THE EVOLUTION OF INTEREST-ONLY MORTGAGES

Evolution

Prior to the 2008 financial crisis, interest-only mortgages were a popular choice for home buyers.

With this type of mortgage, the borrower pays off the interest each month, but makes no capital repayments. Borrowers were expected to have plans in place that would repay the capital at the end of the term, and whilst many took out endowment policies, some borrowers didn’t have firm plans in place.

There are estimated to be around 1.7m interest-only mortgages that are due to mature over the next few years. The Financial Conduct Authority (FCA) has urged borrowers who anticipate that they won’t have sufficient assets to repay the capital at the end of their mortgage term, to take professional advice.

There are alternative types of mortgage available, such as repayment, lifetime or equity release, that can be put in place to avoid the risk of borrowers defaulting and having to sell their property in order to repay their loan. Following the recession, the introduction of tougher lending criteria under the FCA’s Mortgage Market Review in 2014, meant that lenders were required to use more stringent tests before granting loans, leading to repayment mortgages becoming the main type of mortgage offered.

RETURN OF THE INTEREST-ONLY MORTGAGE

Several lenders have recently returned to the interest-only mortgage market. However, the loans that are now available are much more strictly controlled. Borrowers are expected to have large salaries, substantial deposits to put down and clear repayment plans in place. They will also need to demonstrate that their monthly interest payments will be affordable throughout the term of the loan.

If you would like to know more or are considering your repayment options on an existing interest-only mortgage and would like some advice, then do get in touch.

A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Think carefully before securing other debts against your home.

Residential Property Review – November 2018

Our monthly residential market review is intended to provide background to recent developments in property markets, as well as to give an indication of how some key issues could impact in the future.

 

How did the latest Budget affect the market?

The Chancellor of the Exchequer, Philip Hammond extolled his latest budget to the nation in October, but how did his announcements affect the residential property market?

Encouragingly, his comments boded well: “The Government is determined to fix the broken housing market. Building more homes in the right places is critical to unlocking productivity growth and making houses more affordable.

He went on to state that £500 million would be made available for the Housing Infrastructure Fund, to enable an additional 650,000 homes to be built. In addition, he envisaged an improved relationship with housing associations in England, worth additional funding of £653 million to enable another 13,000 homes to be built. He also announced the Government will underwrite guarantees for up to £1 billion, for smaller housebuilders to operate.

Diminished activity in the residential market

The estate agent Savills, have reported the majority of surveyors have seen declining numbers of new enquiries and vendor instructions. The optimism that these surveyors had seen in July and August, with August seeing the most new residential loan completions since 2007, has dissipated.

The Government’s Help to Buy equity loan scheme was cited as supporting around one in eight first-time buyer transactions in the first quarter of 2018. This scheme was extended in Mr Hammond’s Budget announcement, stating that it will now continue to be made available until 2023. However, it will be restricted to first-time buyers only, from 2021. There will also be regionally adjusted maximum property value caps applied to loans.

Summary of the Government’s economic statement

The Royal Institution of Chartered Surveyors (RICS) have reported a fall in sales transactions and a flat trend in buyer demand. In line with this, their 12-month sales expectations series is negative, mainly driven by decline in London.

Additionally, a recent report from the Bank of England highlighted a softening in the housing market, with fewer transactions and weaker price inflation in many areas. This report also revealed that the new-build market remained stronger than the secondary market.

Government figures for August 2018 showed that, on a seasonally adjusted basis, the number of residential property transactions with a value of £40,000 or greater, was 99,120. This is 2.6% lower compared with a year ago.

Between July and August 2018, total transactions increased by 1.3%.

 

HOUSE PRICES HEADLINE STATISTICS

HOUSE PRICE INDEX (SEP 2018)*                122*
AVERAGE HOUSE PRICE £232,554
MONTHLY CHANGE 0.0%
ANNUAL CHANGE 3.5%
*(Jan 2015= 100)

  • UK house prices rose 3.5% in the year to September 2018
  • On a non-seasonally adjusted basis, average house prices in the UK were unchanged between August and September
  • House prices grew fastest in the West Midlands region, increasing by 6.1% in the year to September

 

HOUSE PRICES PRICE CHANGE BY REGION

Region Monthly Change (%) Annual Change (%) Average Price (£)
England 0.0 3.0 £249,408
Northern Ireland
(Quarter 3 – 2018)
2.3 4.8 £135,060
Scotland -0.1 5.8 £152,961
Wales 0.5 5.8 £162,089
East Midlands 1.1 6.0 £194,803
East of England -0.1 2.0 £294,027
London -0.4 -0.3 £482,241
North East 0.8 3.5 £132,049
North West -0.8 3.3 £162,915
South East -0.2 1.7 £328,059
South West 0.3 4.3 £260,142
West Midlands Region 1.1 6.1 £199,763
Yorkshire & The Humber -1.1 2.6 £162,009
Source: The Land Registry
Release date: 14/11/2018 Next date release: 19/12/2018

 

AVERAGE MONTHLY PRICE BY PROPERTY TYPE – SEP 2018

PROPERTY TYPE ANNUAL INCREASE
DETACHED
£356,912
5.2%
SEMI-DETACHED 
£219,776
4.5%
TERRACED
£188,629
3.8%
FLAT / MAISONETTE
£203,374
-0.3%

Source: The Land Registry
Release date: 14/11/2018

Contains HM Land Registry data © Crown copyright and database right 2017. This data is licensed under the Open Government Licence v3.0.

 

MORTGAGE ACTIVITY

  • Overall remortgaging for both residential and buy-to-let properties have levelled out after a period of strong growth. This reflects the number of fixed rate loans reaching maturity.”
    Jackie Bennett, 
    Director of Mortgages at UK Finance

Source: UK Finance
Release date: 13/11/2018

DON’T UNDERESTIMATE THE VALUE OF INSURANCE

Insurance policies are designed to provide financial safeguards and valuable peace of mind. If you’re a homeowner then it makes sense to have plans in place that protect you, your family and your home.

LIFE INSURANCE TAILORED TO YOUR NEEDS

There are various plans designed to protect you and your family:

·         Life policies – these provide a taxfree sum for those you leave behind in the event of your death. If you have a mortgage, it’s a big financial responsibility and no-one would want to leave their family with money worries at a sad and difficult time.

·         Critical illness cover – this means that if you are diagnosed with a serious illness as defined in your policy, there’s a cash payout to help alleviate financial worries and protect your family.

·         Income protection – these policies provide a monthly pay-out that helps pay your mortgage and other living costs in the event of an accident, sickness or involuntary unemployment.

PROTECT YOUR POSSESSIONS AS WELL AS YOUR HOME

Buildings insurance covers you for damage to the structure of your home. When you take out a mortgage, your lender will require that you have buildings insurance in place and that it covers the cost of rebuilding the property and its permanent fixtures and fittings. The rebuilding cost isn’t the same as your property’s market value, it’s generally a lower figure which will be detailed in your lender’s valuation report or arrived at by using an online calculator.

Mortgage lenders don’t insist that you have cover for your home contents but it makes good sense to protect them against risks like burglary, fire and flood. You can also arrange insurance for valuable items like jewellery, and those belongings you use away from home, such as laptops.

If you would like some help in ensuring you have the right protection policies for your needs, do get in touch.

IT PAYS TO GET ADVICE

Buying a house involves making lots of decisions, some simpler than others. Finding the right house in your chosen location can be the easy part, finding the best and most suitable mortgage deal for your financial circumstances can prove to be more of a headache.

With so many mortgage deals available in the market how do you know which one represents the best value? The market is very competitive and if you’re not familiar with the way it works and the terminology, it can be hard to understand what is on offer.

FINDING THE BEST DEAL

We are seeing more people choosing to work with a mortgage adviser. They understand that it helps to work with someone who can explain all that is on offer to ensure they get the mortgage best suited to their needs. At this potentially stressful and expensive time it really does help to work with an expert and someone who shares your commitment to making the right choice.

Like properties, mortgages come in many shapes and sizes such as fixed, variable and tracker. You’ll also find that lenders offer mortgages with different interest rates that can be fixed for various time periods. However, looking just at the interest rate that’s being charged can be misleading. Although a low rate may look enticing, you also need to check out the fees and charges. These could be high, resulting in you paying more than if you had chosen a mortgage with a slightly higher rate of interest.

There are also special deals available that include extras such as survey fees, legal costs or cashback arrangements. We can help you work out which ones are worth going for.

SAVE MONEY AND TIME

Working with us will save you time, money and stress. We will be able to compare the deals available from various lenders, taking into consideration things like fees and charges that will affect the overall cost of your mortgage. We will ensure that your mortgage application goes to the most appropriate lender. What’s more, we are on hand from start to finish and can provide help with many other aspects of the house-buying process, like getting your offer accepted, finding solicitors and organising property surveys. We’ll also give you good advice about putting protection policies in place. These are designed to provide financial safeguards that mean your mortgage is paid if you experience one of life’s unexpected events.

So, if you’re a first-time buyer, second-stepper, re-mortgager or would-be buy-to-let landlord, looking for professional mortgage advice, why not put us to the test?

A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

MME RESIDENTIAL PROPERTY REVIEW – October 2018

Our monthly residential market review is intended to provide background to recent developments in property markets, as well as to give an indication of how some key issues could impact in the future.

Property demand continues to slip lower

The latest Royal Institution of Chartered Surveyors’ (RICS) ‘UK Residential Market Survey’, concludes that demand for property slipped lower for a second successive month in September. They attribute this fall in demand to a combination of factors, including a lack of stock, the interest rate rise, economic uncertainty and affordability constraints. At a national level, RICS believe that house prices have been relatively unchanged over the last five months.

The survey outlined that average stock levels on estate agents’ books were close to record lows in September, as the volume of new sales coming to the market deteriorates. New buyer enquiries slipped to -11%, compared to -9% in August.

London Stamp Duty revenue hits record £4.9bn despite sales falling

According to recent figures from HM Revenue and Customs, the amount collected in Stamp Duty tax on residential property purchases rose by 8% to top £9bn, in the 2017-18 tax year. London accounted for 39% of Stamp Duty receipts, generating a record £4.9bn in revenue, despite housing market activity declining in the capital.

Expensive properties accounted for a high share of the Stamp Duty revenue, with homes costing more than £1m producing 44% of receipts, while representing just 3% of transactions.

The introduction, in 2016, of an extra 3% Stamp Duty surcharge on additional residential properties was seen to be largely responsible for the rise in receipts over the year, generating £1.9bn in 2017-18.

Lucian Cook, director of residential research at estate agent Savills, said: “The additional 3% clearly has paid dividends for the Treasury. That has largely been the difference between Stamp Duty receipts continuing to rise in what is a pretty turgid UK housing market with pretty flat transaction levels.”

Theresa May announces boost to housebuilding

The Prime Minister recently told the Conservative party conference in Birmingham that housing was: “the biggest domestic policy challenge of our generation” and announced that the government would scrap the current cap, introduced in 2012, on how much councils could borrow against the value of their housing stock.

It is estimated that the value of council-owned housing stock is £230bn, which is nearly nine times their current level of borrowing. Council debt will still be constrained by prudential borrowing rules and by future uncertainties over income.

The Chartered Institute of Housing welcomed the removal of the cap, but said councils need to focus on those areas where the private sector was not meeting needs. Gavin Smart, Director of Policy and External Affairs said: “We need to make sure we are building the right homes, in the right places, at the right prices. That’s why it is so important to give councils the tools they need to build more truly affordable homes for social rent.

 

HOUSE PRICES HEADLINE STATISTICS

HOUSE PRICE INDEX (AUG 2018)* 121.1*
AVERAGE HOUSE PRICE £232,797
MONTHLY CHANGE 0.2%
ANNUAL CHANGE 3.2%
*(Jan 2015= 100)

  • UK house prices rose by 3.2% in the year to August 2018
  • House prices grew fastest in the East Midlands region increasing by 6.5% in the year to August 2018
  • Annual growth in London house prices has been around zero for the last 6 months

 

HOUSE PRICES PRICE CHANGE BY REGION

Region Monthly Change (%) Annual Change (%) Average Price (£)
England 0.2 2.9 £249,748
Northern Ireland
(Quarter 2 – 2018)
-1.0 4.4 £132,795
Scotland 0.3 4.1 £153,309
Wales 1.9 6.2 £162,374
East Midlands 1.5 6.5 £194,718
East of England -1.1 1.6 £292,107
London -0.5 -0.2 £486,304
North East 1.4 2.9 £133,538
North West 0.0 3.3 £163,487
South East 0.1 1.9 £329,264
South West -0.4 2.9 £257,659
West Midlands Region 0.5 5.1 £199,000
Yorkshire & The Humber 1.2 3.7 £163,964
Source: The Land Registry
Release date: 17/10/2018 Next date release: 14/11/2018

 

AVERAGE MONTHLY PRICE BY PROPERTY TYPE – AUG 2018

PROPERTY TYPE ANNUAL INCREASE
DETACHED
£350,354
(3.6%)
SEMI-DETACHED 
£220,736
(4.7%)
TERRACED
£188,889
(3.3%)
FLAT / MAISONETTE
£207,512
(0.7%)

Source: The Land Registry
Release date: 17/10/2018

Contains HM Land Registry data © Crown copyright and database right 2017. This data is licensed under the Open Government Licence v3.0.

 

MORTGAGE ACTIVITY

  • Overall house purchase completions remain stable, driven largely by the number of first-time buyers which reached its highest monthly level since June 2017.
    Jackie Bennett,
    Director of Mortgages at UK Finance

Source: UK Finance
Release date: 16/10/2018