01638 576478
customerservice@cms-uk.co.uk

Archive for May, 2015

Buy To Let – What You Need To Know

Thursday, May 28th, 2015

conveyancing marketing servicesWith the recent changes to the pension laws many 55+ investors are cashing in their pensions and seeking better alternatives to invest their hard earned cash to provide an income in retirement.

With interest rates remaining low, stock market volatility and fears of an impending bond crash many are looking to invest their pension pot in good old bricks and mortar.

The Buy to Let market is growing year upon year with some blaming the rise in Landlord ownership for increasing property prices and pricing first time buyers out of the market.

The Buy to Let market comes with no guarantees and mistakes can be costly.

Here are our top tips for new Buy to Let investors:-

Mortgages – shop around and use the services of an experienced mortgage broker. You will need a large deposit – typically 40% and the best rate deals often come with high entrance fees.
• Rent- most lenders will require the rent to cover 125% of the monthly mortgage payment. Giving leeway for periods when the property may be empty.
• Finding the property – remember the property is not for you to live in – a common mistake made by new Landlords. Choose your area wisely, if you are buying a starter home then look for good commuter links, schools and good local community services. Take advice from local agents and research on the property web sites on the internet.
• Finding a tenant – there are many letting agencies or you may decide to go it alone. Agencies will vet the tenant, do credit and background checks and collect the rent and tenant deposit in advance. They can also deal with ongoing rent collection and repairs. If you go it alone you will need to carefully check your tenant’s financial history using one of the credit agencies and always ask for references. Be prepared also to be available during evenings and week ends to carry out maintenance and repairs.
• Property inventory – Before your tenant moves in you will need to prepare a full inventory of the property, its condition and what fixtures, fittings and furniture are included in the tenancy. Back this up with photographs. Ensure the tenant signs the inventory. This will help to prevent disputes at the end of the tenancy.
• Tenants Deposit scheme – It is now a legal requirement that you place the tenant’s deposit in one of these schemes. More information can be found here: https://www.gov.uk/tenancy-deposit-protection
• Tenancy Agreement – Ensure this is drawn up by a qualified solicitor.
• Landlord’s legal obligations. You Gov provide an easy to read guide here:
https://www.gov.uk/private-renting/your-landlords-safety-responsibilities

The Queens Speech Today– Over a Million More People Given the Chance to Own Their Own Home

Wednesday, May 27th, 2015

victorian

Community Secretary Greg Clark is expected to announce landmark changes in the Queen’s Speech today to widen home ownership to millions of those wanting to own their own home.

Measures announced will include:-

Right to Buy to be extended to 1.3 million housing association tenants with the same discounts offered to council tenants.

The proposed discount for houses would be 35% of the value of the property once a tenant has been resident for 3 years rising by an extra 1% for each following year of residence. For flats the discount would be a more generous 50% of the value of the property once a tenant has been resident for 3 years rising by an extra 2% for each year of residence after that.

Right to Buy discounts were increased in 2012 and are capped at a maximum of £77,900 outside London and £103,900 in the capital city.

conveyancing quotesReceipts from the sale of council properties will be used to build new council homes for those on the waiting list.

First time buyers under 40 will be helped onto the housing ladder with a 20% discount on 200,000 new starter homes to be built across the country. A new register of brownfield land will help to fast track the construction of new homes on previously used sites near to existing communities.

The Help to Buy equity loan scheme is to be extended to 2020 giving even more people the opportunity to buy their own home. With the new Help to Buy equity loan scheme the Government lends you up to 20% of the cost of the property meaning that you only need a cash deposit of 5% and a 75% mortgage to make up the balance.

The Communities Secretary Greg Clark said the new Housing Bill would give more than a million people a helping hand onto the housing ladder.

Top Tips To Make Yourself Mortgage Friendly

Thursday, May 21st, 2015

Since 26th April 2014 it has been more difficult to obtain a mortgage. This is because new rules were brought in on that date called MMR (Mortgage Market Review). These rules oblige mortgage lenders to check very carefully that you can afford your mortgage repayments – even if interest rates rise.

OLYMPUS DIGITAL CAMERA

INCOME – most lenders will lend on a multiple of your income. It varies but 3 x the main income or 2.5 x a joint income is a standard rule of thumb. You will need:

  • At least 3 months payslips and possibly a P60
  • Income must be guaranteed – tips, overtime, shift payments won’t always be counted as income unless they are guaranteed
  • Self-employed will need audited accounts
  • An employer’s reference confirming this is a permanent position.

Lenders like employed borrowers with guaranteed income – those on contracts, overtime or tips will need to show an employers reference confirming guaranteed pay.

CheapFullCoverageAutoInsurance

CREDIT HISTORY – will be checked with one of the credit agencies.

  • Bad credit will go against you so get a credit check beforehand with one of the larger agencies.
  • You can challenge any bad entries on your credit rating and get them removed
  • You can improve your credit rating by reducing the amount of credit available to you – i.e. reducing your overdraft/credit card limits
  • A lack of credit history will go against you – so if you don’t own a credit card get one now.

Lenders won’t lend if you have a bad credit history or no credit history. If your credit history is not 100% you can improve it and there are agencies that can help you with this.  If you have no credit history you need to work at putting one in place now. 

file4061250180505

EXPENSES – You will be asked to fill out a form detailing what you spend your money on. You will be asked to provide bank statements which will be checked against the form. There are 3 categories

Essential Expenses

  • Food, cleaning and laundry, utilities – i.e. gas, electricity, heating costs, water bills, phone bills, essential travel, council tax, insurance, leasehold expenses such as  ground rent or service charges

Basic Living Costs

  • Clothes, furniture, appliances and repairs, personal goods – i.e. toiletries, leisure costs, TV licence, childcare
  •  Repayments and other commitments
  • Credit card bills, loans, hire purchase, child maintenance or alimony

Check your bank statements to see where you are spending your money, if you are spending a fortune on gym membership or personal maintenance then you need to cut those expenses now before applying for a mortgage. Remember your bank statements will be checked against the entries on your form. The credit check will also show all bank accounts in your name as well as phone contracts, loans, credit cards, mortgages and rent commitments

What Happened To The Housing Ladder?

Monday, May 11th, 2015

It is with relief that we welcome the stability of a majority government, especially one that believes in the concept of home ownership.

The raft of proposals that has been promised to help first time buyers onto the housing ladder is to be applauded.  The Help to Buy 2 Scheme, The Help to Buy ISA, discounts on new homes of up to 20%, more Social Housing being released under the Right to Buy Scheme, the building of 200,000 new homes on Brownfield sites.

However, solving the problems of first time buyers is not the total solution to solving the problem of the property market. Helping First Time Buyers provides a popular ‘sound-bite’ but no-one seems to be looking at the bigger picture as to why there continues to be a lack of new property coming onto the market.

Could it be that many couples who have saved hard and sacrificed much to get onto that first rung are simply stuck there? Typically, young couples move up the housing ladder as their families grow and their careers progress.  But with wages growing by just 1 or 2% per year – if at all – and property prices growing currently at 8.4%* house prices rises easily outstrip any increase in earnings.  Add to this the cost of moving, with estate agents fees at 1-3%, stamp duty, legal fees and removals the cost of moving that one step up the ladder is prohibitively expensive.

Is it feasible for the average first time home owner to pay the bills, start a family and manage to save towards the cost of a larger home? Probably not!

Strict lending criteria means that most lenders use a multiple of income criteria at 3 x salary and since the Mortgage Market Review (MMR) in 2012 lenders now take into account the borrowers monthly expenses to ensure the borrowing is affordable.

Example: Assuming the average couple own a property worth £185,000 and they have 25% equity in the property,  this gives them £46,250 to put down on their next house at say £215,000, leaving them with a deficit of £168,750 + moving expenses of just over £8,000 (agents fees, stamp duty, legal expenses, survey and moving expenses) they would need a mortgage of £176,750. Using the lender’s calculation of dividing by 3 this means our average couple would need a joint income of approximately £58,900 to move just one step up the ladder.

The simple truth is that income does not grow in proportion to property prices. Property prices will not, in the long term, come down and income cannot rise to the levels that lenders currently require to comfortably repay the amount of mortgage needed.

The answer must be a concerted effort by Government and the Council for Mortgage Lenders (CLC) to make mortgage borrowing more affordable for everyone on the property ladder and not just first time buyers.

There are three potential solutions that Government and the CLC could consider:-

  1. The re-introduction of Mortgage Interest Relief at Source (MIRAS). This tax incentive provides borrowers with tax relief on the interest payments of their mortgage. As the interest is deducted at source it means that the monthly mortgage payment is reduced – meaning that the lender can lend more.
  2. Longer term mortgages. Traditionally the term of a mortgage has been 25 years however, with people living and working longer there is no reason why this could not be extended to a term of 40 – 50 years – this would halve the monthly repayments and mean that the lender could lend much more.
  1. Longer fixed rates. As the lender is duty bound to ensure that the mortgage is affordable they currently have to calculate the loan on the basis of future interest rate rises. With a long term fixed interest rate this ceases to be a problem. We are currently seeing longer fixed term interest rates – but why not for the entire length of the mortgage?

Sharon Buthlay

Property Lawyer

Director of Conveyancing Marketing Services Ltd

* House price index January 2015

First time buyers in despair as house prices continue to spiral ever further out of reach

Thursday, May 7th, 2015

With house prices continuing to rise and salaries stuck it is no wonder that ‘generation rent’ are despairing at ever being able to save enough deposit to buy their own home.

The divide in house price affordability and pay has never been greater and as fast as they try to save, our younger generation can see their dream of home ownership slipping ever further away.

It takes the average first time buyer 5 years to save the 15-25% deposit lenders require for home ownership.  By which time property prices have increased again and again – meaning that hapless home owner wannabees are caught in a vicious circle.

None of the current Government backed schemes answers the problem of home ownership affordability in the long-term.  Prices won’t come down and salaries won’t rise to the level they need to.

The simple reality is that the amount of mortgage available to buyers needs to be higher but the monthly repayments still need to be affordable.  This could be achieved in a number of ways:

Increase the term of mortgages – traditionally 25 years – by increasing the term to 40 or even 50 years monthly repayments could be halved. Build in an option for early repayment as salaries rise and equity in the property is achieved.

  • Offer longer fixed rate mortgages.  The amount of lending is currently curbed because lenders have a duty to ensure that borrowers can afford to repay their loans even if rates rise.  If rates were fixed for the term of the mortgage this would provide more security for the lender and the borrower and lead to higher lending.
  • Bring back Mortgage Interest Relief at Source (MIRAS). One of the more popular tax breaks, originally introduced in 1969 by Roy Jenkins to encourage home ownership, MIRAS allowed borrowers tax relief on the interest on their mortgages. It was abolished in the year 2000 by Gordon Brown as a ‘middle-class’ perk. The tax relief is given at source (i.e. it is deducted from the monthly mortgage payment) making mortgage payments more affordable. This in turn means that lenders could be more generous in the amount they are prepared to lend, thus decreasing the amount of initial deposit our first time buyers would need to find.

The mortgage industry need to work with the Government to provide better, more affordable mortgage lending to produce a long term solution to this knotty problem.

 

PROMISES, PROMISES BUT WHICH PARTY WILL DELIVER THE UK DREAM OF HOME OWNERSHIP

Wednesday, May 6th, 2015

Conservatives:

Election pledge to deliver 200,000 new homes for first time buyers. UK residents under 40 would be given a 20% discount

  • Help to Buy ISA announced in the 2014 budget, in force from August 2014 promises that the Government will put in £50 for every £200 saved – up to a maximum of £3,000. Can only be used towards the purchase of a house up to the value of £450,000 within London and £250,000 outside London
  • Pledge to unlock Brownfield sites to build up to 400,000 new homes
  • Help to Buy 2. Launched in October 2013 provides a partial mortgage guarantee for those with a 5% deposit or more. Property must be valued under £600,000.
  • Pledge to reform the Right to Buy scheme to include the 1.3 million Housing Association properties in England
  • Stamp Duty reform announced in the 2014 budget – Came into force December 2014, cut stamp duty for 98% of home buyers

Labour:

Pledge to abolish stamp duty for 3 years for First Time Buyers up to £300,000.  Over £300,000 and stamp duty will be payable at the full rate.

  • Pledge to build up to 200,000 homes each year by 2020 including substantially more social and council housing
  • Pledge to prioritise local first time buyers in the sale of 50% of new homes built in the area – must have lived in the area for 3 years and  purchase within 2 months

Lib Dems

Pledge to build up to 300,000 new homes each year in the form of social housing and new garden cities

  • Pledge to create 30,000 Rent to Buy homes by 2020

It’s a close call in the 2015 general election and it’s good news for home buyers that our political parties are waking up to the importance of home ownership for our young people.