The latest

Mortgage news

Help to Buy guarantee scheme The government-backed scheme is set to end on 31 December

Mortgage costs fall Further reductions on mainstream mortgages

UK houses now cost six times annual wages The highest house price/ earnings ratio for eight years

A surge in Buy-to-Let mortgages Buy-to-Let activity increased by 12.7% in August

Welcome to the winter update from the Mortgage Desk. Close Brothers Asset Management offers a fullyadvised, telephone-based mortgage broking service. We can help you arrange the funding you require with regards to your residential and buy to let purchase and remortgage needs. We are completely independent of any lender, but have relationships with those who understand the differing circumstances of our range of clients. The team produce regular updates to keep you up-to-date with the mortgage market. Your home may be repossessed if you do not keep up repayments on your mortgage. You should be aware that not all buy-to-let mortgages are regulated by the Financial Conduct Authority (FCA). This means that if you choose to take up such a mortgage, you will not have the means of redress offered for regulated mortgage contracts in the event that you should have any complaints. Our fee is payable on application and is a minimum of £250 up to a maximum of 1% of the mortgage amount. If you have any enquiries please contact us at mortgagedesk@ closebrothers.com 02

Help to Buy mortgage guarantee scheme set to end on 31 December The Help to Buy mortgage guarantee scheme was introduced by the government in 2013 with the aim of encouraging lenders to offer 95% loanto-value mortgages, which had pretty much disappeared during the credit crunch that struck in 2007. At the time, the scheme didn’t result in any lower mortgage rates being offered than were already available (despite the fact that the government was effectively underwriting any potential losses that they made if the borrower defaulted) but meant that people with smaller deposits had a greater chance of securing a mortgage. The government view the scheme as a success, and published the following figures in September 2016:

86,341

Total number of Help to Buy mortgages guarantees

79%

Percentage of purchases by first-time buyers

£156,873

Average price of home bought

The fact that the scheme is coming to end on 31 December may initially seem to be bad news for those hoping to buy a property with a 5% deposit. However, the good news is that many lenders are now offering mortgages with a 5% deposit independently of the Help to Buy scheme. As more lenders have started offering their own 95% loan-to-value mortgages, the usage of the scheme has been steadily declining over the last year or so. Figures released by the Financial Policy Committee (FPC) said that the scheme accounted for 3% of the total mortgage lending in the first quarter of 2016, compared to 6% for the same period in 2014. In a letter to Bank of England Governor Mark Carney, the Chancellor Philip Hammond, said “the mortgage market had become less reliant on the Help to Buy mortgage guarantee scheme, with over 30 lenders now offering these mortgages independently of the scheme. This shows that this has delivered on its purpose which has now been successfully achieved.” The good news is that despite the scheme coming to an end, given the fact that many lenders are now offering their own 95% mortgage, there will not actually be much difference in which products are available. In addition, other initiatives such as the Help to Buy ISA and Equity Loan schemes, as well as schemes like shared ownership, will continue to offer the opportunity to get on the property ladder for those with smaller deposits. For more information please contact the Mortgage Desk.

How to get ‘mortgage ready’ We often speak with clients when they are 6-12 months away from needing to make a mortgage application to help identify what can be done to get them mortgage ready. When applying for a new mortgage the lender will perform an affordability assessment and also check your credit file to identify both historic and current conduct. This includes analysis of income vs expenditure, so it is important that you are able to show that you are capable of keeping your finances in order.

Regular saving If regular savings can be traced on your bank statements, this can be good for a number of reasons. Not only can it show where the money for your deposit has come from, but it can also prove to your lender that if you are able to save £500 a month, for instance, then this is money that can then go towards paying off a mortgage. Electoral roll A simple but effective thing to do is to register on the electoral roll. Also, make sure any bills you have are registered to your current address, so everything is easy to trace.

Keep on top of payments

Employment

Pay all your bills on time. This can be anything from a phone bill, your credit card or even your general household utility bills. This will prove you are reliable and financially independent. Any late or missed payments do show on your credit file.

It is advisable to remain in the same employment for at least six months. This will give evidence that you have a regular, stable income coming in every month, and there is less chance of your employment being terminated on the spot, like it would if you were still in a probationary period. You will likely be asked to provide pay slips over the last 3-6 months, so it’s important you can provide these.

Consider your credit rating Using a credit card responsibly can help improve your credit score, showing that you are able to look after your own finances and pay off any outstanding debts within a certain timeframe. Just make sure you register the card to the address you are actually living at. You could even set up a direct debit, so you don’t have to worry about forgetting to make a payment every month.

There can still be options for those who don’t have a perfect credit history, however rates can be much higher or maximum amounts of borrowing reduced. For this reason it is important to try and follow the above steps as early as possible ahead of requiring a mortgage.

The main thing is to prove that your spending patterns are in line with how you see yourself when you have a mortgage. If there are any cutbacks you can make, then now may be the time to make them. After all, every penny counts! These are a few of the key things to consider and there are other factors to take in to account, but hopefully this gives you an idea of what can be done to improve your mortgagability!

Longer term fixed rates Traditionally there were three main options when it comes to fixed rates, 2 years, 3 years and 5 years. However, appetite for longer term fixed rates has increased over recent times, which has resulted in increased availability of fixed rates for periods over 7 and 10 years. This increase in demand has been partly led by borrowers who are looking for greater security following the Brexit vote. It has also been influenced by lenders having access to comparatively low cost long-term funds. These deals do offer security over the longer term, especially to those who feel we may be heading in to a turbulent period, but they will not be for everyone and it really will depend on individual circumstances.

Mortgage costs fall by up to 5% in Q3 Most mainstream mortgage products have seen further cost reductions in the past three months, according to mortgage sourcing system, Mortgage Brain.

July. The same product with a 90% loan-to-value is now 4% lower than it was in July. There have also been similar reductions to tracker rates as well as 2 year fixed rates.

Mortgage Brain says that the average 3 year fixed rate at a 60% loan-to-value is 5% lower than it was at the start of

Commenting on this, Mark Lofthouse, CEO of Mortgage Brain said:

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“There is no doubt that the last six months have been an uncertain time in the UK economy. Despite the postBrexit uncertainty, the outlook for borrowers at the moment has never been better with mortgage costs coming down yet again”

Surge in Buy-to-Let mortgage activity as rates fall The Buy-to-Let market has received a lot of publicity over recent times, most of which has been negative. There have been a number of measures introduced by the government in order to try and curtail the growth in this sector. The impact of these measures on lenders and the market in general is now becoming clearer. In August 2015 we reported that the Chancellor had announced plans to restrict mortgage interest relief on residential property to the basic rate of income tax for Buy-to-Let investors from 2017. Commenting at the time, George Osborne said: “Buy-to-Let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot. And the better off the landlord, the more tax relief they get. For the wealthiest, every pound of mortgage interest rate costs they incur, they get 45p back from the taxpayer.” George then went a step further and introduced a 3% increase in stamp duty for Buy-to-Let and second home purchases from 1st April 2016. This means that somebody purchasing a property for £275,000 now has to pay £12,000 in stamp duty compared to £3,750 under previous rules (pre 1st April 2016):

Reacting to the increased upfront costs of purchasing a Buy-to-Let property and the changes to tax relief, lenders have also tightened their lending criteria. This has resulted in borrowing capacity being squeezed. When assessing, a new application the lender will complete a rental calculation to ensure that there is sufficient rental income to cover all the associated costs. The calculation varies from lender to lender, but many lenders have opted to tighten this calculation as they wish to see a greater buffer between the rent and mortgage payments. Despite these changes there have been recent reports that suggest the Buy-to-Let market is in fact going from strength to strength. The latest mortgage efficiency survey conducted by IRESS confirmed that Buy-to-Let borrowing has increased by 49% year on year. Whilst new statistics from Moneyfacts show that the average five year fixed rate for a 75% loan to value mortgage has dropped below 4% for the first time to 3.96%. This is now 0.49% lower than it was six months ago. In addition to this, according to research from Connells Survey and Valuation services, Buy-to-Let activity surged 12.7% in August. This follows a dip in activity over the months of May, June and July. This research suggests that the government’s tax and stamp duty changes have only been a short term problem for the sector.

Buy-to-Let purchase of £275,000 New rules (from 01/04/2016)

Previous rules

3% on the first £125,000

£3,750

0% on the first £125,000

£0

5% on the next £125,000

£6,250

2% on the next £125,000

£2,500

8% on the next £25,000

£2,000

5% on the next £25,000

£1,250

Total

£12,000

04

£3,750

Commenting on the increased activity, John Bagshaw of Connells Survey & Valuations Services said:

“Now the effects of the government’s legislation have been digested by lenders and investors alike, Buy-to-Let activity has increased sharply. The market’s fears over the impact of Brexit are calming too and the Bank of England’s decision to cut the base rate for the first time in seven years may also have a psychological impact on property investors” Despite the measures imposed on the Buy-to-Let market, it is clear that lenders do still have appetite to lend in this sector, which is combined with a strong desire within the British population to own property. For those with funds to invest, owning rental property may still be a viable long term option that makes financial sense for many people. Our mortgage desk understands that investing in property is very important for many people and we are well placed to discuss the various options available, and also to set out the costs involved in purchasing a Buy-to-Let property.

UK house prices Houses now cost six times annual salary The typical UK home now costs six times average annual earnings, even though house price inflation is slowing, according to Nationwide. The last time the prices/earnings ratio was so high was more than eight years ago, in March 2008. Over the last three years, house prices have risen by 20%, while wages have risen by just 6%, Nationwide said. In the year to the end of October 2016, prices went up by 4.6% and the average price of a UK house now stands at £205,904 on a nonseasonally adjusted basis. Nationwide said the weakness of the market may still reflect the changes to stamp duty in April this year, when landlords and second home buyers were faced with tax rises. Despite the fact that house prices are so expensive relative to wages, low interest rates have made them more affordable. Commenting on this, Robert Gardner, Nationwide’s chief economist said;

UK house prices (Year on year % change) 20% 10% 0%

Halifax 5.8% (Sept) Nationwide 4.6% (Oct)

-10% -20%

Jan 07

Jan 08

Jan 09

Jan 10

Jan 11

Jan 12

Jan 13

Jan 14

Jan 15

Jan 16

Oct 16

Source: Nationwide (annual comparison by month) and Halifax (annual comparison by quarter)

“The steady decline in borrowing costs over the same period has helped to lessen the impact on affordability for home buyers. The typical mortgage payment expressed as a share of average take-home pay is little changed over the period, and is still in line with the long term average”

If you have any enquiries please contact us at mortgagedesk@ closebrothers.com

Typical UK home

Average UK annual salary

Close Brothers Asset Management is a trading name of Close Asset Management Limited and Close Asset Management (UK) Limited. Both companies are part of Close Brothers Group plc, are registered in England and Wales and are authorised by the Financial Conduct Authority. Registered office: 10 Crown Place, London EC2A 4FT. VAT registration number: 245 5013 86. CBAM4149 Quarterly Mortgage Newsletter Dec 16 EXP 31.03.17

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