Archive for the ‘Mortgages’ Category

Something For First Time Buyers To Think About

Tuesday, September 1st, 2015

firstthinkIn the past ten years Britain has experienced a property boom, a property crash and a dramatic change in the housing market, making it harder for many people to get on the first rung of the property ladder.

The days of the widely available low cost mortgage might not be with us any more, but that doesn’t mean owning property is impossible.

This blog is a short guide for prospective first time buyers who are looking to invest in bricks and mortar.

Saving a deposit

Early this year there was some sobering news for house buyers, when it was stated that an average deposit was now over £70,000.

This staggering sum is due to the introduction of the stringent new lending rules imposed by the Treasury, to ensure that borrowers can repay their loans.

If you live in Wales the situation is not quite as dire, with the average house price (calculated in December 2014) at £117,000, and a deposit of 30 percent coming to a total of £35,100.

With deposits costing roughly what entire houses cost in the 1990s, it is essential to start saving as much as possible right away.

If you are single, this will mean saving from one income. Couples, with two incomes, obviously have something of an advantage. You may be looking for answers to the question ‘How do I reduce my mortgage payments or at least spread the cost?’

This has led some groups of friends saving for properties together, and has also resulted in more people living with relatives for longer in order to afford a deposit.

Fees involved

You will need to take into account all the additional costs and charges that are incurred during the purchase of a house, from stamp duty to solicitors fees.

Stamp duty is a tax payable on all residential properties with a value of £125,001 or more.

The amount of stamp duty due is calculated as a percentage of the property’s value, and there are several thresholds, depending on the value of the property.

Between £125,001 and £250,000 stamp duty is two percent of the property’s value, thereafter (up to £925,000) it rises to five percent.

Often mortgage lenders will include the cost of solicitors fees for conveyancing (the legal process of purchasing a property) into the mortgage itself. You should calculate the cost of this over the life of the mortgage and decide whether it is cheaper to pay the solicitors fees yourself. Another cost that often gets rolled into the mortgage is the surveyor’s fee.

Without a survey of the property, most lenders will not consider offering a mortgage, they need to know that the house is not going to start falling apart days after you move in.

Again, make sure you calculate over the long term how much this will really cost you and then make your decision accordingly.

Help to Buy

The best news for first time buyers facing exorbitant costs is the government’s Help To Buy scheme. Help to buy is not just limited to first time buyers, but they can access it to purchase any property up to the value of £600,000.

The scheme works as follows. Buyers are expected to put down five percent of the property price, so on a £200,000 house that would mean a deposit of £10,000.

This would be matched by a loan from the government of 20 percent or in this example £40,000, for which borrowers will not be charged for the first five years.

Thereafter they will pay a fee of 1.75 percent of the loan’s value. There will be a variable fee based on the rate of interest in subsequent years.

The more you pay off the actual capital of the loan, the lower the annual charges will be.

Guarantors

Banks may look more favourably on borrowers if they are backed up by a relative offering to stand as a guarantor.

This means that if the borrower defaults, the guarantor agrees to take on the loan repayments. Parents with equity in their own homes may well be the best people to offer this kind of guarantee.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Increase Your Savings Vs Paying Your Mortgage Off Early

Tuesday, June 23rd, 2015

SavingsVSMortgagesIn the past six years, the Bank of England has presented home owners who have savings with a dilemma that it is difficult to resolve.

The slashing of the base interest rate to 0.5 percent has resulted in falling rates on mortgages, making borrowing to afford properties cheaper, but it has also seen the return on savings slump.

Therefore, a property owner with spare cash might be less concerned about paying extra on his already cheap home loan, but also might feel less than incentivised to pour cash into a savings account that offers a three percent APR.

This blog doesn’t pretend to have the answers to this particular conundrum and couldn’t give advice even if it did. Instead, in the next few paragraphs we will explore the various options of home owners and savers.

Paying off the mortgage faster.

By paying £10, £20, £50 or £100 extra off your mortgage every month you are speeding up the day that you finally are able to live mortgage free.

Being able to limit the amount of time you spend in hock to the bank will have the effect of cutting down on the overall interest payments you make.

It might seem like quite a sacrifice at the time, but the quicker the debt is repaid the less it will cost you in the long run.

If this is the case, then why doesn’t everyone pay off their mortgages early? Most of us are fixated on spending in the moment and enjoying money while we have it, instead of delaying gratification for the future.

If you are planning to pay off extra on your mortgage every year then you need to ensure it is a sustainable monthly commitment.

Don’t commit to overpaying more than you can afford, it might be easier to start off with a conservative sum that you know will be easy to stick to and gradually increase it as the months go by.

For some over payers the initial excitement and enthusiasm for excess payments wains as the months go by and ambitions slip. Therefore, in order for overpaying to be a serious, realistic strategy it must be maintained over the long term.

Adding to Savings

As mentioned above, the current financial climate is not one that suits savers. There are few incentives for prudent types who have spent years building up their nest egg.

The rates of return, whilst higher than the base rate set by the Bank of England are generally far lower than they were before 2008.

So why save at all?

There are still reasons to save, it is always important to have emergency funds tucked away, irrespective of interest rates.

Also your savings, if put in an ISA will enjoy protection from taxation and will accrue some interest every month.

The rate of interest is also unlikely to remain at a historic low either, meaning that in the next few years the returns on savings will inevitably improve.

The inevitable choice

As interest rates gradually increase, there will be an incentive both to save and to overpay on a mortgage.

Savings will be better rewarded with higher interest, but mortgage debt will be more expensive making it more important to repay it as quickly as possible.

Without a thorough audit of your circumstances and your financial strengths and weaknesses, it is difficult to know precisely which option to take, overpayment or saving.

This means that before you commit to either, it might be an idea to get some independent financial advice.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Should I Fix My Mortgage Now?

Tuesday, June 16th, 2015

FB - FixMortgageDeflation is not all it is cracked up to be. Recently, as we cheered at the fall in fuel prices to historic lows, the fact that several industries were dependent on buoyant oil prices barely occurred to many of us.

However, the current plight of the oil city Aberdeen shows that there are significant problems attached to our current glut of cheap fuel.

Currently we have a glut of cheap borrowing too. Interest rates are at historic low, giving many of us low cost mortgages.

However, the actual amount of credit on offer is tightly regulated, following the housing boom and housing crash.

At the moment, there seems little evidence that an interest rate is in the offing in the short term and home owners are benefiting from the lowest mortgage rates, but even if this lasts, it might not be great for the economy in the long run.

How do I reduce my mortgage payments?

Classical economics suggests that supply and demand reach an equilibrium eventually and that equilibrium is always expressed through the medium of the price mechanism.

We have lived through a half decade of repressed demand in the economy for goods and services (in this case property) due to the long period of belt tightening that we have endured. Supply has remained relatively static, meaning that overall prices have declined or at least stagnated.

There are exceptions to this rule, London and the South East for example, where demand has outstripped supply.

In some sectors of the housing market (luxury six figure properties), spending power has remained largely consistent, meaning that there has been little overall decline.

Lowest interest rates

This decline of spending with the market place has led to a degree of deflation and for property owners this has brought about considerable advantages.

Those home owners on fixed rate mortgage products have been able to switch to variable rates, knowing that in all likelihood the rate won’t really vary all that much and if it does, the base rate set by the Bank of England is still 0.5 of a percent.

In the long term, this, of course, cannot last. The slashing of the cost of borrowing to almost non existent levels has brought about cheap mortgages for many of us, but for savers, it has been little short of disastrous.

Families used to accruing valuable interest off their savings have seen an important source of income and investment lost because of the decision to bring the base rate so low.

Savers will eventually demand to have their fortunes restored and when the Bank of England and the government comply, mortgages will become more expensive once again.

Mortgage Deals

Judging whether or not to take out a fixed rate mortgage now is beyond the scope (and the legal remit) of this blog, and ultimately it is a question that can only be answered by the borrower.

If you are risk averse and value security enough that you are willing to pay slightly more for a feeling that your financial future is more secure, then buying a fixed rate is eminently sensible.

However, if you have speculated that rates will stay low and there is no need to switch to a more expensive fixed rate, then you can stay on a variable deal. This might result in a scramble for a fixed rate policy when rate changes are announced, and at that time the cost of a fixed rate deal will inevitably be higher.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

The Help To Buy ISA Explained

Tuesday, May 26th, 2015

FB- Help to

Getting on the property ladder in 2015 is harder for many people in Britain than it has ever been.

An indication of how hard is the latest roll out of the government’s ‘Help to Buy’ policies, the Help to Buy ISA, which offers attractive cash incentives to people saving for a deposit.

This blog is focused on explaining the complexities of the ISA and showing who it will work for and how they can get the most out of it as a savings opportunity.

Who is it designed to help

The Help To Buy ISA has been set up as a tax free saving scheme for first time buyers alone, so if you already have a property (or two) you can skip to the next article now.

This is exclusively for people getting on to the ladder (though if you know someone in this predicament and other than yourself, please read on, this advice might help secure them their first home).

The Help To Buy ISA is not dependent on income levels, anyone can open one irrespective of their earning potential, they simply have to be a first timer.

If you have owned a property previously but now you rent or live with parents and are hoping to get back on to the ladder, you won’t be eligible, as stated above, this is for first time buyer savings.

How do ISAs work?

Each month savers can deposit up to £200 in their ISA, which will be tax exempt.

The government will add twenty five percent of the total monthly savings in addition to the amount savers put in.

Therefore a saver who regularly puts away £100 will receive £25 from the government to go into the tax free account.

In the first month that the account is open, your total allowance is a one off of £1,200, meaning that the government’s contribution will be £300.

The government will invest a total of £3,000 in the ISA, meaning that savers who get the full amount from the government, must have invested £12,000 of their own money in the ISA

Once you buy your first property the government will pay the tax free money they have invested off the value of the mortgage, directly to the lender.

This means the money from the government never ends up in your bank account accruing interest unfortunately.

How do I apply?

You can open a Help To Buy ISA in the autumn of 2015 and they will be available through all high street banks and building societies.

The actual interest rates offered by lenders will differ (as is the way with the current market for regular ISAs), and there will inevitably be a highly competitive market for First Time Buyers to take advantage of.

If you already save using an ISA then you will not be able to take advantage of the Help To Buy ISA as well.

The policy is only available for people buying a property up to the value of £450,000 in London or £250,000 throughout the rest of the UK.

 

Why Are Mortgage Approvals At 6 Month High?

Friday, May 22nd, 2015

Why Are Mortgage Approvals At 6 Month High?The Mortgage Market Review, which took effect in 2014, imposed “affordability criteria” on lenders. In simple terms it aimed to rein in high-risk mortgages. Like any change it triggered speculation about its potential effects.

Almost a year later, mortgage approvals remain high, while house prices are currently holding fairly steady. So what does this mean in practical terms? Well if you’re thinking of buying a house, here are some questions you might want to consider.

Is Now The Right Time For Me To Buy?

One of the key points to understand about house-buying is that it involves a lot of expenses in addition to the actual price of the house. Along with the infamous stamp duty (on homes costing over £125K), there are likely to be fees for solicitors and surveyors as well as mortgage-arrangement fees. These all need to be factored in to your rent v buy calculations.

Some mortgages impose an early repayment charge if you end them before the full term of the loan (e.g. if you move house). Likewise if you use an estate agent to help sell your house, you will pay a fee for their services. Therefore it’s a good idea to think carefully about how long you will need to stay in a house to make all these expenses worthwhile. It can also be a good idea to factor in a margin for adjustment. In other words, where would you stand if house prices stayed steady rather than rising? What about if they actually fell slightly? If you feel uncertain about any of these points, then renting may be a better option for you.

I’m Ready to Buy, How Do I Reduce My Mortgage Payments?

The good news is that lower interest rates can feed through into lower rates on loan products, including mortgages. There are still great mortgage deals out there. The trick to being able to take your pick from the low-cost mortgages is making yourself as attractive as possible as a customer. There are basically three steps to doing this. Firstly, put together as much of a deposit as you possibly can. Secondly, make sure your credit record is sparkling clean. In particular make sure that you avoid being scored negatively for reasons you can easily address. For example being on the electoral roll is a plus point for your credit score so make sure you are. Also make sure that any actual mistakes are corrected. Thirdly make sure that you stay within the affordability boundaries laid down by the Mortgage Market Review.

You can expect a prospective lender to check this thoroughly, so doing your homework in advance can be a useful exercise in seeing yourself as others see you.

What Happens If Interest Rates Go Up, Or If They Go Down?

If you are on a fixed-rate mortgage deal then any changes in interest rates will only affect you once the fixed-rate term comes to an end. If mortgage rates rise then you can reasonably expect this to feed through into your mortgage repayments. Therefore in addition to all the other questions we’ve just discussed above, it is also advisable to think about how you would cope in this situation. In principle lower interest rates should also mean lower monthly repayments. It would, however, arguably be very risky to base a financial strategy on this happening. In practical terms, if you are planning to make a house a home and stay in it over the long term, say at least 5 years, then it is entirely possible that you will see interest rates rise and fall during this period. Your financial strategy needs to be able to cope with both scenarios.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

You Can Invest In Property With Buy to Let

Tuesday, May 5th, 2015

You Can Invest In Property With Buy to Let

Back in the day

Ten years ago, nearly every TV show across a wide range of channels was property related. Not only was it cheap, easy TV to make, but the public couldn’t get enough of it.

A Place In The Sun, Property Ladder, that show with Kevin McLeod where people turn barns into mansions, the list was endless.

The vast public appetite for such programmes and for property investment in general was part of a vast bubble that, as we now know, burst in 2008.

It’s easy to be wise after the fact, and Britain’s property market, particularly the buy-to-let market has never quite been the same since.

A super cheap buy to let market between 1997 and 2008 saw large numbers of ‘get rich quick’ casual landlords buy properties in the hope that they would have to do very little in return for a continual income.

Many left the market in 2008, and a few limped on, realising that being a landlord is often quite demanding.

There is still a place for serious buy to letters out there who can work and think strategically to build up a business.

If you are thinking about it as an investment strategy for the future, this blog will give you some useful pointers.

Different finance

You cannot use a conventional mortgage or insurance to buy a buy to let property and switching a regular residential home over to rental use requires a special buy to let mortgage.

Scrimp on this detail and the bank might call in its mortgage altogether.

A mortgage for a rental property will typically have a much higher interest rate than a residential mortgage.

The loan to value percentage (how much of the total value of the property you can actually borrow), is higher for a buy to let mortgage than for a residential mortgage.

This shows that banks are interested in lending to serious investors who can a higher percent of the value of a property themselves.

One aspect of the buy to let mortgage that makes life slightly easier for the purchaser is the fact that they are often interest only.

This means that each monthly repayment covers just the interest payment and not the loan ‘capital’. At the end of the agreement the capital can be repaid by selling the property and the seller can retain any profits.

This presumes, of course, that there are profits. A poor purchasing decision could leave you with negative equity, or you might find, as millions have in the last decade, that markets can slump as well as boom.

Business Strategy

The bank sees the borrower as a business partner, one which it hopes will be fit, healthy and alive towards the end of the agreement.

The risk averse banking sector is no longer throwing money at house buyers (private or rental), and expect a buy to let landlord to take on the bulk of liability.

This means that if you are going into the letting business, you need to make sure that you have a viable business plan.

Are you targeting young professionals, students, married couples or commuters? If you don’t have a niche market in mind, you need to get one before you go any further.

This will determine where, and what you buy. There is no point buying a flat for wealthy young professionals in bedsit land, or a property aimed at families in a row of student houses.

Your Legal Responsibilities

You will also be responsible to the local authority as well as the bank; a rental property has to reach the basic levels of safety, hygiene and energy efficiency.

It might be worth consulting your council’s housing department for further advice on your legal requirements before you proceed.

Remember as well that your property will be liable for council tax payments, a cost that most landlords pass on to the tenants.

If you would like further advice on the kinds of finance available for fledgling buy to let businesses, speak to a financial adviser who deals in mortgage advice.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

MOST FORMS OF BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

Thoughts For First Time Buyers

Tuesday, April 28th, 2015

Thoughts For First Time BuyersIf you have never taken out a mortgage before, this blog is aimed at giving you a balanced and informed view of your options and the mortgage market today by examining things you need to consider when you are buying for the first time.

Finances:

Since last April, the rules surrounding lending have changed, now lenders are required to carry out far reaching audits into personal finances to determine your monthly income and prevent financial over commitment. You will need to demonstrate that you are:

  • Saving monthly
  • Reducing outgoings
  • Reducing debt or
  • Debt free
  • Receiving a regular income
  • In possession of a clean credit rating
  • You will need to calculate the total amount you will need for a mortgage deposit and plan your savings accordingly.
  • It might be worth finding out if the seller is willing to do a private deal, thus cutting out the estate agent.
  • Watch out for extortionate service charges if you are buying a flat, these can significantly add to the cost of your monthly payments.
  • It might be cheaper to see if you can bid for a property at auction instead of buying it through an estate agent.

Government Schemes:

The Government has helped first time buyers and families moving up the property ladder with a landmark schemes in the past five years, the Help to Buy Scheme.

  • Help to Buy: Sky rocketing average house prices have placed home ownership in the last five years out of the reach of countless first time buyers and made it difficult for growing families to move up the property ladder. The Help to Buy Scheme has provided loans of up to 20 percent of the overall value of properties in order to help buyers afford the deposit. Now prospective buyers have to put down just five percent of the overall value of a new home.

Location

  • Look at the street you are buying in, if the house your are purchasing is far more expensive than the others in that post code, remember that the area will have its own ‘ceiling price’ based on what people in general are willing to pay in order to live there.
  • Is the area ‘up and coming?’
  • Are there decent schools?
  • Is it connected to good transport links?
  • What are the amenities like?

Legal Stuff:

There will be a number of compulsory costs included in the mortgage deal:

  • Legal Fees (these may be included in the overall price of the mortgage, so you don’t have to pay them outright but over the life of the mortgage they will be expensive).
  • Stamp duty.
  • Surveys on your new home (scrimp on these at your peril).

You might want to:

  • Find a cheaper solicitor than the one your lender is using.
  • Find out all the costs and ‘extras’ both estate agents and conveyancing solicitors are charging
  • Make sure everyone you are dealing with is covered by a professional charter or body and is insured.
  • Make sure your solicitor works for you, not the other way round.

You will also need to ask some searching questions to protect yourself against future heartache when you view a property for the first time, even if you’ve convinced yourself that ‘it’s the one’:

  • How long has it been on the market?
  • How many offers has it had?
  • What are the neighbours like?
  • Have there been any disputes?
  • Is there up to date paperwork for the gas and electricity?
  • Is there up to date paperwork for the boiler?
  • What is the availability of parking spaces?
  • What is the cost of council tax?
  • What furnishings or fixtures come with the house?
  • Has there been any history of subsidence or dry rot?
  • Is there anything hideous about to be built on your doorstep?

Getting clear answers to these questions will save you much misery later on. You might also want to:

  • Find out about the estate agent; are they famed for good customer service?
  • Find out about the management service (if you are buying a flat) do they have a good reputation?

Sellers

You need to have a good relationship with your sellers;

  • If you see a property you really want, get them to take it off the market as a condition of your offer. There is nothing worse than being gazumped by another bidder.

Setting up home

You will need to factor in the costs of;

  • Removals (get plenty of quotes for this as prices can vary widely).
  • New furnishings, kitchen or bathroom.
  • Improving the exterior of the building and the garden

Make sure also that you have quotes from workmen for the renovations before you buy, because afterwards the jobs you need doing could become more expensive, the more desperate they sense you are.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

So You’ve Found The House, How Soon Can You Move In?

Friday, April 24th, 2015

Move copyWhile having an offer on a house accepted may be a cause for celebration, it is actually a fairly early point in the procedure for buying a property. Here is a summary of the steps to complete before you pick up your keys.

Organize a Solicitor

You may be able to find a solicitor before you have an offer accepted, but the solicitor will only be able to help you once they know what specific property you want to buy. Their job is to check out the property thoroughly from a legal perspective and see if there are any potential issues of which you need to be aware.

Organize a Surveyor

There are two types of survey which can be carried out on a property. One is a valuation survey and the other is a property survey. In very simple terms, the valuation survey is to ensure that the price of the property is reasonable given the amount of the mortgage you have requested. In other words, the surveyor will only do enough to check that the mortgage lender is assuming a reasonable risk. A property survey is a much more extensive survey, which aims to identify any potential physical issues with the property. Property surveys are divided into three types. Home condition surveys are the most basic level of property survey. They cover the key aspects of the property and highlight any major issues. A home-buyer’s report goes into more detail, checking the property both internally and externally. A building or structural survey is the most detailed form of report.

Finalising the Offer and Confirming the Mortgage

Although these are two separate steps, they are very much interdependent. In a best case scenario, the property will be given a complete bill of health by both the solicitor and the surveyor(s). The sellers will still be happy with the offer and the mortgage lender will be happy with the valuation. If this is the case, then you can proceed to the next step – if you want to. It’s important to note that this stage is effectively the point of no return for both parties. Up until contracts are exchanged either party, seller or buyer, can back out. Once contracts are exchanged, if either party pulls out they could quite feasibly be faced with penalties.

If there are any issues identified with the purchase as it has been agreed, then these will need to be resolved or the purchase abandoned. Fortunately it may well be possible to resolve issues provided that there is communication between all relevant parties. If the issues have a financial impact, e.g. the surveyor identifies an issue which requires repair, then the sellers may be persuaded to accept a lower offer. Alternatively if the valuation comes in at less than the agreed sale price, sellers may also agree to a reduced price. Quite simply getting a mortgage is a necessity for many house purchases and only when this stage has been completed can buyers and sellers move on to the next step.

Exchanging Contracts

Pretty much what it says. Obviously buyers need to go through the contract thoroughly with their solicitor. You need to be absolutely sure you understand everything and are completely happy with it. In particular you need to be clear about what is and is not included in the sale. Once you have signed the contract you are committed to the purchase.

Completion and Paying Fees

Completion essentially means registering the sale with the relevant authority (this varies according to the specific part of the country where the sale was made). It also means paying the cost of the house and the money due to the parties involved in the sale. It may also mean paying stamp duty.

A Guide to Time-scales

In practice the shortest period of time in which to move from offer to completion would be around six weeks. This does, however assume, that everything is plain sailing and that all parties involved are working at maximum speed with no holidays (public or otherwise) or any other events (such as sickness or people changing jobs) to interrupt the process. Buyers should be prepared for the process to take longer and also be ready to keep tabs on the parties involved and check for progress when appropriate.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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