by admin | Nov 1, 2019 | Mortgage News
The arrival of the 2020 financial year will spell the end of what remains of mortgage interest tax relief. Although this won’t be exactly news to buy-to-let landlords, it has been in the process of disappearing since April 2017, it may be a useful prompt to buy-to-let landlords to review their finances and make sure they have the right financial products for their situation.
Mortgages
Traditionally, repayment mortgages have been the more expensive option for landlords, but hey offered the benefit of allowing a landlord to build up real equity in their portfolio and, ultimately, to end up owning the property in its entirety. Interest-only mortgages, by contrast, were more affordable and allowed landlords to maximize yield, thus increasing their income for the duration of the mortgage. The abolition of tax relief on mortgage interest may, however, have changed this subtly. The reason for this is that as a repayment mortgage progresses, the borrower pays less and less in interest and more and more of their repayments go towards the capital. With an interest-only mortgage, however, the capital is never repaid (or at least not until the end of the mortgage), which means that the borrower continues to pay interest at the same rate throughout the course of the mortgage. In the old days, this was largely irrelevant, as mortgage interest could be set against tax, but now that the old system of tax relief has now been replaced by a system of flat-rate tax credit, landlords could find that the difference is meaningful even without the benefit of building up equity. As always, people need to do their own sums, but it is definitely worth checking.
Insurance for your property
In addition to taking out standard insurance on the fabric of the building, landlords may want to consider whether or not they want to cover the contents. Even if the property is let unfurnished, it will presumably have at least a kitchen and a bathroom and these can be expensive to replace if your tenants leave them damaged. They can also cause expensive damage to your tenants’ property if they malfunction, for example, if a washing machine springs a leak, so you might also want to consider protecting yourself against that. Finally, although this is not, technically, protecting your property, you might want to take out insurance against loss of income from it, be it through non-payment or through voids.
Insurance for yourself
Harsh as this may sound, protecting your property starts with good tenant selection. There is simply no two ways about this. There is, however, a potential complication in that landlords need to select tenants in a way which complies with the law, in particular the Equality Act 2010. This may seem self-evident, but it can be surprisingly easy to act in a way which may be considered discriminatory, or at least perceived as discriminatory by a potential tenant, especially if a landlord is nervous about falling foul of the “Right-to-Rent” rules. Lettings agents may be useful here, but if landlords choose not to use them (or even if they do), it may be advisable to take out some form of legal expense insurance for landlords. This may also be useful if landlords have to deal with problem tenants. Last, but by no means least, landlords may wish to think about insuring their own health, especially if they are active in the management of their portfolio (as opposed to leaving it to lettings agents).
A final point
If you are using a financial product for a buy-to-let property, then you must take out products which are intended for that market, not products for the residential market.
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.
The FCA does not regulate letting agents and we act as introducers for them.
by admin | Aug 2, 2019 | Mortgage News
If you are buying your first home or moving to a bigger one, then there’s a very good chance that you’re going to need a mortgage to help you to do so. The bad news is that being approved for a mortgage is very far from a formality. The good news is that it is possible, as evidenced by the many people who successfully do so each year. With that in mind, here are some tips on maximising your chances of mortgage approval.
Build a deposit
There are two good reasons why mortgage lenders prefer borrowers with larger deposits. The first reason is the straightforward fact that larger deposit lowers the lender’s exposure to fluctuations in the property market. In principle, the borrower is responsible for the mortgage, but, in practice, if the worst comes to the worst and the borrower goes bankrupt, it will be the lender who is left on the hook. The second reason is that the ability to raise a large deposit shows that the borrower can save (or has access to financial support from other sources).
Make sure your credit record looks as good as it possibly can
In addition to checking for any clear errors (and getting them corrected), see if you can go a step further (or several steps further) and actively improve it. Sometimes even simple changes can make a difference (possibly only a small difference, but every improvement is a gain). For example, if you’re not on the electoral roll, then get your name added (and if you are on, make sure you’re listed at the address you’ll be giving to your mortgage lender) and if possible, add a landline phone number. On a larger scale (and with potentially more impact), make the time to pay off any small-scale debts you are carrying, such as credit cards you hardly use, and then actually close them (rather than leaving them in limbo). In fact, if you still have any credit cards with zero balances, then ask yourself if you really have a compelling reason for keeping them open and if the honest answer is “no” then close them. If you need any more encouragement to take this step, then remember that every financial product you own is a potential point of compromise and so minimising the number of companies which have access to your financial details should also reduce the likelihood of you becoming a victim of fraud and/or identity theft.
NB: remember that the UK has three main credit-reporting services Experian, Equifax and CallCredit and you will need to check your record with each of them to get a full picture of how your financial history will look to a lender.
Keep your finances on a steady track
Remember that your credit record is only the first check a lender will make. If you pass this hurdle, they will want to take a more detailed look at your spending by means of your bank statements. With this in mind, you want your statements to give the impression of a person who lives their life in a way which is unlikely to give a potential lender a moment’s cause for concern. So, for example, unless you are really desperate to leave a job you hate, wait until your mortgage is 100% secured before doing so and if your plan is to start your own business, then hold off making any purchases which make this obvious to the lender. In other words, while you have to answer any questions truthfully, you only have to answer what they actually ask. Always remember, however, that the onus will be on you to keep up with your mortgage payments and that the consequence for not doing so can be losing your home, so resist any temptation to over-stretch yourself from the start.
Your property may be repossessed if you do not keep up repayments on your mortgage.
On clicking the above link, you will leave the regulated site of Coombes & Wright Mortgage Solutions Limited. Neither Coombes & Wright Mortgage Solutions Limited, nor Sesame Ltd, is responsible for the accuracy of the information contained within the linked site.
by admin | Jul 19, 2019 | Mortgage News
In the UK, mortgages used to come in two main types, interest-only and repayment. Now, it is practically impossible to take out an interest-only mortgage on a residential property (although it is still entirely possible to take out an interest-only mortgage on an investment property), which does relieve residential buyers in the UK from one key decision, but does leave them with another, namely, which specific type of repayment mortgage is the right one for them.
Standard repayment mortgages versus offset mortgages
Offset mortgages have been available in the UK for several years now, but they are still very much the newcomers in the UK mortgage market and as such may benefit from a bit of explanation. The idea behind offset mortgages is that borrowers keep their cash savings with their mortgage lender, which then calculates the interest payable on the net amount (i.e. the outstanding balance on the mortgage itself minus the positive savings balance). Borrowers keep access to their savings and can use them any time they need to. In principle, this approach should provide a net gain as savers typically receive less interest income than borrowers pay in interest expense. Objectively speaking, however, in and of itself, the calculation may be less straightforward as different savings products pay different levels of interest income and different mortgage products charge different levels of interest (and the same mortgage product may charge different levels of interest to different borrowers). Having said that, it’s important to remember that tax is charged on interest income and hence forgoing it in exchange for reduce interest expense may generate meaningful savings, particularly for higher-rate tax payers.
Variable-rate mortgages versus fixed-rate mortgages
In and of themselves, variable-rate mortgages and fixed-rate mortgages probably need no further explanation, as the old saying goes, the clue is in the name. It can, however, be rather more complicated to decide which one is right for you. In theory, it might seem like a good idea to go for a variable-rate mortgage while interest rates are heading downwards, but fix when they look likely to head upwards again. That way, you benefit when interest rates go down, but limit your losses when they go up (again). In practice, however, there is a very real problem with this theory, which is that lenders are only too well aware of the fact that fixed-term mortgages shift the risk of interest-rate changes from the borrower to the lender and hence generally charge a premium to protect themselves from this risk. In addition to this, lenders will typically only grant fixed rates for a specific period of time, and the longer that period of time, the higher the “fixed-rate premium” will be as the lender is assuming a greater degree of risk. Once this initial period is over, you will either have to renegotiate another fixed-rate deal or move to a variable rate. In other words, fixed-rate mortgages can work out more expensive than their variable-rate counterparts, plus they can involve a bit more administration.
On the other hand, however, fixed-rate mortgages do give borrowers stability and the reassurance of knowing that their payments will be the same from one month to the next regardless of what happens with interest rates and for some people this stability may be worth the extra money. In particular, fixed-rate mortgages may be of benefit when interest rates are showing some level of volatility, perhaps going up or down a little each month, rather than either remaining constant or trending clearly in one direction or another. In this situation, knowing that you’re going to be making the exact same mortgage payment each month, at least for the length of the fixed-rate period, can make budgeting a whole lot easier.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Recent Comments