Email Usthumb
Categories
Other Finance News

What is Invoice Finance? Advantages and Disadvantages

Invoice finance provides businesses with the opportunity of accessing money they are owed by their own customers in advance. In doing so, delays between issuing invoices and collecting payments can be shortened, or eliminated entirely.

Where the business issues an invoice, the recipient may have anything from seven to 90 days to pay – sometimes even longer. During which, the business must continue to make ends meet with its own on-hand capital reserves.

Effectively a financial ‘gap-filler’ for such scenarios, invoice finance allows the business to access its owed capital immediately.

How Does Invoice Financing Work?

Invoice finance can be beneficial for any business (or sole trader) for which significant gaps between raising invoices and receiving payments are the norm.

The facility is arranged by a specialist lender, who takes into account the company’s financial status, and the professional background of the applicant.  Pending invoices are then used to determine how much the business is owed, and the lender issues a loan to cover this outstanding amount.

Over the subsequent weeks or months, the business repays the loan as they collect payments from their customers.

“As the culture of late payment continues to rise here in the UK, the threat that this poses to businesses also grows. Our recent survey results highlight just how vital invoice finance is to businesses,” explained Phil Chesham, head of invoice finance at Time Finance.

“Of the business owners surveyed, 67% reported that an invoice finance facility helps them to pay suppliers, HMRC, employees and other financial commitments on time. 50% told Time Finance that it helps to manage late payments from customers and over one third said it helps them to better combat the current economic challenges such as rising costs and inflation,”

“With late payment debt as high as £200,000 for one in five UK SMEs, invoice finance solutions are as vital as ever and with the addition of our credit control service here at Time Finance, we can really take the strain away from chasing payments and protect our clients’ customer relationships.”

What Are the Advantages of Invoice Finance?

The potential benefits and cost-effectiveness of invoice finance will always vary significantly from one business to the next.

For those who stand to benefit from an invoice finance agreement, the main advantages of the facility are as follows:

  • Access to Quick Cash – Businesses with plenty of liquid capital always enjoy a competitive advantage over those with limited cash reserves.  With invoice finance, the business gains access to the money it is owed, right after its invoices are issued. 
  • No Assets at Risk – Invoice finance is issued in the form of a specialist unsecured loan, for which the invoices themselves serve as a form of collateral for the facility. This means no physical assets need to be put on the line and subsequently put at risk.
  • Missed or Late Payments – It can also be a useful facility for avoiding (or minimising) the consequences associated with missed or late invoice payments. Where customers pay late, the business can still access the money it is owed in a timely manner.
  • Reputation Protection – Most businesses rely on their customers’ payments to meet their own payment obligations. Invoice financing can make it much easier for businesses to keep to their own commitments, protecting both their reputation and their credit status.

What Are the Disadvantages of Invoice Finance?

Invoice finance is not suitable for all businesses and there are downsides to such agreements that must be considered. The most important examples of which are as follows:

  • Restricted to Business Customers – The only invoices that can be paid early as part of an invoice finance deal are those issued to other businesses.  Invoices issued to the general public cannot be claimed early on invoice finance.
  • Potential Relationship Strains – With some types of invoice financing (invoice factoring), the lender subsequently takes charge of chasing up the borrower’s customers for payment. Depending on how this is handled, it could result in frayed relationships between the business and its customers.
  • Long-Term Costs – Invoice finance can prove a highly cost-effective and beneficial solution, but is never offered free of charge. Irrespective of the terms, conditions and duration of the agreement, it will always result in additional costs for the business.

All of the above pros and cons will be discussed in full during your initial consultation, during which your broker will help you determine your suitability and eligibility for invoice finance.

Invoice Finance in Practice

To illustrate how invoice finance works in practice, consider the following example scenario:

  • A small business issues an invoice for £5,000 to a customer, with a 30-day payment deadline
  • The business would like to get this money back as quickly as possible, in order to invest it in a new project
  • An invoice finance agreement is reached for 85% of the value of the invoice, and with total borrowing costs of 3%
  • The business receives a payment of £4,250 from the lender i.e. 85% of the value of the invoice raised.
  • When the £5,000 invoice is paid, the full £5,000 is transferred directly into the account of the lender
  • The borrowing costs (£150) are subtracted from the remaining value of the invoice (£750), and the remaining £600 is transferred back to the business.

All invoice finance contracts are bespoke agreements, tailored to meet the exact requirements of the business in question. Though in most instances, the logistics of invoice finance are fairly similar and surprisingly straightforward.

For more information on any of the above or to discuss the potential benefits of invoice finance in more detail, call anytime for an obligation-free consultation.

Categories
Bridging Loans

What is Stamp Duty (and How Can a Bridging Loan Help)?

With the Stamp Duty holiday having officially ended, normal rates have resumed. This means that both first-time buyers and movers alike must once again factor Stamp Duty costs into their property purchase decisions.

What is Stamp Duty?

Getting to grips with the fundamentals of Stamp Duty is fairly straightforward, but essential nonetheless. Stamp Duty is payable on millions of property transactions each year, but not everyone is liable for Stamp Duty payments.

For example, residential property buyers in England and Northern Ireland pay no Stamp Duty on the first £125,000 of the property’s value. In addition, first-time buyers pay no Stamp Duty on the first £300,000 of their home’s market value.

After which, 5% is payable on the price of the property between £300,000 and £500,000. Higher rates apply for properties valued at £500,000 or more.

This means that most first-time buyers are not liable for Stamp Duty payments at all, with most property transactions in the UK falling below £300,000.

Different rules apply in Wales, where Land Transaction Tax is payable on homes valued at £180,000 or higher. Likewise, homes valued at £145,000 or more (or £175,000 for first-time buyers) are subject to Land and Buildings Transaction Tax in Scotland.

But what remains consistent across the board is the requirement to pay this property purchase tax as quickly as possible. You have just 14 days to make the payment in full, which is where a fast-access bridging loan could get you out of a bind.

Stamp Duty on Second Homes

Existing homeowners purchasing a second property in England or Northern Ireland with a value in excess of £40,000 are liable for an additional 3% Stamp Duty payment (on top of the normal sum).

This applies to holiday homes, buy-to-let properties and second homes in general, but does not apply to houseboats, caravans and other non-static homes.

This higher-rate Stamp Duty may also be payable if you complete the purchase of your next home before selling your current home. However, you will be able to apply for a refund of this additional 3% Stamp Duty once the sale of your previous home is complete.

If you need a temporary financial solution to ‘bridge’ the gap between buying and selling, an affordable bridging loan could be just the thing.

Call UK Property Finance anytime to discuss the potential benefits of bridging loans in more detail.

Current Stamp Duty Thresholds

As of October 1st 2021, the following Stamp Duty threshold came into effect for most homebuyers in England and Northern Ireland:

Proportion of property valueStamp Duty paid
Up to £125,0000%
£125,001 – £250,0002%
£250,001 – £925,0005%
£925,001 – £1.5m10%
£1.5m+12%

Land Transaction Tax (LTT) applicable in Wales as of July 1st 2021 are as follows:

Property valueLand Transaction Tax paid
£0 – £180,0000%
£180,001 – £250,0003.5%
£250,001 – £400,0005%
£400,001 – £750,0007.5%
£750,001 – £1.5m10%
£1.5m+12%

Home purchases in Scotland are currently subject to Land and Buildings Transaction Tax (LBTT) at the following rates:

Property valueLand and Buildings Transaction Tax paid
£0 – £145,0000%
£145,001 – £250,0002%
£250,001 – £325,0005%
£325,001 – £750,00010%
£750,001+12%

Stamp Duty on Buy-to-Let Properties

Private landlords have been hit particularly hard by recent tax reforms in the UK and are also subject to higher Stamp Duty payments than conventional homebuyers.

A 3% surcharge now applies on all BTL property purchases valued at £40,000 or over – a full breakdown of current thresholds is as follows:

Proportion of property valueStamp Duty paid
Up to £125,0003%
£125,001 – £250,0005%
£250,001 – £925,0008%
£925,001 – £1.5m13%
£1.5m+15%

Buy-to-Let properties are subject to different taxation rules in Wales and Scotland – the respective information for which can be found on each country’s official government website.

Bridging Loans for Stamp Duty Payments

It is a legal requirement to meet HMRC’s Stamp Duty demands within 14 days of a property purchase being agreed. After which, significant penalties may be payable, increasing as the debt remains unpaid.

This is where affordable bridging finance has the potential to save homebuyers time, money and stress. If difficulties are encountered covering Stamp Duty obligations, a short-term bridging loan offers an ideal solution.

Unlike most conventional loans, bridging finance can be arranged within a few working days. This makes it ideal for covering time-critical expenses, where delays could lead to further costs and complications.

In the case of Stamp Duty, a bridging loan could be taken out to cover the required payment and repaid after a few months. Bridging finance is typically charged at a rate of around 0.5% per month, making it a uniquely cost-effective facility when repaid promptly.

A few common features of bridging loans:

  • Funds can be arranged and accessed in a few days
  • Loans available from £10,000 with no upper limits
  • No monthly repayments or initial deposit
  • Interest rates as low as 0.5% per month
  • Open to poor credit applicants and self-employed workers
  • Can be secured against most types of properties
  • Ideal for time-critical tax payments

Bridging loans are issued primarily on the basis of two things – security for the loan and a viable exit strategy. In the case of Stamp Duty payments, most bridging loans are repaid when the borrower’s previous home sells, or with personal savings accrued over the course of several months.

It is even possible to repay bridging finance with a conventional unsecured loan or personal loan, which can then be repaid gradually with affordable monthly instalments.

If you have any questions or concerns regarding your capacity to meet your Stamp Duty obligations, call UK Property finance anytime for an obligation-free consultation.

What Other Purposes Can Bridging Loans Be Used For?

The beauty of bridging finance lies in its versatility, as the funds can be used for almost any legal purpose.

Just a few of the most common applications for bridging loans in the UK include the following:

1. Escaping the property sales chain

Bridging finance can grant existing homeowners with the spending power of a cash buyer when looking to relocate. Rather than relying on the sale of their current home to fund their move, they can buy their next home with a bridging loan and repay the facility at a later date when their previous home sells.

2. Renovations, restorations and conversions

Sellers intent on selling their properties for the best possible price often conduct repairs and renovations, prior to putting them on the market. Bridging loans are commonly used to fund minor, moderate and major renovations to residential properties, with the aim of repaying the loan when the property sells for an agreeable price.

3.  Auction property purchases

Buying a low-cost property at auction means paying the full outstanding balance within 28 days; as bridging finance can be organised within a few working days, it is ideal for funding time-critical purchase and investment opportunities like these.

4. Fast purchases 

It could also simply be that you have found your dream home at an unbeatable price and you would prefer not to be beaten to the punch by a competing bidder.  With bridging finance, rapid property purchases are possible without having to rely on conventional loans or mortgages.

5. Starting a business 

Bridging finance also has an endless range of business and commercial applications. Many borrowers use bridging loans to raise the funds needed to start a new business, repaying the loan at a later date when their start-up begins turning a profit. Lending criteria for bridging finance is fairly relaxed, making it ideal for entrepreneurs with no provable experience or track record.

How Can I Get a Bridging Loan?

The key to getting a good deal on a bridging loan lies in seeking experienced broker support at an early stage. Your broker will help determine your suitability for bridging finance before scouring the market to find the perfect product for your needs.

They will also negotiate on your behalf to ensure you get an unbeatable deal, while ensuring your application is processed as quickly and smoothly as possible.

For more information on any of the above or to discuss the benefits of bridging finance in more detail, contact a member of the team at UK Property Finance today.

Categories
Bridging Loans

Bridging Applications Fall by More Than 50% in Q1 2022

New data from the Association of Short Term Lenders (ASTL) indicates a dramatic decline in bridging loan applications for the first three months of the year. According to the ASTL’s figures, application volumes were down more than 50% in Q1, coming out with a total combined value of £6.3 billion.

Bridging loan completions were also down for the period – a 15.8% decline from the previous quarter, with a total combined value of £1.04 billion.  However, both figures remain higher than in Q1 last year, and the outlook for the sector as a whole is generally positive.

Q4 2021’s record-breaking performance for the sector rendered it practically impossible for a similar performance to be achieved during Q1 of this year.  Along with a decline in bridging loan applications, the average bridging loan LTV also fell in Q1 – down from 61.2% in the previous period to 58.7%.

A Predictable and Temporary Shortfall

Commenting on the findings, Vic Jannels, CEO at the ASTL, suggested that the figures came as no real surprise.

“The latest ASTL data survey shows a reduction across most areas in the first quarter of 2022 — however, this is set against record results at the end of last year and the volume of lending continues to be strong,” he said.

“Given the current context of global uncertainty and increased living costs, it’s perhaps reassuring that record growth has been curtailed and the market is continuing growing at a steadier pace,”

“This points to high standards of lead qualification and underwriting across our members, who are continuing to provide the bridging finance that customers need, in a way that is robust and sustainable,”

“Average LTVs have fallen and the fact that the value of loans in default has now fallen for five consecutive quarters shows that lending continues to be responsible and customer focused.”

Cash Remains King

Elsewhere, Dale Jannels, MD at Impact Specialist Finance, spoke with confidence about the sector’s broader performance in general. He suggested that while competition remains ferocious on the UK housing market, consumers will be compelled to consider alternatives to conventional mortgages.

“This latest Bridging Trends Report highlights more than ever that cash is king,” he said.

“This applies to homeowners wishing to get their offer accepted before they have sold their own property, as well as investors wanting to raise funds quickly to invest in stock or refurbish existing to achieve better yields for example,”

“The shortage of suitable housing stock will undoubtedly drive increased volumes in the bridging sector for the foreseeable future.”

Bridging finance effectively gives homebuyers the spending power of a cash buyer, enabling them to opt out of traditional property chains entirely.

A move that can be beneficial in a variety of ways, as explained by Toto Lambert, a partner in Knight Frank’s Chelsea office.

“Being a chain-free buyer means that there are fewer hurdles to jump over when buying a home. The longer a property chain is, the greater the possibility of a transaction falling through, as you are reliant on other people’s property sales and therefore other people’s problems,”

“Being a chain-free buyer also means that you can often offer a greater level of flexibility if required, for example timescales to exchange and completion,”

“Flexibility can help in the initial negotiations with a seller and may put you in a favourable position, particularly if there are multiple parties interested in the home you want to buy.”

Categories
Other Finance News

All-Encompassing Guide To Responsible Lending & Debt Consolidation

When borrowing funds, it is common for prospective lenders to assess one’s financial assets and liabilities before dispatching money. Lenders evaluate your financial situation to determine your creditworthiness and reliability when paying off your loan on time. Responsible lending is the process that helps lenders to assess your ability to undertake a loan and make repayments without hindering your finances.

A debt consolidation loan is used to pay off multiple debts with a favourable interest rate and combine those payments into one. The borrower will pay one monthly fee instead of numerous charges each month. 

While it sounds like an ideal solution, consider its advantages and disadvantages before going ahead with debt consolidation loans. 

Responsible Lending

There are numerous short-term financing options that can help you obtain funds at short notice such as bridging loans and development finance. Both bridging finance and development finance loans offer investors a way out when facing a cash shortage. Irrespective of your choice of finance, responsible lending is a process that lenders rely on to predict your repayment ability.

Responsible Lending enables the lender to decide whether you are in a position to repay the debt promptly. The process entails a detailed analysis of the applicant’s ability to make repayments without disturbing their financial situation and takes into consideration how potential future changes to market conditions may impact an applicant’s ability to repay. 

Lenders utilise credit score examination to understand how well you have been managing your finances. Your credit score report acts as a catalyst for a potential lender. To ensure that you can repay the money borrowed, the lender often enquires about your income, monthly financial liabilities, and regular expenses. 

As per the FCA rules, credit card companies must monitor customers who get stuck in a ‘persistent debt’ cycle, including those who repeatedly make only the minimum monthly repayments over three years. 

Responsible lending practices reassure providers and assist customers struggling with repayments by either asking them to switch to lower rate products or suspending their credit cards to keep their debts in check. 

Financiers generally carry out all the necessary inspections before approving customers’ loan applications. However, the terms and conditions of the loan are subject to change anytime during the loan tenure, which may impact the customer’s finance. 

Debt Consolidation

Debt consolidation is the ideal solution for people with multiple debts who wish to merge all their outstanding balances into one single amount instead of making separate monthly repayments. Taking a new loan may enable you to settle all your debts and streamline your repayments as a single amount to be paid every month. 

In consolidated borrowing, there is no specific solution for everyone; interest rates on personal loans can be lower than other types of loans, however, applying for the advertised rate does not mean the lender will offer this. The interest rate offered varies depending on an individual’s circumstances and it is often necessary to have a good credit record to obtain a loan.

There are various options to repay debts, such as switching the existing debts from credit or store cards to a card with lower interest rates or even a 0% balance transfer, subject to one’s credit score. No interest is paid during the initial term, so your monthly payments will directly clear your debts. The interest rate will be applicable if you do not clear the balance before the initial period ends. Some cards may charge balance transfer fees up to 3%. Be aware of the promotional rates that only apply for a specific time.

Some options to overcome debt include working with creditors to settle the debt, using a home equity line of credit or getting a debt consolidation loan. Debt consolidation loans pay off multiple creditors and combine those monthly payments into one, sometimes at a lower interest rate. It sounds like an ideal solution considering both the pros and cons of debt consolidation. Debt consolidation combines two or more debts into a single more considerable debt. Often, consumers burdened with a high-interest rate take a step toward debt consolidation. In simple terms, debt consolidation gives you more favourable loan terms and potentially more competitive interest rates.

Advantages and Disadvantages of Debt Consolidation

Let us look at the advantages and disadvantages of Debt Consolidation:

Five Advantages of Debt Consolidation

  • Smooth Finances 

As debt consolidation combines multiple outstanding amounts into a single loan amount, it reduces the number of payments. You no longer have to worry about multiple due dates as you will only have one payment. Consolidation can improve your credit rating by reducing the chance of making a late payment or missed payments.

  • Accelerate Payoff

Debt consolidation sometimes incurs less interest compared to individual loans. In that case, you may consider making extra payments with the money you save each month. If debt consolidation leads to an extension of loan terms, you may wish to ensure that your debts are paid off early to see the cost saving. 

  • May Decrease Your Interest Rate

Bank of England figures reveal the average annual interest rates offered on credit cards have increased to 21.49% compared with the introductory rate of 0.1%. It is the highest average credit card rate since December 1998. However, the rates vary depending on your credit score, loan amount, and the length of your credit card term length. A lower interest rate may be available through a debt consolidation loan meaning more of your monthly repayment is used to clear the outstanding balance.

  • Could Reduce Monthly Repayment

Your overall monthly repayments may decrease with a consolidated loan by combining multiple payments into one monthly manageable figure. You may wish to increase the loan term to reduce your monthly repayment, however, you should take into consideration a longer loan term may cost more overall. 

  • Can Help You Achieve Better Credit Score

By consolidating your monthly repayments and outstanding balances you may see your credit score improve. Each credit agency has its system to calculate the credit rating in the UK; paying a single monthly bill is considered by these agencies to raise your credit score, as opposed to making the minimum payment across several different creditors.

Four Disadvantages of Debt Consolidation

  • May Add Up Extra Cost

Before going ahead with debt consolidation loans, make sure it does not involve additional fees such as arrangement fees, balance transfer fees, closing costs, and annual fees. Check the APRC (Annual Percentage Rate of Charge) before you sign the loan papers and ask the lender to confirm any other charges if you are unsure. 

  • You May Pay More Interest Over Time

Even if your interest rate goes down while consolidating, you could still pay more in interest over the life of the new loan. If you have extended the repayment term of your borrowing, although your monthly interest may be lower, interest on your loan will continue to be incurred for an extended period.  

  • You Risk Missing Payments 

Missing payments on any loan can impact your credit score, making it harder to obtain low-cost credit in future. It may also result in a financial penalty from the lender, which could increase your borrowing costs. To avoid missed payments you can enrol yourself in the lender’s autopay program or if you feel you can’t make a payment on time, whatever the reason, communicate with your lender as soon as possible.

  • Does Not Solve Underlying Financial Problems 

Consolidating debt can help to make debt more manageable, however, if you are habituated to living beyond your means, you may continue to borrow in addition to the debt consolidation loan. Making a realistic budget will help you to stick to your financial goals.

How Should I Consolidate My Debt?

Choosing to take a debt consolidation loan will depend on your financial circumstances. A few pointers when considering debt consolidation include:

  • A good credit score will give you a better chance of securing a lower interest rate than you have on your current debt, saving you money.
  • Your monthly repayment, interest rate, and repayment term are fixed, if you need a repayment plan to help reduce your debts a debt consolidation loan might be right for you.
  • If you do not like keeping track of multiple payments, a debt consolidation loan will combine all payments into one. 
  • Consider a debt consolidation loan only if you can afford to repay it, unlike credit cards where you the flexibility to make only the minimum repayment, a debt consolidation will have one monthly fixed repayment, and missing this could impact your credit profile.  

How Do I Get A Debt Consolidation Loan?

The following steps will help you to go ahead with a debt consolidation loan.

  • Lenders may have minimum credit score requirements; check your credit score to see if you meet the lenders standard for providing a consolidation loan. Inaccurate and incomplete information will lower your chance of getting a consolidation loan.
  • Decide your loan amount and add up the debt you want to consolidate to see how much money you need to borrow. Keep in mind arrangement fees may be added to the loan amount.
  • Thoroughly research various lenders; reviewing their websites will help you see eligibility requirements, loan terms, and fees. You can also take a debt consolidation loan from a bank.
  • Prequalification will give you an estimate of the loan rate and terms. Lenders generally use a soft credit check to confirm your eligibility, so your credit score will not be affected. 

While debt consolidation has several merits, it is essential to weigh up your options.

UK Property Finance is an FCA authorised financial services provider offering a wide range of services ranging from residential mortgages, secured loans, commercial finance, bridging loans and development finance

Depending upon the nature of your project, its status and stage, customised solutions are offered by our highly experienced team of professionals, who assist you in selecting the right product, the right loan amount and the tenure, the very best interest rates and complete details on repayment options. Contact us today to learn more about the best finance options available.

Categories
Other Finance News

Private Rental Costs in the UK Hit a New 14-Year High

UK rental prices have skyrocketed to a new 14-year high, achieving the fastest annual growth since the 2008 financial crisis. Coupled with the unprecedented cost of living increases, private tenants across the country are finding it more and more difficult to make ends meet.

Data published by Zoopla this week indicates an 11% increase in private rental prices during the first three months of 2022, taking the average cost of renting a UK home to £995. This equates to an additional £88 per month, compared to average rents at the start of the pandemic.

According to Zoopla, this extraordinary growth is attributed to dwindling availability within the private renting sector and growing demand, pushing average monthly rents higher as inventory runs short.

Since 2016, total average monthly rental growth in the UK has topped 16%.  However, UK rents have not kept pace with average wages or consumer price inflation, making it increasingly difficult for private renters to comfortably cover their outgoings. UK CPI hit a 30-year high of 7% in March.

Significant Increase in Gross Income Spend on Rent

Skyrocketing rents in key regions across the country have triggered a major spike in the proportion of gross income households are spending on their monthly rent. According to Zoopla, average rent outgoings now account for 37% of the typical single earner’s total income in the UK.

For those renting privately in London, the figure increases further to 52% – the highest level recorded since March 2020.

Over the course of 12 months, it now costs more than £20,000 to rent a typical home in London, according to the latest estimates from Zoopla.

“The tenancy renewal numbers we have seen so far in 2022 are unprecedented,” commented Gareth Atkins, Managing Director, Lettings at Foxtons.

“Steadily increasing demand, severely limited stock and a swift rise in rental prices are all compelling reasons to renew — and renters are responding.”

A Surge in Post-Pandemic Demand

Following two years of fairly stagnant performance, average monthly rents in the capital are once again rising rapidly – up 15% at the end of Q1 this year. As the return to city living gains pace, so too does demand for properties in and around major cities like London.

“The surge of post-pandemic pent-up rental demand will normalise through Q2 and Q3 however, which means rental growth levels will start to ease,” said Gráinne Gilmore, head of research at Zoopla.

“Affordability considerations will also start to put a limit on further rental growth although this may occur at different times depending on location,”

“Rents are likely to continue rising for longer in areas which have the most constrained stock levels — currently London, Scotland and the South West.” Zoopla’s report also showed how average tenancy lengths have increased significantly over the past five years, up from 51 weeks in 2017 to 75 weeks

Categories
Mortgages

Seven out of Ten First Time Buyers Delay Getting on to the Property Ladder as the Cost of Living Continues to Rise

Seventy percent of first time buyers are holding back on buying their first property as the cost of living continues to rise, according to a report released by Nationwide Building Society.

The research shows that people who were planning to get their foot onto the property ladder in the next 12 to 24 months have made the decision to hold off, chiefly due to the difficulty of saving up the deposit. With the cost of living spiralling, rocketing fuel prices, energy cap increases and the war in Ukraine, British household monthly outgoings have increased to the point where many potential buyers have no disposable income and therefore are unable to save.           

The expected time that first time buyers were expected to delay for, averaged out at two years, according to the report. Broken down, the figures showed that 57% would delay for two years, while 77% up to three years. Nearly 20% stated that they would now not buy for over three years in order to be able to raise the funds needed.

The report showed that there were variations in the figures according to region, with 23% in the South West and 28% in Wales saying they would wait more than three years.

The survey involved 2,051 participants, all first time buyers looking to purchase within the next five years. The biggest hurdle they identified was the inability to raise the deposit.

With the typical deposit at 10% it’s no wonder that first time buyers are struggling, as this equates to around 60% of the average gross annual income.

As far as the opinion on the most difficult aspect of home ownership, 28% felt it was coming up with the deposit, 14% thought that it was the ability to borrow a sufficient amount for what they wanted to buy and 12% considered keeping up the monthly payments to be the most concerning issue.

Nine out ten people surveyed felt that the current cost of living and the predicted further increases in interest rates and energy prices were the main reasons for not being able raise funds. 50% have reduced the amount they are saving, whilst a further 38% are using savings they have to help pay their monthly bills.

One of the questions put to the participants was whether they felt 2022 was a good time to purchase their first property resulting in an almost equal but split response, with 51% saying no and 49% saying yes.

Another problem that has arisen for first time buyers is the ever increasing property prices which has priced many potential buyers out of the market. Coupled with rising rental costs, 43% of tenants said saving for a deposit is just impossible, according to the report.

69% are considering looking at areas with more competitive housing prices in order to be able to buy a larger property. Willingness to move away from London and it’s typically high prices was recorded at 79%.

The report showed that most first time buyers expected to be on the property ladder at around 27 years old, although 30% felt that buying before 30 years old was highly unlikely due to financial pressures.

Due to all of these limitations, many first time buyers are considering the option to buy with someone else in order to realistically have a chance of making their first home purchase.

Categories
Other Finance News

Searches for Rental Properties up 76%, Zoopla Reports

Slowly but surely, some semblance of normality is creeping back into everyday life. Home working and hybrid working models look set to remain the norm for some, but millions are nonetheless finding themselves being summoned back to the office.

The mass exodus from major towns and cities has ended, and is beginning to show signs of a gradual reversal. According to Zoopla, this return to conventional office life is one of the key drivers behind a huge spike in the number of people currently searching for rental properties. Coupled with skyrocketing property prices effectively pricing millions out of the market, more people are setting their sights on private rents.

Specifically, private rental property searches were 76% higher in 2022 to date than during the same period of the last three years, Zoopla reports. More homes are being placed on the private lettings market than at this time last year, but not nearly at a pace sufficient to meet the demands of prospective tenants.

It has become the norm for landlords to have multiple parties effectively ‘bidding’ on their private rental properties at the same time, driving average monthly rents to record highs in many areas of the country.

Younger Tenants Leaving Parents’ Homes

Throughout the pandemic, millions of younger tenancy holders made the decision to terminate their agreements and move back in with their parents. As home working negated the need to continue paying elevated monthly rents in major towns and cities, the sensible option was to make huge savings by relocating.

Today, with almost all coronavirus restrictions having been removed, workers from across the country are once again being beckoned back to their original workplaces. Those who moved back in with their parents are frantically looking to secure affordable lets in major towns and cities, as are those who gained employment remotely during the pandemic.

For the overwhelming majority of these individuals, purchasing a property outright is not a realistic option.

In addition, those who are able to secure quality rental homes at affordable prices are in some cases signing longer agreements, in order to mitigate the risk of being forced to vacate their homes in the near future.

“We’re hearing from agents and landlords that tenants are signing longer leases, which has prevented some of the stock that would normally come back onto the market,” Tim Bannister, Rightmove’s director of property data said in a statement.

“When it comes to demand, we’re still seeing the effects of the pandemic, whereby tenants are balancing what they need from a home and how close they need to live to work with where they can afford.”

Along with rising rent costs, private tenants are also feeling the squeeze of skyrocketing energy bills and record-high inflation.

Categories
Mortgages

Legal Advice Has Become Mandatory for All Equity Release Customers

This month, the Equity Release council made it mandatory for all UK citizens looking to release equity to have at least one face to face visit with a solicitor before committing to any plan.

This marks a return to pre-pandemic criteria following a temporary change in rules by the Equity Release Council back in April 2020. The changes were made so that customers could still access equity release products when lockdowns were the norm and face to face meeting were not possible due to social distancing rules.

New equity release customers have been required to take out independent legal advice since the first industry standards were formulated back in 1991, with legal requirement of a face to face meeting added later in 2013.

With many companies across all industries forced to rethink their working environment during the pandemic, the temporary change to the face to face requirement was made with the application process being a mix of telephone calls, documented video and written advice.

This resulted in there being an increase in the amount of interaction between the client and the solicitor so that extra checks establishing the customers identity and whether they are of sound mind and have the mental capacity to enter into a legal contract, as well as the agreement to proceed by all parties with no coercion or duress.

Cases that were already in progress prior to the recent reversal of requirements,            must now reach completion by the end of July this year. All new cases as of the 19th April will now have the legal requirement for a face-to-face meeting with a legal advisor in order to be accepted for equity finance. Despite the changes only coming in this month, the first quarter of 2022 shows that most equity release customers did seek face to face legal advice.

Chair of the Equity Release Council, David Burrowes, commented: “The temporary amendment to our requirement for face-to-face legal advice served its purpose well by protecting customers and maintaining their access to vital funds in trying circumstances.

“The Council’s unique ability to bring together firms from across the market helped to identify a practical solution whereby customers were not cut off from money tied up in their homes, which in some cases was key to accessing care services when they most needed them.

“While restrictions have ebbed and flowed during the pandemic, we are hopeful the worst is now behind us. The time is right to return to the default of in-person legal advice while learning lessons about how technology can best support the overall process and customer experience.”

CEO of Equilaw and non-executive director of the Council, Claire Barker, added: “Independent legal advice is one of the unique distinguishing factors that sets equity release apart from other retail financial services when it comes to customer safeguards and protections.

“Legal firms were able to preserve this important link in the chain throughout the pandemic, despite the adverse operating conditions. Industry collaboration on risk management and sharing of best practice meant we could uphold standards of consumer protection and demonstrate this to lenders and funding partners.

“While face-to-face legal advice remains the gold standard, many uses of technology during the pandemic can continue to benefit customers in the long run. A good example of this is financial advisers using video conferencing to bring family members into conversations about releasing equity or solicitors using online case trackers to liaise with clients.”

Categories
Other Finance News

Average House Prices in Scotland Hit a New All-Time Record High

First-time buyers looking to get on the Scottish property ladder could be facing an uphill struggle this year, as average property prices reach new record-highs.  For the seventh time within the past 12 months, the average market value of a home in Scotland has broken all previous records.

New data from the Walker Fraser Steele Acadata House Price Index indicates that the average price of a home in Scotland hit £218,702 in February 2022 – an increase of £16,600 compared to February 2021.

On a monthly basis, Scottish house prices were up 1.5% in February compared to the month before, amounting to a one-month increase of £3,200 on average.  This is the largest monthly increase recorded since August last year, with average house prices increasing in 30 of Scotland’s 32 local authority areas over the past year.

Only two areas recorded slight reductions in price over the past 12 months – Clackmannanshire and Aberdeen City. Meanwhile, the Orkney Islands saw the biggest gains of all, where average house prices increased by a huge 28.6% since the same time last year.

Competition Remains Ferocious

Senior housing analyst at Acadata, John Tindale, highlighted similarities in the real estate sectors of England and Wales. Last month, all nine English and Welsh GOR regions recorded all-time high average property prices – Wales achieving the strongest annual growth rate of 8.9%.

“As we reported last month, in general terms, we are still living with the effects of the pandemic, and the lifestyle changes this has brought about – in particular the ‘Work from Home’ edict has encouraged many to move to larger premises with outdoor facilities,” Tindale said.

“There is still high demand for such homes, but supply is limited, so there continues to be strong competition for the properties that do come on to the market, with resultant price increases.”

Elsewhere, regional development director at Walker Fraser Steele, Scott Jack, said that the way Scotland’s real estate sector has returned to strength was highly impressive.

“As a piece of context, in February this year, all the regions in England and Wales established new record average house price levels, but it is fair to say that the Scottish property market has robustly withstood one of the most seismic events in living memory in the past couple of years,” he said.

Shifting Priorities and Changing Lifestyles

Analysts continue to cite the ongoing home working trend as the biggest single contributor to explosive competition on the UK’s housing market. 

Meanwhile, record-high rent yields across the country are motivating landlords and investors to expand their portfolios, putting even greater strain on the sector’s limited available inventory.

Even as the gradual return to the office accelerates, lifestyle changes brought about by the pandemic are likely to continue altering the public’s priorities long term. All of which is likely to sustain the housing market’s blistering performance indefinitely, as demand continues to outpace supply by a clear margin.

Categories
Mortgages

Reducing Borrowing Costs with New Equity Release Rule

Homeowners, who have taken advantage of equity release finance, are now able to make additional partial payments without any charges or penalisations, in a bid to reduce borrowing costs.

Although this is a feature already offered with some later life lending products, as of the 28th March, the Equity Release Council have announced that it will be mandatory for lenders to include this feature with all equity release finance products.

The ability to make extra payments will result in homeowners reducing the impact of compound interest later down the line and decrease the overall cost of equity release.

Equity Release finance is way of releasing the tied up cash in your home. It allows for borrowing against the equity in your house without being required to make any repayments. The loan is repaid when the borrower either moves into residential care or passes away. To be eligible for equity release you must be over 55 years old.

This new rule will allow the homeowner to make payments as and when they wish, thereby reducing the amount that the lender will be repaid when the time comes.

The Equity Release Council, who announced the news regarding the new product safeguard on Monday, stated that over the next decade, a total of £39 million in combined savings can be achieved, with further figures predicted to be a whopping £99 million in expected savings over the next twenty years.

Data shows that, in 2021, more than 125K part payments towards equity release plans were made, without penalty.

Jim Boyd, CEO of the Equity Release Council, said: “The right to remain in your home for life, with no requirement to make ongoing repayments and no threat of repossession, has been central to the appeal of equity release since 1991 and remains a core pillar of the modern market.

“Our new product standard adds to this by ensuring people have the freedom to reduce their borrowing if circumstances change.

“It enables equity release customers to mitigate the effects of compound interest and reduce their borrowing costs in later life, which we know is often one of their main concerns.”

This latest product standard, released and enforced by the Equity Release Council, sets out the following parameters:

  • It gives the homeowner the right to live in the property for the rest of their lives – they will also have no obligation to make any payments until they go into full time care or pass away
  • Interest rate is capped or fixed for life – the rate of interest will never change even when base rates change
  • No negative equity guarantee – the debt will never be more that the home is valued at, meaning that relatives will not be burdened with any funds owing to the lender
  • The right to move the loan – providing it meets the criteria, the loan can be moved to a different property

Jim Boyd added: “Equity release today is a flexible financial planning tool for a range of scenarios, from gifting to family to supporting better living standards over longer lives in retirement.

“Consumers should always use a Council member to explore their options and alternatives to equity release, to benefit from product protections and expert advice to decide if it is right for them.”

thumb

Live Chat

hi Olivia here,
how can I help?