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Q – I am currently in a fixed rate mortgage, is it worth swapping mortgage deals as the rates are much lower at present?
A – Hi, this all depends on how much of a saving can be made on the new mortgage deal, versus (1) the penalty you would have to pay to exit your current mortgage deal and (2) the costs involved in securing the new, lower mortgage rate.
In my experience, the savings that can be made rarely outweigh the penalties you have to pay. The good news is that it is a very quick exercise to check and to give you peace of mind. A good mortgage broker can have this checked for you within 5 minutes (at no cost) and all you need to know is how much your redemption penalty is and when the fixed rate period ends.
There are some exceptional circumstances when clients swap into the lower rate, regardless of whether this is financially beneficial for them. This is very rare and is only ever done / considered when a client is desperate for an immediate monthly saving. I would advise anyone to avoid this scenario where possible.
On a final note, these new and lower mortgage deals can be secured up to 6 months in advance of when your current mortgage deal expires, so it is always worth an exploratory chat.
Contact us now for a FREE mortgage consultation with our mortgage advisor, for added peace of mind that you are dealing with a multi award winning mortgage broker.
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Mortgage Approvals Fall in February
Mortgage approvals for house purchases have been steadily rising over the past few months, but February proved to be the month when all that changed. Approvals fell by 1.2% in February – the first time a fall has been noted for six months. January saw 69,114 mortgage approvals granted, and this fell by 799 to 68,315 in February. The new figures come from data released by the Bank of England.
Remortgaging loans also experienced a fall, dropping from the 45,859 seen in January to 43,822 in February – a drop of 2,037. The total drop across all mortgage types was almost 3,000, sliding to 125,622 total mortgage approvals for the month.
Darren Pescod, managing director of The Mortgage Broker, suspects this is a blip in the mortgage market based on month on month figures. “We may well see a slowdown in the housing market this year,” Darren said, “but this could be mitigated by a lack of housing, which might keep prices higher than they would otherwise be. Consumer spending is down when compared to January this year too, which may mean consumers are feeling more cautious. This in turn could have a knock-on effect on the housing market.”
How big a role does the economic outlook play in house purchases?
If there are signs that significant changes could come into play, people are more prone to holding back on major purchases. This applies just as much to buying property as it does to other major buys. January saw a rise of £1.6 billion in consumer spending, but this fell to £1.44 billion in February. People may be uncertain of the future with the triggering of Article 50 and the beginning of the Brexit process. This may affect the market in the coming months.
The referendum did not have any such effect when the Brexit vote became clear, but since it would be some time before the official notification was made, it’s possible there is a delayed reaction. Conversely, this may simply be a blip, and we may all be surprised by more encouraging figures next month.
Credit card lending rose last month, however, reaching an increase of 9.3% as it did so. This was the highest rise in 11 years. Credit is perhaps more easily available in credit card form than it is against a property, or indeed to find a mortgage to buy a property. This goes some way to explain why mortgage approvals have dipped, and credit card borrowing has risen. Many people would rather borrow on credit cards to keep up their lifestyle, especially when they are looking to make the best of their current situation.
It remains to be seen whether the figures for March reveal another dip in mortgage approvals, or whether February might turn out to be little more than a blip. Will that dip early in the year represent a clue to a more prolonged slide in the housing market, and if so, how long might that slide last? We shall be watching.
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ARE YOU A BUY-TO-LET MORTGAGE PRISONER?
Many landlords are saddled with lenders on less than competitive interest rates, or stuck on higher standard variable rates making them virtual mortgage prisoners, according to The Mortgage Broker Ltd, a nationwide broker providing mortgages to buy-to-let landlords and investors.
Landlords may feel imprisoned by the new ‘affordability’ testing, which is being undertaken by lenders. As a result, some landlords are suffering expensive mortgage rates, which are eating into their profits each month, or even forcing them into a loss. The new lending rules means some lenders will have to take into account a landlord's other expenses such as their tax status. It will be on this stricter lending that landlords will be assessed to see if they can afford to borrow.
According to Darren Pescod, Managing Director of The Mortgage Broker Ltd, often landlords do not fit this new lending criteria. He comments: “Britain's two million landlords are facing assaults from both the taxman and the Bank of England. The mortgage restrictions are very bad for landlords and pose a major threat to BTL investments. If landlord mortgages are tougher to secure, buy-to-let landlords could find themselves stuck on expensive rates indefinitely.
“Thankfully, the Ipswich Building Society has returned to the mortgage market with two new buy–to-let products, specifically aimed at buy-to-let prisoners or ‘misfits’. The good news is that the lender will only assess rental income at 125% of the mortgage pay rate. Ipswich
Building Society has also confirmed it will accept remortgage applications from selected intermediaries and its prestige partners, of which The Mortgage Broker Ltd is one.
“This new move will increase the options available to landlords looking to remortgage, where they may be restricted by the FCA rules for calculating mortgages for buy-to-let landlords.”
Richard Norrington, Chief Executive, Ipswich Building Society commented: “We continue to provide choice in the marketplace for mortgage misfits and those who may not fit a ‘one size fits all’ assessment. By employing a manual approach to underwriting, with consideration of each application based on individual circumstances, this new initiative will help creditworthy buy-to-let borrowers who may be finding it hard to remortgage away from their existing lender.”
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Bank of Mum and Dad Funds Over a Third of First-Time Buyers
The Social Mobility Commission has confirmed what many people may already have thought to be true – first-time buyers regularly resort to the Bank of Mum and Dad to fund their deposit to help them get onto the housing ladder.
The commission, acting as an advisory body to the Government, has revealed an increasing number of people are looking to their parents when trying to buy their first property. Figures for 2013-14 have confirmed around a third (34%) of first-time buyers have received financial help from their parents to help them. This
contrasts sharply with a figure of 20% recorded seven years previously, according to research by the commission.
Levels projected to rise further in the coming years
Not only has the percentage increased in the past seven years, it looks set to continue for the foreseeable future, too. The commission estimates around 40% of first-time buyers will be asking their parents for help in a couple of years from now.
How accurate are the figures?
Darren Pescod from The Mortgage Broker Ltd said “The figures used by the Social Mobility Commission stem from cases where people have declared they are part-financing their purchase with the help of their parents. Some of those helped by family money don’t declare it. This means the actual figure could be higher still”
There is another element to consider, too. Research performed by Anglia Ruskin University and the Cambridge University reveals an additional 9.6% of first-time buyers use inherited cash to help fund their home purchase.
It is harder than ever to get onto the housing ladder
The Mortgage Broker Ltd states that many people would correctly assume it has become more difficult to get onto the housing ladder. In 1990, 63% of those aged between 25 and 29 already owned their first property. Contrast that with the figure today, which has dropped sharply to just 31%. This means we’ve gone from nearly two-thirds of people in that age group owning a home to under one-third.
Couple this with the fact many young people are seeking help from their parents to fund a purchase today, and we can see just how dire the situation is. If you were to remove the cases where first-time buyers have resorted to family cash to help them buy their property, what would the percentage be then?
Clearly, not everyone can rely on parental cash or an inheritance to help them buy a property. The gap between earnings and property prices has grown in recent years, and this has meant many people have found it increasingly hard to save up for a deposit on a home. Stricter mortgage rules have also made it harder to get a mortgage.
While the figures make for sobering reading, perhaps most depressing is the realisation that nothing will change anytime soon. For those still renting and still looking to get onto the housing ladder, there may be little hope for doing so for the foreseeable future – unless they have access to the Bank of Mum and Dad.
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The Budget Fails to Reverse the Tax Changes Coming for Landlords
While landlords may have been hoping for a reversal in the upcoming plans to get rid of mortgage interest rate relief, no such reversal was forthcoming in this week’s Budget. Instead, the new plans remain in place, and are set to start being phased in on 6th April this year.
What does this mean for landlords?
Currently, landlords can deduct all the interest they pay on their mortgage from the amount they get from rental income. Come 6th April, this reduces to 75% of the interest. The amount that can be claimed then goes down by a further 25% per tax year. When landlords reach the year 2020-21, no relief can be claimed at all.
Essentially, landlords only ever paid tax on their profits before, just as any business would do. Now, however, tax will be paid on the turnover.
How many landlords will be hit?
Landlords who have a mortgage on a property will be affected by the new ruling. Those without mortgages have nothing to worry about, but those who do have mortgages will likely pay more once the new system comes into force.
Those paying a higher rate of tax will pay more than those on a lower rate, but there could be cases where a landlord may end up with a tax rate exceeding the profit they have made. A lot will depend on individual mortgage costs, but the new tax rules mean those with buy-to-let mortgages will be hit to some extent. Some could pay more than twice the amount they currently do.
Could we see landlords selling up?
Darren Pescod, MD of The Mortgage Broker Ltd says “Yes, this could happen. The new rules will change the situation anyway, but two other factors may also influence what each landlord decides to do. Firstly, rents may come under consideration. If landlords are not making money, they may decide to put rents up so they can still make a profit. Secondly, if they are on a variable rate mortgage, they will be more exposed to rises in interest rates. That could mean the mortgage costs increase, and yet rents could stay the same”
Landlords who discover their profits have been wiped out – or worse, that they are losing money once they have paid their tax bill – are likely to sell one or more properties, possibly leaving the buy-to-let sector altogether.
No mention of the ruling in the Budget
While some would have listened to the Budget in the hope the ruling was reversed, there was no mention of it at all. Yet this won’t just affect landlords. With many people finding it difficult to afford rental prices, let alone trying to buy properties, the possibility of soaring rents could make life more difficult for renters, too.
Perhaps in the end, the only way to determine the actual effect of the tax changes is to see them occur. We may know the net effect long before the ruling comes into effect completely for the tax year 2020-21.