

Whilst in the 'planning' frame of mind, have you reviewed your current financial arrangements to ensure sure you are on the best deal available?   Whether you require the security of fixing your payments for an amount of time, or whether you are a bit of a risk taker and might look at a short to a medium term tracker, or a discounted option, right now, all are available at attractive rates in the mortgage market.

Other things to consider - Do you have a Will?  Statistics show that only one in three people currently have a will in place, with the remainder leaving the state to take over and determine how their assets and belongings are distributed, if they die.
Do you have Life Assurance, Mortgage Payment Protection, Accident Sickness and Unemployment cover, Critical Illness Cover, and more? Any of these products might be beneficial to your personal circumstances or needs, especially if you have children, and with competition increasing, these types of products are not as expensive as you may think.

Buying a Buy to Let in a Limited Company Name

It has been an interesting week in the mortgage market with many rate changes and new product launches.

Some of the more noticeable include the launch of products, from our friends at Precise Mortgages, designed to assist those looking to purchase investment properties (Buy to Lets) in a Limited Company name. With the forthcoming removal of tax relief, from April 2017, landlords will only be able to offset mortgage interest at the basic rate of tax at 20%.  This will affect higher rate tax payers, but also basic rate tax payers if they are pushed in to the higher rate bracket, perhaps as a result of their rental income.  As a result, we are seeing more and more customers look at a Ltd Company Special Purpose Vehicles to hold their investment properties and provide  more efficient tax benefits under current legislation.  Obviously, tax advice should be sought as individual circumstances vary!

Sticking within this area, AXIS Bank, a relatively new lender, have lowered their rates by as much as 0.30% for their Ltd Company mortgage offerings. We are seeing more and more lenders launch into this arena and price their products very competitively.

More mainstream lenders, such as Santander, Shawbrook Bank, Coventry Building Society and Barclays have reduced a selection of their Buy to Let rates and some of their Residential rates by up to 0.5%. 

Conversely, with lenders reducing rates and volumes for the New Year on the increase, we are seeing more people being declined.  Not necessarily due to adverse credit, but because their credit score is not as high as they thought, and they don't meet the lenders requirements as a result.

Credit scoring is one of the most widely used means to assess a customers ability to obtain a mortgage.  All credit scores include a credit search – this reviews your financial history, payments to utility suppliers, mobile phones, etc. Almost every financial institution from mobile phone companies to insurance companies will carry out a credit search before offering you their services. This can also be a negative though, as the more credit searches you have, the lower your credit score may be. 

The high street lenders, in the main, use credit scoring.  However, do your homework as many smaller lenders will offer just as attractive rates, but they will manually assess your ability to obtain a mortgage and use a human to assess your credit profile, rather than a computer aided credit score decision making system.  

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!  

No maximum age on some mortgages..

Halifax have recently carried out a survey and found that many customers are now choosing a longer term in which to repay their mortgage.  Some lenders now offer up to a 40 year term.  Of the First Time Buyers that were surveyed by the lender, 26% took a 35 year term.  Taking a longer term allows the monthly payments to be lower as the costs are spread over a longer period.  However, this also means that interest on the mortgage will be payable for longer.

From one end of the scale, to the other!  Over 65’s were given a boost this week as the Dudley Building Society has scrapped their maximum age limit entirely.  Older borrowers have struggled for sometime when it comes to mortgages in to retirement or later life.  With no limits, and human underwriting, rather than a computer decision, this will allow people to apply for mortgages when they don't conform to 'normal' retirement ages.  With most of the high street lenders wanting mortgages repaid by age 65 to 70 in the main, it's good to have lenders who will cater for those  who may not want to be released from their mortgage as yet, especially if they are continuing to work on or their pension and investment income is at the right level.

The year has started with something of a bang in the mortgage arena and we are already seeing lenders vying for business with new rates, terms, conditions and criteria changes designed to attract new customers.  The later life mortgages being just one such innovation!  Others include new Buy to Let products for both private and Limited Company purchases or re-mortgages. One lender will now do a 100% mortgage on a residential property as long as the applicants can manage the full payments themselves and that 20% of the mortgage can be charged against the equity of a parental property. This product has rates in the mid 3% range too.

Whatever your circumstances, it is possible that there is a suitable lender and product opportunity for you.  Maxims will always include ability to pay, credit history, deposit available, type of property and term required and the lenders overall assessment of affordability.

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.

That's it for 2015! Roll on 2016. Thanks for reading.....!

Amazingly, this is my last column of the year!  I enjoy writing each week and updating you on the mortgage world's good and bad, but I am looking forward to a couple of weeks without tight production deadlines to meet!

The door may be nearly shut on 2015 and, in many ways, I'm ready to kick it shut.  It's been a frustrating year as lenders have been neither here or there with their lending volumes and every one of them has had one eye looking over their shoulder for the regulator and the other looking forward in preparation for the new European Mortgage Credit Directives that are due to be implemented in March 2016.  Wouldn't it be nice if we could just have a couple of years without regulatory changes?

At the same time, it has been a year for building foundations for what I hope will be a fantastic 2016.  Once the new regulations have been implemented and with rates set to stay static for some while yet, mortgage lenders will be competing for business. A rate price war may happen and this can only be a good thing for the end consumer.  We will also be welcoming a number of new lenders to the market (and some returning) and this will help keep competition rife.  Good times ahead!

Finally, a heartfelt thank you for reading my columns.  I've tried to provide an unbiased weekly insight to what happens in the mortgage world (and tried to keep it upbeat!). 

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, November bringing more than £30m in new applications. Also, an increase in  headcount with almost 30 in the AToM team located between our two Horsham offices! They are a truly fantastic 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! 

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.