Alan Cleary - Managing Director of Precise Mortgages
It seems like there’s hardly a month that goes by now when we’re not told about a fancy new term to describe a certain demographic of people. In recent times, we’ve been introduced to the ‘squeezed middle’, the ‘millennials’, the ‘JAMS’ (Just About Managing) and ‘Generation Z’.
The latest group I’ve read about are the ‘slashies’ – self-employed people who are working two or more jobs, for example as a web designer/taxi driver, to make their living. According to a study by the Association of Independent Professionals and the Self-Employed, there are now more than 320,000 ‘slashies’ (I’ve also seen them described as having ‘portfolio careers’ or ‘multi-hyphenate careers’) in the UK.
Although it’s easy to be dismissive when you read about these new terms, I think this new emerging demographic of workers highlights a really important point – the make-up of the UK’s workforce is changing and the way they’re working is changing.
The latest government figures show there are now 4.83 million self-employed people in the UK, working in a huge variety of different fields – from professional landlords to tradespeople, taxi drivers to freelancers.
Technological advances have encouraged many people to take the plunge – all you need is a smartphone or laptop and a good Wi-Fi connection and you can work from almost anywhere. People now have access to all sorts of new opportunities that simply didn’t exist 10 years ago, giving them the freedom and flexibility to be their own boss and make a decent living.
But while the UK’s self-employed sector continues to go from strength to strength, many lenders still seem to be lagging behind when it comes to approving new applications, meaning these workers can still struggle to secure the mortgage they need.
The Mortgage Market Review (MMR) in 2014 saw the introduction of new rules to ensure borrowers are only accepted for mortgages they can afford. All prospective borrowers must now prove their income, so the difficulty people who work for themselves have is providing that evidence as their income can fluctuate from month to month.
Many lenders require more proof of employment from self-employed people than they do from employees, the most common difference being a two- to three-year history compared to just 12 months for salaried employees. As many lenders perceive their financial situation as being too complex or their income as too irregular, it means there are a growing number of potential borrowers unable to access the mortgage they need, as well as an increase in brokers struggling to place their customers’ cases.
Fortunately, specialist lenders, such as Precise Mortgages, understand the challenges and complexities of these cases and can provide solutions to customers who fall outside of mainstream lenders’ criteria. Since MMR came into force, specialist lenders have been in the vanguard of ensuring self-employed workers can still access mortgages. Specialist lenders have experience of reading financial accounts and SA302 statements, and have the risk management processes and skilled underwriters in place to ensure a good outcome for the borrower, broker and lender.
So if you’re approached by one of the UK’s 4.83 million self-employed customers and they’re struggling to get the mortgage or loan they want with a mainstream lender, it’s worth knowing that there are other lenders out there who can help. With the self-employed market worth an estimated £275 billion to the UK economy each year, it’s vital that their growing numbers are catered for, both now and in the future.
Alan Cleary - Managing Director of Precise Mortgages
I was struck by a statistic I read in the January snapshot from the Royal Institution of Chartered Surveyors (RICS) which said that it now takes 19.4 weeks, on average, to sell a property in the UK — the longest length of time since RICS started recording such information.
The report goes on to say that the UK housing market faces a challenging 2019 and is unlikely to see much change in the coming year, with a continuation of weakening sales activity. RICS predicts that as sales activity continues to flatline, house price growth will, in turn, falter. There are a number of reasons for this declining sales activity. For example, average housing stock levels are low, the ongoing Brexit shenanigans and concerns about prospective interest rate rises.
With all of this uncertainty, imagine if your customer has seen the perfect property, but it is stuck in the middle of a long and slow-moving chain. Buying and selling a property is stressful at the best of times, but that four-and-a-half month wait is going to feel even more tortuous while they’re desperately waiting for some movement in this sluggish market.
So what can you do for them? Tell them to cross their fingers, play the long game and hope that the property they’ve had their eye on is still available when there’s finally some movement in the chain? Or do you help them to take things into their own hands and get things moving?
It’s why I’m not surprised when I read that the bridging market grew by nearly 15% in 2018 compared with 2017, with members of the Association of Short Term Lenders writing more than £4bn of loans. There was a similar increase in the value of applications (nearly £21.5bn, up by 13.4% on 2017). Here at Precise Mortgages, we’ve also seen growth in our bridging business and this is where I think that reports of a slower residential market are right: stalled purchases and sales have created a bounce in the number of borrowers who need to access bridging finance to complete their move.
In this uncertain economic environment, a bridging loan could provide useful, flexible finance for a whole range of purposes, including breaking a property chain. They’re not the solution for everyone, and borrowers should always seek independent advice before taking one out, but if your customer is in danger of a sale falling through because of a chain break, or if they want to buy a new home while waiting for their current one to sell, they could provide a viable alternative.
By taking out a bridging loan, a customer can proceed with the purchase of their new home, even if a potential buyer of their current property has withdrawn.
Alan Cleary - Managing Director of Precise Mortgages
There’s been a lot of negativity flying around about buy to let, with commentators reeling off lists of woes facing landlords in today’s market. But I’m not sure that’s fair. From where I am sitting the buy to let market is going great guns, with volumes growing steadily and appetite from landlords for both purchase and remortgage holding strong.
So I thought I’d take this chance to bust some of the myths that seem to have grown around the market in recent years.
This is utter fantasy. Some landlords won’t remain profitable as they feel the impact of losing tax relief on their mortgage interest. But to be honest, the number of landlords for whom this is true is low and getting lower.
The vast majority of landlords knew where their weak properties were and have already made adjustments to their portfolios to protect their profitability. We’ve seen a range of approaches to improving yields where the tax changes have bitten, including selling up one or two properties from a portfolio to pay more equity into their remaining properties, thus bringing down LTV and mortgage costs.
We’ve also seen portfolios rebalanced to include more properties in areas of the country where prices are lower and rental incomes proportionately larger. Popular property types have also shifted away from single units to multi lets and HMOs.
House price inflation may be subdued at the moment, but landlords invest for both capital and income purposes and there are still plenty of opportunities for growth and profit.
Lower capital outlays are a good thing for landlords. In fact, we are seeing strong appetite on the purchase side of our business for exactly this reason. Rents are also traditionally resilient in the event of a property market downturn, so income is insulated.
The removal of tax relief has had an impact on how much income landlords can retain but as already mentioned, we’ve seen a shift away from individual buy to let towards the use of limited company buy to let on purchase lending. Recent research we conducted with BDRC1 and found that almost two in three (64%) landlords with more than four properties plan to buy using a limited company structure this year.
Our research found that only 17% of landlords with one to three properties plan to use limited company status. This makes perfect sense to us. Landlords with one or two properties can still be professional but their financial situation is likely to be very different from portfolio landlords with 100 properties.
It’s possible that these landlords are those who’ve opted to use buy to let as part of their pension planning; setting up and running a company for this type of landlord is almost certainly not going to be the right approach.
Tax advisers will consider their income position all around, as well as the income position of their partner and it’s likely they’d find that if overall income is less than £100,000 between partners, a limited company isn’t going to offer any financial benefit. This is because from 6 April 2019, basic rate tax is payable up to £50,000. A couple’s combined allowance is therefore £100,000.
That means, the ‘loss’ of tax relief doesn’t hit them – as even when the full changes come in, they will still be able to claim a tax credit of 20 per cent. The change in regime does mean this is applied to revenue not profit as tax relief has been, but nevertheless, that’s a sizeable level of income annually to earn. If a couple’s income is below that level, limited company buy to let is probably not going to make sense.
While this is oversimplifying the scenario considerably, what this highlights is just how important it is for landlords of all shapes and sizes to take professional tax advice from a specialist as well as taking mortgage advice from their broker.
Source: 1 BVA BDRC Landlords Panel Q4 2018
Precise Mortgages, the UK’s leading specialist lender*, has appointed two more Business Development Managers to further strengthen its support for brokers in the London South East and the South West regions of England.
The lender has appointed Peter Coombes to support brokers in the Brighton, Bromley, Croydon, Canterbury, Dartford, Rochester, Redhill, South East London and Tunbridge Wells postcodes. It has also appointed Stuart Ottery who will be responsible for the Bath, Bristol, Cardiff, Exeter, Gloucester, Newport, Oxford, Swansea, Swindon and Taunton postcodes.
Peter previously worked as a mortgage broker and mortgage adviser before joining Precise Mortgages, while Stuart was a Business Development Manager for the Coventry Building Society and Principality Building Society before making the move.
Their arrival is part of a restructuring of Precise Mortgages’ Sales Team which will see their predecessors, Dan Watson and Stephen Wrigley, move into new Specialist Distribution Manager for Bridging roles within Precise Mortgages, enabling the lender to provide nationwide support for its Bridging proposition.
Jamie Pritchard, Head of Sales for Precise Mortgages, said: “I am delighted to welcome both Peter and Stuart to our Sales Team. They are two new recruits of the highest calibre and I know they are raring to go and support our lending proposition.
“I know Stuart already has the respect of the brokers in his area and will bring real value to the role, while Peter brings with him a vast amount of broker experience that will serve him well in building broker relationships and help him promote all areas of Precise Mortgages’ products.”
Source: * BVA BDRC Project Mercury Report Q4 2018
Precise Mortgages, the UK’s leading specialist lender1, has extended its Help to Buy range to include Help to Buy Scotland and Help to Buy Remortgage options.
With the Scheme extended to 2023, Precise Mortgages is showing its support by offering Help to Buy loans in Scotland for the first time, as well as becoming one of the first specialist lenders to offer remortgage options.
The lender’s Help to Buy Scotland offering enables customers to choose from a range of Fixed rate products, with purchase and remortgage options available up to 80% LTV. Its Help to Buy Remortgages provide customers with pound-for-pound options up to 75% LTV (up to 80% in Scotland) on a range of 2, 3 and 5 Fixed rate products.
Both products are available to customers with less than perfect credit profiles and those who need the services of a specialist lender. There are no products fees for remortgages, while both purchase and remortgage products include a refund of the valuation fee and offer a cashback feature.
The lender’s Help to Buy offering is backed up by a dedicated Priority Processing team which is dedicated to assessing cases within 48 hours and making offers within 21 days, as well as providing broker support and regular progress updates.
Alan Cleary, Managing Director of Precise Mortgages, said: “The Help to Buy scheme has been a huge success since its launch in 2013, helping hundreds of thousands of aspiring homeowners take their first step onto the property ladder. These latest additions to our Help to Buy range will help even more customers in realising their home owning dreams.
“We’re pleased to show support for the Scottish market by offering Help to Buy Scotland for the first time, whilst our Help to Buy Remortgages will help early adopters of the scheme make the transition from becoming first time buyers to established homeowners.”
Source: 1 BVA BDRC Project Mercury Report Q4 2018