Ask the Expert

Our specialist mortgage brokers are always happy to offer their advice on a number of common (and not so common) questions our clients face. No topic is too challenging!

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Ask the Expert
Jodi Spreadbury

Mortgage Adviser

I AM CURRENTLY IN A FIXED RATE MORTGAGE, IS IT WORTH SWAPPING MORTGAGE DEALS AS THE RATES ARE MUCH LOWER AT PRESENT?

A: This all depends on how much of a saving can be made on the new mortgage deal, versus (1) the penalty you would have to pay to exit your current mortgage deal and (2) the costs involved in securing the new, lower mortgage rate.

In my experience, the savings that can be made rarely outweigh the penalties you have to pay. The good news is that it is a very quick exercise to check and to give you peace of mind. A good mortgage broker can have this checked for you within 5 minutes (at no cost) and all you need to know is how much your redemption penalty is and when the fixed rate period ends.

There are some exceptional circumstances when clients swap into the lower rate, regardless of whether this is financially beneficial for them. This is very rare and is only ever done / considered when a client is desperate for an immediate monthly saving. I would advise anyone to avoid this scenario where possible. On a final note, these new and lower mortgage deals can be secured up to 6 months in advance of when your current mortgage deal expires, so it is always worth an exploratory chat.

Ask the Expert
Darren Pescod

CEO

IS HOUSE PRICE GROWTH IS SLOWING

A: We recently discussed and written on the topic that house prices could not keep going up. Now, we have further evidence that price growth is indeed easing. Recent figures from the Halifax have revealed a drop of 0.2% in property prices between May and July this year, compared with the previous quarter. This marks the fourth fall in a row – this first time that has occurred since 2012.

The figures come from the latest Halifax House Price Index, which makes interesting reading. House prices were seen to rise by 2.6% in June this year, and in July, this fell to 2.1%. To give some clarity, house prices were rising by 8.4% annually last year, just after the vote to leave the European Union took place. This represents a significant drop over the past 12 months.

Now don’t get me wrong, this isn’t a bad thing. Property prices levelling out, cooling off or even decreasing in a measured way are good for all in my opinion as it stops a bubble forming – And bubbles tend to op as they get bigger.

So, the overall picture in the last year has been a series of falls in the annual percentage change in house prices. The monthly change has been more volatile, as would be expected, while the quarterly-on-quarterly change has been broadly flat since around February this year.

Housing demand is weaker – and there are several reasons why

Wages have been largely stagnant for some time now, while employment is higher than in the previous three-month period, this has had no effect on earnings. Many people are reining in their spending, and finding it more challenging to save money towards a deposit on a property. Suffice to say, many people have put off making big decisions, and this has influenced the housing market too. (The increase in stamp duty doesn’t help either)

Although annual prices are up by 2.1%, and the month-on-month change is up by 0.4%, it seems likely we will see further easing of house prices in the coming months.

Wage growth remains suppressed, while consumer prices have risen. This has created a squeeze on household income, thus making it harder for people to find any surplus cash to put towards a possible house purchase/deposit. While low interest rates have led to great mortgage deals, there is some uncertainty over how long this will last, too. Perhaps some are watching and waiting?

Sales volume also down

Home sales were also noted to be declining. Before May, we had seen five months of sales of 100,000 or above. However, between May and June, the figure dropped to 96,910 sales, or 3%. Mortgage approvals were also lower, and there were fewer homes put up for sale, too. In fact, June marked the 16th month in a row where there was a drop in homes made available for sale.

So, some notable figures to look at and consider, but none of them make you want to jump up with joy and start forecasting / spending the growth in your equity that has happened all too frequently in the past. The housing market is likely to remain suppressed for some time to come. Although prices are still going up, the pace has slowed markedly, and we expect this to continue. It remains to be seen what the rest of 2017 has in store for the housing market.

Ask the Expert
Darren Pescod

CEO

INTEREST RATES REMAIN THE SAME – BUT A FUTURE INCREASE IS COMING

A: We recently discussed and written on the topic that house prices could not keep going up. Now, we have further evidence that price growth is indeed easing. Recent figures from the Halifax have revealed a drop of 0.2% in property prices between May and July this year, compared with the previous quarter. This marks the fourth fall in a row – this first time that has occurred since 2012.

The figures come from the latest Halifax House Price Index, which makes interesting reading. House prices were seen to rise by 2.6% in June this year, and in July, this fell to 2.1%. To give some clarity, house prices were rising by 8.4% annually last year, just after the vote to leave the European Union took place. This represents a significant drop over the past 12 months.

Now don’t get me wrong, this isn’t a bad thing. Property prices levelling out, cooling off or even decreasing in a measured way are good for all in my opinion as it stops a bubble forming – And bubbles tend to op as they get bigger.

So, the overall picture in the last year has been a series of falls in the annual percentage change in house prices. The monthly change has been more volatile, as would be expected, while the quarterly-on-quarterly change has been broadly flat since around February this year.

Housing demand is weaker – and there are several reasons why

Wages have been largely stagnant for some time now, while employment is higher than in the previous three-month period, this has had no effect on earnings. Many people are reining in their spending, and finding it more challenging to save money towards a deposit on a property. Suffice to say, many people have put off making big decisions, and this has influenced the housing market too. (The increase in stamp duty doesn’t help either)

Although annual prices are up by 2.1%, and the month-on-month change is up by 0.4%, it seems likely we will see further easing of house prices in the coming months.

Wage growth remains suppressed, while consumer prices have risen. This has created a squeeze on household income, thus making it harder for people to find any surplus cash to put towards a possible house purchase/deposit. While low interest rates have led to great mortgage deals, there is some uncertainty over how long this will last, too. Perhaps some are watching and waiting?

Sales volume also down

Home sales were also noted to be declining. Before May, we had seen five months of sales of 100,000 or above. However, between May and June, the figure dropped to 96,910 sales, or 3%. Mortgage approvals were also lower, and there were fewer homes put up for sale, too. In fact, June marked the 16th month in a row where there was a drop in homes made available for sale.

So, some notable figures to look at and consider, but none of them make you want to jump up with joy and start forecasting / spending the growth in your equity that has happened all too frequently in the past. The housing market is likely to remain suppressed for some time to come. Although prices are still going up, the pace has slowed markedly, and we expect this to continue. It remains to be seen what the rest of 2017 has in store for the housing market.

Ask the Expert
Neezam Romjon

Mortgage Adviser

BUY TO LET LANDLORDS ARE HIT AGAIN IN THE BUDGET

Q. What impact has the latest Budget had on Buy-to-Let Landlords?


A. Would-be first-time buyers are no doubt breathing a sigh of relief at the announcement in the Budget that stamp duty would not be payable when they purchase their first property. The relief on stamp duty was undoubtedly one of the headline announcements in Chancellor Philip Hammond’s Budget statement last week. However, landlords of buy-to-let properties would be forgiven for not catching the brief announcement regarding an indexation allowance freeze.

Most people are aware of capital gains tax, even if they have not been directly affected by it. Up until now, there has been a difference in the amount paid in tax by individuals who sell assets, and companies that sell assets. This means a company selling a £200,000 property would pay less in capital gains tax than an individual selling the same property for the same amount. This occurs because a company can account for the inflation built into the price rise that had happened over the time the property was owned for.

This inflation is what the Chancellor was referring to when he mentioned the indexation allowance freeze in the Budget.

How does this apply to landlords?

The changes in tax relief offered on mortgage interest have led lots of landlords to quit trading as individuals and to take on a limited company format instead. This means they should pay less in capital gains tax than an individual if they were to sell one of their rental properties. However, from January next year, this difference will be taken away. Any price rises seen from January 2018 onwards will apply under the new rules.  

Tough times for landlords

“This is the latest ruling that has led some landlords to feel as though they are getting battered from all sides,” said Senior Mortgage Adviser at The Mortgage Broker LTD. “The change does mean companies won’t have an advantage over individuals when it comes to capital gains tax. However, it also means plenty of landlords who swapped to a limited company structure will now have additional capital gains tax to pay should they decide to sell one or more properties in the future.”

No immediate penalties

The change means everyone will be treated the same when selling properties over and above their main home. Furthermore, the timing of the change means there will be no immediate cost for anyone who sells up now or in the future. Higher tax bills will eventually be felt by limited companies, including landlords who decide to sell one or more properties, but this won’t be noticeable for a while yet.

However, landlords of buy-to-let properties would be forgiven for feeling as if this is just one more issue to deal with. Some have left the market altogether, while others have reduced the number of properties they are renting out. With higher capital gains tax bills in the future too, could this mean yet more landlords decide to quit now rather than later, when larger bills will await them?

Ask the Expert
Neezam Romjon

Mortgage Adviser

I HAVE READ THAT 100% MORTGAGES ARE AVAILABLE AGAIN – IS THIS TRUE?

A: Yes it is true, 100% mortgages are once again available for first time buyers, however they do come with a few T’s and C’s as you could imagine. There are a few variations of the 100% mortgages being offered by lenders and these are probably best given as examples of how they work:

Example 1: No deposit needed, however additional security will be needed in the form of a charge against a family member’s property. This charge will be for 35% of the amount you are looking to borrow and your family member must have at least 40% equity in their home.

Example 2: No deposit needed, however a family member would need to provide 10% of the purchase price as security with the lender in a separate savings account – Your family member would get their savings back after 3 years with interest.

Example 3: Shared Ownership – We now have a lender that will offer you a 100% mortgage on your share of the property.

Ask the Expert
Darren Pescod

CEO

I AM 64 AND MY LENDER HAS SAID I NEED TO PAY BACK THE MORTGAGE NOW AS IT WAS INTEREST ONLY. CAN I GET A NEW REPAYMENT MORTGAGE OVER A NEW 15-25 YEAR TERM?

A: Thankfully the answer is now YES. In recent months we have had a few more lenders changing their lending criteria to allow the older borrowers the availability to borrow into their retirement, with some lenders offering 25 year mortgage deals even at the age of 64. Of course, the lender’s criteria would need to be met which would mainly be the reliance on your income into retirement to support the mortgage – this income could be from a variety of sources including private and state pension, rental income and earned income if available. A clean credit history would also be a requirement.

The rates are still very competitive and you are not penalised for borrowing later in life. Lenders offer a variety of rates including short and long term fixed rates; they may even consider an interest only mortgage again although this really does limit the choice of lender that we can approach.

In summary, age is no longer a barrier to obtaining or extending your mortgage deal. If you find yourself in a position where you are being forced to repay an existing mortgage deal or are looking to move then options are available to you.

Ask the Expert
Darren Pescod

CEO

I HAVE A DEFAULT ON MY CREDIT FILE; CAN I STILL GET A MORTGAGE?

A: This depends on the size of the default, whether or not it is satisfied and the date of the default. For example, a £200 default from 13 months ago which has now been satisfied would not be a problem for most lenders. In comparison a £1500 unsatisfied default from 6 months ago would be near impossible to find a willing mortgage lender.

Every lender has different criteria on how they deal with a default showing on your credit file. Some will look at the size of the default and the age of it, an example of this would be if it’s over 12 months old and under £200 then most lenders would be keen to lend. Other mortgage lenders will need the default to be satisfied regardless. Some lenders will even consider a much larger default running into thousands of pounds but in this scenario the lenders will want the default to be at least 12 or 24 months old. To add another layer of complexity ? confusion on these various  examples some lenders will lend if there is a good reason for the default and it wasn’t just a case of bad financial management.

In summary, there is potential to get a mortgage but we would need to know more about your personal circumstances. The best way forward in this scenario would be to provide your mortgage broker with a copy of your credit file and then a good mortgage broker will quickly match your file to the lenders criteria to see who would be willing to lend and provide quotes off the back of this.

Ask the Expert
Darren Pescod

CEO

I AM BUYING AN INVESTMENT PROPERTY ON A ‘BUY TO LET’ – SHOULD I BUY THIS IN MY PERSONAL NAME OR A LIMITED COMPANY NAME DUE TO ALL THE TAX CHANGES?

This is a good question and the answer is far from a straightforward one. The buy to let market has seen many changes in the last couple of years. These include tax changes that are proving to be very harsh for many landlords.

Up until and including the tax year 2016/17, landlords could claim 100% tax relief pertaining to their mortgage interest. The full amount of interest could be deducted from the income they derived from renting out their properties. However, from April 2017 onwards, that relief began to be phased out. By the time the tax year 2020/21 arrives, there will no longer be any tax relief of this kind available. This has led many landlords to set up limited companies and to rearrange their businesses to reduce their tax liabilities.

Our first piece of advice would be to seek professional tax advice from a tax specialist or an accountant. The answer to your query may differ depending on the tax bracket you are in. If this changes, the best approach for you may also change. It is important to consider all possibilities and to fully understand the situation you are in before you decide whether to set up a limited company as a landlord or not.

The good news is that there are more mortgage deals around for limited companies today than was the case in the past. The lack of deals available meant that lenders could put higher margins on these deals – and therefore higher rates as well.

However, in recent weeks we have seen a drop in limited company mortgage rates. They have reduced in line with standard buy to let rates, which means landlords now have more choice than previously.

My advice would be to get a quote for your new mortgage for both scenarios, i.e. one quote for you as an individual and another for a limited company name. you can then discuss the options with your accountant to determine which route and ownership structure is best for you.

Ask the Expert
Darren Pescod

CEO

I AM SELF-EMPLOYED; CAN I STILL GET A MORTGAGE AS I DON’T PAY MYSELF A HIGH SALARY?

A: Most people assume that you need 3 years’ worth of trading accounts to get a mortgage – only a few lenders now have this approach to their lending criteria in today’s market. There are lenders out there who will lend to you based on just one year trading and one year’s accounts so all is not lost. There are also lenders who will lend to you based on two years’ tax returns and they won’t ask for your accounts so there is a potentially better deal to be had by approaching this type of lender – An experienced mortgage broker will know the lenders criteria and will be able to look at all of these options to see which deal offers you the best value, whilst at the same time meeting the lenders underwriting criteria. You haven’t mentioned in your e-mail if you are a sole trader or a Limited Company as this can also affect the lender we approach on your behalf. If you are trading via a Limited Company you have probably been advised to take a minimal PAYE salary and the rest of your annual package in the form of dividends. Thankfully, dividends are taken into account, so if you draw a small salary this should not be a stumbling block for you. We also have access to lenders that will look at the overall net profit of the business, rather than what you have taken out of the business as and when required. If you are a sole trader your net profit will be used. Your next step would be to send through your accounts and tax returns, along with a budget planner and of course some personal detail. This would enable us to run these figures through a selection of potential lenders’ affordability calculators allowing us to get an idea of what level of borrowing could be available to you.

Ask the Expert
Darren Pescod

CEO

WHAT MAKES YOU DIFFERENT THAN OTHER COMPANIES?

Q: What makes you so different than other companies?

A: We believe that the days of the generalist are dead. With so many different mortgage types now on offer in a complex and competitive mortgage market no one mortgage adviser can claim to be an expert in all areas. Here at The Mortgage Broker Ltd the advisers we pass your enquiries to work in specialist groups only dealing with a specific mortgage type. This allows them to offer our clients absolute expertise in the area of their interest, ensuring that they source the right mortgage to suit individual requirements First Time – Every Time. With top quality professional advice supported by a dedicated administration teams handling each individual mortgage from application through to completion we like to think the brokers we use offer clients an exceptional customer service experience.

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