What are the changes to Stamp Duty?

After hearing the Chancellors Autumn Statement it is clear that the biggest impact to our industry will be the changes in stamp duty. It has been widely publicised over the last couple of days but we want to briefly inform you of what has changed and what impact this may have on you.

Effective from Midnight on the 3^rd December the new rules are as follows: “Under the new rules, no tax will be paid on the first £125,000 of a property, followed by 2% on the portion up to £250,000, 5% on the portion between £250,000 and £925,000, 10% on the next bit up to £1.5 million and 12% on everything over that.” (Source: bbc.co.uk)

As you can see this system is very similar to the way income tax works. It avoids any significant jumps in the amount you owe and will be a huge benefit to the majority of people purchasing a house.

So what does this mean for you?

Well based on an average family home of £275,000 the total stamp duty payable on the old system would be £8,250. With the new rules the amount payable is only £3,750 giving a huge saving of £4,500.

For people looking to purchase a house using the help to buy scheme the average Help to Buy home is £185,000. With the old rules the stamp duty would be £1,850 but using the new rules it is only £1,200, a saving of £650. This will help reduce the upfront costs involved in purchasing a house which can be a massive burden on first time buyers. (Figures taken from bbc.co.uk)

A study by the Office for National Statistics has shown that more than 4.6 million people are now self-employed. Research suggests that around half of these people will struggle to get onto or up the housing ladder.

For employed applicants, proving your income is relatively straight forward. In most cases you just need 3 of your latest payslips along with bank statements to back them up. For self-employed applicants however, it isn’t quite as straight forward. In most cases you will be needing 3 years accounts or SA302’s (which take at least 2 weeks to obtain causing a significant delay on the whole process).

The other issue is that with employed applicants it is fairly straight forward for a lender to decide how much is affordable to you however for people that are self-employed it can be open to interpretation. This can mean that even if a decision in principle is agreed, there is a good chance the amount a lender is willing to loan you could change once they have assessed everything.

Our advice to those people who are self-employed is to make sure that before applying for a mortgage you make sure you have suitable documentation to prove your income. It is also important to have a big enough pot of money for the deposit but also a little extra if needed to reduce the loan to value to keep the lender happy. Different lenders take into account different figures such as net profit, dividend and salaried income. For this reason the way in which your income is derived can significantly influence which lenders you should approach making it important to consult a mortgage advisor on the best route to take. 

After a quiet third quarter in the property market there is an expectation that things are going to pick up in the final three months of the year.

According to a report by Reuters, the credit conditions survey showed that in the third quarter of 2014 there was the biggest fall in the amount of credit the lenders were able to supply since the last three months of 2008, when the Lehman Brothers collapsed. (http://reut.rs/10IHmRT)

We have already seen a number of lenders reducing their rates and others are expected to follow in a battle to gain market share and hit end of year targets which may have slipped away due to the quiet summer.

This could be an ideal time to either obtain a new mortgage or remortgage a current property to secure a cheap fixed rate product. There is an expectation of an interest rate increase at some point next year which means we may never see rates this cheap for some years.

As we mentioned in one of our previous blogs ‘What documents will I need when applying for a mortgage?’ we advised obtaining a copy of your credit report before applying for a mortgage. This is so you can accurately calculate how much money you can afford to borrow and also eliminate any delays further down the line that could arise from having a discrepancy on your file.

This week Experian published an interesting article about the top 10 myths of credit. We have highlighted some of the points we found interesting and that should be considered prior to applying for a mortgage.

The first myth is that items in your credit history stay on file forever. Credit reports are designed to give lenders a good picture of your current situation so any issues in the past are irrelevant. Most information about your credit history is therefore held for around six years.

The next interesting myth is that friends and family living in your home affect your credit rating. The only people who can affect your own credit rating is people who you have a financial connection with such as being on a joint mortgage. Living with someone is not a financial connection.

The final myth is that it doesn't matter how many credit accounts you have. Lenders want to be sure that you can afford more credit, so they prefer it if you don't already owe large amounts on multiple accounts. They can also favour customers who aren't heavily reliant on the credit they already have. So try to keep your regular borrowing on cards to less than 25% of your credit limits if you can.

To see the full list of the top 10 credit myths go to http://ex.pn/1l27VsL.

It has been 5 months since the Mortgage Market Review (MMR) was introduced and there does not appear to be a sign of things settling down any time soon.

One of the key parts of MMR is the change in how a borrower’s affordability is calculated. There have been a number of stories in the press of how customers with excellent credit scores have never missed a mortgage payment but are unable to secure low fixed rate products due to the change in affordability calculations. From our perspective it hasn’t been that we have been unable to obtain a mortgage for clients but it has taken much longer than it once did.

You must also be prepared for the process to take slightly longer. In an article by the Telegraph we saw that 56% of mortgage offers take longer than two weeks to get to an offer stage in comparison with 44% last year. Just 9% of mortgage approvals are made within five days, compared to 13% last year and 25% in 2012. (http://bit.ly/1lPhFsm)

This is what appears to be the biggest issue. Time. In another article by The Telegraph we saw that some banks are now conducting 3 hour interviews to apply for a home loan. (http://bit.ly/1tohh6y) If you wanted to speak to three different lenders this would take up a significant chunk of your time. By contacting an experienced mortgage consultant you avoid having to have numerous interviews with the different lenders. We spend around an hour with our clients discussing their circumstances and requirements in the comfort of their own home, before contacting numerous lenders to find the best available product.

Due to the heavy increase in mortgage activity this year, we have seen many lenders competing to offer the most attractive mortgage rates along with added incentives.  Leeds Building Society as an example, did shakeup of their buy-to-let products and offered free valuation and free legal advice. Halifax are offering cash back to first time buyers with a Halifax current account.

This week we also saw builders using incentives to attract a large proportion of the busy property market. As reported in the Yorkshire Evening Post, Ben Bailey Homes launched an exclusive ‘Express Move’ incentive. “The scheme has been designed to help buyers find their perfect home at the development and move in quickly. Those who reserve a property this summer can benefit from a whole host of added extras, with stamp duty paid, legal fees and mortgage valuation fees covered and a themed landscaped garden worth £5,000 included in the price”.

The incentives offered don’t just stop at free legal advice and fancy gardens, one Russian bank took the incentives to a whole new level and has begun offering cats to clients who obtained a mortgage through them! (http://www.bbc.co.uk/news/blogs-news-from-elsewhere-28951981)

As always it is important to look passed the initial incentives that lenders offer no matter how great they may seem. It is very important to look at the whole picture. Although getting cashback and free cats sounds great, these products aren’t always the best option to take. 

This week we heard that Lloyds Banking Group cut the amount it is prepared to lend by 70 per cent from £500,000 to £150,000. This appears to be a tough decision on first-time buyers, who make up around 85 per cent of Help to Buy sales, especially in areas where house prices continue to soar making it even harder for first time buyers.

We also heard that the Scottish Government's Help to Buy scheme has run out of money for this financial year - only three months after a new round started.

However given this, the Help to Buy equity loan scheme seems to be more popular than ever, with a 91 per cent rise in completions during June, taking the total number of home purchases supported to 27,167 since the scheme’s inception in March 2013. In June there were 4,357 completions, up from May’s 2,274 completions. In total over the second quarter there were 7,772 completions, up from 6,524 in the previous three months. Virgin also removed its £30,000 minimum income cap on Help to Buy equity products. (Source: FT Adviser)

Although there is some mixed news at the moment regarding the Help to Buy scheme and we have seen a decline in the number of enquiries, we don’t expect this to be the continuing trend. The Help to Buy scheme is still an excellent incentive in our opinion and one in which people should take advantage of whilst it is still around!

This week we have seen a number of mortgage lenders refresh their buy-to-let products including Leeds Building Society, Coventry Building Society and Virgin.

This is due to the rise in demand for buy-to-let mortgages recently. According to the Council for Mortgage Lenders the proportion of the mortgage market taken up by buy-to-let deals rose to 13.4% in the first quarter this year compared to 12.9% in the first quarter of 2012 and 13% in the final quarter of 2013. (http://www.landlordexpert.co.uk/category/property-investment-news/)

Here at RA Mortgages we have seen the number of requests for advice on buy-to-let mortgages rise with a large number of people looking to remortgage existing loans to find a better rate and also to secure a fixed deal to protect them from any rate increases. Research done by Mortgages for Business shows that the number of five-year fixed buy to let mortgages has doubled since 2012. 

It is an excellent time for new and existing buy-to-let investors to look at securing a mortgage. As well as the already mentioned refreshed mortgage products from numerous lenders, rents in the UK are increasing as well. The HomeLet Rental Index shows that the average UK private home rent rose by 6.3% over the year to June 2014. The average rent in the UK now stands at £862 a month, compared to £811 a year ago.

One thing that we stress is that before diving into anything make sure that you have taken the time to consider the best possible options for you and consult a mortgage professional on the most suitable investment strategy for yourself.

Should I buy or rent? Here are our top 5 reasons why buying could be the right option now

Many people have rented rather than purchased property over recent years, principally because of barriers such as the difficulty in saving such large deposits and being able to afford a mortgage. Thanks to a market place where more people are moving, often utilising incentives such as the help to buy scheme, we are seeing the number of first time buyers increasing.  So why is now a better time to buy rather than rent? Here are 5 good reasons to buy:

1.       Friendly low interest rates

As things stand the cost of a mortgage is relatively cheap. With interest rates at a record low many lenders are offering great products including fixed rates which providing financial security over the next few years. 

2.       The money you earn is securing you an asset – not somebody else!

Renting is relatively easy however you are handing over your hard earned cash for someone else to own something you could have for yourself.  At least, when you have a mortgage you are working towards owning the house, when renting you pay someone else to own the property without ever having the opportunity to own it yourself.

3.       Help to Buy ends in 2020

Although 2020 seems a long time away and leaves plenty of time for potential home buyers the chance to access the scheme.  Many factors can change. A government regime change may mean early closure of the scheme and there is always the potential for interest rate increases. We would advise making the most of this scheme as soon as you can, while other factors in the housing market remain positive.

4.       It’s a busy housing market

Lots of activity in the housing market means there a lots of people looking to move. We have noticed that activity has picked up, particularly in lower value property meaning there are now options for people working on a lower budget.

5.       It’s your house – do what you want with it!

When purchasing a house you earn the right to design, furnish and decorate it exactly how you want - there are no landlords to answer to.

If you want more advice on the schemes available you can find more detail on www.homesandcommunities.co.uk/help-to-buy

Do you really understand what the cost of purchasing your dream property is?

An increase in interest rates has been a hot topic over the last few weeks in the finance world. With house prices rising month on month some experts feel the housing market is beginning to overheat. One way in which the Bank of England can look to counteract this issue is by increasing interest rates but how much will this really affect homeowners?

One research study by Experian (Telegraph) shows that buyers are already underestimating their potential mortgage repayment by £500 a month. This could rise to nearer £650 if interest rates do in fact increase. Given that the Telegraph estimates that an interest rate increase could affect two out of three mortgage borrowers, this could have a significant impact on people’s lives.

What we recommend

There is a lot of uncertainty at the moment about how much people can really afford due to recent rules introduced by the FCA and also what impact an increase will have. We recommend that people take caution when calculating your budget for a new house and consult an experienced mortgage professional to gain accurate figures on how much you can afford, but also to ensure that your monthly budget is not hurt too much by your mortgage payment!

How has the mortgage market changed in the last 3 months?

In April 2014 the FCA implemented a new set of rules within the mortgage market place known as the Mortgage Market Review (MMR).  One of the principle aims of this is for banks to have much stricter control only lending money to those that can afford it.  The issue? Every banks interpretation of this is different and no two mortgage clients are identical.

The industry has seen a significant fall in mortgage approvals since April. Is this due to less people being eligible for a mortgage or is it down to the length of time to process a mortgage to approval stage?

From a brokerage perspective it is not due to less people being eligible. We have noticed that it has taken much longer to progress mortgage applications through to an offer stage in comparison to pre MMR times. One key contributor to this is the new documentation requirements.

Those who are self-employed looking to purchase or remortgage a property, would be advised to request your HMRC confirmation of earnings (SA302’s) as soon as possible. They can take up to two weeks to obtain. ‘Self employed’ also includes any shareholder of a limited company with more than a 20% share in the business.  If you don’t have these this will delay the process for yourself and any vendor of a property you are buying.

Due to the housing market moving upwardly the number of applications has naturally increased. As the volume of applications has risen, valuations are taking longer to complete. 

What do you need to know?

It is important for those looking to purchase a house that you take into account the time it will take to receive an offer. We are seeing a lot of pressure, especially by estate agents, to get valuations done and the mortgage approved by the lender in order to fully secure a property with the vendor.

The most complicated aspect of the introduction of MMR is affordability. Most lenders had moved away from an income multiples systems already, however MMR has meant the introduction of yet more complex models assessing affordability.

In addition to this, no two lenders are using the same method of calculating affordability, so we are seeing a real variance in the amount people are able to borrow from lender to lender.

We recommend consulting someone who has experience and knowledge of the different requirements for each bank.  It is too complex for individuals to calculate what they can afford, especially through comparison websites as they are not complex enough themselves to calculate if you can genuinely borrow money off their best buy listings.

By contacting a mortgage consultant to discuss your current circumstances, you will get an idea of what you could borrow and understand the budget for a new home. 

What documents will I need when applying for a mortgage?

Due to the recent introduction of the new rules in the mortgage market review, many people are unclear as to what documents they will require throughout the mortgage process. In order to prepare you we have created a list below for all residential and buy-to-let mortgage applications.

In addition to the documents below it may be a good idea to get a copy of your credit report to ensure that there are no issues you are unaware of before applying for a mortgage. Some useful websites are:

·         http://www.checkmyfile.com/

·         https://www.creditexpert.co.uk/

·         http://www.equifax.co.uk/

Here is the list of required documents:

1.      Proof of identity (passport/driving licence)

2.      Proof of address (utility bill/mortgage statement)

3.      Evidence of income (payslips/accounts and SA302’s)

4.      P60 (latest if available) 

5.      Bank Statements for the last 3 months

6.      Proof of any additional income

7.      Proof of deposit 

If I remortgage can I borrow the same money and pay less than I am paying now?

For those of you settled into a home, don’t feel like you’re missing out on a great opportunity. With an interest rate hike seemingly inevitable, now is a great time to secure a fixed rate on your mortgage.  Interest rates for remortgaging are very low at the minute and with house prices improving there is a greater opportunity for all to take advantage of these.

Due to the rise in house prices, many people are also looking to re-mortgage in order to release the equity to use as a deposit for an investment property or perhaps a deposit for their children to buy their first home.

The number of people looking to use property as an investment is still growing. Although housing prices have risen over the last 18 months, property still remains an attractive opportunity for people to invest in whether that be to increase current income or provide a supplemental income for retirement years.  Many lenders are recognising this and are introducing some extremely competitive rates and even the opportunity for 80% LTV mortgages.

However, if you are inexperienced it is important to seek out the correct financial advice as there are many different strategies which can be chosen depending on your requirements. Make sure you have discussed all possible avenues with an experienced advisor who has a good track record in dealing with BTL investors.

If I want to buy a new home what can the industry do for me now?

What a great time to move house. The winter is over, the weather is picking up and so is the property market. The government is assisting first time buyers in getting onto the property ladder which in turn is also helping people sell and move upwards.  The Bank of England are keeping interest rates low which is helping a lot of people get back onto a better financial footing.

The summer holidays are fast approaching and so why not get settled into your dream house in time for the summer?  If you delay decisions until the summer moving costs can increase.  Removal companies tend to be busier during the school holiday period and use this as an opportunity to hike their rates.

There is an increased likelihood, given the recent statements by the governor of the Bank of England, now the economy is starting to grow again that an increase in the base rate will happen within the near future.  The good news is that fixed rate pricing at the minute is incredibly low.

If you need help finding out what you can afford or indeed if you have alternative funding options available to you via the government speak to a good independent mortgage advisor. They can save you a lot of time and hassle of trawling the high street to find a bank or building society that can only give you advice on what they can lend you and the products they have on offer!