PREPARATION IS KEY TO STRESS-FREE HOME BUYING

A recent industry survey showed that 41% of people feel stressed by the mortgage process, taking the fun out of looking for a new home.

This needn’t be the case and by following these top tips you can stay in control, save money and enjoy the experience.

SAVE, SAVE AND SAVE

In most cases, the bigger the deposit you can put down and the less you need to borrow, the lower your interest rate is likely to be. Don’t forget that your savings will also need to cover other charges like legal fees and survey costs, so budget for them to avoid any nasty surprises.

MONTHLY OUTGOINGS

It pays to take a long hard look at your income versus your outgoings; any lender considering your mortgage application will expect you to be on top of your bills and to be able to afford your monthly mortgage payments. Check your standing orders and subscriptions and cancel any you can manage without. Also, keep a keen eye on how much you spend on luxuries like entertainment and meals out.

CHECK YOUR CREDIT SCORE

Lenders will expect you to have a healthy credit score. A higher score usually means you are a lower risk; the more points you score the better the chances that you’ll get credit at better rates.

GET PROFESSIONAL ADVICE

Getting advice will save you time, money and stress. We are on your side, have access to a wide range of mortgage deals, know the industry and can offer useful advice on all aspects of the home buying process. We can help you get an in-principle decision from a lender, which gives a seller the confidence that you are a serious purchaser.

KNOW YOUR ESTATE AGENT

First-time buyers with mortgage offers in place are attractive to sellers as they can proceed more quickly than another buyer who has yet to sell. Make sure that the estate agent is aware of your position, so they can pass this information on to sellers. Keep in regular contact and build a rapport with the agent.

DON’T FORGET THE SURVEY

Once you’ve found somewhere you want to buy, make sure you get a professional survey. A surveyor will identify structural problems that could be expensive to remedy.

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.

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

Autumn Budget

A BUDGET FOR HARD-WORKING FAMILIES…

 

Philip Hammond, the Chancellor of the Exchequer, delivered a Budget which he declared “shows the British people that their hard work is paying off“. Mr Hammond was under intense pressure to loosen the purse strings. He did announce several new cash injections, while suggesting that “the era of austerity is finally coming to an end“.

OBR Forecasts

The Chancellor began his statement by revealing the latest economic forecasts from the Office for Budget Responsibility (OBR) which showed a significant improvement in the public finances. Public borrowing for the current fiscal year was forecast to be £11.6bn lower than predicted in the Spring Statement and is then forecast to fall from £31.8bn in 2019/20 to £19.8bn in 2023–24, which would be its lowest level in more than 20 years. The OBR also raised its economic growth forecast for next year to 1.6% from 1.3%, while the 2020 growth forecast was revised up to 1.4% from 1.3%. Growth forecasts for 2021 and 2022 were maintained at 1.4% and 1.5% respectively, and a new forecast of 1.6% was unveiled for 2023.

Brexit

This was the Chancellor’s final Budget before the UK leaves the EU, and Mr Hammond stated that we are currently at a “pivotal moment” in the Brexit negotiations and confidently predicted that the UK will build a new future outside the EU. He also announced that an extra £500m was being set aside for preparations for leaving the EU and reiterated that next March’s Spring Statement could be upgraded to a full Budget if required. In addition, he announced plans to make e-passport gates at Heathrow and other airports available to visitors from the US, Canada, New Zealand, Australia and Japan as well as EEA citizens. However, it’s fair to say that the subject of Brexit did not exactly dominate his Budget Statement as some prior media speculation had suggested. A commemorative 50p coin to mark the UK’s departure from the EU will be launched.

Personal Taxation, Wages and Pensions

On the personal taxation front, the Chancellor announced that the personal allowance threshold is set to rise from £11,850 to £12,500 in April 2019, while the higher rate income tax threshold will increase from £46,350 to £50,000. This move was being introduced a year earlier than originally planned, a situation which Mr Hammond said was possible due to the improving state of government finances. In addition, the Chancellor announced that the two tax thresholds would subsequently rise in line with inflation (CPI).

The lifetime allowance for pension savings will increase in line with CPI for 2019/20, rising to £1,055,000. The ISA subscription limit for 2019/20 will remain unchanged at £20,000 and JISAs will be uprated in line with CPI to £4,368. The government is set to publish a consultation next year for maturing Child Trust Fund accounts and on the taxation of trusts.

Mr Hammond also said that the National Living Wage is set to increase by 4.9%, from £7.83 to £8.21 an hour, from April 2019, and that work allowances for Universal Credit were to be increased by £1,000 per annum, a move which would see 2.4 million working families with children, £630 a year better off.

The Chancellor also announced a freeze in fuel duty for the ninth successive year, and that beer, cider and spirits duties were also to be frozen. Wine duty is, however, set to rise in line with RPI inflation, while tobacco duty will continue to rise by RPI plus 2%.

In an effort to address pensions cold-calling, the government is publishing a response to its consultation and will shortly be implementing legislation to make it illegal.

The Department for Work and Pensions will consult later this year on supporting the launch of pensions dashboards, allowing people to view their pension pots, including their state pension, in one place. They also intend to publish a paper outlining the government’s approach to increasing pension participation among the self-employed.

Enterprise and Business

The Budget Statement also included a number of measures to tackle the challenges facing business due to technological changes. This included plans to introduce a new 2% Digital Services Tax from April 2020, although Mr Hammond was at pains to stress that this would be carefully targeted and only levied on profitable companies that have at least £500m a year in global revenues, other criteria apply. The Chancellor also announced some relief for hard-pressed high street businesses, with business rates bills set to be cut by one third for firms with a rateable value below £51,000 over a two-year period from April 2019. This will benefit 90% of retail properties. Through the ‘Our Plan for the High Street’ initiative, a £675 million fund to support a sustainable transformation of high streets is pledged. He also announced that the Annual Investment Allowance was set to be temporarily increased from £200,000 to £1m for two years in order to stimulate business investment.

Another key announcement related to the Private Finance Initiative (PFI), with the Chancellor saying there was compelling evidence that such contracts do not deliver value for taxpayers or genuinely transfer risk to the private sector. He therefore stated that all future PFI contracts are to be abolished although he did stress that the government will honour existing contracts.

The government welcomes the FCA’s plans to expand access to the Financial Ombudsman Service (FOS) to small and medium sized enterprises, along with its consultation on increasing the FOS award limit to £350,000.

Housing

During his speech, the Chancellor noted that the number of first-time buyers is currently at an 11-year high. He then announced that he will be extending the exemption of stamp duty for all first-time buyers purchasing shared equity homes up to a value of £500,000, and that this measure will be retrospective, thus benefiting first-time buyers who have made a purchase since the last Budget on 22 November 2017.

The Chancellor also announced plans to add £500m to the £5bn Housing Infrastructure Fund that was designed to help get a further 650,000 homes built, along with new housing association partnerships in England that would deliver a further 13,000 homes.

From April 2021 a new Help to Buy Equity Loan scheme will run for two years, available to first-time buyers only and for homes with a market value up to a regional property price cap.

Closing Comments

Philip Hammond closed his Budget Speech with these words:

Austerity is coming to an end – but discipline will remain. We are at a turning point in our history and we must resolve to go forwards, not backwards and work together to build a Britain we can all be proud of.

Other key points

  • Confirmed an extra £20.5bn for the NHS over the next five years
  • Funding for mental health services will grow as a share of the overall NHS budget over the next five years
  • £420m to be made available to tackle potholes, bridge repairs, and other minor works in this financial year
  • A £400m pledge to schools as an “in-year bonus
  • An extra £160m for counter-terrorism police in 2019–20
  • An extra £1bn for the Ministry of Defence across 2018–19 and 2019–20
  • NS&I will allow people other than parents and grandparents to gift Premium Bonds to a child (the minimum investment has been reduced to £25)
  • Through the British Business Bank, the government will support pension funds to invest in growing UK businesses
  • A new tax on plastic packaging containing less than 30% recycled plastic from April 2022
  • VAT threshold will be maintained at the current level of £85,000 for a further two years until 31 March 2022
  • Air Passenger Duty – long-haul rates will increase in line with RPI
  • HMRC will be a preferred creditor in business insolvencies
  • New 26–30 railcard offering one third discount on certain fares to around 4.4 million people by the end of 2018


It's time to make your cash work harder for you - With the 2018-19 tax year fast running out, now is th perfect time to ensure you have taken advantage of all the tax-efficient allowances available to you. Two tax planning opportunities worth considering are: Your ISA and Junior ISA allowances. The ISA allowance is a generous £20,000 for the 2018-19 tax year. The JISA allowance is £24,000 for the 2018-19 tax year. You cannot carry over your ISA or JISA allowance once the tax year has ended - use it or lose it! Don't risk missing out on these valuable allowances. Tax year-end deadline 5th April 2019. Other ISA options are available.

How Much Should I save for a House Deposit

One of the first steps in getting on the property ladder and easily one of the biggest hurdles is raising the deposit. The size of your deposit will determine how much your home loan will cost. Here’s our guide on how much you need to raise before you buy.

The minimum deposit – 5%

Typically the minimum amount you’ll need is 5% of the property value and the lender would then lend you the rest provided you meet their affordability criteria. However, you’d be limited to the number of lenders and mortgage deals available to you and it can be harder to get approved for, as there is a higher risk for the lender. You’ll need to prove that you can keep up with the monthly repayments so a good credit score is important. Lenders will also look closely at affordability, to see if your wage can cover mortgage repayments and still leave you with enough to live on.

10% deposit

Most people aim to save at least 10% deposit, as there are more mortgage deals available and from a wider range of banks and building societies. According to a 2015 Which? National property survey, first-time buyers in the UK save an average 17% deposit.*

25% deposit

A deposit of 25% will open you up to even better mortgage deals and rates and you’ll be more favourable/attractive to banks and lenders.

Essentially, it’s best to remember this rule of thumb;

The more you can put down towards your deposit, the more likely you are to get a
cheaper mortgage rate.

Here’s an example:
If you wish to purchase a home valued at £300,000, you will need to have saved £30,000 for the deposit to get a 90% mortgage. If, however, you managed to save more, say £60,000 (20%), you’d get an 80% mortgage covered by the lender. This is the Loan to Value (LTV) ratio and will mean your monthly mortgage repayments are much smaller.

There are of course other important factors that affect the interest rate you’ll be able to get, like your credit score.

What about no deposit?

Hundred percent mortgages are available as of this year, where you borrow the entire cost of the house. The number of products like these has been on the rise since the 2007 financial crash. These types of mortgages normally require a family member to act as a guarantor who will commit/be liable to making the payments if you are unable to.

There are risks involved with 100% mortgages, which should be taken into account before considering them.  The biggest risk is that you can fall into negative equity. This is when you have a mortgage debt bigger than what your property is worth, which can happen if the value of the house drops. Negative equity can make it harder for you to move house or remortgage.

The other risk is that the interest rate can be higher, making it harder for you to repay. Since there is no deposit being paid, a 100% mortgage poses a greater level of risk to lenders as well, so they tend to increase the interest rate for the borrowing.

The government Help to Buy scheme can help those struggling to save and can make it easier to get a 5% deposit mortgage. However, this scheme ends in December 2016. To find out more click here.

The best advice when saving for a mortgage is to start saving early and remember the rule of thumb

The more you can put down towards your deposit, the more likely you are to get a
cheaper mortgage rate.

Borrowers must get advice before product transfers – Open Letter

This article is taken from Mortgage Solutions and features an open letter from Malcolm Davidson, director of broker UK Moneyman to the Financial Conduct Authority (FCA) on non-advised mortgage product transfers.

Should Lender Product Transfer be flagged with the warning Buyer beware”?

He wrote:

Dear Sir/Madam,

No one can doubt the success of the Mortgage Market Review (MMR) of 2014 for which the regulator should be congratulated, but I feel the market is beginning once again to potentially fail a section of borrowers.

If I may take a direct quote from Section 5.2 of the July 2010 pre-MMR Responsible Lending Consultation paper:

‘We have a mortgage market where many consumers have regularly remortgaged, shopping around far more than seen in the investment market, for example. For many of these consumers, the market has worked well.

But the level of mis-buying also highlights that some consumers are failing to properly engage and that we cannot rely on all consumers to be able to protect their own best interests.’

When this was written back in 2010, I do not feel there could have been any reasonable way anyone, including the FCA, could have known just how big the post MMR non-advised mortgage product transfer market would become.

Choice for consumers is a good thing and I have no problem whatsoever with a client hooking into a new deal with their current lender, as long as they are aware that there may be other more suitable deals available elsewhere.

Take my clients Darren and Dawn from Manchester.

Their lender waived their early repayment charges before the end of the fixed rate I arranged for them and they hooked into a new deal online without taking further advice.

Dawn was pregnant at the time and when they approached the lender for a home improvement further advance a few months later, they were declined on affordability.

The client re-engaged with me at this point and whilst I was able to help them obtain the additional funds they needed to create an extra bedroom, a £3,000 early repayment charge was triggered.

Had Darren and Dawn spoken to an adviser instead of taking the easy ‘click here for a cheaper deal’ option, I’m sure their future plans for extra funds would have been discussed and the early repayment charge avoided.

The problem we have here is that most clients need advice, even when it comes to a straightforward remortgage or product transfer but they don’t always realise it.

Lenders have invested heavily in technology and now encourage the clients to take a new deal online.

I understand the size of the direct-to-lender product transfer market is in the tens of billions, and no doubt a large chunk of that is consumers not taking advice, therefore potentially leaving themselves open to mis-buying.

To minimise the risk of poor consumer outcomes, my suggestion would be that all customers should be required to take advice from their lender or a broker before effecting any mortgage, including ‘simple’ product transfers.

Star Letter 19/10/18 posted by: Mortgage Solutions

Bank of England – Inflation Report August 2018

The outlook for the economy – “In a nutshell”

Report published by The Bank of England – August 2018

“We have raised interest rates to 0.75%”

Interest rates

Inflation is above our target

The squeeze on pay is easing

Growth is around its speed limit

Interest rate rises should be gradual and limited

Interest Rates

Our role is to set interest rates to influence the amount of spending in the economy in order to ensure inflation (the pace of price rises) returns to our 2% target sustainably.

The reason we focus on low and stable inflation is that it is vital for a stable economy that supports growth and jobs.

If we set interest rates too low, then the economy will run too hot, and inflation will stay above our target. But if we set interest rates too high or raise them too rapidly then the economy will be too weak, and inflation will fall below our target.

During the financial crisis, people reined in their spending and many lost their jobs. We had to cut interest rates to exceptionally low levels to support spending and jobs. Over the past few years, our economy has needed interest rates to stay very low as we recovered from the global financial crisis. But things have been changing.

Last November, we raised the official interest rate we set, known as Bank Rate, from 0.25% to 0.5%. And now we have raised it to 0.75%.

If the economy continues to perform as we currently expect, it will probably be growing about as fast as it can without overheating. In that case, we think we would need to raise interest rates further, reducing the amount of support we are providing to the economy. But we expect those increases to be gradual. And interest rates will probably need to stay lower than the 4-5% they used to be for some time to come. That’s primarily because there have been some big structural shifts in the global economy that are likely to persist.

A rise in interest rates might seem like a bad thing, especially if you have a lot of debt.  But it would be a sign of an economy growing about as fast as it can, and one that is able to support higher wages. And small increases in interest rates now can avoid the need for bigger ones later.

 

Inflation is above our target

The prices of the things you buy have been going up by more than our 2% target on average over the past year.

That’s been mainly due to the big fall in the pound following the Brexit vote.

The lower pound has meant that things businesses get from abroad cost more. Businesses have been passing those rising costs on to their customers. So that has meant higher prices in the shops. Most of the increase in prices due to the fall in the pound has now happened though.

The price of oil on world markets has also risen over the past year, pushing up prices for petrol at the pumps. Because of that, we think inflation picked up a bit in July.

But unless oil prices keep on rising, inflation should continue to fall back towards our 2% target.

Prices have been rising by more than our 2% target over the past year

 

The squeeze on pay is easing

Over 2017, prices were rising faster than wages meaning people were not able to afford as much. That is now starting to change.

Pay rises for most have been pretty low. But recently wages on average have started to rise faster than prices again. That is easing the squeeze on people’s living standards.

That squeeze should ease further over the next few years. The share of people out of work is at its lowest level for more than 40 years. And there are a lot of job vacancies. This means that companies need to compete hard with each other to recruit and retain workers. One way they do that is by offering higher pay.

The pressure in the jobs market means we’re expecting to see bigger, more widespread pay rises in coming years.  That greater spending power should support growth in the economy.

Pay has started to rise faster than prices, easing the squeeze on living standards

 

Growth is around its speed limit

The world economy is also growing relatively robustly, although it slowed a bit at the beginning of the year. Growth abroad benefits the UK by increasing demand for our exports . And it should encourage companies to invest to meet this extra demand.

We thought the dip in UK growth earlier in the year was probably temporary, but we couldn’t be sure until we saw what happened next. The latest data suggest that growth has recovered since then and that the dip was mostly due to the bad weather.

We think our economy is probably growing about as fast as it can without overheating. Find out more about how fast the UK economy can grow.

A few years ago many people were out of work and looking for jobs. So there was scope for the economy to grow quite quickly as a lot of those people found work.

Now, with a record number of people in work and businesses finding it hard to recruit people, there isn’t much more economic growth that can come simply from unemployed people finding work.

Instead, it will mostly need to come from higher productivity – people already in work producing more.  But productivity has barely risen over the past decade.

There is a limit to how fast the economy can grow before it leads to higher inflation

 

The interest rate decision

In May, we said that if the economy performs broadly as we expect, then we would need to reduce the amount of support we are providing to make sure inflation returns sustainably to the 2% target. We thought that would probably require modest rises in interest rates over the next few years.

Since then, the economy has developed broadly as expected. So we have removed a little of the support, raising interest rates from 0.5% to 0.75%.

If the economy continues to perform as expected, we think we will need to raise interest rates a bit more over the next few years. We expect any rises in interest rates to happen at a gradual pace and to a limited extent. Interest rates are likely to remain substantially lower than a decade ago.

We have raised interest rates to 0.75%