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Mortgages

Time Running Out for Prospective Help to Buy Scheme Participants

The clock is ticking for eager participants looking to take advantage of the Help to Buy scheme in England, which is set to be withdrawn in March next year.  Launched in 2013 and heralded as an effective initiative to help thousands buy their first homes, the scheme has also been criticised by many for consuming billions of pounds of taxpayers’ money.

Help to Buy has also done little to solve the problem of skyrocketing property prices, and has (for the most part) played directly into the coffers of the housebuilders taking part in the scheme.

Modified on a number of occasions over the past decade, the initiative will be withdrawn in its entirety at the end of March 2023.

But as it takes time for interested parties to be successfully enrolled into the initiative, the deadline for applications falls much sooner. In fact, anyone looking to take advantage of Help to Buy will now have to submit their applications no later than October 31.

This semi-official deadline date was only revealed in May, and subsequent polls have discovered that almost three-quarters of first-time buyers are unaware that this is technically when the scheme comes to an end.

Is Now the Time to Buy?

With the deadline on the horizon, housebuilders are increasingly pushing their available and near-completed projects on interested parties. But there are those within the real estate and finance sectors who are warning overly-eager parties of the risks of diving in at the deep end, without full and careful forethought.

Sarah Coles, senior personal finance analyst at investment firm Hargreaves Lansdown, has urged caution among those who may be caught up in the final rush for available homes.

“You might be tempted to race for the door before it closes,” she said.

“However, if you’re in too much of a rush to get to grips with what you’re getting into, you could be in for a nasty surprise in five years’ time.”

Help to buy was launched by George Osborne in 2013, with the aim of getting the housing market back in gear after the financial crisis. As it stands, the scheme provides homebuyers with the opportunity to borrow between 5% and 20% of the full purchase price of a newly built home (40% in London) from the government. A standard 5% deposit is also payable by the buyer.

This means that in London, those who qualify for the scheme need only arrange a mortgage for 55% of a property’s total value. The scheme is only available on new-build properties, and total property values are capped differently in different regions of the country – from £186,100 in the north-east to £437,600 in the south-east to £600,000 in London.

The government loans are interest-free for the first five years, after which interest applies starting at a low rate of just 1.75%

Who is Help to Buy Suitable For?

Technically speaking, anyone over the age of 18 can apply to take part in the Help to Buy scheme. But as organising a 75% mortgage (on average) is likely to prove difficult in most parts of England (where average house prices are currently hovering at around £300,000), the scheme does not offer a great deal of relief for low-income individuals and households.

Instead, experts continue to state that the Help to Buy scheme in its current form is really only of any use to those with a high annual income level but low savings.

In addition, as the living-cost crisis continues to escalate, coming up with even a 5% deposit in many parts of the country (London especially) is likely to prove impossible for most average earners.

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Mortgages

Johnson’s New Mortgage Affordability and Right to Buy Plans Prompt Outrage: Here is How We Can Help

There was never any doubt that Boris Johnson’s plans to help as many Brits as possible get on the housing ladder would be anything but a big disappointment. We already knew much of what he was going to say, before his already infamous remarks were voiced in Blackpool this week.

“We’re going to look to change the rules on welfare, so 1.5 million working people who are in receipt of housing benefits, I stress working people, and want to buy their first home will be given a new choice: to spend their benefit on rent as now, or put it towards a first ever mortgage,” he said.

“Doing so removes a significant barrier that currently prevents hundreds of thousands of families from buying their own home,”

“We’re going to explore discounting Lifetime and Help to Buy ISA savings from Universal Credit eligibility rules”.

Support for ‘Trapped’ Housing Association Tenants?

In addition to the above, he talked about an extension to the existing Right to Buy scheme, which will give up to 2.5 million housing association households the opportunity to purchase their properties at a discounted price.

“They’re trapped, they can’t buy, they don’t have the security of ownership, they can’t treat their home as their own or make the improvements that they want,” he said. 

“So, it’s time for change. Over the coming months we will work with the sector to bring forward a new Right to Buy scheme.”

All of this is somewhat predictable, as was the reaction from those within the housing and mortgage sector who were quick to lambast the ailing prime minister.

“There are real practical problems, to qualify for Universal Credit, you’ve got to have savings of less than £16,000, which means that most people who the Government are trying to reach with this announcement are not going to have anything near the amount that they need for a deposit,” said Shadow Levelling Up Secretary, Lisa Nandy.

Her sentiments were echoed by Edward Checkley, managing director of London-based property finance specialists Advias, who highlighted the dangers of plunging struggling households into further debt.

“This policy would go against all sensible lending practices, considering housing benefit is typically awarded to assist with rental payments if unemployed or on a low income, and to households with less than £16,000 of savings,” he said.

“With the cost-of-living crisis already affecting lower income households, how can saddling them with debt be responsible?”

Elsewhere, the founder of Mansfield-based Shaw Financial Services, Lewis Shaw, gave the prime minister both barrels, and joined the growing call for his resignation.

“Mortgage lenders already allow people to use state benefits to support a mortgage and have done for years. It varies from lender to lender exactly which state benefits they’ll take into account, so I’m not sure what a new policy could be,” he said.

“It’s almost as though they don’t know how the mortgage market works already. If we’re to believe they want higher LTV mortgages, there’s only one place to go, and that is 100% LTV. However, again, we already have 100% LTV as a couple of lenders allow you to take a personal loan as a deposit.”

“It’s more bluster from the blond blancmange. Just resign for God’s sake and let someone with an ounce of competence and integrity have a crack.”

The ‘Strength in Numbers’ Approach to Homebuying

Increasingly, millions of prospective first-time buyers are counting themselves out of the running where home ownership is concerned. Even when coming up with the required deposit to qualify for a mortgage is possible, skyrocketing house prices are pricing many out of contention.

With average house prices now hovering around £300,000, lenders’ policies on salary-based maximum mortgage sizes are proving increasingly unrealistic. Capped at around 4.5-times the applicant’s salary, even a £35,000 per year earner would fall drastically short of the mark.

A mortgage of £157,000 has been more or less useless across much of the UK for years, thus painting an even more unfortunate picture for many millions earning closer to £20,000.

This is where a product known as a Joint Borrower Sole Proprietor (JBSP) mortgage could help; a JBSP mortgage works by effectively combining the annual incomes of up to four family members, in order to increase the size of the maximum loan amount. 

Responsibility for the mortgage is effectively shared between all who sign into the agreement – usually the person or couple looking to buy their first home, and the parents of one of the buyers.

Like a conventional mortgage, a JBSP mortgage can be taken out with an LTV as high as 95%. Maximum loan sizes and terms vary on the basis of the ages of the supporting applicants, and all borrowers named in the application must be in employment at the time.

Where the conventional pathway to home ownership seems implausible at best, considering the alternative options with the help and support of an experienced broker comes highly recommended.

For more information on any of the above or to discuss the benefits of Joint Borrower Sole Proprietor mortgages in more detail, contact a member of the team at UK Property Finance today.

Categories
Mortgages

What You Need to Know About Buying Homes at Auction (and How to Pay for Auction Properties with a Mortgage)

Whether you are looking to pick up your dream home at a rock-bottom price or turn a quick profit with a fixer-upper, auction property purchases can be just the thing. Buying homes at auction is quicker and easier than becoming part of a conventional property chain, and the savings on offer are unbeatable.

But as properties purchased at auction call for prompt payment, typically within 28 days, conventional mortgages have little practical value; with the typical residential mortgage currently taking around three months to arrange, this 28-day payment deadline calls for an alternative funding solution.

The Benefits of Property Auctions

One immediate benefit of buying properties at auction is the speed and simplicity of the transaction. Within 28 days, the property purchase and transfer process in its entirety are complete. You benefit from the lower prices afforded to cash buyers and there is zero risk of being ‘gazumped’ by competing bidders.

If yours is the winning bid on the day, the property is yours – and at the exact price quoted.

In addition, a much broader range of homes go under the hammer at auction than appear on the conventional property market. Homes that need to be sold as quickly as possible, properties in need of repairs and renovations, non-standard properties considered ‘unmortgageable’ by major banks – all potential bargains in the making.

You can even buy rental properties at auction that already have tenants living in them, enabling you to begin collecting regular rent payments in less than a month.

The Drawbacks of Property Auctions

On the downside, the shorter transaction times associated with auction property purchases can prove problematic.  If your bid is successful, you will be expected to pay a non-refundable reservations fee on the spot.

This may be 2.5% of the property’s agreed price (plus VAT), or a set fee of around £5,000. The contracts do not need to be signed and exchanged right away, but you will forfeit this initial reservation fee if you back out of the deal.

Upon signing the contract and agreeing to purchase the property, you will be expected to pay a 10% deposit. At this point, you will usually have 28 days (sometimes slightly longer) to come up with the rest of the money.

Another drawback to property auctions is the risk of being outbid, which could happen after paying for a formal survey of the property. There are also no guarantees yours will be the winning bid, irrespective of how many lots you bid on, and how many auctions you attend.

Financing an Auction Purchase

The time-critical nature of auction property purchases calls for something much swifter than a conventional mortgage. In addition, it is essential to arrange the necessary funding before the auction, in the form of pre-approval or a decision in principle. This will enable you to access the funds you need if your bid is successful, without having to start your application from scratch.

Most buyers pay the 10% deposit on the homes they buy at auction out of their own pockets, or perhaps by way of a personal loan or a credit card payment on the day. It is therefore important to ensure you have access to this 10% deposit on the day itself, or your bid will be cancelled and the property sold to someone else.

Bridging Loans for Auction Property Payments

One of the most convenient and cost-effective ways to fund an auction property purchase is bridging finance. Where approval is obtained in advance, a bridging loan can be arranged and accessed within a few working days.

Bridging finance can be secured against most types of property or land and can also be used to purchase any type of property – irrespective of its condition.  This makes it a particularly suitable facility for auction property purchases, where non-standard homes in questionable states of repair often go under the hammer.

A strictly short-term facility, bridging finance is designed to be repaid within a few months – charged at a monthly rate of around 0.5%. It can therefore be ideal for investors looking to flip properties for fast profits, using the funds raised at the point of sale to repay the loan.

It is also possible to repay a bridging loan by transitioning it to a conventional mortgage or similar long-term repayment facility.

Auction Preparation

In the weeks and months leading up to an auction, full details of the properties set to go under the hammer will be released. This will include a “guide price” for each home, which in most instances will be significantly lower than the price it sells for.

If there is a property you are interested in buying, you will need to arrange an in-person viewing and a professional survey. Particularly if it is a home in need of renovations and repairs, you need to know exactly what kind of work will be needed to bring it up to acceptable standard.

At this point, you could also contact a local architect or builder to provide you with an estimate regarding the proposed renovations. They may be willing to conduct a survey and provide an estimate for free if you subsequently use their services if/when your bid is successful.

Take a good look at the legal pack for the property you intend to buy and have a solicitor examine its contents on your behalf. If this is to be your first property auction, visit one or two auctions as a visitor in advance to get a feel for how the whole thing works.

On the Day of the Auction

Arriving early will give you the best shot at securing a good seat in the auction room. Ideally, you should be in a spot where you can see your competing bidders, but also where the auctioneer can clearly see you.

When the auction begins, don’t be tempted to exceed your budget and try to keep your emotions in check. Even if you have your heart set on a property for sale, you need to remain grounded and bid objectively.

If your bid is successful, you will need to provide two forms of identification, along with evidence that you can pay the deposit.

Should the property you are interested in fail to sell having not reached its reserve price, request the contact details of the seller; you may be able to negotiate with them directly, and perhaps pick up the lot for less than you intended to spend.

Can You Buy Property at an Auction with a Mortgage?

In terms of conventional mortgages, the answer is no. Based on standard mortgage processing times alone, it would be practically impossible to arrange a traditional mortgage within the 28-day time limit.

There may be the occasional exception to the rule, where an agreement is reached with a lender in advance to secure the required funds as promptly as possible. But this simply isn’t an option with most major lenders, where typical mortgage application processing times average around 12 weeks.

In addition, many (if not most) of the properties that go under the hammer at auction would not qualify for a conventional mortgage with a mainstream lender. Auction properties are often deemed ‘non-standard’ or ‘unmortgageable’ due to their repair and renovation requirements.

Fast-access funding is available in the form of bridging finance, along with specialist auction finance and development finance loans for established investors. Issued as short-term facilities, fast-access loans like these can be repaid using longer-term mortgages, once the property has been restored to an acceptable standard.

Consult with an independent broker ahead of the auction to discuss the most cost-effective funding options available.

What Happens if You Can’t Meet the Completion Deadline?

If a buyer is unable to pay for their property in full within the 28-day deadline, the transaction is cancelled, and they forfeit their deposit. Depending on the terms and conditions of the agreement, they may also be liable for the costs of listing the property once again at a future auction.

However, there is usually some leeway where buyers raise their issues with the vendor ahead of time. For example, if you simply need an extra few days/weeks to come up with the money, they will most likely demonstrate a good deal of flexibility.

After all, it is in nobody’s best interests to take the whole thing back to the drawing board.

If you have any questions or concerns regarding your ability to meet the completion deadline, ensure they are discussed with the seller at the earliest possible stage.

Pros and Cons of Buying at Auction

In summary, a brief overview of the pros and cons of buying properties at auction:

Pros

  • The opportunity to secure an unbeatable bargain
  • A much faster and simpler transaction
  • No reliance on risky property chains
  • Zero risk of being gazumped by competing buyers
  • A broader range of properties to choose from

Cons

  • No guarantees you will walk away with a property
  • Full payment is required within 28 days

Auction property purchases can therefore be advantageous in many ways, but will always call for careful planning and forethought.

For more information on how to fund auction property purchases or to discuss the benefits of buying at auction in more detail, contact a member of the team at UK Property Finance today.

Categories
Mortgages

How to Mortgage an Uninhabitable Property

Uninhabitable homes are not without their points of appeal. Particularly in today’s housing market, an affordable ‘fixer-upper’ can be just the thing to sidestep impossibly high property prices.

With an uninhabitable home, you have the opportunity to buy into a desirable location and gradually shape it into the home of your dreams. Unfortunately, the vast majority of lenders fail to see the potential in these ‘non-standard’ homes.

Consequently, most homes considered uninhabitable at the point of sale are also considered unmortgageable. As the name suggests, this means that the conventional borrowing options are out of the question.

But this doesn’t mean that affordable finance for uninhabitable properties is unavailable. It simply means you have to extend your search beyond the High Street, with the help and support of a specialist broker.

What Makes a Home Uninhabitable?

All lenders have their own policies regarding which types of properties are considered unmortgageable.

Though in most instances, any of the following will classify a home as uninhabitable:

  • No working bathroom or kitchen inside the property
  • Inadequate protection from adverse weather (window and rain)
  • Issues with mould or damp that could be unhealthy
  • Staircases considered dangerous or in an unsafe condition
  • A lack of basic security, such as solid doors and locks
  • Any kind of non-standard material used in its construction
  • The presence of asbestos or Japanese knotweed
  • Any potentially dangerous structural issues

Even if the required repairs and renovations are fairly straightforward, securing a conventional mortgage for homes affected with these issues is practically impossible. Irrespective of how cheap the property may be and the applicant’s financial status, their request for funding will be refused outright.

Does the Property Need a Working Bathroom and Kitchen?

These are the two rooms major lenders consider most important of all when it comes to a home’s appropriateness for habitation. If either the kitchen or bathroom is not in good working order and in an acceptable condition, a mortgage will not be issued against the property.

This applies to both homebuyers and buy-to-let investors alike, who are restricted to properties with functional bathrooms and kitchens. Even if the buyer’s plan is to tear out both rooms and have them fully refitted, their application will be rejected.

Does the Property Need to Be Weatherproof?

Yes – an appropriate level of weatherproofing is needed for a home to qualify for a conventional mortgage. This basically means that whatever the weather, the occupants of the property and its structural integrity must be sufficiently protected.

How About Central Heating?

Policies again vary with regard to central heating, given how many older properties do not feature such installations. The surveyor’s report on the property will usually determine the outcome, as they may deem the property to be safe, warm and habitable, in the absence of a central heating system.

Are Listed Buildings Categorised as Unmortgageable?

It depends entirely on their state of repair at the time they are placed on the market. Even so, qualifying for a mortgage for a listed building can be complex and long-winded.

During the inspection, it is highly likely that the surveyor will uncover a long list of essential repairs and specialist restoration requirements; the older the property and the more unusual its configuration, the higher the likelihood of ‘non-standard’ issues affecting its eligibility for a mortgage.

If you are considering purchasing a listed property of any kind, consult with an experienced broker in advance to discuss the available funding options.

Does Asbestos Render a Property Uninhabitable?

The presence of asbestos is always concerning, but its location and prevalence will determine whether it affects the mortgage of a property. 

For example, if asbestos is present in small quantities and has not been damaged, a mortgage valuation may simply recommend its removal before the purchase goes ahead. Likewise, an undamaged asbestos roof is not frowned upon in the same way as other asbestos -containing materials and components.

But if the presence of asbestos in a property is deemed a direct threat to the safety of its intended occupants, it is highly unlikely it will qualify for a mortgage.

What is a Non-Standard Roof in Mortgage Terms?

Mortgage lending policies based on roof materials and configurations differ from one lender to the next. Some types of roofs that could make it more difficult to qualify for a mortgage include the following:

  • Flat Roofs With a flat roof, it will typically be the condition of the roof and the materials it comprises that determine whether it affects mortgage eligibility.
  • Felt Roofs Many mortgage providers consider felt roofing to offer inadequate protection, and may therefore refuse to lend against homes that feature them.
  • Thatched Roofs – Qualifying for a mortgage with a traditional thatched roof can be surprisingly difficult, unless comprehensive evidence of its condition and safety can be provided.
  • Tin Roofs Several factors are taken into account when assessing mortgage eligibility for homes with tin roofs, including their size, configuration and general state of repair.

If you are considering buying a property that may be affected by any of the above issues, call UK Property Finance anytime for an obligation-free consultation.

Mortgage Valuations After Essential Repairs

Some lenders will agree to issue mortgages for ‘problematic’ properties like those listed above, but only after the required repairs and renovations have been conducted. The process involves feeding back to the estate agent or vendor, and requesting that the works be conducted on your behalf.

Unfortunately, this means spending money on a home that you have not yet taken ownership of. In addition, there is no guarantee that the lender will subsequently issue a mortgage if they are not completely satisfied with the condition of the property.

It is therefore a completely unrealistic option for most prospective buyers, and one that must be approached with extreme caution.

Bridging Loans for Uninhabitable Property Purchases

One of the simplest and most affordable ways to fund the purchase of an uninhabitable home is with bridging finance. A bridging loan is a strictly short-term facility for major purchases and investments, with significantly fewer restrictions than those that apply with conventional mortgages.

From uninhabitable homes to auction property purchases and more, a bridging loan can be used for any legal purpose.

Here is how bridging finance can be used to purchase an uninhabitable home:

  • A property in need of a new kitchen and bathroom goes under the hammer at auction for significantly less than its true market value.
  • The buyer obtains pre-approval for a bridging loan to cover the costs of the purchase and the subsequent renovations.
  • Their bid is successful, they pay the 10% deposit on the day, and the bridging loan agreement is finalised.
  • The funds needed to pay for the property and the necessary renovations are released within a few working days.
  • The property purchase goes ahead, and the remaining funds are used to install a new kitchen and bathroom.
  • At which point, the home is once again considered habitable, and is eligible for a conventional long-term mortgage.

The short-term bridging loan can subsequently be transitioned to a standard mortgage, enabling the buyer to repay the balance on their home over several years or decades. In the meantime, the bridging loan has been accruing interest at a rate of around 0.5% per month, adding up to a hugely cost-effective transaction.

For more information on bridging loans for uninhabitable property purchases, contact a member of the team at UK Property Finance today.

Can I Use a Second Charge Mortgage to Buy an Uninhabitable Property?

Another option for getting around the usual mortgage obstacles is to consider a second charge mortgage. This is where you take out a second mortgage against the equity you have built up in your home.

For example, if you have repaid £200,000 on your £300,000 mortgage, you have £200,000 in equity. This could then be used to procure a second-charge mortgage with an LTV as high as 75%, enabling you to borrow around £175,000 against your current home.

These funds could then be used to purchase an unmortgageable property as a cash buyer, and the second-charge mortgage can be repaid when your property sells.

If you have built up enough equity in your current home, this can be one of the most cost-effective ways to invest in an uninhabitable home.

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

Categories
Mortgages Other Finance News

Increased Mortgage Interest Rates Combined with the Cost of Living Crisis Forces Buyers and Homeowners to Dip into Savings

It’s no secret that times are hard for millions of UK residents, with the cost of living escalating at a speed not seen since the big recession back in 2008 and with the cost of mortgages constantly on the rise, affordability for new buyers is becoming increasingly out of reach with many not having enough savings for a deposit and others struggling to meet their current monthly mortgage obligations.

Cost of Living Crisis

Adding to the misery is the fact that inflation rates are at the highest seen for thirty years pushing monthly outgoings through the roof for the vast majority of the population. Wages are certainly not keeping up with the rapid price increases resulting in many accessing savings just to meet their monthly commitments. With inflation at a thirty year high of 9% and expected to reach 10% by next year, households will need to tighten their belts even further.

And it’s not just inflation that is causing chaos for many, the enormous gas and electricity price hike is a worry for almost every household in the country. This is due to the impending increase in the energy price cap coming in October and the embargo on oil and gas from Russia. Diesel and petrol prices are at the highest ever seen which is having a detrimental effect on drivers and in turn causing further increases in prices, due to the added costs of manufacturing and logistics.

Bank of England Increases the Base Rate for Fourth Time in a Row

Despite increased mortgage interest rates, the property market remains surprisingly buoyant, but experts are predicting a marked slow down over the next year, when house prices are expected to stabilise and with any luck the economy will start to recover, although there is still a lot of uncertainty surrounding this expectation as inflation continues on an upward trajectory.

The main reason for the interest rate hike is that the Bank of England has raised the base rate four consecutive times since December 2021, increasing base rates from 0.1% to 1%. Their reasoning for doing this is to try and tackle the huge increase in inflation. The concept behind this is to discourage people from spending and encourage saving instead.

A Third of Income Needed for Mortgage Repayments

Average monthly mortgage repayments are now approximately a third of monthly income. Annual income, on average, in the UK is currently £31,447. So for example, a home bought for the average price of £276,019, on a 25 year loan period, with a 75% LTV (£69,000 deposit) and a fixed rate at the current average mortgage rate of 1.84%, will equate to monthly repayments of £859.41.

Current figures show homeowners using 32.8% of their monthly wage to meet their repayment obligation which is up 5% since before the Covid pandemic and close to levels seen during the credit crunch of 2008 when the UK was plunged into a crippling recession.

CEO of Octane Capital, Jonathan Samuels, commented: “The cost of living crisis is a current cause of great concern and many homeowners are not only combating the inflated cost of day to day living, but also the monthly cost of their mortgage following a string of interest rate increases.

“At the same time, wage growth has simply failed to keep pace with these rising costs and so the proportion of our income required to cover our monthly mortgage commitments is now substantially higher than it has been for many years.

“Unfortunately, this cost only looks set to increase as we expect to see interest rates increase further throughout the year. The best advice for those currently struggling is to consult a mortgage professional and see if they can swap to a product offering a better rate. For those currently looking to buy, it’s vital to factor in any potential increase and not to borrow beyond your means based on current rates.

“While the current cost of borrowing may still remain fairly favourable, it’s vital you consider what any further increases may mean for your financial stability, as those borrowing right up to their limits initially are sure to struggle further down the line.”

Savers Forced to Access Funds to Survive

It’s not surprising that a huge number of UK residents have been forced to use savings to get through the month particularly in the last year. That is true for those lucky enough to have savings to fall back on, but the financial strain on those who have little to no savings is on the up, with many getting deeper into debt and the forecast for the next twelve months does not look bright.

According to a to report from Yorkshire Building Society, aptly named “Inflation Nation”, 17% of UK households had no savings at all. The report, which surveyed 4000 households, revealed that 39% had withdrawn funds from their savings account with a further 17% taking out over £1,000 to meet their financial obligations.

The report went on to reveal that the vast majority of people were either unable to save anything at all or were saving significantly less than they would typically be able to save.

The report went on to show that, of those surveyed, around 40% predicted increases of between £100 and £500 in monthly bills over the next year, making it even harder if not totally impossible to increase savings.

Government Help for Millions

On the 26of May, Rishi Sunak announced a £15 billion package to help UK households with the escalating energy prices. Poorer households will be eligible for a one off £650 payment to help towards gas and electricity bills with the rest of UK households to receive a £400 discount.

He stated: “We know that other countries in Europe have taken measures to help households with their energy bills, so this is obviously very helpful from an economic perspective, unlike the previous plan that was made available in March.”

“The government’s measures are really quite important because we know that there are a lot of people in this country who don’t have any form of savings.

“If a large proportion of the population starts to reduce their expenditure in other parts of the economy, then I think we could be in a very, very difficult economic situation.”

Although this help is welcome, for many households it will not be nearly enough to keep them out of an impending financial hole over the next twelve months with the cost of living crisis not expected to end any time soon.

Categories
Mortgages

Boris Johnson Planning to Bring Back Right to Buy

As part of his pledge to put an end to the UK’s escalating housing crisis, Boris Johnson has laid out plans to introduce a new take on the Right to Buy initiative. Initially devised by Margaret Thatcher, the Right to Buy scheme gave millions of council house tenants across England the legal right to purchase their homes, following a certain length of residency.

The new proposal would result in around 2.5 million individuals and families who rent from housing associations the legal right to purchase their homes at a discounted price. The original scheme was limited to council homes – separate schemes were available for housing association tenants, but with significantly lower discounts up for grabs.

According to a government source, the scheme would be identical to the original Right to Buy initiative, though would extend the same rights to housing association tenants.

Downing Street insiders believe that the extension of the Right to Buy scheme would bode well for the conservative party in the Midlands and the Northeast, where a significant proportion of those who would benefit from the initiative reside.

Following the party’s disappointing performance in the recent local elections, the Tories are now setting their sights on helping more people become property owners to boost their approval rating in key regions.

An Opportunity for up to 5 Million People

Originally introduced in 1980 by Margaret Thatcher, the Right to Buy provided council tenants who had lived continuously in council housing for a specific period of time the opportunity to purchase their home at a discounted price.

The same scheme remains in place to this day, and has helped hundreds of thousands of council property tenants get on the property ladder. Now, Boris Johnson intends to extend the same rights to housing association tenants which would see around 2.5 million households, or up to 5 million people, benefiting from the right to buy their homes at a discounted price.

Under the scheme, housing association tenants would be able to purchase their homes at a discount of up to 70%, depending on how long they have lived in the property. The government trial had a pilot of the scheme in 2018 in the Midlands, after which no immediate plans to extend the initiative were announced.

While the move has been welcomed by many, critics argue that average UK house prices are still too high for most first-time buyers – even when taking Right to Buy discounts into account. Elsewhere, others have said that the scheme does nothing to improve the UK’s growing housing shortage, and that the government should be investing more heavily in the construction of more affordable housing.

Speaking with the Telegraph newspaper, Robert Jenrick was nonetheless adamant that extending Right to Buy to all housing association tenants in England was the right thing to do.

“Now is the time to extend the right to all tenants,” he said.

“Conservatives must be the party of home ownership, and along with building more homes, finding new routes to ownership should be at the heart of our mission.”

Categories
Mortgages

How Will the Most Recent Hike in Interest Rates to 1% Impact Your Mortgage?

The Bank of England has, for the fourth time in a row, increased interest rates this week. In a bid to tackle the spiralling inflation rate, the bank has raised rates from 0.75% to 1%. With the cost of living crisis seriously effecting household budgets and causing financial stress for millions of UK citizens, it is critical that the Bank of England find a way to stabilise the economy to prevent inflation rising even more.

The increase means any homeowners on variable rate mortgages will see their monthly repayments increase, whilst those on fixed rate will be safe until the end of their fixed period.

The Bank is aiming to bring down the inflation rate, which currently is at 7%, back to their target of 2%, by increasing interest rates which will discourage lending and encourage saving, but experts are warning that by doing this the Bank are pushing people to their financial limits. Some, however, believe that despite the hike, interest rates are still relatively low.            

Personal finance analyst at investing platform Bestinvest, Alice Haine said “While mortgage rates will rise, the cost of borrowing is still historically low, so there’s no need to go into full panic mode yet.

“Yes, most lenders will pass the rate rise onto borrowers, but with interest rates still very much on the low side, the increase in percentage terms is modest.”

She went on to say that with living costs being so high, the pressure was increasing: “This might not have been an issue in a normal economic climate, but in the current cost-of-living crisis every pound matters as households struggle to balance the books.”

Some experts feel that the Bank of England’s actions will be either a grave mistake or incredibly insightful, depending on what happens over the months to come.

James Andrews, senior personal finance editor at money.co.uk, said, “One thing we can say for certain,” he added, “is that it will do almost nothing to bring down the cost of living for households across the UK – which is being driven by global energy prices and supply chain issues.

“Another thing we can say for certain is that it will make borrowing more expensive at a time when more and more people are being forced into debt to meet rising bills.

“We can also say with some certainty that it will put downward pressure on house prices – making mortgages more expensive at a time that rising essential bills make them less affordable too.”

How Does the Increase Effect Your Mortgage?

There are approximately 1.1 million homeowners on standard variable rates in the UK and 850,000 people with a tracker, and all of them should expect to see their payments increase.

It is typical for lenders to adjust interest rates accordingly when the Bank of England raises rates, although they are under no obligation to do so, but generally they do tend to pass on the increase.

Tracker deal clients are expected to see an immediate increase in payments.

Sarah Coles senior personal finance analyst at Hargreaves Lansdown, said: “Banks will be falling over themselves to pass on the rise to variable rate mortgage customers before the ink dries on the Bank of England announcement,”

As an example, a homeowner with a 25 year standard variable rate mortgage of £300,000 can expect to see a monthly increase of around £40. The advice is to try to remortgage on a fixed interest rate to protect from any further increases.

How Does the Interest Rate Increase Effect Fixed Rate Mortgages?

Essentially those on fixed rates (approximately 75%) will not be effected. However, many of these deals will be coming to an end this year and therefore it is advisable to look around before the end of the period, bearing in mind that mortgage offers are valid for 6 months.

Alice said: “Shopping around now for a deal might also be wise for those on a fixed-rate deal with a 2022 expiry date or those looking to remortgage, as mortgage offers are often valid for a number of months. This will protect them from the effect of further hikes and help to avoid a financial shock.”

Are Ther Any Pros to the Increase in Base Rate?

The one’s benefitting from the increase are the savers! With the increase in rates, interest on savings will also increase which is great news for those trying to save up a deposit.

The downside here is that with the inflation rate at a forty year high, the interest on savings is eroded by the cost of living crisis.

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
Mortgages

Should I Port My Mortgage and What are the Alternatives?

Taking your mortgage with you when you move is called porting, but is it a good idea and will your lender let you do this?

The choice to port a mortgage does not always lie with the homeowner and some lenders will not even consider allowing you to do this.

We look at the process of porting a mortgage and whether it the right path for you when you move home.

Porting a Mortgage Explained

Although not many know this but there are a great many of mortgages that are ‘portable’, in other words can be transferred from your current property to a new one. However, even though on paper your loan may be portable, you may still be blocked from doing this.

Although this may be an attractive feature of a mortgage, it does not guarantee that you will actually get permission from your lender.

A few reasons why porting may not be advisable include the following:

  • You are required to re-apply for your mortgage and risk being rejected. When porting you will need to go through the application process all over again and there will be no guarantee of acceptance. Your personal circumstances will likely have changed, and this can affect your chances. Alternatively the lenders application criteria may have been altered to reflect the current market.
  • You may not be able to borrow the amount you wished. I you are planning on moving to a bigger or more expensive property you may be turned down on the basis of affordability criteria.
  • You may need to take out two loans. If you are moving to a more expensive home you may need a second loan to cover any additional costs. The lender may require you to put any additional funds through a separate mortgage product, which will undoubtably result in additional arrangement fees and legal costs.
  • You may end up with a high interest rate. If your lender does allow you to port and approve a larger amount, you may end up agreeing to a higher interest rate as you will be limiting yourself to a single lender and thereby not taking into account competitive interest rates available from other lenders.

What Can You Do if You Can’t Port?

The alternative to porting, if your lender does not allow this, is to find a new mortgage. Leaving your current mortgage early can result in charges and fees so it is best to weigh up all your options before making any commitments.

  • Early Repayment Charge – if you are still in the introductory offer stage of your home loan, you may be subject charges should you change your mortgage. Ther is unlikely to be any charges levied should you be past this initial deal period.
  • Exit Fee – when a mortgage is paid off you typically will need to pay an exit fee. Normally this is just a few hundred pounds, but you may have paid it at the onset of your mortgage so make sure you check first.
  • Fees for New Mortgage – you will be required to pay arrangements fees and legal fees for any new mortgage you take out following your exit from previous home loan

Should You Port if Other Deals Look Better?

It’s all about the calculation in this circumstance. The number don’t lie, and it may very well be the case that you can find a much better deal with lower interest rates by shopping around. There may be exit and early repayment fees so make sure to account for this.

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.”

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