Mortgages for the many. A greater range of ages and budgets accommodated
PUBLISHED: 14:05 15 July 2016 | UPDATED: 16:29 15 July 2016
New mortgage products are targeting would-be homebuyers who would previously have struggled to secure financing for their dream property purchases. We take a look at some of these niche options.
Whether you’re hoping to buy your first home or looking for a better rate on your current property portfolio, the post-Brexit mortgage market offers a range of opportunities.
“Now is a great time to get a mortgage,” says Daire Dowling, head of private clients at Charnock Hughes in a blog post on borrowing in the aftermath of the referendum. “Lenders have been cutting rates almost daily since the OUT campaign won but we predict rates will go even lower as the Bank of England is expected to slash interest rates to a historic low.
“It isn’t just the standard two-year fixed rates deals that are enjoying low rates either; 10-year fixed rates are gaining popularity and along with high-end large value loans rates can be as low as 2.92 per cent.”
Islay Robinson, CEO of Enness Private Clients, who have a branch in West Hampstead, says: “After the referendum there’s still plenty of money to support people making these transactions, mortgages have been cheaper than they’ve been for five years. Lenders haven’t changed their position, if anything mortgages are going to get cheaper.”
Robinson recommends that those who are in a position to do so should buy now or consider re-mortgaging.
“Borrowing is as cheap as it’s ever been, product availability is very open and lenders’ criteria is still very open,” he says. “It’s probably better to do it now than in a year’s time.”
Colin Payne, associate director of Belsize Park-based Chapelgate Private Finance agrees. “For some people it might even be worth paying the redemption charge to get out of a mortgage with a less favourable rate. We’ve saved clients three per cent per year by encouraging them to pay early redemption charges and switch.”
But what to do if you’re not the ‘average’ mortgage applicant – and let’s face it, in the current property market few people are? A raft of new products for borrowers have launched this year, opening up the mortgage process to a range of formerly overlooked homebuyers.
Family springboard mortgage from Barclays
This has been billed as a 100 per cent mortgage but that’s not quite the whole picture. Anyone buying a property for up to £500,000 (so this is aimed squarely at the first time buyer market) can get a loan for the full amount of the home, provided a family member or “loved one” chips in a 10 per cent guarantee to a Helpful Start Account.
Provided the home buyer pays the mortgage on time each month, the guarantor gets their investment back with interest after three years.
The interest is set at base rate plus 1.5 per cent so offers a better return than many savings accounts but there are negatives for both parties too.
If the buyer falls into arrears the interest accumulation stops; if the house forecloses and sells at a loss then the lender takes the capital too – so guarantors need to be confident in the buyer’s solvency.
There are also issues for the first time buyers, who are effectively buying without having any equity in their home, a potentially sticky situation when trying to make the next step on the ladder. The product is available as a three-year fix at 2.99 per cent.
One family intergenerational loan
Is granny sitting in a home whose value has accumulated beyond her wildest dreams? Well it could be a good idea to pay her a visit this weekend as she may hold the key to your dreams of home ownership.
Announced in April, OneFamily’s Lifetime Mortgage allows an older generation to release some equity from their property (without having to move) and give it to younger relatives to buy their own property.
It’s only available through financial advisers.
In a similar vein is St James’s Place intergenerational loan in partnership with Metro Bank. One benefit is that it will surely reduce to intergenerational resentment of the ‘my grandparents live in a half empty five-bedroom house worth 20 times what they paid for it, while I’m spending two thirds of my salary on rent for a shelf with a ladder’ variety.
But the older generation should be sure to consider their security in coming years if they transfer a portion of their housing wealth in this way.
Launched this year in time for ‘Divorce Monday’ – the first working Monday after Christmas when the number of couples applying for divorce typically surges – Ipswich Building Society’s Divorce Mortgage Programme takes 100 per cent of child maintenance payment income when assessing affordability where many lenders will only consider a percentage or not accept maintenance payments as income at all. This allows single working parents to have access to the mortgage market.
Bear in mind that issues can arise if the mortgage is set to last for longer than the child maintenance payments (so until after any children turn 18).
Payne offers a few additional options. “Nationwide will accept maintenance payments via a court order or private agreement as long as it can be evidenced that the maintenance has been received for at least six months i.e. by bank statements; Halifax will accept a private agreement as long as maintenance payments can be evidenced for the previous three months via bank statements; Barclays will want a court order in place unless maintenance payments can be evidenced for over 12 months via bank statements,” he says.
“The advantage of the above lenders is that they will treat the maintenance payments as primary income and therefore the applicant would receive a higher level of borrowing, whereas someone like Santander will treat maintenance income as a secondary income and therefore you don’t tend to obtain as high a level of borrowing.”
Payne says: “Lenders are starting to try to open up to self employed people. If you own a limited company, it can get a bit complicated.
“Many lenders will look at the director’s salary and the dividend that they take but they won’t look at any money that gets left in the company.
“Some lenders are now looking at the full amount a company makes and basing their affordability calculations on that rather than only basing it on dividends and income. Coventry, Clydesdale Bank and Virgin Money are all examples of this.
“Many lenders will also require two to three years of accounts, which is not ideal for people who’ve become self employed more recently than that. But there are now lenders, including Halifax and Kensington, who are prepared to be more flexible about this and look at only 12 to 18 months’ worth of accounts.”
The mortgage for 80-year-olds
With house prices testing affordability to new levels, traditional 25-year mortgages often don’t cut it. Many lenders are happy to lend for 30 years but, as retirement ages increase, some are happier to lend further into old age. Halifax’s announcement that they will consider lending up to age 80 caused a flurry of publicity, but in reality, Payne says high street lenders set the ceiling closer to 70 without evidence of retirement income, while other building societies may be prepared to be more flexible.
“There are lenders that will go to age 80 plus but they tend to be small, regional building societies that are prepared take a bit more of a view than your typical high street bank and look at each case on its own merits. Santander would go to age 75 quite comfortably without worrying about retirement income.”