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69% of UK’s housing equity owned by the over-55s

As it stands 69% of the UK’s housing equity is owned by over-55 year olds, The Intermediary Mortgage Lenders report, ‘developments in later life lending to an ageing population’, has found.

The number of over-65 homeowners has risen 52% in the last 20 years while the over-65 population in general has risen just 28%, with accelerated growth on the horizon.

In response, IMLA called on UK financial advisers to break down the silos between pension and mortgage advice, and offer a more holistic service to keep up with the pace of product innovation.

Kate Davies (pictured), executive director at IMLA, said: “Changing demographics and socioeconomic pressures mean it’s likely that later life lending will become a significant growth area for the mortgage industry.

“And, as more retirees seek to stay in their homes or unlock equity, product innovation will drive lending forward and make it a bigger component of financial planning in retirement.

“Our report finds that many retirees’ homes are worth as much or more than their pensions, and both elements need to be considered as part of a wider retirement plan.

“This creates challenges for those providing financial advice, many of whom will be expert in one area – pensions, investments or mortgages – but who will not necessarily have the qualifications or permissions required to advise across the spectrum.”

Over 40,000 interest-only loans held by over-65s are due to mature each year between 2017 and 2032, with many of these borrowers requiring extended mortgage terms to stay in their homes through retirement.

As such, it is little surprise that lifetime mortgage lending increased by 29% annually since 2014 as the later life lending industry has developed a raft of innovative capital repayment, retirement interest-only (RIO) and lifetime lending options to address the growing demand.

These new products, with improved features such as partial repayments and drawdown facilities, are leading to a ‘softening’ of the traditional divide between later life and mainstream financial products.

As the sector grows, the report suggested that financial advice needs to evolve alongside this product innovation.

IMLA noted that financial advice has traditionally been found in silos and much more work needs to be done by guidance and advice on signposting retirees to better support decision-making.

Keith Barber, director of business development, Family Building Society, said: “As your home is probably the major asset of your life, it needn’t be passive.

“There are impediments to moving/downsizing (e.g. stamp duty, lack of attractive alternatives) , there are sensible ways in which it can be used to benefit family members. The FBS has for many years been lending in later life, unlike many who just talk about it.

“There is not one later life lending market – there are a lot of individuals with a wide range of needs that warrant consideration in product design and underwriting.

“There are many reasons to borrow into later life, from not being able to pay off your interest only mortgage through needing a top up to your pensions to tax planning to maximise the inheritance of your children / grand-children or helping them with getting the home that they want.

“Borrowing can be simply another tool for the financial savvy and not necessarily for financial need, analysis tells us.

“And that there is a definite need to pass the wealth down generations so the holistic view is not just about the older borrowers cohort,  it is also encompasses two or three generations, i.e. family.”

Source: Mortgage Introducer

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Radical proposal to make escaping ‘leasehold trap’ easier for homeowners raised by Law Commission

A radical proposal to make it easier and cheaper for homeowners to escape the so-called “leasehold trap” and buy the freehold of their houses has been put forward by the Law Commission.

The legal watchdog suggested a change in the valuation formula in order to reduce prices, and a removal of the requirement that freeholders must have owned their house for two years before making a claim to buy it.

But it said the changes would still provide sufficient compensation for landlords.

There are over four million leasehold properties in England, according to a government estimate. While 1.4 million are houses, the majority are flats.

Leasehold has been described as owning the house, but not the land it is on. In effect, it means the buyer owns a property for a fixed number of years on a lease from the landlord.

The Law Commission’s proposals include reducing the price leaseholders pay to the landlord by changing the formula used to calculate the cost, improving the right for leaseholders to buy the freehold from their landlord, and introducing an alternative right to purchase unlimited longer lease extensions without a ground rent.

It also suggested making the enfranchisement procedure simpler to understand, as well as removing the need for leaseholders to have owned the lease for two years before making a claim.

The proposals recommend potentially scrapping whether leaseholders should contribute to their landlord’s legal costs, or a cap on the maximum amount they should pay.

The law commissioner, Professor Nick Hopkins, said: “Enfranchisement offers a route out of leasehold but the law is failing homeowners: it’s complex and expensive, and leads to unnecessary conflict, costs and delay.

“We’ve heard of untold stress caused to homeowners who have had to put their lives on hold because of issues with their leases.

“Clearly, that’s not right, and our solutions for leasehold houses will provide a better deal for leaseholders and make sure that the law works in the best interests of house owners.”

The proposals come after the government announced plans to ban the sale of houses on a leasehold basis.

The Law Commission will publish a consultation paper in September which will be subject to full public consultation.

Source: Yahoo Finance UK

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Mortgage paperwork and jargon cause stress for home owners in the UK, new study finds

Two in five home owners, some 41%, in the UK suffer from mortgage stress and 70% want lenders to go digital, according to a new national study.

Paperwork and jargon are regarded as the biggest contributors to this stress which is affecting some 625,000 new borrowers each year, the study from online mortgage broker Trussle has found.

Some 20% said there was too much paperwork involved in the mortgage initial application and subsequent remortgage process, while 15% claimed the industry’s prevalent use of jargon was the main issue.

When asked what could be done to reduce stress levels, a large number of customers wanted mortgages to become more digital. Three quarters said lenders should be legally required to make their outstanding balances accessible online, while 70% wanted a downloadable mortgage statement, generally posted by lenders once a year.

The form warns that because paperwork can be so time consuming, some borrowers risk lapsing onto their lender’s high interest Standard Variable Rate (SVR) deal while attempting to remortgage. This can cause significant financial damage.

For example, until a home owner has sent their annual mortgage statement to their new lender, along with personal documents such as their passport, they won’t be able to switch. It can take up to six weeks to replace a lost annual mortgage statement. In this time, the average customer lapsing onto their lender’s SVR would pay almost £400 more a month.

In an experiment involving one of the big six lenders and a local conveyancing firm, Trussle found that a mortgage customer was required to deal with 219 sheets of paper to complete their home purchase.

‘I’ve experienced the frustration of struggling to secure a mortgage first hand. There‘s too much jargon, too much complexity, and not enough transparency. Millions of people lose out not only financially, but emotionally as a result,’ said Ishaan Malhi, Trussle chief executive officer.

‘Your mental health is no less important than your financial or physical health, so I’d like to see modern brands working hard to reduce the friction and stress of their products and services,’ he explained.

‘The mortgage sector has traditionally been one of the worst offenders, with 40% of borrowers finding the process stressful and a third sitting on the wrong mortgage, collectively spending £15 billion a year too much on interest as a result,’ he added.

‘If service providers focus on making the overall user experience simpler, more intuitive, and accessible, hurdles will be reduced and many people are going to save money in the process,’ he concluded.

Source: Property Wire

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Lettings plunge as prime London homeowners opt to sell after tax changes

Homeowners in wealthy areas of London are opting to sell rather than let out properties, following buy-to-let tax and stamp duty changes in a trend that could spread to the wider market.
The number of properties listed for sale in so-called prime central London (areas such as Chelsea, Belgravia, Marylebone and Knightsbridge) jumped by 5.4% in the year to February, while in the lettings market this was down 21.2%, according to analysis by estate agent Knight Frank. (See graph below.)

The change in part reflected additional tax burdens for landlords, the agency said.

Wider house price indices have shown London to be the worst performer in recent months.

Andrew Montlake, director at London-based broker Coreco, said the firm had seen a drop in let-to-buy across the market– where people hold on to their homes when moving in with a new partner.

The additional stamp duty surcharge for buying a second home and removal of buy-to-let mortgage interest tax relief are the main reasons for this change, according to Montlake. He said: “Now there is an extra cost of let-to-buy, so people are putting properties on the market rather than keeping.”

However, this trend is not as evident among wealthier clients, who are prepared to hold on to properties for 15-20 years in order to benefit from capital appreciation, Montlake added. Political uncertainty and the threat of rising interest rates do not appear to be driving behaviour as much. He said: “Brexit has no effect whatsoever – we haven’t noticed a change where Brexit is concerned.”

Transactions rising

Knight Frank’s data showed trading volumes have picked up by around 2% over the past year, which is a trend that Montlake has also witnessed. Mark Harris, chief executive of mortgage broker SPF Private Clients agreed that there has been a pick-up in activity.

He said: “More people are selling rather than letting, which is certainly something we are seeing. This year has seen an increase in the number of sales as the market has settled down, transactions are picking up and people have come to terms with higher stamp duty being here to stay and Brexit negotiations are progressing well. Life has to carry on and is doing so.

“SPF Private Clients has seen a 45% increase in £1m-plus mortgage enquiries in the first quarter of this year compared with the same quarter last year, which backs up this data.”

Source: Your Money