Rishi Sunak’s second Budget as Chancellor brought two pieces of welcome news for the property sector as the Government attempts to transform “Generation Rent” into “Generation Buy” to help stimulate the UK economy, namely the new 95% Mortgage Guarantee and an extension of the Stamp Duty Holiday.
The name of this scheme is misleading as not everyone that applies is guaranteed to be offered a mortgage, it is still subject to affordability and credit score. The “guarantee” itself is that the Government will ensure Lenders don’t stand a loss if they grant a 95% mortgage to a customer who then subsequently falls into arrears and is repossessed leaving behind negative equity.
This scheme should in theory give Lenders more confidence to lend even though the applicant only has a smaller deposit to put down. Of course, Lenders never want to repossess someone’s home unless it is the last resort, but if that happens then the new scheme would cover any shortfall.
Lenders have been worried about the prospect of home values decreasing so this measure should alleviate that concern although of course, the chances of negative equity occurring will naturally reduce should property prices increase as a result of these announcements!
The scheme is available to both 1st Time Buyers and Home Movers, it’s available on any property (not just new build) and will run until December 2022. Some major High Street Banks have already signed up to the scheme and it’s likely more will follow later on. It’s still a big challenge for Lenders to cope with the demand they are getting for mortgages due to the difficulties training and supervising staff working from home but they will want to offer as many of these mortgages as they can.
When the Stamp Duty Holiday was launched last year we all hoped life would be very much back to normal by the cut-off date of 31st March 2021 but things didn’t pan out that way as we know. Solicitors are struggling to keep up with the workload and if lots of chains had collapsed then it would have partly defeated the object of the exercise.
Therefore it was good to hear the scheme has been extended to 30th June for purchases up to £500,000 and 30th September for purchases up to £250,000.
The Government certainly sees the property sector as an area that can play a big part in our economic recovery and if you are looking to buy a home or remortgage this year please reach out and we will be happy to advise you.
Also known by their official title of “Second Charge Mortgage”, a Secured Loan is a loan that helps secure the property of your dreams, albeit with higher than standard interest rates.
The reason for this is because, in the event of a repossession, the provider of the Secured Loan must wait for the original provider to sell the property before getting their money back. Whilst this is often known as an expensive “last resort”, they can often be incredibly helpful for certain situations.
Your mortgage stays exactly how it is if you take out a Secured Loan. The new amount is borrowed from a different provider and a separate direct debit.
The length of this new amount varies, as you could take it out over a shorter or longer-term than your main mortgage. If you’re only in need of a small amount, you may benefit from looking at unsecured borrowing.
This is a scheme to help armed forces personnel get on the property ladder.
Regular armed forces personnel can benefit from a £200 million scheme to help them get on the property ladder. The Forces Help to Buy scheme enables servicemen and servicewomen to borrow up to 50% of their salary, interest-free, to buy their first home or move to another property on assignment or as their families needs change.
Please click here to the Government site for more information …
The amount first-time buyers in Lincoln can borrow for your mortgage is dictated by your income and expenditure and the Lenders’ own affordability calculation models, but approximately one-third of income for the typical UK family.
Over the years the amount Banks have been prepared to lend for mortgages has ebbed and flowed dependant on market conditions and appetite for risk at that time.
There was a time in the mid-2000s when more than 7 times annual income may have been acceptable in some circumstances and also it has been as low as 3 times annual salary in the past.
Since the Mortgage Market Review of 2014 however, it is seldom this “multiple of salary” rule that is applied – the Lenders now look much more deeply into your personal finances before deciding how much you can borrow to buy a home or Remortgage. Thus, the factors you need to consider are:
As mentioned above, the way lenders calculate your borrowing capacity (often referred to as your affordability) is generally much more sophisticated these days than of old. Lenders used to work off simple income multiples of, say 3 times your gross annual salary, or 2.5 times your joint income.
Nowadays they all have affordability calculators which are often quite different from lender to lender. As the complexity of the way people are paid has increased, so the lenders also have differences in what income they accept and what they don’t.
For example, if you’re in a job where you earn a lot of overtime or bonus or commission, some lenders will take much more of this into account than others; some lenders will take certain benefit income such as child tax or working tax credits into account where others won’t.
Similarly, if you’re self-employed or have set up your own limited company, different lenders will assess your income in different ways which can result in the same customer being assessed to have widely varying affordability levels from different lenders.
Finally, factors such as the product that you want to take and the term of years you want to borrow the money over can all impact upon the overall affordability.
Finally, lenders will deduct other regular outgoings such as personal loan payments, maintenance payments or credit card bills from your salary before assessing your affordability.
Thus, whilst many lenders or brokers will have a “rule of thumb” figure that is usually somewhere between 4 to 4.5 times an annual income, this is just a quick guideline and you should always check with your broker for more accurate figures based on your specific circumstances.
Lenders generally aren’t daft. They don’t want to be seen to be lending you more money than you can realistically afford and thereby put you under unnecessary financial strain.
Therefore, if you pass a lender’s affordability calculator that’s a pretty good indicator that you should be OK. That said, we’ve already seen that the assessment of affordability can vary significantly between lenders, so it’s always worth completing your own budget planner to ensure that you have the security of knowing that, whatever the lender may say, you’ve done your own assessment.
Remember, owning your own home is not just about paying the mortgage. Factor in associated costs such as council tax, utility bills and any other committed payments such as personal loans or insurance premiums and your regular food and drink bill at the supermarket.
Be realistic and include everything that you’ll want to retain in order to maintain your chosen lifestyle. Deduct your other outgoings from your take-home monthly pay and, if what you have left is more than enough to meet your mortgage payments, then you should be OK.
If it’s not, you have a choice; either make savings or sacrifices from your outgoings in order to help you buy the home you want, or look for something smaller!
The UK has seen an unprecedented period of interest rate stability in recent times. It is over seven years since the Bank of England has amended its Base Rate but with recent events, many people fear the uncertainty that may come with future rate increases.
If you complete a budget planner, you should be able to gain some idea of how much you can afford and you could, therefore, factor in possible increases to ensure your mortgage will be affordable both now and in the future.
If you’re in any doubt, the key to future stability can be found in fixed-rate mortgages where, as the name implies, the rate you pay, and thus your monthly repayment, is fixed for a defined period of time.
Generally speaking, the longer you fix for, the higher the rate (and monthly repayment) is likely to be, but you might consider that to be a price worth paying for the peace of mind it brings.
Mortgage Protection Insurance is a term used to encompass various types of cover designed to protect borrowers from events which could severely impact their ability to maintain mortgage payments.
There are different variations but when connected to a mortgage they are all there to provide peace of mind and usually fall into the following categories:
As a rule, if the policyholder dies within the term, then the sum assured should be enough to pay off the outstanding mortgage balance and ensure the borrower’s dependants aren’t left with a debt they might not otherwise be able to manage.
Our Mortgage Advisors in Lincoln can run through all the different types of life cover and recommend the most suitable plan for you.
Critical Illness Insurance works in a similar way to Life Assurance, in that it is usually taken for a specific term of years and can have the different options such as level/increasing etc. It is designed to pay out a lump sum and, like Life cover, for borrowers it is typically taken on a decreasing term basis in line with the reduction of your mortgage balance.
The key is that the benefit is paid if you fall victim to one of a number of specified critical illnesses and pays out whatever the long-term prognosis of that illness. The type of illnesses covered vary from company to company, that’s why this type of insurance cannot be solely price driven and advice is recommended.
In practice many companies will offer Life and Critical Illness Critical cover as a combined policy and would usually pay out on the “first event” i.e. whatever happens first – either death or serious illness – the pay-out is made. They can also be written on a single or joint life basis
Whereas Life and Critical Illness cover pay out a lump sum, Income Protection pays out a monthly sum designed to replace your wages in the event of you being unfit to work. Unlike Critical Illness cover, there are no restrictions on the illnesses or injuries covered, the only factor being whether they make you unfit to work. There are however restrictions on how much you can cover and how quickly benefits would start to be paid.
Like Life and Critical Illness cover, these policies are underwritten based on your health and lifestyle at the time you apply. All income protection policies are written on a single life basis.
Probably the least common of the mortgage protection type policies but can often be valuable – particularly for those with young families. These plans can be taken to cover Life and/or Critical Illness and are underwritten on application in the same way as mentioned above.
However, unlike the traditional forms of policy, rather than pay out a lump sum, the cover would pay an annual or monthly income for the remainder of the term of the plan. Thus, it can replace the income of the main breadwinner for a number of years, dependent upon a particular client’s circumstances and, because of this would usually be written on a level or basis, or an index-linked basis designed to keep up with inflation.
There’s an adage that says you can never have too much insurance. Certainly, many people have one or more of the different types of policy and it would be wrong to think of Mortgage Protection Insurance as just an “either/or” choice. However, in the real world, affordability plays a massive part, so whilst it would be fantastic to cover yourself for every potential opportunity, a good advisor will sit down with you and tailor the type of cover to be the most suitable combination to your family’s priority and budget.
This is where we can help!
Please give us a call or fill out our enquiry form to speak with one of our Dedicated Protection Specialists.