What You Need to Know about Help to Buy

Blog 2015 (1)Help to buy may no longer be headline news but it is providing valuable support to people buying a new home, up to 31st March 2016, or earlier if all the funding is taken up. In particular it can help first time buyers struggling with the challenge of finding enough savings to put down a respectable deposit. The scheme comes in two forms: equity loan and mortgage guarantee.

Equity Loan

The equity loan scheme aims to bridge the gap between a small deposit and a mortgage for a smaller percentage of the purchase price. This scheme is available to those looking to move as well as first time buyers, but can only be used when purchasing new-build property from a home-builder registered with the scheme. Under current rules buyers are forbidden from using this scheme in combination with part-exchange on any existing property. Of course, there is absolutely nothing to stop buyers from selling their property separately and using the proceeds to (help to) fund the necessary deposit.

Buyers must be able to put down a minimum of 5% of the sales price (maximum £600,000) and the equity loan scheme will provide a minimum of 10% and a maximum 20% of the purchase price. This means that buyers only have to find a mortgage for 75% to 85% of the price paid. No loan fees are charged for the first five years of the loan. Following this interest is charged on a scale which rises annually in line with any increase in the Retail Price Index (RPI) plus 1%. The loan must be repaid within 25 years or when the home is sold. At that point the borrower has to pay the same percentage of the proceeds of the sale as the initial loan was of the original purchase price. In other words, if the borrower takes out the maximum 20% equity loan, the borrower pays 20% of the total market value on any future sale.

Mortgage Guarantee

The mortgage-guarantee scheme is essentially a form of insurance available to lenders who provide mortgages for higher percentages of the value of the property. Unlike the equity loan scheme, the mortgage-guarantee scheme can be used to buy existing property (as opposed to just new-build property). Shared-ownership properties are, however, excluded from the scheme.

As with the equity loan scheme, the buyer needs a minimum deposit of 5%, but in the mortgage guarantee scheme the lender provides a mortgage for the remainder of the purchase price in the normal way. The lender can, however, purchase what is effectively an insurance policy from the government for up to 15% of the value of the property. This helps to reduce the risk of lending to buyers with smaller deposits.

The mortgage guarantee scheme is open to people who have owned property in the past. Borrowers must, however, have sold the property by the time they enter into the scheme, and must use a repayment mortgage, rather than an interest-only, offset or guarantor mortgage.

It All Means in Practice

For many people, a house is the single biggest purchase they will ever make in their lives. It is therefore crucial to look carefully at all the available options to ensure that you get the best possible deal. It can also be hugely valuable to get some advice from a financial adviser, who can not only answer any questions you have about the house-buying process but also help to make sure that your finances in general are in as good a shape as they can be before you start applying for a mortgage.

How to Save with an Offset Mortgage

fb - how to save with an offset morgageBuying a home is generally one of life’s most significant events, even for those who have been through the process before. This being so, getting the right mortgage can have a major impact on the family finance.

What Kinds of Mortgage Are Available?

With a repayment mortgage, the monthly payment covers both the capital sum borrowed and the interest due on it. At the end of the term, the mortgage is guaranteed to be paid off in full, providing all the payments have been made on time.

With an interest-only mortgage, the monthly payment is simply to cover the interest owed. At the end of the term the borrower needs to pay off the capital sum borrowed in full.

With an offset mortgage, the borrower essentially has access to a giant overdraft, which is available for a fixed term. The balance must be paid off by the end of the agreed term..

What Are the Main Benefits of an Offset Mortgage?

The benefit of offset mortgages is that the savings made by reducing the interest due on the capital sum borrowed will be greater than the interest earned on money held in a standard current account or instant-access savings account.

Interest income is liable to tax, and the amount of tax due (if any) will, of course, depend on an individual’s circumstances. For working-age adults however, there could be significant savings to be made by foregoing taxable interest income in favour of reduced interest charges.

Offset mortgages offer a higher degree of flexibility than either repayment or interest-only mortgages. Borrowers on regular incomes can calculate how much they need to set aside each month to have their mortgage paid off by the end of the agreed term and stick to that. Borrowers with more variable incomes can increase and decrease their payments in line with their earnings. Likewise borrowers can dip into their savings, if they find they need or want to. Hence overpayments can be made with confidence, since the money can be withdrawn if necessary rather than being locked away.

How Is Interest Calculated with Offset Mortgages?

In terms of interest, offset mortgages typically work in the same way as repayment and interest-only mortgages. They may be fixed-rate, which means that the interest rate is set for a specified period. They may also be tracker mortgages, in which the rate charged to borrowers goes up and down in tandem with changes in the interest rates set by the Bank of England.

Are There Any Disadvantages to Offset Mortgages?

Not so much a disadvantage, more as an observation, is that offset mortgages can be harder to find than either repayment or interest-only mortgages. Borrowers may therefore have to look a bit longer before finding one. Borrowers may also find it more challenging to move from one provider to the other in search of better deals (e.g. new fixed-rate deals). While it is quite possible that the availability of offset mortgages will increase as people become more aware of them, this cannot be guaranteed.

Likewise, some people may prefer the security and imposed discipline of repayment mortgages, even if they may not be the best deal from a strictly financial perspective. The flexibility of offset mortgages may lead to temptation or alternatively to individuals being overly worried about spending money which has been put into their mortgage fund. Getting some advice from a financial adviser can help to resolve these issues and give you the best chance of finding the right mortgage for you.

How to match your life cover to your mortgage

fb How to match your life cover to your mortgageAnyone who’s watched Strictly Come Dancing will have had the opportunity to appreciate the importance of keeping all aspects of the performance in synch with each other. If it matters in a 90-second dance routine then it matters even more when looking at protecting your financial future. Whether you’re looking at savings, investing, insurance or any other financial product, your overall aim should be to improve your personal wealth and every decision you take should lead towards that goal. Of course, the Strictly celebrities don’t work on their own, they get help from experienced pros, so when looking at managing the family finance, it can help to get some financial advice from a financial adviser.

Make sure all financial products work effectively together

An example of two financial products which very much need to be kept in step with each other is that of mortgages and life insurance. The fundamental purpose of life insurance is to provide a financial cash cushion for those who are left behind after a death. In short it allows beneficiaries to focus on dealing with the emotional aspects of bereavement without facing the additional distress of financial difficulties. The prospect of a grieving partner having to sell the family home due to an inability to meet mortgage repayments is one that can feasibly be averted with forward planning.

Every time your circumstances change, make sure that your finances stay in synch with them

The key point is to ensure that your life insurance reflects the reality of your outstanding mortgage. Assuming you take out (or update) your life cover when you buy your first home then the level of cover will reflect the amount needed to take care of the mortgage in the event of a death at that point. If, however, you increase the size of your mortgage for any reason, then you need to ensure that your life insurance cover will still do its intended job. The most obvious reason for taking on a larger mortgage is, of course, moving house, but you could choose to increase the size of your mortgage for other reasons. For example you may want to extend your current property as an alternative to having to move.

Be prepared for life’s slings and arrows

As well as looking at the potential consequences of you or your partner dying, it’s also important to think about what would happen in the event of one or both of you being out of work for any length of time. This could be due to the employment market or alternatively due to serious illness or accident. Should any of them happen to either of you, then having the right insurance cover in place could make all the difference to your financial and emotional comfort. In short it could mean the difference between worrying about paying the bills and being able to concentrate on making a full recovery.

In short, insurance is about making sure that you and your loved ones are protected if the worst happens. It’s probably one of the few products people buy actively hoping that they’ll never need to use it. For many people, however, it is an essential part of their overall financial planning and needs to be kept up-to-date in line with their changing needs.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

How To Get The Best Remortgage Deals

fb - How To Get The Best Remortgage DealsIn the next twelve months an increase in the base rate of interest is highly likely. Rising house prices caused by the government’s Help To Buy scheme have reached levels that are causing alarm at the Bank of England and a rate rise is the only measure that can slow them down.

Home owners may be considering remortgaging in the coming year before rates rise, and this article is a quick guide to help borrowers think about how to get the best deals they can.

One motivation for getting a new mortgage is for locking in a low fixed rate for the next five years. The best deals twelve months ago were at an astonishing low of 2.5 percent.

Deals like that are unlikely to come round again soon as interest rates eventually start to rise, but offers of around 3 percent are currently available.

Loan to Value

The rate you are offered will be based on the degree of risk your home loan presents to the lender, amongst other criteria.

Lenders calculate the degree of risk based on the size of the loan compared to the size of the mortgage.

If you are buying a £100,000 property and you can cover the first £50,000 yourself or with help from family members, you will need to borrow £50,000.

This means your Loan To Value (LTV) ratio is 0.5, and the closer the LTV is to one, the higher the risk and the rate of interest will rise accordingly.

Everything you can possibly do to bring the LTV down will help as it will make you more attractive to lenders, save you money in the long run, and put you on a much more stable financial footing in your new home.

The New Lending World

If you haven’t been to see a mortgage advisor in a few years, you’ll notice a big difference as the rules surrounding borrowing have become far stricter since April this year.

The horror stories of irresponsible lending before the 2008 crash, combined with the government’s massive help to home owners with Help To Buy have led regulators to impose stringent new borrowing rules.

Expect your mortgage advisor to want to see your entire financial history, bank records, confirmation of employment, savings, credit reports and more.

Pay off any outstanding debt, even if it’s just £50 on a store card, any black marks on your credit score could be potentially fatal when it comes to securing a lending decision.

Rates

In Britain there are, in general, three types of mortgage deal commonly available, and these are fixed rate, variable rate and tracker mortgages.

A fixed rate mortgage offers borrowers a degree of security, it means that if the base rate of interest rises in the future, the lender will continue to offer the rate that was set and that offer will typically run for five years. It is a way of future-proofing your mortgage against sudden and unexpected mortgage rises and typically most people choose them.

Variable rates have been popular in the last five years. Whereas fixed rates are ‘fixed’ at higher levels to enable the lender to get as much out of the deal as the borrower (arguably more), a variable rate simply responds to the Bank of England’s base rate of interest.

When the base rate is low your mortgage is cheap, and when the rate is high, it’s more expensive. Rates have been half of one percent for six years but this is likely to end soon, leaving many variable rate borrowers seeking fixed rates.

A tracker mortgage is similar to a variable rate mortgage, as it follows the base rate set by the Bank of England but at agreed set margin (perhaps one percent), meaning that a one percent rise in the base rate will not result in a three or four percent rise from your high street lender.

Financial Planning

If you’ve already got a mortgage and you are thinking about protecting your wealth against future changes in the economy it is important to see this as part of your long term financial strategy.

If you are unsure about what next steps to take with your remortgage then contact us.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

 

5 Estate Agent Tricks That Can Add Value To Your Home

fb 5 Estate Agent Tricks That Can Add Value To Your HomeA house can be a combination of a financial investment and a family home. It can be a store of personal wealth where adults organize the family finance and children get their first lessons in the importance of having savings. Buying and selling a home can have major financial implications as well as emotional ones, so it can be a good time to get some professional advice from a financial adviser. If you’re selling a home, it can also be worth investing a little time and possibly some money on your home to achieve the best possible price. Here are some suggestions to help you.

Create curb appeal

The first impression of a property is usually from the outside so make sure viewers are impressed. If your garden is a major selling point then it may be worth speaking to a professional gardener for tips on how to make it look its absolute best. For example some strategically-placed lighting could highlight its best features to visitors arriving for evening viewings. Even if you don’t have a garden, you will have an entrance door and some quality fittings (number or name, letter box, door knocker…) can make a huge difference to its appearance.

Make sure viewers are comfortable when they arrive

Viewers aren’t exactly guests but they are people you want to stay in your home for a while and be in a mood to appreciate it. Make sure that there is somewhere obvious and convenient for them to put their coats and consider having some extra pairs of slippers to offer them (which might also be good for protecting your floors). Be prepared to offer tea or coffee and some quality biscuits and serve them in attractive cups or mugs.

Remember allergy sufferers

Common allergies include nuts, pet hair and pollen. It’s therefore worth taking steps to remove any of these before viewers arrive. While fresh flowers can look very attractive and some viewers will love them, they are unlikely to win you any brownie points from people with hay fever. Green plants and/or fresh fruit, however, are more allergy-safe and also attractive choices. Remember to put them in containers which match with the overall décor of the room.

Make sure your home passes the sniff test

Any potentially offensive odours need to be properly banished. With a view to this, if anyone is in the habit of smoking in the house, then they need to stop doing so until the house is sold and the house will need to be thoroughly aired. If there are young children or pets that may have accidents then you need to have something on hand to deal with them quickly. If you have a cat who uses a litter tray then it may be worth upgrading to an enclosed one in case your cat chooses to use it when you have viewers. Empty it promptly outside of viewing times and keep pet cages scrupulously clean. While it may be tempting to try to use scent to enhance the atmosphere of your home, it’s worth remembering that individuals react to scents differently. You therefore run the risk of accidentally fragrancing your home with a scent that you love but your viewer hates. It’s also worth remembering that pregnant women have an enhanced sense of smell and so even light scents may seem overpowering to them.

See your walls and shelves as others may see them

Remove anything which could be remotely controversial, such as an object showing affiliation to a sports team or political organization. Take a long, hard look at everything else and decide if it is in keeping with the image of your house that you want to give. A studio portrait of your children could be an attractive feature in a family home but basic family snapshots are probably better moved out of sight, along with children’s paintings and home-made gifts etc.

Could You Afford Your Mortgage If Interest Rates Doubled?

Stress testing isn’t just for banks Mortgage rates can go up as well as down, and home owners need to be prepared for this. High interest rates are good news for those looking at savings. They are bad news for borrowers. The skill of money management is creating a financial plan which ensures that your personal money will realise its’ best potential in either case.

Mortgage Rates Can And Do Rise

Over recent years interest rates have been held at low levels, but this has not always been the case. Interest rates started rising around the mid-1950s. They rose dramatically around the early-1970s. In the mid-1980s they dipped noticeably but then climbed again to the early-1990s.

Since the mid-1990s, overall, interest rates have been on a downward trend to today’s record lows – please see the attached chart. Nobody knows for sure how long they can stay that way. Therefore it makes sense to think now about how to cope with a future rise in interest rates.

Make Sure You Can Cope With Rate Rises Before You Commit

Mortgages may come in varying lengths, but they are all long-term commitments.

New rules are intended to make sure that prospective buyers only take out mortgages they can afford over an extended period. These rules came into force on 26th April 2014. In short, the goal of these rules is to oblige lenders to move away from formulas and to look at buyers as individuals.

Traditionally loan amounts have been decided primarily on multiples of income. According to the new rules, lenders will have to analyse an individual borrower’s overall situation. This will include any other borrowing. It will also include day-to-day expenses. Lenders are now expected to be very thorough in checking the accuracy of applications.

Previously mortgage applicants could self-certify in certain cases. Unfortunately, this lead to self-certification mortgages being known as “liars’ loans. With this in mind, lenders now look for supporting paperwork, such as bank statements. Failing to provide these and having them checked can increase the length of time required to be accepted.

In terms of the actual application, buyers should ensure that they are on the electoral role and that their credit record is accurate. Both of these are sure to be checked by lenders. Buyers should also do everything possible to show a stable history of financial responsibility.

This means ideally maintaining a solid track record of employment and also of paying debts appropriately.

Be Prepared To Be A Good Borrower

It’s often a good idea to get advice before taking any major financial decision. In terms of taking out a mortgage, prospective borrowers will need to look at the overall cost. They will need to be fully confident that they can meet repayments even if interest rates rise. It’s also wise to look at how individual circumstances may change. For example life’s challenges such as redundancy, unemployment, accident, illness and death should be planned for. It’s best not to trust to luck with regard to the family home.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.