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Starter Home Initiative

First time buyers have been hit hard in recent years, as mortgage availability tightened substantially. The need for more significant deposits to benefit from the very lowest mortgage rates has made it hard for first time buyers trying to save for their deposit whilst also paying rent.

An improving market in the last 12 months has seen first time buyer numbers rise but many are still putting down large deposits to bridge the gap between purchase price and the available mortgage amount.

As prices in some areas have risen it means that some are beginning to question whether they will ever be able to buy. Higher prices just make it ever tougher to make the leap to home ownership.

Recognising this, there have been various attempts to stimulate the market to help those that can’t manage to pull together a big deposit or are struggling with affordability. The two Help to Buy initiatives, to aid purchases of new build with the help of an equity loan and to provide mortgage options up to 95% of the purchase price, have provided the central thrust of Government policy to tackle the challenges.

The latest effort to address the imbalance of supply and demand in the property market is the Government’s Starter Home Initiative. This aims to offer homes to first time buyers under the age of 40 at a discount of 20% from the open market value. The scheme aims to open up brownfield sites for development and to remove planning levies to enable good quality homes to be built and made available at the discounted price.

The scheme was originally announced last year with a plan to build 100,000 new starter homes. That has been revised with a recent commitment to doubling the original number of new homes to 200,000.

It’s too early to know how mortgage lenders will approach the new scheme although it would be a surprise if it wasn’t supported by major lenders. There is not enough detail available to know whether they might plan to offer standard mortgage deals or take a more tailored approach. With the Help to Buy equity loan some lenders have produced specific deals whereas others have adapted their standard range.

It will be interesting to see how the initiative takes shape, especially for those first time buyers seeking an alternative. Those that are interested in learning more can already register their interest online to keep abreast of developments. It may not solve the ongoing mismatch between supply and demand but could offer a valuable alternative to some who thought the chance of their own home was still a long way away.


Guild Mortgage Service, Provided by London & Country Mortgages



Fixed or Variable?

One of the age old dilemmas for any mortgage borrower, whether buying their first property or switching deal on their existing home, is whether to fix their rate or go with a variable rate.

With mortgage rates plummeting in recent months the choice of deal is perhaps as good as it’s ever been for borrowers. With Bank of England Base Rate at a record low it’s no surprise that the vast majority are opting to fix their mortgage rate.

Fixed rates are rock bottom at the moment, largely because the threat of an imminent rate rise has evaporated. Low inflation figures have contributed to forecasters considering whether rates may be stable for the rest of the year, a sharp turnaround from just 12 months ago when a rise was expected.

That has seen funding costs fall, which lenders can pass on in lower mortgage rates. Competition in the market has also benefited mortgage borrowers, as lenders fight for business. As a result, fixed rates have hit new lows across the board, from short term deals through to long term fixes.

However, variable rates have also improved with a number of low rates available on Base Rate trackers and discounted rates.

Most of the time borrowers will be attracted to variable rates because they think that there is a chance that interest rates could come down. But with Base Rate at a low what do variable rates have to offer?

Some of the variable deals can offer lower rates than corresponding fixed rates although the margin between them can be surprisingly narrow.

A definite point of difference is that far more variable deals come without early repayment charges. This gives more flexibility for borrowers that want the option to overpay without being limited to the 10% per annum that typically applies to fixed deals.

If there is a potential house move on the horizon it gives the ability to review the options at that time, in contrast to most fixed rates. Penalties often apply throughout the fix so can limit options, as there is no guarantee that the borrower can satisfy the lender’s requirements at the time to take the mortgage to a new property.

Some may feel that Base Rate will remain low for some time, given that the Bank of England has repeatedly stated it’s likely to rise gradually when it does move. However, it’s dangerous to second guess interest rates and it’s important to consider how you could cope with rising monthly payments. Online calculators can help you work out how much a rate rise could affect your monthly payment.

Those that are worried about the prospect of rising interest rates or who have little slack in their monthly budget should still opt to fix. Given the fixed rates on offer at the moment, many are likely to continue to go for the peace of mind that they provide.

Guild Mortgage Service, Provided by London & Country Mortgages



Letting to Buy

Let to buy is an increasingly popular option for homeowners. The principle is very straightforward – moving into a new home and, rather than selling, retaining the current residence and letting it out.

The mortgage on the original property switches to buy-to-let terms (typically interest only, since it can be sold to repay the loan in due course, and needing rent to cover the payments with a healthy surplus), and where there’s sufficient equity in the property many raise additional funds to use as the deposit for their new home.

It’s attractive as a way of keeping hold of the existing home as both a long-term asset and an extra source of income. It’s also a good method of bringing diversity to any existing savings & investment plans, especially with an eye to the longer term, for relatively little up-front cost.

Letting to buy can work very well for couples moving in together where both already own a property, but is also a way of moving up the property ladder for people struggling to sell (or, more likely, sell at an acceptable price) their house in the current market.

For this reason lenders have become more cautious about let to buy in recent years: the rise of so-called “accidental landlords” raises concerns that some people are becoming landlords for the first time in an unplanned or ill-considered way.

So mortgage options can be more restricted than for experienced landlords, and most lenders will want to see evidence of the onward purchase to reassure themselves that this is not an attempt to get around normal affordability checks.

That said, most well-established buy-to-let lenders will have something to offer, and major names like BM Solutions (part of Lloyds group) and The Mortgage Works (a subsidiary of Nationwide) have lots of useful information for prospective landlords.

All the standard rules apply here: do some research into the local market, and be realistic about likely rent (a good estate & letting agent can be a great help here); think about whether you want to manage it yourself or have an agent do it on your behalf – generally easier, but at a price; don’t overlook other associated costs such as dedicated landlords insurance and potential tax implications; and most importantly make sure you’d be able to cover rental voids or repairs, especially in the first year or so while the “rent pot” is building up.

Loans are generally available up to 75% of the property value so it’s really only an option for those with a good amount of equity, and you should expect both the let-to-buy and new residential lender to assess how affordable the overall proposition is.

But with the continuing lack of housing stock, tenant demand high and a mildly encouraging outlook for house prices, let to buy can present a great opportunity for the thoughtful homeowner-cum-investor.

Guild Mortgage Service, Provided by London & Country Mortgages



Moving up the property ladder

Much has been made of the struggle to get on to the first rung of the property ladder in the wake of tighter mortgage availability and lending criteria over the last year, but those looking to take that second step and move up to a bigger property can also experience difficulties.

After deciding to move to a larger home, and having had an offer accepted on their property of choice, our clients came to the mortgage service for the Guild of Professional Estate Agents in need of advice and a quick turnaround.

They had initially approached their existing lender with a view to porting their mortgage across to the new property and increasing the size of their loan, but their purchase was jeopardised when they were informed that they had been declined on the basis of affordability, despite having a 40% deposit to put down.

Where standard income multiples were once the norm, affordability calculations are now used to determine applicants borrowing potential. Many lenders use figures from the Office of National Statistics to estimate average household expenditure based on different customer profiles as part of their lending decision, while others require a much more detailed breakdown of family spending.

The approach from lender to lender also varies, as it always has done, depending on their attitude to more significant outgoings such as childcare costs, and pension contributions – which some lenders will include as a financial commitment while others will not. The overall decision as to what size loan is considered affordable can therefore vary significantly.

If you are looking to move up the property ladder and want an idea of how much you can borrow, then lenders do have affordability calculators on their websites, but some may only be a basic indicator. Talking to a mortgage adviser who knows the whole market will give you a more accurate and rounded idea of your borrowing potential, as well as ultimately providing guidance on the most appropriate lenders to approach and the best deal for your circumstances.

Our clients were placed with another high street bank more suited to their needs, both in terms of the lending criteria regarding affordability, and speed of service. They received their mortgage offer within 2 weeks, and are now waiting to complete the purchase of their dream family home.


Guild Mortgage Service, Provided by London & Country Mortgages



Economic News_March_2015 Added:2015.03.12

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