There’s an old saying popular among those who have been in the mortgage industry for a while. When applying for your first mortgage, how do you stand?
Answer: you don’t, you kneel.
This refers back to the days when owning your own home was not broadly considered a right, but a hard-won aspiration. First-time buyers scrimped and saved and went to their local community building society manager to ask for a mortgage.
I was reminded of this recently, following a report from the Building Societies Association, that highlighted just how much the mortgage market has changed since then.
It focused largely on the need for more flexibility on lending to those in retirement, but the research also laid out a future where first-time buyers would not be taking their first step up onto the property ladder until their late 30s or, more likely, early 40s. This future, they argued, is not too distant. This looks like it could be the reality facing would-be homeowners in just 13 years from now.
Separate research was also published this month by Legal & General, suggesting that the so-called Bank of Mum and Dad is set to be the UK’s ninth biggest mortgage lender by the end of this year – lending somewhere in the region of £6.5bn in 2017.
These studies reiterate what brokers know all too well – after decades of it getting easier to get a mortgage, it now takes more commitment, bigger deposits and better credit records than ever before to realise the dream of homeownership.
I think there is a tendency however to focus on the hardship involved, with this making for ‘better’ headlines in the national press. The reality is that getting on the housing ladder is still possible for a wide swathe of younger hopefuls.
1. Bank of Mum and Dad
This one is a bit of a misnomer – parents aren’t a bank and more often than not, they’re not lending via a mortgage to children. The vast majority of so-called Bank of Mum and Dad ‘lending’ is actually made up of gifted deposits. We see a good chunk of first-time buyer applications where parents or grandparents have given the applicant some or all of their deposit. This may be out of their own savings but not every family is so fortunate – or liquid – as to have several thousand pounds lying around.
This is where second charges are worth their weight – particularly if parents are reluctant to give up incredibly low lifetime tracker rates got before the financial crisis. Second charge rates have dropped significantly over the past two years, as have fees. For smaller capital raises, they are a viable and often competitive alternative option to a remortgage and allow parents and grandparents to give children a much needed helping hand into property ownership.
2. Help to Buy
The Government’s Help to Buy equity loan scheme is still in full operation – and will continue to be until at least 2020 - with thousands of hopeful buyers given the step up they need to realise their homeownership aspirations. The latest figures show that more than 259,000 people have bought a home using a Help to Buy scheme. Yet these loans still seem to be viewed as slightly second class to the traditional mortgage with many brokers who don’t specialise in them.
At Precise, we think Help to Buy is a critical part of the mortgage market and should be part of every broker’s arsenal to help first-time buyers. The scheme is available to buyers on new build properties and with the help of a five-year interest-free 20 per cent equity loan from the Government (40 per cent in London), borrowers with a 5 per cent deposit can benefit from the rock bottom mortgage rates reserved for those taking a 75 per cent loan-to-value mortgage. The high street lenders have a range of deals, but for borrowers with a less than perfect credit score, there are also options.
These are just two tools in a broker’s kit to help first-time buyers, yet both second charge and Help to Buy are still seen as specialist areas. But with house prices higher than ever, wage growth still under pressure and the spectre of inflation becoming less spectral every month, the financial reality facing first-time buyers is very different from that faced by first-timers even just over a decade ago.
Brokers have always helped first-time buyers make their dreams of owning a home a reality. Despite the tougher economic environment, this is still within their grasp – it just takes a little more imagination to get the finance sorted, something brokers have always proven good at.
Charter Court Financial Services Limited (CCFS), the owner of Precise Mortgages, has been named as one of the UK’s most inspiring companies in an influential report which showcases the country’s most dynamic businesses.
The Wolverhampton-based financial services company has been included in the London Stock Exchange Group’s 1,000 Companies to Inspire Britain 2017 report.
The report features small and medium-sized companies from more than 40 sectors which have demonstrated positive growth in revenue and strong performance in their areas of expertise.
Founded in 2008, it is the first time CCFS has been included in the report, and comes just months after it was ranked, for the second year running, in The Sunday Times 100 Best Companies to Work For. CCFS was named the third best company to work for in 2017, after featuring tenth on the list in 2016.
CCFS employs more than 450 people. It offers savings products which regularly feature at the top of the best buy tables, and is a top 20 UK mortgage lender.
Ian Lonergan, CEO of CCFS, commented: “We’re delighted to be named one of the London Stock Exchange Group’s 1,000 Companies to Inspire Britain 2017.
“To achieve recognition in such a prestigious publication less than 10 years after the company was founded is testament to the hard work and dedication everyone who works for the business has put in.”
Xavier Rolet, Chief Executive of the London Stock Exchange Group, highlighted CCFS as an example of how London’s dominance is being challenged by the West Midlands and other regions.
“CCFS is a successful specialist bank that is growing rapidly and has created more than 450 jobs in a sector which is traditionally associated with the Square Mile in the City of London,” he said.
Millennials, Generation Rent, Generation Y. However they’re described, the financial situation faced by some of those born between the early 1980s and late 1990s has been well documented.
A competitive job market, take-home pay eroded by higher living costs and large student loan repayments are leaving many feeling owning their own home is becoming an increasingly distant dream.
These borrowers might be finding it more challenging trying to borrow from high street banks. This means more people are renting, giving them less opportunity to save for the deposit they need to purchase their own homes.
Fortunately, specialist lenders like Precise Mortgages offer products to help those underserved by the high street get a foot on to the housing ladder.
We offer products for borrowers looking to buy a new build property using the government’s Help to Buy scheme, including those who might only have a small deposit or a less than perfect credit profile.
Borrowers contribute 5% of the purchase price as a deposit. The Help to Buy scheme provides a five year interest free shared equity loan of 20% of the purchase price, which increases to 40% for borrowers living in London. We then provide a mortgage for up to 75% of the purchase price (55% in London).
We also offer products to help people who are renting a local authority or housing association property and would like to purchase it under the Right to Buy scheme.
The Right to Buy scheme makes properties available at a discounted purchase price to help people make the house they’re renting their permanent home.
Borrowers must have been a local authority or housing association tenant for at least three years to qualify for discounts which can be as much as £77,900 outside of London or £103,900 in London.
With first time buyers finding it tough to get a mortgage, more parents are giving their children a helping hand in raising funds for a deposit. For situations like this, second charge loans are a viable alternative to remortgaging. The loans can be used for any purpose and could be ideal for those looking to raise capital by releasing equity from their existing residential property.
Rates start from 3.82% for our Help to Buy products, from 4.89% for our Right to Buy range and from 3.70% for our second charge loans. We consider customers with less than perfect credit histories for all of our products.
For more information, visit www.precisemortgages.co.uk
Chancellor Philip Hammond’s spring Budget raised the hackles of hard-working people across the country. Not only did he announce a tax hike for the self-employed in the form of increased National Insurance contributions but he also hit small business owners and pensioners by cutting the short-lived tax-free dividend allowance.
From a government that has repeatedly promised to support the so-called ‘JAMs’ (families ‘just about managing’ financially), it was slightly unexpected.
Within a week, Hammond had U-turned on the decision to raise NICs – prompted by an overwhelming public backlash and the apparently late realisation that the Tories had actually promised in their last election manifesto to leave NI frozen until 2020.
There was no such U-turn on dividend tax. And those hit by cuts to the dividend allowance are also largely self-employed. If newspapers are to be believed, they remain pretty bitter about what they perceive as a backhanded swipe at hard-working individuals who have provided jobs and incomes to hundreds of thousands of people.
There will be implications for homeowners, whose incomes will drop as their tax liabilities on dividends rise after April. This is already an issue for those who need to remortgage now because their income will be affected within the term of any mortgage they take today.
Lenders are obliged to consider affordability in the future as well as now, and the Government’s recent to-ing and fro-ing on taxes that affect this is unhelpful. It causes confusion and fear among borrowers.
In practice, I doubt it will make a huge difference for most borrowers – the tax-free allowance is falling from £5,000 to £2,000, meaning the loss of income will be only the tax payable on the difference. But it further muddies the perception thousands of borrowers have of today’s market: that variable income and self-employment make it more difficult to get a mortgage.
Good brokers know this is just a perception. It may take more experience and effort to place a case with a more complex income profile, but it is not impossible. In fact, I would argue that it is not even difficult.
In the three years since the MMR rules came in, specialist lenders and building societies have made leaps forward to offer self-employed borrowers mortgage finance they can afford. The perception that these borrowers are locked out is nonsense – a fire fuelled by those who rely solely on a rate-sorting sourcing system or going to their high-street lender, only to be turned away by an automated message.
It is true that underwriting mortgages for the self-employed and business owners is less straightforward – some lenders struggle to deal efficiently with the variety of borrower circumstances – but there are 5.5 million people in this position in the UK and they are not all living on the streets.
At lenders where there is experience of reading financial accounts and SA302 statements – and understanding a borrower’s business income – writing these loans is just another day at the office.
Brokers sit at the coalface of this, with the opportunity to help or hinder clients. In a market where reliance on technology is becoming more and more obvious, they have a responsibility to highlight just how many choices these borrowers have, even when technology does not always bring them up within a few seconds.
The Budget highlighted how hard done by the self-employed and small business owners are feeling at the moment. Inflation is rising, the pound is weak and we are on the brink of Brexit. But they continue to form the powerhouse of Britain’s economic growth. Some lenders are supporting them, so make sure your clients know it.
Precise Mortgages, the specialist lender, has welcomed Ian Scarrott to its sales team. Ian will work predominantly in the North West, providing expert support to their network of intermediaries.
Ian will work as Business Development Manager in the Blackburn, Bolton, Chorley, Crewe, Fylde, Liverpool, Manchester, Oldham, Preston, Stockport, Stoke-on-Trent, Warrington and Wigan areas.
Ian has joined Precise Mortgages from TFC Homeloans, where he acquired extensive market experience and developed a range of key broker contacts.
Jamie Pritchard, Precise Mortgages’ Head of Sales, said Ian was an outstanding new addition to the team.
“I’m delighted that Ian has chosen to join Precise Mortgages and support our network of brokers in the North West,” he said.
"Ian is a perfect fit for us. With his extensive knowledge of the industry and wealth of experience from his time at TFC Homeloans, Ian will be a real asset to the team.”