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Interest only mortgages explained

Interest only mortgages explained

Interest only mortgages are homeowner loans where repayments only consist of interest charged on the total amount of capital borrowed. The Mortgage Market Review (MMR) of 2014 made changes to mortgage lending rules in response to the financial crisis of 2008. During 2014 interest only mortgages came under a lot of scrutiny. Changes to lending rules reduced the reliance on the anticipated value of properties at the end of a mortgage term – when the capital borrowed is due for repayment. And also reduced the reliance on expected inheritance for borrowers. At the same time there was an increased reliance on proof of sustained earnings, and a requirement for safety-net savings to cover unexpected reduction of income. As a result, the number of lenders offering interest only mortgages reduced.

Recently however, the variety of interest only mortgages that are available from lenders has increased; including lifetime interest only mortgages for people aged from 55 years’ old.

The appeal of interest only mortgages

For those borrowers with at least 25% deposit or equity in their property then interest only mortgages are an option again and can appeal.

In the southeast and in London where property prices are typically higher, buying a property with an interest only mortgage may mean that mortgage repayments are more affordable. Where mortgage applicants have irregular earnings; because they are free-lancers, self-employed or business owners, the lower monthly repayment commitments of an interest only mortgages might also hold more appeal.

For buy-to-let investors interest only mortgages can help to maximise rental yields, and for others an interest only mortgage may create an opportunity to get on the property ladder.

What to do at the end of an interest only mortgage term

For historic interest only borrowers, who do not have a repayment vehicle to repay the mortgage and do not want to sell; then there are options to mortgage again and remain in the property. If the borrower is aged 55 years’ old or older, they may be eligible for a lifetime mortgage or a retirement mortgage.

There are several types of repayment methods available with lifetime mortgages such as “interest roll” where the monthly interest payments are rolled up onto the outstanding debt instead of having to pay monthly interest. There are also Flexible Lifetime mortgages which allow borrowers to make voluntary payments towards the mortgage if they want to. Some of these plans have monthly interest payment options; but if borrowers decide that they do not want to make any payments at all, they do not have to and the interest will again be rolled up onto the outstanding debt. Another option is Drawdown Lifetime Mortgages which enable borrowers to release the money from their property flexibly, as and when they need it. They can choose to keep the money in a reserve account ready to drawdown whenever they wish.

Interest will not build up on the money held in reserve until the borrower has released it, allowing them to minimise the amount of interest paid, whilst having the safety of a cash reserve.

For ageing borrowers; the term of mortgages available typically shrink. However; more and more lenders are offering mortgage products into retirement and it possible to have a term that will take you to the age of 85. The mortgage term and interest rates available for interest only, and for repayment mortgages vary widely. There is a lot to consider regarding the type of mortgage to take out, combined with the age and financial goals of the applicant.

As ever we would urge homeowners and would-be homeowners to speak to a specialist mortgage or equity release IFA.

Please call our team of Chichester-based IFAs on 01243 532 635 to arrange a consultation.

To discuss mortgages please ask to speak to James Mayne.

To discuss life assurance, serious illness cover, equity release (to provide for retirement income) and income protection insurances please ask to speak to Hamish Gairns.

To discuss pensions, retirement and investment plans (including ISA’s) with us please ask to speak to Richard Smith.

Mortgages, lifetime mortgages, home improvement loans that are secured against a property, and remortgages are subject to the same regulation.

Meaning that homes are at risk of repossession if mortgage repayments are not made.

Affordable first time buyer mortgages

Affordable first time buyer mortgages

The Department of Housing, Communities and Local Government recently said that we are seeing the highest number of first time mortgages granted in over a decade. The government and mortgage lenders have taken a pincer approach to get more people on the property ladder.

Here are some ways in which first time buyer mortgages have become more affordable:

  1. Help-to-Buy and Lifetime ISAs – saving schemes for deposits where the government tops up savings;
  2. Shared ownership – where a percentage of the property is purchased rather than all of it;
  3. Less expensive and more widely available 90% and 95% mortgages – where a 10% or 5% deposit is required;
  4. Family mortgages – where wider family assets are brought into the mortgage calculation;
  5. Acceptance by mortgage lenders of gift deposits from family members and/or loved ones.

More on Help-to-Buy and Lifetime ISAs

Both savings schemes are designed to help would-be homeowners save for a mortgage deposit.

Help-to-Buy ISAs:

  • Must be a first time buyer
  • Must be at least 18 years’ old
  • Can save as a group – Help-to-Buy ISAs are available for each first time buyer not each home
  • Savings are tax free
  • You can start off your ISA with an initial deposit of £1,000
  • The government will top up contributions by 25% up to the contribution limit of £12,000.

Lifetime ISAs:

  • Designed to help 18-39 year olds save for a first home or for retirement
  • Must be a first time buyer if using the ISA for a first home
  • Tax free savings or investments accounts
  • The government will contribute a maximum of £1,000 per tax year on £4,000 of savings, until the saver turns 50 years’ old
  • Savers can invest in either stocks or shares
  • Lifetime ISAs sit within the overall ISA limit of £20,000 (Tax Year 2018-19)
  • Up to the age of 60 cash from the ISA must be used to purchase a property
  • From 60 the money can be spent as the ISA owner sees fit
  • A spouse or civil partner can inherit the ISA value.

More on shared ownership

Part of a government scheme to assist lower-income families and first time buyers to purchase a property; shared ownership enables home buyers to take out a mortgage for 25%-75% of the property value, whilst paying rent on the other proportion.

Shared ownership:

  • Eligibility – where a household income is £60,000 pa or less and the would-be homeowner is either a first-time buyer or a previous homeowner who cannot now afford to buy. Alternatively would-be homeowners are renting either a council or a housing association property, or have a long-term disability under HOLD (government’s Home Ownership for People with Long-Term Disabilities)
  • The government offers Shared Ownership schemes under its Help-to-Buy mortgage scheme. Those living in council or housing association homes can apply for Social Home Buy where a share of the home is bought and rent is paid on the rest
  • Shared ownership schemes are not the same as shared equity schemes. Shared equity schemes offer a low-interest loan on part of the home in exchange for a share of equity in the home.

More on 90% and 95% mortgages

Mortgages where a lower deposit of 5% or 10% is required are widely available for first time buyers and some home-movers in the UK. These mortgages can make home ownership more affordable as the deposit is smaller. Deposits saved as Help-to-Buy ISAs or Lifetime ISAs or deposits that are gifted by friends and family are acceptable to mortgage lenders.

More on family mortgages

Many people struggle to save for a deposit because they are paying expensive rent. A family mortgage may be an option for them because what a family owns in savings, property and investment can be used as a replacement to a traditional deposit for first time buyers, or home movers.

Family Mortgages:

  • Benefits buyers by reducing interest on mortgages and therefore monthly payments, increasing buying power so that a higher value house can be purchased
  • Families’ benefit from avoiding gifting money outright, and instead put assets to work as buyer security.

Affordable opportunities to help people to be homeowners do exist. We would urge readers as always to speak to a mortgage specialist IFA.

Please call our team of Chichester-based IFAs on 01243 532 635 to arrange a consultation. To discuss mortgages and insurances please ask to speak to James Mayne.

To discuss pensions, retirement and investment plans with us please ask to speak to Richard Smith.

To discuss Life, serious illness, equity release (to provide for retirement income) and income protection insurances please ask to speak to Hamish Gairns.

Your home may be repossessed if you do not keep up repayments on your mortgage.

The Southeast housing market remains strong

The Southeast housing market remains strong

Though the rate of house price growth in Q3 (July, August & September) in London has fallen by 0.6% year-on-year; house price growth in the Southeast has remained strong at 3.9%. The average house price growth rate in the UK was at 2.2% for the same quarter, the UK average house price being £210,982. In the Southeast the average house price is £277,519, compared to £471,761 in London.

Looking at the bigger picture the rate of house-buying (residential transactions) has slowed to around 5% and is level with 2013 transaction rates. After the 2008 financial crisis homeowners were reluctant to move. The rate of transactions fell to its lowest rate ever in 2009; during this period, a house would typically change hands every 25 years.

How has homeownership changed?

Restrictive planning policies mean that there are 50,000 less new-builds per annum than there were in 1981. As the cost of living has risen and wages have fallen or stagnated houses have become less affordable for many young and working-age people. Saving for stamp duty, estate agent fees and a deposit is a challenge. The average deposit for first time buyers is now roughly equivalent to a years’ salary. An ageing population is a less mobile one; retirees are reluctant to downsize when, for many, their home is their most valuable asset. Council tax was last updated over 20 years’ ago in 1993; the most expensive homes are taxed relatively leniently which disincentives homeowners to move. At the other end of the spectrum stamp duties have risen substantially amounting to a 30% increase per residential transaction, since 1997.

On the increase too is the number of single homeowners now at 30%. Not surprising then to learn that one in three of Britain’s housing stock has two or more spare bedrooms. Overcrowding, the number of people compared to the number of bedrooms, however is rising. The number of people willing to commute to work for two hours or more rose by one fifth from 2011 to 2016 according to property analysts Hudson and Green. Holding onto a good job and the property that is afforded by it seems to be a priority.

What are the options to save for a deposit?

There are some specific options to save into an Individual Savings Account (ISA) that earn a government bonus 25%. This is to encourage both saving and homeownership.

Which ISA is suitable depends on whether a would-be homeowner is a first-time buyer, or a buyer that is aged over 18 years but under 40 years’ old.

Help to buy ISAs are for first-time home buyers. They are for each individual buyer not for each individual home; meaning that groups of buyers can save for a deposit together. Individuals can save up to £200 per month and can open the ISA with a deposit of £1,200. The government will top up the Help to Buy ISA with a maximum of £3,000 if the total savings are at £12,000.

Lifetime ISAs can be used to buy a first home or to save for later life. Individual savers must be aged between 18-40 years’ old, and can save up to £4,000 per annum until they are 50 years’ old. The capped savings of £4,000 per annum count towards an individual’s annual ISA savings limit. The government will add a bonus to savings of 25%, a maximum of £1,000 per annum. The Lifetime ISA can be invested in stocks and shares or held as cash or invested as a mix of cash and stocks and shares.

Can mortgage repayment terms be lengthened?

Longer mortgage repayment terms are increasing in popularity, however the interest that is paid back over a longer term is significantly higher that if the mortgage is paid back over 25 years or less. Here are some examples of monthly mortgage payments and total interest on a repayment mortgage of £150,000 with longer repayment terms.

Longer term repayment mortgage comparison of £150,000 mortgage with an assumed interest rate of 2.5%

Term Monthly payment Total interest
20 years £794.85 £40,764
30 years £592.68 £63,365
40 years £494.67 £87,442

*Source L&C Mortgages

As ever we would advise you to speak to an Independent Financial Advisor about your finances. To arrange a consultation with Marchwood IFA please call 01243 532 635. We have specialists that are able to discuss specific options with you.

To discuss mortgages & insurances please ask to speak to James Mayne.

To discuss Life, serious illness and income protection insurances (to protect a debt such as a mortgage or to make sure that your family is well looked after financially after the death of a parent/partner) or equity release to help you plan for income in retirement please ask to speak to Hamish Gairns.

To discuss retirement and investment plans with us please ask to speak to Richard Smith.

Housing market news; white paper reforms

Housing market news; white paper reforms

In February 2017 communities’ secretary Sajid Javid presented a housing white paper entitled ‘Fixing our broken housing market’ to government. According to Christine Whitehead of the London School of Economics there have been about 200 governmental housing initiatives since 2010, however; this paper does go some way to tackle planning permission, land banking and green belt development. All three issues are new-build supply blockers. The UK’s new home build target is 250,000 per annum, which was last met in the year 1979-1980.

New-build supply blockers

 ‘Fixing our broken housing market’ aims to force councils and big developers to boost the supply of new homes.

  1. The white paper proposes a new standardised framework for calculating what needs to be built by councils.
  2. Councils that miss their agreed new-build target may have to surrender ‘planning control’ to central government.
  3. Owning plots of land with planning permission on them and not developing them in a timely fashion (land banking) will result in ‘use it or lose it’ punishments where councils will be able to compulsorily purchase land.
  4. Extra help will go towards SME construction firms as regards bidding for new-build contracts.
  5. Higher charges will be levied against developers.

Many criticise the white paper for not going far enough the elephant in the room being the absence of any green belt development reforms. A late decision was made by the government to stand by existing green belt development restrictions ahead of the white paper being presented. Director general for the Institute of Economic Affairs Mark Littlewood said: “The only surefire way to bring down housing costs is to relax our highly restrictive planning laws. Not all greenbelt land need be sacrosanct so it’s a shame to see politics trump sensible economics.”

Regeneration expert Barney Stringer believes that releasing 60% of green belt within 2km of a railway station would create space for 2m new homes. Britain has the highest proportion of urban dwelling citizens, at 90%, of any large Western country. This is unsurprising as the majority of jobs are in cities and towns; and it now takes an average middle-income household 20 years to save up for a deposit for a house.

Long-term renters get some help

Some attention has been given to long-term renters or generation rent. The rate of homeownership, particularly amongst the young (25-34 years’ old), has fallen by 30 percentage points since 1992.

  1. Planning regulations are being changed to favour construction of affordable rental properties over homes to buy.
  2. Echoing a Labour party policy to extend rent tenancies, the white paper proposes three-year tenancies for some renters.

House prices and mortgage options

The price of houses in London has slowed, which has dampened the market for the whole of the UK. One year ago London house prices were rising by 15% year-on-year. However, from March 2016 to March 2017 house prices in London grew by 1.5%.

House prices across the UK as a whole for March 2017 were down 0.6% compared with February. The average cost of a home is £215,848 which; has been the case for almost a year.

The drop in prices is good news for would be house hunters and the government has developed three finance products to suit the changing homeowner market:

  1. Help-to-buy ISA – the applicant must be saving up for a first home. The government will contribute up to 25% on top of savings up to the value of £3,000 on top of individual ISA savings totaling £12,000.
  2. Lifetime ISA – the applicant must be a UK resident aged between 18-39 years’ old. One lifetime ISA per person per tax year may be opened with a maximum investment of £4,000 per tax year. The government will top up savings by £1,000 tax-free, per tax year (25%); if you have saved £4,000.
  3. Lifetime mortgages for over 55’s – the applicant must be a UK homeowner aged 55 or over, mortgages can be used to unlock house wealth, whether applicants are retired or not.

With a general election looming, we are sure that there will be more changes to housing policy and mortgage finance options. We would advise you to speak to an IFA. Here at MarchwoodIFA we have specialist mortgage, ISA and lifetime mortgage financial advisors. Please call 01243 532 635 to arrange a consultation.

Generation rent explained; homeowner options

Though the British economy has grown since 2010 by 10%, and the employment rate is now as high, at 74.4%, as it was in 2005; young people are unlikely to own their own home until they are 40 years’ old – hence the term ‘generation rent’. And despite job creation continuing to improve, the number of working families that also rent is growing as well. The lack of home ownership would not be a problem, if affordable housing was available to working people, young or old, with or without families. But housing is getting less affordable in real terms, particularly in urban areas where job concentration is high. The number of Local Authority owned houses has fallen by half since 2001. Of the 2m jobs created since 2008, two-thirds of them are in London where houses cost almost double the national average. In some London boroughs the ratio of prices to earnings is more than 20:1.

Despite England’s housing stock growing by 1m from 2008, owner occupation fell by 2%, and the private rentals market grew by 1.3m. If we lift the bonnet further, and look at British home ownership by age, we see that 80% of homes are owned by those born in the 1960’s, 70% are owned by those born in the 1970’s, 42% are owned by those born in the 1980’s and 8% only, are owned by those born in the 1990’s (remember houses are frequently owned by two people – hence the 200% total).

Our national obsession with home ownership is understandable given the financial gains that can be made from property ownership but according to Neal Hudson of estate agency Savills “the share of households owning their own home peaked in 2003 at 71% […] and has been in decline since.”

So, what are the options for home ownership?

The government recently launched a first time buyers ISA where single or groups of first time buyers can pool their money to save for a mortgage deposit. This is one of a range of new government schemes aimed at helping families and young couples or groups of individuals to buy their own home. For example a help to buy equity loan enables people to buy a new-build home with a cash deposit of 5%. In addition the government will lend up to 20% of the cost of the newly built home, meaning that would-be homeowners can take out a mortgage for the remaining 75% only. Special government schemes also exist for people and families that wish to buy a new-build in a London borough.

At the other end of the age spectrum over 55’s lifetime mortgages are growing in popularity. This is where older homeowners, perhaps parents or grand parents, want to release equity and house wealth from their homes. The money can be used in a variety of ways, in some cases because seniors or retirees may earn less and therefore cannot borrow money; the funds are needed for home improvements. But, of course, the house wealth could be invested in retirement income and towards inheritance tax planning where house values are high. Another way, that released house wealth equity can be invested by parents and grandparents, is in government help to buy schemes, where deposit money or funds for first time buyer ISAs investment are gifted to offspring.

As an alternative to traditional home ownership, a new housing option favoured by some young professionals that work in cities is: co-living. The Collective is a communal housing development that opened in London in April 2016. The Collective houses 500 residents, with shared cafes, bars, libraries, gyms, gardens, social and hot desk working spaces.

Are we more in debt because of high house prices?

Just before the 2008 crisis British household debt as a percentage of income peaked at 160%, average debt per household was at £64,000 after adjustments for inflation. The figure had fallen to 140% by 2014, and the number of Britons spending a third of their income struggling to pay off unsecured and mortgage debt had also fallen by 3% from 2008 to 2015. If we take a closer look at mortgage debt; interest rates have fallen to historical lows. Excessive mortgage lending was curbed following changes to legislation in 2014, and banks favour repayment mortgages not interest only mortgages. Just 1% of new mortgages were interest only in 2015 whereas in 2007 a third of all mortgages were interest only loans. This has contributed to fewer households being unable to pay their mortgages. This would suggest that most Britons have applied austerity measures to themselves. We should remember that the 2008 crisis was not caused by banks’ excessive domestic mortgage lending; the cause was excessive lending to the commercial sector. It is not just price that is fuelling the generation rent trend.

Young people spend longer at university in Britain, and may prefer to rent so that they can live where the better jobs are. Growing workplace skills deficiency would indicate that being well-education and gaining experience will pay off in the long-term. Today’s richer retirees are well-educated professionals that can still command high salaries for ‘service’ related work in the finance, tech, engineering and consultancy sectors. For generation rent other income investment options such as Stocks and Shares Investment Savings Accounts (ISAs) may help them prepare for a lifetime of flexible and varied work.

Contact Marchwood IFA to arrange a mortgage or an investment consultation. We specialise in investments, mortgages, pensions, equity release (lifetime mortgages) and life insurance.

House prices in London and Britain outstrip the global market

House prices in London and Britain outstrip the global market.

 House prices in London and Britain are the highest, according to the Economist’s ‘house-price index; where housing health is assessed in 26 global markets. Twenty-one markets are growing by a median of 4.7% with Ireland and the USA taking second and third place behind Britain. China, Singapore, France, Italy, and Greece are the five countries where prices are falling, despite various government initiatives targeted at recovery.

To check the sustainability of house-price levels the Economist assesses two variables:

Affordability – calculated as a ratio of prices to net income per person

Investability – calculated as a ratio of house prices to rental income

As is the case in Britain house prices in Q2 2015 outstripped average income by 27 points; and rent charges (also in Q2 2015) were 47.1 points higher than house prices, the long-term average being 100 for both income and rent ratios. This would suggest that property in Britain is slightly more investable than it is affordable. The house-price index also indicates that Britain’s high house prices are unsustainable, hence the ‘bubble burst’ warning that is being published in some finance media.

But a crucial third factor to be considered is housing demand, in both Britain and the USA housing supply is falling well short of housing demand. New house builds numbered just 140,000 (March 2013- March 2014) representing a 25% shortfall when compared to the long-term norm. In the USA new house building is failing to keep pace with job creation lagging by as much as 60% in some cities.

Whilst demand fails to keep pace with supply in Britain it is expected that house prices will continue to rise. In a recent report by the Royal Institute of Chartered Surveyors (Rics) an annual increase in house prices of 4.5% was predicted over the next five years, with London and the Southeast rising at greater pace, more than 5% per annum. From January to December 2015 they report an 11-month stretch where buyers outnumbered suppliers, with a boost of activity in December, perhaps triggered by landlords rushing to complete before the introduction of the ‘landlord tax’.

In London and the Southeast house prices increased by 9.8% over the year, the average price of a London residential property being £506,742 up 11.2% from December 2014. It is clear that house prices in Britain and in particular in London and the Southeast are rising well ahead of pay increases. The Office for National Statistics (ONS) report a 7.7% increase in house prices (December 2014 to December 2015) which tracks against a 2.4% pay increase only. They have confirmed that the average age of a first time buyer has risen from 30 to 40 in less than a decade.

As the British housing market is changing so rapidly the case to review protection policies is strong. Policies range from life assurance, where the outstanding mortgage debt is paid in the event of the policyholder’s death, to policies that cover life-shortening events such as critical, or terminal illness. The mortgage product, property (portfolio) value, lifestyle and age of the policyholder are factors that require careful consideration.

Please contact our protection and life assurance expert Hamish Gairns to ensure that you are adequately protected.

Autumn Statement 2015

1) U-turn on tax credits
There will be no further cuts to tax credits.
The disregard will be £2,500. This will mean that any reduction in income in a year of less than £2,500 will have no impact on a tax credit award. In addition, no further changes will be made to the universal credit taper, or to the work allowances beyond those that passed through parliament already.
The minimum income floor in universal credit will increase with the national living wage.
Despite the freeze, Mr Osborne said government will still achieve the promised £12bn per year of welfare savings, unveiling a raft of civil service cuts.

2) Further crackdown on tax evasion and changes for VCTs and CGT
New penalties will be introduced for the General Anti-Abuse Rule, action will be taken on disguised remuneration schemes and stamp duty avoidance.
Mr Osborne said he would also stop abuse of the intangible fixed assets regime and capital allowances.
Energy generation will now be excluded from the venture capital schemes, in a move Mr Osborne said was “to ensure that they remain well targeted at higher risk companies”.
Once digital tax accounts are in place in 2016, he said capital gains tax will have to be paid within 30 days of completion of any disposal of residential property.

3) Auto-enrolment changes and increases to state pension
The next two phases of contribution rate increases for auto-enrolment schemes will be aligned with the tax years.
Mr Osborne said he will increase the state pension age with life expectancy in order to maintain a triple lock on the value of the state pension.
Next year the basic state pension will increase by £3.35 to £119.30 a week. The full rate for the new state pension is set at £155.65.
The savings credit will be frozen at its current level where income is unchanged.

4) The Chancellor wants to build as well as balance the books
The housing budget is doubled to more than £2bn a year and 400,000 more affordable new homes are set to be built by the end of the decade.
Mr Osborne said: “That’s the biggest house building programme by any government since the 1970s.”
Almost half of the building will be starter homes, sold at 20 per cent off market value to young first-time buyers. A total of 135,000 will be Help to Buy: Shared Ownership.
Right to Buy will be extended to housing association tenants and from midnight tonight, tenants of five housing associations will be able to start the process of buying their own home.
The planning system is set for reform and public land suitable for 160,000 homes will be released along with unused commercial land re-designated for starter homes.
The government will also launch London Help to Buy, which will see Londoners with a 5 per cent deposit able to get an interest-free loan worth up to 40 per cent of the value of a newly-built home.

5) Bad news for buy-to-let and property investors
To tackle cash purchases that were not hit by the Summer Budget changes to mortgage interest relief, new rates of stamp duty will be introduced at 3 per cent higher on the purchase of additional properties like buy-to-lets and second homes.
This rate will be introduced in April next year and government will consult on the details so that corporate property development isn’t affected.

Average two-year fixed rate mortgage the lowest on record

This month the Bank of England has yet again held UK interest rates at the record low of 0.5%. The Bank Rate (sometimes called the ‘Base Rate’) has now remained unchanged for more than six years.

The Bank’s Monetary Policy Committee (MPC) said that inflation would stay below 1% until spring 2016, well below the Bank’s 2% target. Inflation has been hovering just above or (this month) below 0% for the past few months, but the Bank says that growth in the UK economy and the fading effect of last year’s big oil price falls will cause it to head towards 2% next year.

Many economists still think a UK rate rise will happen early next year, though some are beginning to forecast a slightly later move. These doubts are causing swap rates (which are a good measure of what it costs lenders to offer long term fixed rate mortgages) to fall back to level not seen since 2013.

So what effect is this having on mortgage rates?

The latest Money Facts survey shows that the run of low rates has not yet come to an end. The average two-year fixed rate is as low as it was back in the summer, although that fall in the average has been driven by competition between lenders in the high loan-to-value (LTV) sector of the market. Without that competition, average rates would be rising.

Money Facts reports that the average two-year fixed rate has fallen by 0.04% this month, down from September’s rate of 2.72% to stand at 2.68%, meaning that it’s returned to the lowest rate on record. It’ll come as welcome news to borrowers who still want to snap up a low-rate mortgage before the Bank rate begins to creep up.

But while many banks are offering competitive fixed rates, mortgage borrowers still have to pass strict affordability tests which were introduced last April by the Financial Conduct Authority’s Mortgage Market Review.

So how low are the lowest fixed rates? A quick scan of the best buys tables shows that, for borrowers with a substantial deposit – or plenty of equity in their current property – and who can meet the affordability and other lending criteria, it is possible to find 2 year fixed rates below 2%, 5 year fixed rates around 3.5% and 10 year fixed rates below 4%.

There are of course a number of factors, in addition to the interest rate, which affect the cost of borrowing, such as arrangement fees, early repayment charges and other related costs. For mortgage advice and a recommendation that is based on your individual circumstances, please call or e-mail us now.


House prices in London and the South East: still on the rise?

Average house prices at £200,000, an all time high
The Halifax’s latest index shows that the average UK house price has hit an all-time high at £200,280, with annual house price inflation (HPI) now running at 9.6% to June 2015. Halifax said the rise was being driven by tight supply, with the number of homes for sale now at a record low.

Halifax’s housing economist Martin Ellis said there were “now signs of a recent modest pick-up in demand. Economic growth, higher employment, increasing real earnings growth and very low mortgage rates are all supporting housing demand.”

The most recent Nationwide House Price Index was slightly less positive, with an average house price of £195,055 and annual HPI at 3.3% to June, although London and the South East regions both saw between 6% and 7% HPI and are showing no signs of ‘cooling down’ at the moment. Consumers are clearly more confident about buying property than they were a couple of years ago, reassured in part by Government schemes to boost lending such as Help to Buy.

London’s ripple effect out into the South-East
Constant talk of a house price ‘bubble’ in London is understandable given how fast property values have risen in the last decade, compared with other parts of the UK. But London is not typical of the UK. It is a major global city in a country with a safe political system, a strong, stable currency and a relatively low tax environment. Much of the property inflation in London is not being driven by increased mortgage lending. Foreign investors regard London’s prime property market as a safe haven for their capital and many of the largest transactions are cash sales.

So if prices in London keep rising (and they look set to do so for many years to come) then people who work – and would like to live – in London are being displaced from the centre of the city and paying more for their homes in the Greater London area. That in turn is pushing those who lived there further out into the South East of England.

Not a bubble, more a permanent imbalance between supply and demand
With property in and around London so scarce, unless the government starts building thousands of houses in London and the South East right now (and continues to do so for many years to come) the law of supply and demand means that prices will keep rising.

What should you do?
Contact Marchwood IFA for a chat about financing your next property purchase. Unlike individual high street banks and building societies, we can advise you on the right mortgage for you from the whole of the market. Finding the right mortgage product is one thing but getting a mortgage offer is altogether different. And this is where we really add value. Our sole objective is to get you what you want in the most painless way possible. When dealing with the banks this is not always straightforward, particularly at the moment as the effects of the Mortgage Market Review continue to be felt. We collect everything required from you and liaise on your behalf with the lender until the mortgage offer is produced and you can move into your new home. Whether you are buying a new home or an investment property or wish to refinance an existing mortgage, we have the skills, tools and experience to help.

Your property may be repossessed if you do not keep up repayments on your mortgage.

Should you expand your Buy to Let portfolio by remortgaging?

Mortgage interest rates have never been lower, and this applies to Buy to Let (BTL) as well as residential mortgages. If you haven’t reviewed the financing of your BTL property recently, now is the time. You may find that you can reduce the mortgage interest costs significantly by switching to a better rate. Alternatively, you may choose to do what many other BTL investors are doing right now; remortgage, thus freeing up some equity to expand your portfolio. If you have benefited from particularly strong house price growth in the last two years, could this be a good time to remortgage your rental property?

If you are currently thinking about this option, make sure you first consider the following factors and make sure you take expert advice from an independent buy to let mortgage adviser.

Is it the right time to remortgage?
Your personal circumstances will often dictate whether it is the right time for you to remortgage. For example, if you are currently on a competitive fixed interest rate, or if you face early repayment charges for switching to another lender, it might not make financial sense to remortgage.

Before making any decision, ensure that you have all the relevant information at your disposal, such as your property’s current valuation and how much of the overall value is equity compared to the size of the loan on it. This will help you work out how much equity you can release and whether that is enough to allow you to expand your portfolio.

What about buy-to-let market conditions?
Buy-to-let is a steadily increasing market in the UK, with growing numbers of professional and amateur investors seeking to invest their cash into a market worth £1 trillion (Source: Kent Reliance)

For most landlords with a couple of BTL properties the key to success is capital growth.  If the property you invest in grows significantly in value, you will increase your total profits when you come to sell it. Of course, future house price growth is impossible to predict accurately, so the ratio of the average annual rent to the average house price in any given area, known as the “rental yield”, is a good indicator of where to buy.

But where should you invest? Rising property prices in some areas of the country have reduced rental yields to levels where the returns are relatively unattractive. However, new research by HSBC, which conducts a review of rental yields around Britain each year, shows that certain towns and cities are the best places to invest at the moment. This is due to modest property price rises and strong demand for rental property by tenants such as students and young professionals.

Southampton and Portsmouth are both mentioned in the HSBC report as being in the ‘top ten’ places to invest in buy to let property.

Both cities have large student populations, demand for rental accommodation is strong and in comparison with other regions housing is cheaper. Both cities have similar levels of housing stock in private rental (around 22%-23%) and both have average house prices of just over £150,000 (below the UK national average). Southampton’s average annual rent is £10,800, giving a rental yield of just over 7%. Portsmouth’s average annual rent is £9,900, giving a rental yield of just over 6%.

Next steps
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