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First-time buyers shore up UK housing market

The residential mortgage market has had a strong start to the year, as the number of first-time buyers entering the market increased by 4.6 per cent.

The latest data from UK Finance, published today (March 14), said 25,100 new first-time buyers completed in January 2019, an increase of almost 5 per cent when compared with the same month in 2018.

The number of homeowner mortgages completed in the month rose to 25,300, a 2.3 per cent year-on-year increase.

Gareth Lewis, commercial director at specialist lender MT Finance, said: “There was always a worry that the lending market would be depressed at the beginning of the year as we edged ever close to the March deadline for Brexit, with this preventing people from buying and selling.

“But these figures are actually very positive and show that people have come out and continued to
buy, so sentiment is pretty good.

“First-time buyer numbers remain strong and encouragingly, loan-to-values have been consistent so it is not as if they are over-stretching themselves.

“With the average LTV around 85 per cent, sensible lending is being done rather than chasing volume.”

New homeowner remortgages, however, fell by 2.7 per cent when compared with January 2018, with 47,400 completed during the first month of this year.

Remortgaging in the buy-to-let sector also fell by 4.2 per cent when compared with the year before.

Kevin Roberts, director at Legal & General Mortgage Club, said: “While the current political landscape is forcing some homeowners to ‘improve, not move’, increased competition within the mortgage market continues to help thousands of buyers with their property plans and ambitions.

“With mortgage rates having halved in the last decade, and a growing number of lenders offering 95 per cent LTVs, first-time buyers stand in a particularly strong position.

“For any would-be borrowers, looking to make the most of the competitive rates and flexibility the mortgage market has to offer, speaking to a mortgage adviser is a wise first move.

“Not only can these professionals provide access to thousands of mortgage products, but their extensive knowledge of the market means they know which lenders will best cater to a borrower’s unique circumstances.”

Meanwhile, new buy-to-let home purchase mortgages completed in January were 1.8 per cent down on the same month a year earlier.

According to UK Finance, the rate of decline this year is less than experienced in January 2018, when buy-to-let home purchases plummeted 5.1 per cent year-on-year.

Matt Andrews, managing director of mortgages at Masthaven, said: “More could still be done for the buy-to-let market to encourage greater purchase activity.

“The slight softening in remortgaging figures for this sector suggests landlords remain committed to the market, greater product innovations, alongside a range of housing tenure that meets consumer needs, would certainly be welcomed so the sector can reach its full potential.”

Jenny Turton is a freelance journalist

Source: FT Adviser

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Mortgage rates halve in ten years

Mortgage rates are at historic lows, having almost halved in the past decade, according to Moneyfacts.

The Bank of England cut interest rates to 0.5 per cent in March 2009 in a bid to stabilise the UK economy amid the global financial crisis.

The average two year fixed mortgage rate was 4.79 per cent ten years ago, almost double the rate available today at 2.49. The same is true of the average five-year fixed rate which has fallen from 5.62 percent to 2.69.

Moneyfacts said the figures showed there was healthy competition between providers to attract new borrowers.

The drop in interest rates coincided with greater product availability at most loan-to-value (LTV) tiers. The number of LTV products available at 95% has increased 130 times in the past decade to reach 391 today, which should help first time buyers.

At the lower LTV tiers too the number of mortgages available has almost doubled. Borrowers with 40 per cent deposit or equity have 588 products to choose from today compared to 272 in March 2009.

Providers have adapted

Moneyfacts spokesman Darren Cook said: “A decade ago, providers did not seem to want to lend to borrowers who could only raise a small deposit. However, providers have since adapted to the new post-crisis mortgage environment.

“One figure that has remained fairly static over the decade however is the average standard variable rate, having only increased by 0.12% since 2009, from 4.77% to 4.89%. Meanwhile, both the average two- and five-year fixed mortgage rates have nearly halved during this time.

“During the past ten years, not only have the two- and five-year fixed mortgage rates dropped, but the gap between the two has more than halved, falling from 0.83% in 2009 to stand at a difference of only 0.4% today.

“This could be a significant factor for borrowers when considering whether to fix for the short or longer-term, especially with the current economic uncertainty.”

At the same time, Cook pointed out that the Financial Conduct Authority introduced clear affordability measures that mortgage providers are required to follow, meaning lending criteria is much stricter than it was before the financial crisis.

Written by: Max Liu

Source: Your Money

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More brokers searching for adverse second charge lenders

Second charge criteria searches on Knowledge Bank for people with debt issues accounted for four out of every five for the first time last month.

Knowledge Bank has the largest database of mortgage lending criteria held anywhere in the UK. Its criteria activity tracker found brokers searched for lenders who would allow debt or income issues, unsatisfied county court judgements, ongoing debt management plans, adverse credit repair or borrowers on benefits with no earned income.

Nicola Firth, chief executive of Knowledge Bank said: “Once again the criteria index allows us to get ahead of the market and understand the cases that brokers are actually trying to place rather than just those that make it through the lending net.`

“An increase in the number and complexity of products can be seen in each and every lending sector and so the challenge for brokers to find the right home for their clients’ loan becomes more and more onerous. With new lenders entering the market and existing lenders expanding their product options.

“We also constantly hear from brokers that criteria searching, in addition to helping them save time in placing cases, vitally enables them to evidence and document their process should their advice be questioned at any time in the future.

“Borrowers and regulators alike simply aren’t concerned how difficult it is to keep abreast of all available product options, just that it is done.”

The top search for residential was maximum age at end of term, followed by self-employed, one-years accounts while the top search for equity release was property with an annex, outbuildings, land or acreage, followed by freehold flats.

The main focus for brokers researching the buy-to-let sector in February was on finding lenders who would lend to first time landlords.

This criteria search has placed in the top five for the past six months and so the desire for borrowers to secure their first buy to let could, and should rightly, be classified as a trend rather than a passing fad

The top search for self-build was conversion, regulated bridging for bridging, applications paid in a foreign currency for overseas and maximum LTV for commercial.

By Michael Lloyd

Source: Mortgage Introducer

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Mortgage approvals hit record highs in UK regions despite property market lull

Banking trade body UK Finance has unveiled lending data showing how well first-time buyers, home movers and those remortgaging fared during 2018 in the UK regions of London, Scotland, Wales and Northern Ireland.

Despite concerns about the property market stalling, the data shows some regions had record levels of approvals for first-time buyers and home movers.

Approvals for first-time buyers in Northern Ireland hit a 14-year high last year at 10,600, up 9.4% annually.

Similarly, approvals to first-time buyers in Wales hit their highest level for 12 years at 16,900, up 4.3%.

There were 42,800 new first-time buyer mortgages in London during 2018, 0.5% more than in 2017, but Scotland recorded a 3.1% annual drop to 34,100.

In the home mover market, Northern Ireland recorded the highest number of approvals since 2007 at 6,600, up 6.5% annually.

The number of home mover mortgages approved in Wales was at its highest level for 11 years at 15,800, a 0.6% annual increase.

However, home mover mortgage approvals fell by 5% annually in the capital to 28,800 and declined 0.9% in Scotland to 34,300 during 2018.

Meanwhile, all four regions had record levels of remortgaging approvals during 2018.

Remortgage approvals hit decade-highs in London and Wales.

There were 60,400 remortgages in the capital, a 6.2% annual increase, while Wales recorded 20,100, 12.3% more than in 2017.

There were 9,500 remortgages in Northern Ireland, up 11.8% year-on-year and remortgage approvals in Scotland hit a seven-year high at 35,400, up 11% on 2017.

Commenting on the figures, Jonathan Harris, director of mortgage broker Anderson Harris, said: “First-time buyer numbers across the country have risen on the back of cheap mortgage rates and Stamp Duty exemptions.

“The much-maligned Help to Buy scheme is also playing a large part in helping first-time buyers on to the housing ladder, while more lenders are offering high loan-to-value deals.

“In London, despite recent price falls, affordability remains an issue with the deposit the biggest barrier to home ownership.

“The Bank of Mum and Dad is being called upon more than ever before, but those who don’t have this resource are finding it very difficult.”

Source: Property Industry Eye

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UK mortgage approvals edge higher

The number of new mortgages approved by the main high street lenders nudged upwards in January, data published on Tuesday showed.

UK Finance, the trade body for the big banks and building societies, said that approvals for home purchase rose 1.5% year-on-year in January, while re-mortgage approvals were 3.1% lower, giving an overall rise of 0.3%.

The drop in re-mortgaging follows several months of strong growth as customers looked to lock in deals, with some doubt over what the Bank of England’s plan will be for rates amid the extra uncertainty of Brexit.

Gross mortgage lending was 1.5% lower, at £21.6bn.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “January’s data indicate that mortgage lending is holding up much better than surveys of house buyer demand have suggested.

“We’re reluctant to conclude, however, that housing market activity is on a sustainable recovery path. The new buyer enquiries balance of the RICS Residential Market Survey fell to its lowest level since June 2008 in January; the balance usually is a great guide to the lending data. The sharp downturn in lending in 2016 also demonstrates that Brexit uncertainty can be very damaging.

“Even a sluggish pace of rate hikes, following the resolution of Brexit uncertainty, will prevent mortgage approvals from recovering to pre-referendum norms over the next couple of years.”

UK Finance said that £10.8bn was spent on credit cards in January, a 4.4% hike on the same month a year earlier, with the outstanding level of credit card borrowing also growing by 4.4% in the 12 months to January. Personal borrowing through loans and overdrafts was ahead 4.7%.

Personal deposits grew by 0.4% in the year to January, which UK Finance said “suggests that the recent rise in real wages has not yet translated into higher levels of savings”.

Source: ShareCast

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Getting a UK mortgage as an expat

If you’re applying for a UK mortgage but live abroad, be prepared for a complicated process.

Expatriates looking for a mortgage on a property in the UK now have a wider choice of loans. Cambridge Building Society and Tipton & Coseley Building Society have both launched new ranges of buy-to-let mortgages aimed at British people living overseas. Both ranges include fixed and discount deals, available for both new purchases and remortgaging.

About five million UK nationals live overseas, and many are keen to hold on to a home in the UK, or to invest in one to rent out. But the available mortgage options are quite restricted – and in most cases, you’ll need to get a specialist landlord mortgage.

It is possible to secure a standard residential home loan as an expat, but it’s tricky to arrange, says Guy Stephenson, director of specialist expat mortgage broker Offshore Online. “Lenders will want to see evidence that close family are living in the house. Since most expats work abroad and cannot live in two places, for the majority, a buy-to-let is the more appropriate solution.”

You will typically need to seek out a specialist lender: options include Paragon, Saffron Building Society, Market Harborough Building Society, Al Rayan Bank, Skipton International, Natwest International and Kent Reliance. And be prepared to jump through a lot more hoops than for the standard home loan.

“It can be a difficult process to secure a mortgage when clients are overseas, especially with the time difference and tighter lending criteria,” says Aaron Strutt of Trinity Financial. “Many… lenders like borrowers to work for multinational firms, have a minimum income of at least £25,000.” Interest rates tend to be higher, and a deposit of 25% is usually required.

Another factor is the European Mortgage Credit Directive, introduced in 2016, which means individuals paid in a foreign currency now come under closer scrutiny when their loan applications are assessed. The underwriting process needs to take account of possible exchange-rate fluctuations, as well as looking at a borrower’s overall financial position.

Keep the tax office up to date

Unsurprisingly, salaried expats have the greatest choice of mortgages. Lenders often exclude the self-employed, on the basis that income cannot be verified to a high enough standard, unless it is audited by a reputable accountancy practice.

Expats face tougher identity checks. Getting a correctly certified passport can be tricky if the borrower lives in a remote area without access to international lawyers, accountants or diplomats. And don’t rely on your employer to help out. “Big multinational companies… will have standard formats for issuing employee references which seldom match the requirements laid down by a lender, who is trying to underwrite on the basis of very specific individual information needs,” notes Stephenson.

It is also easier to get approval for a UK mortgage from certain countries than others. Most lenders have a “restricted” list of countries where they won’t lend (for example, countries subject to sanctions or with a weak reputation for regulation). Many African nations and some in Eastern Europe meet this category.

Finally, if you do buy, remember to keep the tax office informed. If you live abroad for six months or more per year, and rent out a property, you’ll be classed as a “non-resident landlord” by HMRC – even if you’re a UK resident for tax purposes. Wherever your income is taxed, you’ll be required to pay tax on the rent you receive.

Source: Money Week

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Home possessions at lowest level in 40 years

There were 4,580 homeowner possessions in 2018, the lowest number since 1980, according to data from UK Finance.

Back in 1980 there were 3,480 possessions alongside 6.2 million outstanding homeowner mortgages, but by the end of last year there were 9 million outstanding mortgages.

UK Finance stated the relatively low repossession rate had been aided by the low interest rates and more flexibility from lenders to help those in financial difficulty.

Of the latest repossessions 1,130 homeowner mortgaged properties fell into the fourth quarter of 2018, alongside 540 buy-to-let mortgaged properties.

This was down 3 per cent and 14 per cent respectively on the same quarter of the previous year.

In the fourth quarter of 2018 there were 77,610 homeowner mortgages in arrears of 2.5 per cent or more of the outstanding balance, 5 per cent fewer than in the same quarter of the previous year.

In the buy-to-let space 4,690 mortgages were in arrears of at least 2.5 per cent in December, unchanged from the previous year.

Jackie Bennett, director of mortgages at UK Finance, said: “Homeowner possessions reached their lowest level in almost 40 years in 2018, aided by a historically low interest rate environment and lenders showing continued flexibility when working with borrowers in financial difficulty.

“Mortgage arrears also remain at historically low levels, with the majority of borrowers continuing to repay their mortgages in full and on time each month.

“We would always encourage anyone with concerns about making their mortgage repayments to contact their lender to discuss the options and support available to them. Repossession is always a last resort.”

Shaun Church, director at Private Finance, said homeownership was “remarkably secure” at present despite growing uncertainty elsewhere.

He said: “Doomsayers will argue that trouble is brewing for when rates do start to rise again. But lenders have stringent tests in place that ensure borrowers can afford their loan if rates rise by a far higher percentage than is likely.

“This means that, assuming there are no dramatic changes in their circumstances, borrowers should be able to comfortably accommodate slightly higher repayments when rates to begin to creep up.”

He said the low level of arrears and possessions meant high loan-to-value (LTV) products should be made more widely available.

He said: “Affordability tests are clearly working, and with a secure system in place, there is no reason why loans of 95 per cent or above should present any danger.

“Saving for a deposit is one of the biggest financial hurdles many will face, and for some is unsurmountable.

“Better availability of high LTV mortgages would help to remove this barrier and put buyers’ homeownership prospects on a more equal footing.”

Source: FT Adviser

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The rise of self-build lending

Colin Field, CEO of Saffron Building Society, takes a closer look at the intricacies of self-build mortgage lending and why lenders and brokers should be involved

Last year we saw an increase in the number of self-build enquiries at Saffron Building Society.

For all of us in the industry, I believe this is going to be a growing segment over the coming years but the application process can be difficult if you aren’t prepared.

I wanted to share some of our experience to help brokers manage it more efficiently to unlock this growing opportunity.

Why is self-build booming?
An Ipsos MORI poll suggested that one in seven Britons expect to consider building their own home, which equates to around seven million people.

The 2017 Home Owners Survey reported that the quality of housing was also a contributory factor. 57% of adults considered it to be a problem, up from 52% the year before.

In addition, new builds are not popular, with almost twice as many people preferring an older home (49%) to a new build (19%). Obviously, it would be wrong to categorise all new builds in this way but it’s possible to see the trends.

The rise of new entrants
In financial services, we’re all accustomed to hearing about new fintech companies shaking up the market.

The construction industry is experiencing a similar revolution.

In May 2018, City AM reported on a company which is developing a new technique to solve construction problems. The founders believe that three problems need to be addressed in the current UK housing market – affordability, sustainability and quality.

Anyone able to overcome all three will be well positioned to thrive.

The company manufactures parts off site, then delivers and assembles them in a location of the buyer’s choosing.

The entrepreneurs believe this is the first time that modular housing has been supplied to a higher standard than the average new build, but at a lower price. This is achieved through the use of new materials, specifically ‘cross-laminated timber’ or CLT.

CLT is increasingly being used in the UK housing sector for its low environmental impact and versatility. And it’s particularly useful for modular or custom housing because it’s easy to modify.

Common problems
If you are unfamiliar with the intricacies and nuances of self-build, then it could pay to invest some time to learn more about it.

At Saffron Building Society our underwriters have years of experience assessing complex applications, so they see the common problems and errors in self and custom-build applications. Here are some of the most common problems:

• Planning consent – all applications must be accompanied by full planning consent. If consent is unavailable, it will be impossible to proceed with the application. Planning consent can take approximately 12 weeks, sometimes longer depending on the type of construction. Without it, a mortgage valuer can’t assess the value of the property so it is one of the essential aspects of the application.

• Build costs – In some instances it is clear that applicants have not fully considered the costs of the build, and detailed costings are always required when applying for a mortgage. A lack of detail about costs will set the alarm bells ringing. A fixed price contract with the builders always provides more certainty, and without one more information will be required.

• Affordability – a common but surprising mistake is that people forget they will need somewhere to live while their house is being built. Rental costs affect affordability and have to be included. Additionally, people need a contingency plan with savings to fall back on in the event of unexpected events. No matter how well a project is estimated, there may be unknown costs that crop up along the way.

• Warranties – a warranty provides the guarantee that future problems will be fixed by those responsible for the build. However, construction warranties come in many different shapes and sizes. Before submitting an application it’s important to check the warranty the applicant has in place and make sure that it’s acceptable to the mortgage provider who will usually have a list of acceptable warranties. It’s also important to be aware that people are increasingly using architect’s certificates, but this is a little riskier and will need further investigation by the mortgage provider.

• Stage payments – can often cause applicants a problem as they find it difficult to provide a definitive time they want the money. We try to work as flexibly as possible with borrowers as we have experience dealing with the many different variables which occur during a house build. However, to ensure a swift response, we need to understand the applicant’s needs in respect of how they require to draw down the stage payments.

2019 and beyond
There is a growing body of traction to suggest that self and custom-built homes will assume an increasing proportion of the mortgage market.

Specialism and expertise in this area will mean you can be active and gain experience in a growing segment of the market.

Source: Mortgage Finance Gazette

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Should first time buyers opt for Lloyds ‘no-deposit’ mortgage?

Getting together a deposit is one of the biggest hurdles facing first-time buyers.

Almost half (43%) of 18-35 years old’s say it’s stopping them getting on the ladder, while a similar proportion of parents (41%) say they’d like to help their children financially but need the money for later life.

Lloyds Bank says its latest mortgage product will suit both groups.

The Lend a Hand mortgage requires no deposit or upfront fees. Instead, parents put savings equivalent to 10% of the property’s price in a savings account for three years.

They then get it back, providing nothing goes wrong, having earned an interest rate of 2.5%, currently equivalent to the top rate in the market for three-year fixed-term deposits.

Meanwhile, their kids pay an interest rate of 2.99%, fixed for three years, which is a little above average, but not as high as many first-time buyer mortgages.

And, because you get your savings back, you could potentially use them to get several children onto the property ladder, one after another.

There’s even £300 cashback for the parents and £500 for the kids.

So, has Lloyds solved the first-time buyer dilemma?

‘Help to Buy’ properties are excluded

Help to Buy is a scheme where the Government will loan you 20% of the money for a new home – or 40% in London – interest-free for five years.

However, you can only use it for new-build properties from Help to Buy-accredited builders and, unfortunately, Lloyds’ Lend a Hand mortgage can’t be used for new builds, or properties in Scotland or Northern Ireland.

Getting approved for a mortgage isn’t just about the deposit: you need to show you can afford the repayments.

In the case of Lloyds’ mortgage, you’ll need to show you can afford to make repayments on 95% of the property’s value.

Taking the most expensive property permitted by Lloyds – £500,000 – that works out as £2,105 per month for 30 years.

Even taking the average UK first time buyer house price of £212,211 you’ll need to stump up £894 a month and, due to regulations, you’ll get assessed on your ability to pay even more than that.

Should you just give your kids the money?

While it certainly won’t be the case for everyone, many parents of adult children might find they have a little cash to spare, especially with pension freedoms.

Simply gifting your children the money could help them two-fold: it’ll make their mortgage cheaper and easier to get and reduce Inheritance Tax bills.

Here’s why: if you gift them 10% of the property’s value, they’ll only need to get a mortgage for the remaining 90%. They’ll be able to get cheaper mortgage interest rates than 2.99% and access Help to Buy and other assistance schemes.

To the taxman, your gift will count as a ‘Potentially Exempt Transfer’: providing it’s under £325,000, and you live for another seven years, you won’t have to pay any tax whatsoever.

Could you lend your kids the money instead?

Many parents will be tempted to lend their children the money directly and cut out Lloyds as the middleman.

Unfortunately, this is unlikely to work out cheaper in practice.

According to David Hollingworth from mortgage brokers London & Country, many lenders will refuse to accept a parental loan as a source of deposit and, when they do, they’ll factor in the repayments as part of their affordability calculations, creating a “vicious circle”.

Hollingworth warns that this approach could “massively reduce your options”, possibly resulting in a more expensive mortgage.

What if I don’t have any spare cash?

Post Office’s Family Link Mortgage could help even if neither the parent nor the child has money to spare.

It does this by mortgaging 10% of the parent’s property – which must be mortgage-free – with the children making two sets of repayments for the first five years. The children will need to be able to afford these substantial repayments.

Alternately, Aldermore also offers a no-deposit mortgage where the parents are a ‘guarantor’, meaning their house could be repossessed if the children fall behind on their mortgage. The parents just have to pay legal fees.

Smaller operators like Bath Building even offer no-deposit mortgages where the parents’ income will be considered in the affordability calculations – potentially solving the problem of affording repayments.

However, the interest rates on such mortgages can be high.

Don’t forget the rival mortgages

Barclays also offers a 100% mortgage, with the parents putting 10% of the value into a savings account for three years.

Unfortunately, the rate the children pays is marginally higher (3%) and the rate the parents receive is slightly lower (2.25%), although as it’s pegged to the Bank of England base rate it could increase.

However, as the Lloyds mortgage requires you to be a Lloyds current account customer, if you don’t live near a local branch of Lloyds than Barclays could be an easier option.

Source: Love Money

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UK mortgage lending slows in December

British banks approved fewer mortgages last month than in November and the value of lending for home purchases rose by the smallest amount since 2016, an industry survey showed on Friday.

Seasonally-adjusted data from the UK Finance industry body showed banks approved 38,779 mortgages last month. While up more than 6 percent on a year ago, this was down from 39,205 in November.

The value of net mortgage lending increased by 1.235 billion pounds, the smallest rise since August 2016.

The figures largely add to signs of a slowdown in Britain’s housing market ahead of Brexit.

Last week the Royal Institution of Chartered Surveyors said its members had the most negative outlook for house sales over the coming three months since its records began in 1999.

UK Finance also said it saw signs that businesses were building up cash reserves, particularly in the construction and retail sectors, in preparation for uncertain trading conditions.

With little time left until Britain is due to leave the EU on March 29, there is no agreement in London on how it should exit the world’s biggest trading bloc, and a growing chance of a ‘no-deal’ exit with no provision to soften the economic shock.

Source: Investing