Tuesday 4 November 2014

How to Tackle the New Mortgage Affordability Tests


How to Tackle the New Mortgage Affordability Tests

It has never been so difficult to get a mortgage after the introduction of the new Mortgage Affordability Tests by Mortgage Lenders in response to the introduction by the Financial Conduct Authority (FCA)’s introduction of new regulations under the ‘Mortgage Market Review’.
To many potential mortgage applicants, the future seems bleak with the prospect of many giving up hope when faced with what appears to be an impossible obstacle.    
Not all hope is lost and it is possible for most applicants to step up to the mark and pass the new mortgage affordability tests with careful forward planning and a little preparation.  Here are a few tips:

Get professional independent advice
Each application for a mortgage is recorded on your credit record and if more than one application shows up, especially close to the date of your current application it will count against you when you are assessed for a mortgage. This means that when making your application you need to try and get it right first time. 
Getting the professional advice of a mortgage broker before making an application will help you get your application right first time. An experience mortgage broker will know what the lender is looking for and what deals you are likely to succeed in getting from a lender. They will also know which lenders are more likely to accept you and your circumstances and this can change from month to month; the application of the affordability criteria is not uniform across all lenders, each have their own approach - so you really do need to have the advice of someone who has knowledge of the current mortgage market. 
Often a mortgage broker will have a relationship with certain lenders and your application may benefit from their credibility with a lender who may otherwise reject your application.
A mortgage broker can give you an objective view of your chances of succeeding in your application for a mortgage and can give you guidance on what you need to do to change your circumstances to suit the affordability criteria.

Be organized
Make sure that you keep all your receipts and statements (bank, credit card, utility bills) in good order. Lenders typically want to see at least 3-6 months’ worth of statements – twelve months is ideal. Receipts are evidence to back up your account of your expenditure (for example: do you keep your supermarket receipt for your weekly food shop?) The more evidence that you have to hand the better. 

Clear your debts
The amount that you owe on existing debts such as credit card and loans are a major consideration for lenders when considering your suitability for a mortgage. Paying of these debts will take them out of the equation.

Improve your financial track record
Make sure that you always make credit repayments and pay your bills absolutely on time. One late payment showing on your track record can mean that you will not be able to get a mortgage.  Generally, a lender will want to look at your financial track record going back at least three months and often as far back as six months. They are looking for consistency and reliability.

Change your spending habits
No we do not mean live like a monk!  Look at what you are spending carefully – do you need to go out clubbing more than once a week?  Do you need to buy top of the range fashion shoes every month? 
Look at the grocery shop, is there anything you can cut back on (cakes, chocolates, alcohol for example?) do you need to buy the top brands?  Utility bills, would it pay you to swap providers?  Is it cheaper to take your own lunch to work rather than buy out every lunch time? Travel costs, do you need that three litre BMW? Do you need to take the car at all? Do you need to go on that expensive holiday this year?
Yes we all like our luxuries but as you get older the less easy it is to get a mortgage as the repayment terms are often based on the years you have left to retirement.  Forsaking a few luxuries for a year may mean the difference between getting on the housing ladder or not.

Future Plans
Lenders will ask what your future plans are – do you intend to start a family or go self- employed?   We all have dreams of what we would like to do  and often muse on what we may do but think very carefully what you say, you are not obliged to tell the lender your future plans and if they are not a concrete possibility ‘set in stone’  they may wreck your chances of getting mortgage.  So if you are not actively working towards starting your own business or trying for a family it is better not to say anything that may give them the impression that you may well be.

Saving habits
The advice on saving habits can be contradictory. If you have no savings you do not have a buffer for when things go wrong and you may not be considered for a mortgage. If you tuck a large percentage of your income away into fixed inaccessible savings plan you put your outgoings up, again another no, no. The answer is in the middle and again, the further ahead you plan your savings the better – the key words are ‘consistency and reliability’.
If you are already committed to large monthly payments on savings and/or pensions consider lowering the payments or taking time out from them, if possible but check the consequences for the outcome of that pension or savings vehicle first before making any decisions.

Check your credit score
Get a copy of the information that credit reference agencies such as Experian have on you. This is the information that the Lender will use when considering your suitability for a mortgage. Make sure it is accurate; correct any mistakes that may be on your credit record.  
Look at the information subjectively and try to analyse which factors are pulling your credit score down and what can you do to increase your credit record, for example late payments to creditors will show up and will pull your credit record down, can you make sure that payments are made on time from now on? Remember the lender will look for a reliable and consistent record of payment going back at least six months, twelve months record of consistent, reliable, repayments will be even better!

Make sure that you have a credit track record
If you have never borrowed money you will stand less of a chance of being considered than someone who has borrowed money, as there will be no record of how you manage such financial commitments for the lenders to base their judgement on. This is a tricky area going out and borrowing too much can also count against you as can borrowing too little. Borrowing money and then paying it off very quickly can count against you in two ways, there is a much shorter track record of managing the financial commitment and the lender may decide that they will not be able to make enough profit through interest payments on your mortgage. The trick is to borrow an easily manageable amount and pay it off over a set period, on time and in a consistent manner.

Use the online tools
Most lenders now have affordability calculators on their websites which you can use to check whether or not you are likely to qualify for a mortgage with them.   
These are invaluable planning tools as they not only let you know if you would currently be eligible for a mortgage, but  you can also use them to see how a change in your spending and lifestyle habits are  likely to affect  your chances of getting a mortgage.

Thursday 3 April 2014

Living with parents - The pros and cons


Living with parents – The pros and cons


Due to high rents, lack of jobs and being priced out of the property market there is an increasing number of young adults moving back in with parents. Whether it’s to save for a deposit, due to unemployment or unable to afford high rent in comparison with wages, the number of 20s-30s moving back home is on the up.  

However there can be some advantages to this, usually low rent, sometimes includes meals and bills and the opportunity to save. If you get on well with your family then this is always a bonus. Although there are some people who consider this to be a horror story, not having their independence, family arguments and tensions and feeling guilty for coming home at early hours of the morning. This is a situation probably the majority of young adults today want to avoid but in a large amount of cases it is un-avoidable for a number of reasons.

With house prices increasing it seems first time buyers are becoming priced out of the market. Due to low wages in correlation with property prices it is difficult for first time buyers to initially stump up the money for a deposit and then qualify for the affordability of a mortgage.

The bank of mum and dad is increasingly known as donating deposits for their children’s first step on the property ladder. And in many situations with house prices increasing largely since the family home was purchased parents can often be sitting on a nice amount of equity in their own home.  

There are signs of things improving such as the Help to Buy scheme to assist people being able to get onto and move up the property ladder without the need for a large deposit.

Have you been in a similar situation? What was your experience? We look forward to hearing your opinions.

Thursday 13 February 2014

Rising house prices are increasing concern of affordability


Rising house prices are increasing concern of affordability.

UK Property


Currently the biggest issue for first time buyers getting on the property ladder is affordability as house prices continue to rise and the amount required as a reasonable deposit increases. Nationwide found a property price increase of 8.8% over the course of 2013. Usually an increase in house price is welcomed as a positive thing, but not to the generation of young adults trying to get onto the property ladder. And because of this there is a whole new ‘Generation Boomerang’ of young adults having to live with their parents because they cannot afford a deposit or to rent.

House building is up on previous years but still not to the level required. Hand in hand the need for more housing, an increase in property prices and wages failing to keep up to pace with the housing market is showing increasing people priced out of the property market.

For example housing charity Shelter, measured house prices and wages as an average from 1997 – 2012 and found that the price of a home had increased from £75,762 to £253,816 and the average wage has increased from £16,500 to £25,932. If earnings had been raised at the same amount as house prices then the average salary would be £55,296.

Will we see a more affordable stable property market over the course of 2014? We will watch this space…

Thursday 2 January 2014

What does 2014 have in store for the Property Market?


What does 2014 have in store for the Property Market?


Finally in 2013 the UK’s property market has drastically picked up. Houses prices rose by 7.7 per cent throughout the country according to Halifax. The Help to Buy Scheme was launched to help first time buyers and existing homeowners move up the property ladder. Overall 2013 was a successful year for the UK’s property market and showed hopeful signs of revival.

The general prediction is the 2014 will show much of the same for the property market as 2013 did. With more confidence being injected into the property market it should continue to guide increasing house prices and transactions. With ever increasing need of properties it could be a year for making these changes and supplying the demand. Miles Shipside of Rightmove said, “We have experienced a 21 per cent year-on-year increase in traffic, with mortgage still historically cheap and interest rates set to remain stable if you’ve been putting off a good reason to up sticks, it could be opportune to make 2014 the year to move.” People are making use of the capital growth in London and moving towards the country suburbs and surrounding areas where they can afford larger properties and more for their money.

However with an increasing number of home owners there is worry on the horizon that interest rates on mortgages may rise, leaving many people with un-affordable mortgage repayments. Around 600,000 homeowners spend half of their income on mortgage payments, if interest rates were to rise this would leave more people less money for food and bills, this is something to be considered as the property market continues to improve.
 
Are you planning on moving this year? Let us know your thoughts on what 2014 will entail for the Property Market

Tuesday 19 November 2013

Be wary when buying a home Off-Plan


Be wary when buying a home Off-Plan

Buying a new home before a brick has even been laid is becoming increasingly popular here in the south. This is due to new development popping up in sought after location and then rise in need for housing. To many buying a new build home is very appealing but remember to be wary as you are buying a property you haven’t even seen yet.

There are many advantages to buying off-plan, you are able to choose your plot and extra options such as garages and fixtures and fittings. This rise in popularity may have come hand in hand with the first stage of the Help to Buy scheme where you are able to put down as little as a 5% deposit and obtain a 75% mortgage with the government lending the other 20%, enabling many people to get on the property ladder or move home.

Another benefit to buying off-plan is you agree a price at the start, in the current housing market with property prices increasing you may have already made thousands on your house before you even move in. There are also all the usual benefits of buying a new build home, the good economy and new systems throughout the house, no need for any work or maintenance and ready to move straight into. 

 
However it is possible it could be a very different story, for example if property prices were falling the buyer could lose out before the house is even built. This could lead to issues obtaining a mortgage or having to pay a larger sum to make up the difference as the lender will look at the current value and the developer will want the price agreed at the outset. There is also the aspect of the property not being built in time, and therefore the mortgage offer expiring and having to go through the process again.

Also the property may be different from what you imagined when looking at the initial plans. You don’t know who your neighbours will be and views and noises may not be what you expected. There is also the chance that the developer could go bust before completing the development.

Have any of you bought off-plan? What are your experiences?

 

 

Thursday 17 October 2013

Unsure whether to use Help to Buy or save for a larger deposit?


Unsure whether to use Help to Buy or save for a larger deposit?

Are you a first time buyer eager to get that first step onto the property ladder? Or even an existing homeowner needing to move to a larger home? If you are I am sure you have heard all about the Help to Buy Scheme.

There are 2 parts to the Help to Buy Scheme, the first part is available to existing homeowners and first time buyers but only applies to new build property. The buyer is required to raise a 5% deposit then government will supply up to a 20% interest free (for the first 5 years) loan enabling the buyer to obtain a 75% loan to value mortgage, which will allow them to achieve a lower interest rate and more affordable monthly mortgage payments.

The second phase of the Help to Buy scheme was launched in early October. This is available again to both first time buyers and existing homeowners but applied to both existing properties and new build properties. The buyer is required to raise a 5% deposit and then obtain a 95% mortgage but the government will guarantee up to 20% of the mortgage. This means that should the buyer become bankrupt or the house is repossessed the government would cover 20% of the mortgage. This was aimed to make 95% loan to value mortgages more available and lenders more willing to offer them.
 

The Help to Buy scheme is a great idea and opportunity for those who are unable to save large sums of money for a big deposit. However sometimes it can be a risk putting down such a small deposit because should the property drop in value then the buyer would be in negative equity. If you are able to save even a 10% deposit the window opens for better interest rates and you are putting more equity into your home which gives you more security.

Property prices have been rising and should you wait to save for a larger deposit there is a risk that prices may increase even more. It is also difficult to predict what will happen regarding interest rates because they are currently the lowest they have been. For example if you aim to save for a 10% deposit for another year, interest rates and property prices may rise. So Help to Buy with a 5% deposit may be perfect for you now.

Since the scheme has been launched we have provided conveyancing services for many Help to Buy transactions and are familiar with the process. Don’t hesitate to get in touch for more information or a quote regarding Help to Buy conveyancing or visit our dedicate website.  Help To Buy

Monday 16 September 2013

Increase in First Time Buyers Stepping onto the Property Ladder.


Increase in First Time Buyers Stepping onto the Property Ladder.

Conditions are carrying on improving with regards to the property market. This has seen an increase in first time buyers due to more available mortgages and government property schemes such as Help to Buy.

Saving for a substantial deposit still remains a hurdle to getting on the property ladder and with house prices continuing to rise it is becoming even more of a challenge for the majority of buyers.

 
Higher loan to value mortgages are increasing also so there are plenty of options for buyers with smaller deposits. Some of the present 90% loan to value mortgages are very competitive with interest rates as low as 3.54% (Chelsea building society). Currently the two-year fixed rate is a popular choice with many borrowers thinking they will be able to remortgage onto another fixed deal at the end before interest rates rise.  Howeverthis can be a gamble as no one can predict when rates will rise. Although there are currently some other good five-year fixed rates available for example Nottingham building society offers a five-year fixed rate at 4.39% for 90% LTV with a £299 fee.

Mortgages with a 95% Loan to value still remain minimal and rates on these can be a lot higher than mortgage with a lower LTV. Although this may not be a bad thing as borrowing a high LTV when interest rates are so low may not be a wise idea.

Lack of housing still remains an issue and there is a shortage of new homes being built in contrast with our ever expanding population.