by admin | Dec 10, 2021 | Mortgage News
Two trends are combining to create what could be a significant issue for the mortgage market and, indeed, for the UK as a whole. Firstly, people are waiting longer to get on the housing ladder (or being forced to do so). Secondly, mortgage lenders are now offering multi-decade fixed-rate mortgages.
A new mortgage time bomb?
If you buy your first home in your mid-thirties and take out a forty-year mortgage (fixed-rate or otherwise), it will end in your mid-seventies. Of course, this assumes that you never change your mortgage. In reality, people who bypass starter flats and make their first purchase of a family home may well choose to downsize once the children have flown the nest.
Then again, they may not. Even if they do, they may not be able to pay the total price in cash. From a financial perspective, downsizing isn’t as cut and dried as it might appear. There are a lot of variables to consider. It has the potential to save people money, but this is not guaranteed.
It also needs to be acknowledged that some relationships come to an end. When they do, the two halves of a former couple both need to find suitable accommodation. This has clear implications for personal finances in general and mortgages in particular.
This means that, whatever way you look at it, there is at least a strong potential that people will still be paying off their mortgages well into their later years. Whether or not this means that they will be paying them off post-retirement will depend on individual circumstances. The most obvious of these is when, or indeed if, the individual retires.
What and when is retirement?
Retirement used to be pretty cut and dried. If you had bought a house, you had paid off your mortgage (or were at least very close to it). You had a defined benefits pension and/or a pension pot you used to buy an annuity. This gave you a liveable income for your (relatively short) retirement years.
Retirement is a combination of what any given individual says it is and what they can afford. Some people are able and willing to continue working indefinitely, at least in some capacity. Some people can work but do not wish to do so. Some people are not able to work indefinitely regardless of whether or not they want to do so.
Realistically, despite modern science’s benefits, age is more than just a number. Anybody can be rendered incapable of working even if they would like to. What’s more, even if you’re willing and able to work, the work might not be there for you to do. This means that it’s precarious to rely solely on continued income from work to pay your mortgage at any time. It’s particularly risky in your later years.
Mitigating the risk
The most obvious way to mitigate the risk of carrying a mortgage into retirement is to do as much as possible to pay it off before you retire. This may involve making sacrifices in the present to benefit your future self. For example, you might choose to let out a room in your house (even if it means the children sharing rooms for a while) and forgo treats like holidays.
You should protect your income so you can continue to pay your mortgage if hit by one of life’s curveballs. If you’re employed, you could look at payment protection insurance. Regardless of your employment status, you could look at critical illness cover, income protection insurance and life insurance.
Last but not least, you should maximise your savings and income for retirement. One potential strategy would be to use your Lifetime ISA to build up a pot you could use to pay down your mortgage upon reaching retirement age. They use a pension and/or other savings/investment vehicles to save for your living expenses.
Why use Coombes & Wright Mortgage Solutions?
Coombes & Wright Mortgage Solutions is an award-winning mortgage & protection broker providing local, flexible, friendly advice. Exceptional customer service is at the heart of everything we do. We simplify securing and completing your mortgage and protection cover from initial enquiry to completion. Our flexible and friendly format is built around you. We ensure you get professional advice, without jargon, at a pace and time to suit your needs.
We act as introducers for pensions, savings, investments, and payment protection insurance.
by admin | Aug 26, 2021 | Mortgage News
Life may not be easy for first-time buyers. You do, however, potentially benefit from several government schemes. That said, it’s vital to understand what these mean in practice. They have potential drawbacks as well as advantages. With that in mind, here is a quick rundown of the main options.
The Lifetime ISA
The Lifetime ISA is essentially a government-boosted savings scheme. You can save up to £4K each (tax) year and get a 25% bonus added. In other words, you can get up to an extra £1K per year.
Lifetime ISAs can only be used either for the purchase of a first home or to finance retirement. If you withdraw funds for any other reason, there is a 25% penalty applied to the whole sum. This means that you are effectively charged to withdraw the money you put in.
For example, you pay in £4K and get the £1K bonus. You then need to withdraw your money. The 25% penalty is £1250 so you lose £250 of your own money. This may be amended in future. For the time being, however, it is a consideration you should keep in mind.
The Mortgage-Guarantee scheme
This is often known as the 95%-Mortgage scheme and is essentially a reboot of the old Help-to-Buy scheme. It works along the same lines. If buyers can put down a 5% discount, the government will guarantee up to 15% of the remaining mortgage. This means that the effective loan-to-vehicle rate is 80% rather than 95%.
Keep in mind, however, that this guarantee is for the lenders rather than the borrowers. In other words, if you default, they will be protected to the extent of the guarantee. You will still have to deal with the standard consequences of default.
The Help-to-Buy Equity-Loan scheme V2
This is essentially the same as the original Help-to-Buy Equity Loan scheme. The two main differences are that it is only open to first-time buyers and that it has regional price caps. In short, if you can put together a 5% deposit, you can borrow up to 20% of the purchase price of your home from the government. You need to get a standard mortgage for the reminder.
There are, however, three key points to remember. Firstly, the Help-to-Buy Equity-Loan scheme V2 is only available on new-builds. Secondly, the government will own an equivalent stake in your home. This means that any increase in your home’s value will result in you paying more to buy out the government’s stake in it.
Thirdly, if you can’t repay the loan within 5 years, you will have to pay interest on it. Currently, any repayment has to be at least 10% of the home’s market value at that point. If you can’t afford that, then you will have to keep paying interest on the full amount until you can (or you sell).
The First-Homes scheme
The First-Homes scheme currently only applies in England. It offers first-time buyers a discount of 30%-50% on new-build properties. The standard discount is 30% but local authorities have the option to increase this to a maximum of 50% as long as they can justify the decision. The discount must be passed on to any future buyers.
There is a price cap of £250K outside London and £420K inside London. There is also an earnings cap on candidates of £80KPA outside London and £90KPA inside London. Local authorities have the option to prioritize certain groups of first-time buyers for the first three months of property marketing. After this, they must allow any qualifying application.
The main potential disadvantage of the First-Homes scheme is that it may be very hard for regular first-time buyers to qualify for it. For example, local authorities may use it to encourage key workers to stay in higher-cost areas.
For advice, please get in touch.
by admin | Jul 23, 2021 | Mortgage News
There are basically only three ways to get a mortgage if you have poor credit. The first is to leverage someone else’s credit rating. The second is to put down a bumper deposit. The third is to repair the damage to your credit. You may need to use a combination of these strategies and/or apply to a specialist lender.
Leveraging someone else’s credit rating
Possibly the most obvious example of this is using a guarantor. Another option could be to apply for a mortgage jointly with someone who has better credit than you. Both options require a high degree of trust between both parties.
With all the trust in the world, it’s still advisable to make sure your agreement is properly documented. Putting everything in writing eliminates the potential for conflict about what was and was not agreed.
It can also be helpful if you need to demonstrate that the agreement was fair to everyone. For example, perhaps you agreed that the guarantor would be given a stake in the property if the guarantee was invoked.
See if you can use a government scheme
This is most likely if you are a first-time buyer. The Help-to-Buy Mortgage Guarantee scheme is, however, open to onward movers. This is essentially a variation of leveraging someone else’s credit rating. In this case, however, it’s the government’s. There are qualifying criteria for the scheme but there is no harm in taking a look and seeing if you could be accepted.
Putting down a bumper deposit
The less you need to borrow relative to the value of your home, the less risk there is to the lender. Even if you have an excellent credit record, a large deposit will protect the lender against the risk of your home’s value falling and leaving you in negative equity (if only temporarily).
If you have a poor credit record, then an extra-large deposit may help to reassure lenders. This will protect them not just against changes in the housing market but also against the prospect of you defaulting. Keep in mind, however, that lenders may have rules about gifted deposits. If this could affect you, be sure to do thorough research before you apply.
Repairing the damage to your credit
Time is the great healer and that applies to credit scores too. If you have active black marks on your credit record, then these will fade to nothing over time. Admittedly, it may take several years for them to fade away completely. You can, however, use this time to do everything you can to push the needle in the right direction.
Keep in mind that your finances will be scrutinized as part of any mortgage application, even if you have an outstanding credit record. Being able to show lenders either that you have mended your ways or that you are back on your feet (post-COVID19) will be essential to getting approval.
Remember, lenders are obligated to ensure that you really can afford the mortgage you want. If they fail in this duty, then they can get into trouble with the regulator. The more you can demonstrate solid financial management, the more you can reassure them that you are both capable and responsible.
Applying to a specialist lender
The high street (or its digital equivalent) may be the obvious place to go to look for a mortgage but it’s far from the only one. If you’re in a round peg/square hole situation, you may be far better going to a specialist lender.
Of course, the challenge here is finding a specialist lender. You may find it much easier to look for a mortgage broker and let them guide you through the maze. It’s literally their job to know the mortgage market inside out and, hence, know where you’re most likely to be accepted.
If you need mortgage advice, please don’t hesitate to get in touch.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
by admin | Jul 16, 2021 | Investment, Mortgage News
With the Stamp Duty Holiday winding to a close, it’ll soon be time for the housing market to go back to standing on its own two feet. It’s always managed this pretty well in the past. Can it keep ploughing ahead now?
The drivers behind house-price growth
Since July 2020, the UK has seen extraordinary house-price growth. Given the timing, it seems reasonable to assume that the SDLT holiday was a factor in this. The key question, however, is whether or not it was the only factor. If it was, then, at a minimum, house-price growth should stop. If it wasn’t, then house-price growth should continue albeit possibly at a slower rate.
Why were people moving?
Anyone who’s ever moved home knows just how much hassle it involves. What’s more, even with the SDLT holiday, it’s generally an expensive undertaking. The SDLT holiday, for example, did not cut the costs of mortgage applications, valuations and conveyancing. Similarly, it did not cut the costs of physically moving from A to B.
It, therefore, seems fair to assume that the SDLT holiday simply prompted people to get on and do something they were planning on doing anyway. This raises the question of why they were doing it.
Upsizing and downsizing
If you need more space than you have and can’t extend then moving is really your only option. If you have more space than you need, then moving can be an attractive option. Less space generally means less cleaning and maintenance. It can also mean less cost.
Of course, if you’re really short on space or really have too much of it, you will effectively be forced to move. If, however, you’re just about managing, then you may need an incentive to go through the hassle of moving home. The SDLT holiday might have been the boost you needed to get moving.
If this is the case then it’s questionable whether house prices can continue to rise over the near future. Quite simply, if the majority of people who needed or wanted to move have done so recently, who is going to be buying new houses? Of course, it’s to be expected that there will be some activity, for example from first-time buyers, but will it be enough to sustain growth?
Changing location
The need to change location might be forced on you or it might be through choice. In fact, it might even be a bit of both. This might have been the case for a lot of people in COVID19. Remote-working became the new normal. Remote-/hybrid-working is looking increasingly likely to be the new frontier of knowledge work. That has serious implications for the housing market.
Although some employers have spoken out against remote working, many others are interested in it. They may not be prepared to go 100% remote (although some companies are). They may, however, be perfectly happy to switch to a hybrid model. This allows employers to reduce the cost of office space while still maintaining a base for meetings and collaborative work.
It also allows employees to move further away from their work location if they wish. In fact, it may strongly motivate them to do so to get the space for proper home offices. If this is the case then demand may continue after the SDLT holiday ends. Some employees may have been waiting to see what their employer’s long-term policy would be before committing.
Investing
People buying second (or subsequent) homes still had to pay the surcharge but they qualified for the main SDLT holiday. If this was one of the drivers behind the price rises then it’s questionable whether or not price growth will continue.
Investors need to make their numbers add up. It’s hard to see how they can make suitable returns buying houses at high prices without the benefit of the SDLT holiday to offset them.
Please contact us for mortgage advice.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
by admin | May 7, 2021 | Mortgage News
When it comes to housing deposits, bigger is better. That said, it’s also important not to overstretch yourself. Here are some points to consider when figuring out how much deposit you can really afford.
What are your overall moving costs?
As a buyer, here are some of the main costs you should consider when moving home:
- Travel to view homes
- Surveying fees
- Conveyancing fees
- Mortgage-administration fees
- Home-moving fees
You’ll also need to think about necessary updates, maintenance and running costs in your new home. Keep in mind that any existing services you use may change their price to reflect your house move. You may also find that some of your existing possessions aren’t suitable for your new home.
In addition to all of the above, it’s advisable to allow yourself a bit of financial “breathing space”. This can give you a bit of room to manoeuvre when life happens. It can also ease your transition into your new home. For example, if you’ve spent a day painting, you may not fancy cooking so you might get a takeaway instead. This can increase your food spend.
What is your financial outlook for the future?
If you want a mortgage, you’re going to need to convince your lender that you can afford it. Separately to that, you, personally, need to think about your financial outlook for the future. In basic terms, there are three questions you need to answer.
Firstly, how much income can you reasonably expect to earn over the next five years or so? Secondly, how do you anticipate that income coming in? For example, will you have a consistent monthly salary or do you expect your income to go up and down? Thirdly, what factors will influence your finances? For example, are there any major life events coming up?
The answers to these questions will help you decide what level of savings you need. This in turn will guide you as to how much money you can afford to put towards buying a new home. Remember, however, that the cost of buying a new home goes beyond the deposit. Per the previous comments, resist any temptation to overstretch yourself.
How much money can you afford to put away now?
If you plan to save for your deposit via instant-access savings accounts, then, by definition, you’ll be able to access your money if you need it. If, however, you plan to use some other route, for example, bonds or the stock market, then you may have to lock your money away for a time. What’s more, if you go down the investment route, you put your capital at risk.
Even if you’re using instant-access savings accounts, you may find it easier to make plans if you have a realistic idea of how much of your savings you can keep over the long-term. Obviously, even the best-laid plans can be derailed by what life has in store. That said, you can mitigate this risk by making sure that you have appropriate insurance cover.
In the real world, saving up for a deposit (or anything else) is partly a matter of income and partly a matter of focus. Your income will determine how much of a surplus you have after paying your essential expenses. Your level of focus will determine how much of your disposable income goes toward your deposit.
Keep in mind that building a deposit is an exercise in financial management. It’s not a race. There are no prizes for getting to the “finish line” before anyone else. You just have to decide for yourself how much you want to save for a house versus how much you want to use your money in other ways.
Please contact us for any more information.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
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