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Mortgages

Equity Release Mortgages

If you are interested in releasing money from your home then contact us. Lifetime Mortgages are a very flexible way of helping you to a more comfortable retirement or helping with those later life expenses.

Buy-to-Let changes

As you are no doubt aware the buy-to-let market has endured many changes over the last few years and some of these are still being implemented. If you have forgotten or just want a reminder here are the main points.

  • Stamp duty – additional stamp duty on second property purchases which of course includes BTL.
  • Tax relief – change to the way it is applied and therefore affecting higher rate tax payers.
  • Rental income – change to the way it is added to your overall income therefore possibly putting you in a higher rate of tax band.
  • Wear & tear allowance – removed and replaced with an actual cost basis for certain allowable items.
  • Changes to rental criteria – Prudential Regulatory Authority (PRA) implements minimum rental criteria.
  • Portfolio Landlords – Criteria changes affecting landlords with 4 or more mortgaged BTL properties.
  • Energy Performance Certificate (EPC) – change to minimum E rating.
  • House in Multiple Occupancy (HMO) – change to licensing laws.

Gone are the casual days of purchasing a BTL property to gain income or capital. You now have to really consider if and how you intend to purchase a property and how the new tax system may affect you before you do anything. If you already own a BTL property or considering buying one, then it is even more important for you to seek all the guidance you can from both mortgage advisers and tax specialists/advisers or an accountant.

If you wish to discuss any of these points then do hesitate to contact me.

Buy to Let Portfolio Landlords

Well the buy-to-let market is being squeezed again with the new landlord portfolio rules which have now taken effect. Any landlord with 4 or more rented properties will be classed as a portfolio landlord and therefore where any additional property purchase is being done will have to show affordability across the whole portfolio.

Not only this but an increased amount of information and documentation will be requested by most lenders to support any mortgage application. Minimum income levels have been introduced by many lenders for portfolio customers and therefore together with the tax changes already introduced make it even tougher for customers to purchase a property or swap and change lenders by remortgaging.

Mortgage Brokers are therefore paramount in helping you find the right lender and obtain the right mortgage, whatever your circumstances.

Mortgage broker

Mortgage rates across the lender spectrum are still varied and continue to go up and down like a yoyo! While some lenders increase their rates across a loan-to-value sector another lender will bring them down. This is typical of the market as lenders either increase or decrease their products to attract or deter customers. Why, service levels! Service levels are paramount to lenders and therefore depending on their current activity levels they will manipulate not only their rates but their credit score card. By either tightening or relaxing their score card it will again let more or less customers through their underwriting and affordability model.
This is where mortgage brokers come into their own. A good mortgage broker will scan the market to see who is doing what and therefore which lender should help you in achieving a mortgage.

The Market

2015 has seen a sluggish start both in the property purchase sector and new mortgage approvals. Over the last several weeks we have seen much competition with lenders reducing their new product rates. I can see these fantastic rates continuing for the rest of the year as the market continues to stagnate and competition escalates.

Stamp Duty

Well its finally happened. The Government has finally listened to the industry and tapered stamp duty. For most people, which are typically the buyers of properties worth less than £1 million pounds, you are likely to save hundreds and in some cases thousands of pounds.
Whereas previously you paid stamp duty on the whole purchase price of the property at whatever percentage it was for your banding, you now only pay the percentage for the amount in that banding. Also you no longer pay stamp duty on the first £125,000 whereas again previously once you went past £125,000 the whole amount was included in your banding.
For example; If you buy a house now for say £300,000, the breakdown is nothing on the first £125,000, then 2% on the next £125,000 (banding £125,001 to £250k) and 5% on £50,000 (banding £250,001 to £925,000), therefore £5,000 in stamp duty. Compare to the previous regime whereby it would be 3% on the whole amount, therefore £9,000.
One caveat to this, if you had already exchanged contracts before the 5th December then you could actually choose which regime you wanted pay stamp duty on.

Interest rates

The Bank of England certainly confused the industry over the last few months with rumours that interest rates may have to increase sooner rather than later. This reckless statement stagnated the industry which basically resulted in the whole industry coming to a stand still. All of sudden nobody was moving or re-mortgage due to the threat of higher interest rates.
As you may already know this caused a halt in property price increases and a dramatic slow down in mortgage approvals. The knock on effect to this is that many lenders are going to fall short of their annual targets which has resulted in interest rates coming down significantly on many mortgage product across the board. So now might be a good time to lock into that 2 or 5 year fixed rate.

The good side effect of this is that inflation is down and the economy slightly stalled which has resulted in the threat of interest rate increases diminishing. Many economists now believe interest rates may not increase until the back end of 2015 or even early 2016.

Mortgage Market Review

The Mortgage Market Review (MMR) comes into effect on the 26th April and will distinctly tighten up lending. Due to new MMR rules lenders have become stricter on their affordability calculators and we will find that a customer may not get offered the mortgage loan amount they require or in worst case scenarios not even be offered a mortgage.

The big difference to the past is lenders will look a lot closer at a customers expenditure and how they spend their money. Stress testing will also be much more vigorous whereby lenders will ascertain whether you can afford the mortgage payments assuming a higher interest rate.

Although there are many negatives of the MMR one advantage is that affordability can now be extended past a 25 year term. This means that is some cases a customer may need to opt for a longer term than 25 years to meet the lenders affordability calculator, but in doing so may obtain the mortgage loan amount they require.

Short or long term rate

Many customer ask should they have a short term fixed/tracker rate or longer term. Personal preference aside, short term (2 year) rates are some 1% cheaper than longer term (5 year) rates. If its about monthly costs then a 2 years rate would be the one.
What is the Bank of England base rate going to do over the coming years I hear you ask! Well with the recent news coming from the Governor and with RPI coming down to 2% then there is less pressure on the BOE to increase rates anytime soon. With the economy still sluggish it is reasonable to assume that rates will not increase until 2016. Even if they do it is not expected to be big increases but small amounts from time to time.
However, in saying this 5 year rates are very competitive, particularly below 70% loan-to-value and therefore if interest rate increases worry you there are some good deals to be had.

Help to Buy

The Help to Buy scheme is there to help both first-time buyers and next-time buyers. There are two schemes, 1 and 2.
Scheme 1 is to purchase a new-build property with as little as a 5% deposit. The government provides upto 20% of the purchase price (maximum £600,000). You must pay back the governments share within 25 years. Although you won’t pay any interest on the 20% government bit for the first five years of the mortgage loan, after five years you will be charged 1.75% above the base rate (currently 0.5%).
Scheme 2 is basically for a next-time buyer with again a minimum of 5% deposit. It is for a new-build or second hand home. The government is basically guaranteeing the lender on any losses over 80% of the property value. You cannot have any interest in any other property and therefore this must be your only property.

Scheme 1 is relatively widespread with a number of lenders offering this type of mortgage. However, at this time there is only Halifax and Nat West offering scheme 2 with a few other lenders expected to come into the market in 2014.