by admin | Jul 31, 2020 | Mortgage News
Prior to the lockdown, average house prices were predicted to rise by up to15% over the next five years. With COVID19 having sent the world into a tailspin, that might now be overly optimistic. It does, however, seem reasonable to expect the housing market to hold on and possibly even see growth. This is because the same positive factors still largely apply.
The “Brexit bounce”.
Houses are long-term purchases. There are lots of reasons for this, but most of them revolve around the fact that buying one usually involves a number of up-front costs and, it has to be said, corresponding administrative work.
This means that you generally want to be sure that you can stay in one for at least five years before you even contemplate a purchase, especially if you’re a first-time buyer and hence potentially qualify for special help.
Additionally, the fact that most buyers need mortgages means that they have to think carefully about their ability to service a mortgage over at least five years (which will be checked by a lender in any case).
For all of these reasons (and more), the extended delay over implementing the result of the Brexit referendum has really acted as a strong brake on the housing market. Hopefully, the fact that Brexit is now finally happening (regardless of your views on it), will allow both potential buyers and potential sellers to make plans in which they can have some degree of confidence.
Admittedly, this does depend on finding a post-COVID19 “new normal” but the signs are that this appears to be happening already. The lockdown is easing, businesses are reopening and while the economic situation remains challenging, there at least appears to be light at the end of the tunnel.
Significant investment in transport infrastructure
HS2 is, at the very least, delayed, and it will be interesting to see whether COVID19 will force the government to cancel it (or give them a face-saving reason to cancel it). Even if HS2 is cancelled, there is still very likely to be a focus on continuing to develop the infrastructure in the north of England. This will be partly for economic reasons (to encourage growth in the area) and partly for political ones (to hold on to electoral gains).
On that note, the expansion of Manchester Airport is already going ahead. In principle, the third runway at Heathrow should also go ahead, but there is always the possibility that this will be cancelled, possibly to placate those who are opposed to HS2 on cost and/or environmental grounds. Crossrail, however, is already underway.
Since none of these developments is complete (in fact neither HS2 nor the third runway at Heathrow are actually under construction yet), it’s impossible to say what specific benefits they will bring. It is, however, fair to say that improvements to infrastructure, especially transport infrastructure often lead to increased house prices along the route, particularly near to stops.
Economic stability (possibly growth)
The fact that the “Northern Irish issue” appears to have been resolved (or, at the very least, that there is a path to resolution), should hopefully make it much easier for there to be a smooth transition out of the EU.
It is probably fair to say that the EU’s desire to encourage members to remain in the block rather than going it alone will have to be balanced with a pragmatic approach to keeping trade flowing between the UK and the single market. It’s definitely fair to say that the UK has long traded on a global basis and hence should be able to continue to do so successfully. If this is the case and there is, at least, economic stability, then this is likely to have a positive impact on the housing market.
Your property may be repossessed if you do not keep up repayments on your mortgage.
by admin | Jul 24, 2020 | Mortgage News
Non-essential businesses are now starting to reopen, albeit with safety measures in place to protect against COVID19. This includes the UK’s estate agents who can now take prospective buyers and renters to view potential new homes. Of course, this supposes that there is a supply of buyers and renters and a pool of new homes for them to see. It also supposes that buyers who need a mortgage will be able to get one.
The issue of demand
Given that everyone needs somewhere to live and not everyone can live with their parents (or in accommodation provided by their work), there is always some level of demand in the housing market. The real question is whether the demand will be for property to buy or property to rent.
When you buy a home, assume you either pay cash or use a repayment mortgage, you build up equity in an asset. This can be a powerful argument in favour of buying. The problem, however, is that if you need a mortgage, then you have to be confident that you can make the repayments or else you could risk losing your home. In fact, you could risk losing your home and still owing your lender money. You also risk having your credit record damaged and having to deal with the consequences of that.
When you rent, by contrast, you do not build up any equity in your home and there are consequences for missed payments, including, potentially damage to your credit record. On the other hand, you are only committed to a tenancy for the length of a lock-in period and even then it may be possible to negotiate an early release with your landlord. This can offer people much more room to manoeuvre if their circumstances change, financially or in any other way.
The issue of supply
On the home-sales side, supply depends on people being either forced or willing and able to leave their current homes. At present, it’s a very open question how much either reason will apply in a post-COVID19 market and the answer will probably depend largely on how well the UK weathers the post-lockdown financial reckoning (and Brexit).
If it can, at least, escape recession and keep the economy ticking over, then forced sales should be minimized and hopefully people will have the confidence to move home in line with their lifestyle changes (e.g. arrival/departure of children) and preferences. If, however, the UK enters a recession or even stagnates, then the number of forced sales may increase and potential home-sellers may choose, or be forced, to stay where they are, rather than risk a change.
The home-rentals side is slightly different as buy-to-let property is bought specifically as an investment, not a home. This means that the level of supply is likely to be determined by how well property compares to other investments, such as the stock market. There is, however, the potential for properties intended for short-term letting to be brought back into residential use (for example if travel restrictions make them uneconomical). There is also the possibility that there will be an increase in the number of people letting out rooms.
The mortgage market
In principle, the mortgage market is still operating to the rules imposed by the Mortgage Market Review. It remains to be seen, however, whether or not these rules will function in a post-COVID19 environment and, if not, what the government will do about it. Again, much is likely to depend on how well the UK performs economically over the foreseeable future.
If the economy performs at least reasonably well, then the government may feel that it can leave the housing market, and by extension the mortgage market, to get on with its own business. If, however, it does not, then some form of intervention may be necessary.
Your property may be repossessed if you do not keep up repayments on your mortgage.
The FCA does not regulate some forms of Buy to let mortgages.
by admin | Jul 17, 2020 | Investment, Mortgage News
The plight of first-time buyers has been a matter of concern for some time now. With COVID19 restrictions ongoing and Brexit around the corner, it looks like life could be about to get even tougher for (potential) first-time buyers. Here are some of the challenges they may face – and what might be done to help them.
Raising a deposit
Back in 2017, Lifetime ISAs were introduced to help people save either for their first home or for a pension (or both). In response to the impact of the Coronavirus pandemic, the government changed the rules on Lifetime ISAs to allow borrowers to withdraw funds without an active penalty. In other words, borrowers lost the government bonus but did not have to pay the 5% withdrawal fee.
Once the UK has established a post-COVID19 “new normal” (and possibly after Brexit if that is later), it might be feasible to reassess the Lifetime ISA situation and see if there is any way to use it to help undo the damage of the pandemic (and, if relevant, Brexit).
At the very least, the government could look at ways to make it possible for people to “get back where they were”, even if they can’t afford to replace the money they withdrew during this financial year. It may even be possible for the government to increase the savings limits (and corresponding bonus) and/or the length of time over which first-time buyers can save.
Satisfying the affordability criteria
The Mortgage Market Review obligated lenders to stop making lending decisions purely on headline data such as income and, instead, to look in more detail at a potential borrower’s ability to afford the loan in their personal circumstances. Making this work in practice requires being able to make reasonable predictions about what the future is likely to hold for the person in question. This could be extremely challenging in a post-COVID19/peri-Brexit environment.
On the one hand, nobody wants to see a return of the behaviours which led to 2008. On the other hand, nobody wants to see buyers, especially first-time buyers, frozen out of the market due to lenders being unable to offer them any flexibility in case they wind up on the wrong side of the FCA. Again, this looks like an area where parliament could potentially assist.
The government has already extended the Help to Buy Equity Loan scheme albeit only for first-time buyers. This could possibly be expanded further, albeit with appropriate caution. For example, the rules could be adjusted to allow for the purchase of existing properties. This could open up some interesting opportunities for first-time buyers such as the option to take on former investment properties, perhaps even the homes they are currently renting, or even to buy properties in need of refurbishment.
Dealing with the fear of a market downturn
Buyers, especially first-time buyers, may be wary of buying into the property market in the near future for fear that the property market will be hit by a slump or, even worse, by a crash. While these fears are understandable, they are also a sign that buyers need to be educated about the realities of property purchase.
In particular, property professionals need to ensure that buyers are clear about the fact that property should be seen as a long-term investment purchase rather than a short-term impulse buy. They should expect periodic fluctuations in the market, including occasional, sharp, downturns, and be prepared to ride them out.
This may involve working with the broader financial services industry and maybe even the government to ensure that first-time buyers have the necessary financial education to understand the financial practicalities of home-ownership.
Your property may be repossessed if you do not keep up repayments on your mortgage.
For Investments we act as introducers only.
The FCA does not regulate some forms of Buy to let Mortgages.
by admin | Jun 12, 2020 | Equity News, Mortgage News
Back in 2013, the FCA identified three residential interest-only mortgage maturity peaks. The first peak was back in 2018 and there are two more predicted for 2027-2028 and 2032. What’s more, interest-only mortgages are very much still available in the residential-mortgage market. In fact, the number of residential interest-only mortgage products available almost doubled between 2013 and 2019.
This raises the question of whether or not the “mortgage timebomb” can be diffused over the next decade or so or if it could tick on for longer. Of course with recent events and the raised interest in this product, the question is now very important.
A brief explanation of interest-only mortgages
With an interest-only mortgage, the borrower makes interest repayments over the course of the term and then repays the capital at the end of the term. On the one hand, this makes monthly repayments more affordable than they would be for a repayment mortgage for the same amount. On the other hand, it means that interest is always charged on the amount originally borrowed, rather than over an amount which is continually decreasing. It also means that the only equity borrowers build up in their home is via house-price inflation.
The challenge of paying back the principal
Mortgages, by definition, are secured loans. Specifically, they are loans secured against your home, which means that your home is always at risk if you are unable to make repayments as you should.
With repayment mortgages, however, you are, again by definition, repaying some of the loan principal each month. With interest-only mortgages, however, you have to find an alternative method of paying back the capital and the harsh reality is that even selling the property may not be enough to do so.
The issue of equity
As previously mentioned with an interest-only mortgage, the only equity you accumulated is through house-price inflation. This means that you would only be able to repay the loan capital purely through the sale of your home if you achieved a net profit at least equal to the amount you originally borrowed.
While this is certainly not out of the question at all, it depends both on the state of the housing market at the time and on the tax regime in force. For example, if the government does implement the suggestion of levying stamp duty on sellers rather than buyers, you would need to make enough profit to cover that.
Similar comments apply to using equity release. Even though equity release products do not typically require the borrower to make any repayments during their lifetime (unless they move into permanent care), there is still an expectation that the loan will be repaid, with interest, after their death (or move into permanent care), hence the loan-to-value ratio has to make that feasible.
Alternative repayment vehicles
Of course, selling the property is not necessarily the only way to repay an interest-only mortgage. You could use savings, investments or the proceeds from a pension pot, in fact, in theory you could use anything you wanted as long as it covered the cost. The challenge is that in a low-interest-rate environment, returns on cash deposits are uninspiring. It is, of course, possible for mortgage-holders to put their savings into higher-interest bonds, but the challenge would be to find bonds with high interest but low risks.
Similarly, investment returns are not guaranteed, which means that if the size of pension pot is dependent on investment returns, it is not guaranteed either.
The future of residential interest-only mortgages
In theory, the emphasis on affordability criteria, including having a realistic plan for paying back the loan principal, should protect both borrowers and lenders going forward. In practice, only time will tell if this is the case or if interest-only mortgages really need to be relegated to financial history.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Equity release refers to home reversion plans and lifetime mortgages. To understand the features and risks ask for a personalised illustration.
For equity release, savings, investment and pension products we act as introducer only
by admin | Jun 5, 2020 | Mortgage News
In the UK, the self-build mortgage market is still very niche. This means that the selection of lenders and products is much more limited than it is for the standard residential mortgage market. It is therefore highly advisable for anyone considering a self-build to learn about how lenders view the market so they can understand what is available to them and what lenders want to see in potential borrowers.
Self-build mortgages are riskier than residential mortgages
From a lending perspective, the worst-case scenario (which they must consider) is that a borrower defaults on their mortgage. When this happens, the property on which the mortgage is secured will be sold and any proceeds will be given to the creditor (up to the remaining value of the loan).
With self-build mortgages, however, there may not be a property to sell, at least not a complete one. This reduces the pool of potential buyers considerably and hence increases the lender’s risk. Even when there is a property, there is a risk that the builder will not have completed it to acceptable standards, thus lowering both its value and the level of interest it will generate on the markets. Buyers should, therefore, be prepared to address these concerns.
Self-build mortgages come in two main types – arrears and advance
The single biggest difference between a self-build mortgage and a standard residential mortgage is that with the former funds are released in line with development milestones whereas with the latter funds are released when you complete the purchase. Self-build mortgages may or may not include the buying of the plot as a development milestone.
With arrears self-build mortgages, the borrower has to put up the capital to meet the milestone and then, when it is complete, the lender will release the funds to them. In other words, using an arrears self-build mortgage minimizes the amount of working capital you need. It does not eliminate the need for you to have your own funds. Arrears self-build mortgages are the more common form of plan.
With advance self-build mortgages, by contrast, the funds are released before the milestones are met. Remember, however, that these days it’s highly unusual to get any sort of mortgage at a 100% loan-to-vehicle rate. With self-build mortgages, 75% to 80% is more likely. This means that you will need some working capital of your own, albeit less than with an arrears self-build mortgage.
Self-build mortgages are generally more expensive than standard residential mortgages
You should expect to pay higher interest rates for a self-build mortgage than for a standard residential mortgage. This is partly because of the increased level of risk and partly because of the reduced level of competition in the market. You should also be prepared for arrangement/introduction fees.
As with all mortgages, you can expect your application to be scrutinized thoroughly. In addition to convincing your lender that you are financially sound, you will also need to convince them that you know what you are doing with the proposed build. Remember that in the residential mortgage market a lender can get a professional surveyor to give an opinion on a completed property. They may also have data on the sales of comparable properties. With self-build mortgages, however, they have far less information available to them.
Self-build mortgages can be converted to residential mortgages
Once a self-build property is complete, you have potential access to all the mortgages in the standard, residential market. These can be much more competitively-priced, however, as always, you need to do your sums carefully before deciding whether or not to switch and, if so, when and to what. Remember that there will be costs in moving from one mortgage-lender to another (plus administration) so you want to be sure that these are justified.
Your property may be repossessed if you do not keep up repayments on your mortgage.
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