Failure to comply with MEES could affect your finances

March 17th, 2018 . Posted in Landlords |

Some landlords are likely to be affected by the Government’s upcoming Minimum Energy Efficiency Standards (MEES), as these key obligations and responsibilities to comply will largely fall on them. Specialist Landlord Insurance provider Just Landlords explains why it’s essential that landlords stick to the rules.

From 1st April 2018, it will be illegal to grant new tenancies or renew existing contracts if the building in question doesn’t meet the minimum Energy Performance Certificate (EPC) rating of E. As such, it’s important you’re able to get your property up to scratch as soon as possible, as it could greatly affect both your long-term and short-term finances.

Whilst the necessity of an EPC rating is not new, and the necessity of this certification came into place in 2008, the requirement for an E rating will now apply to nearly all buildings and tenancy agreements. As well as possibly incurring an upfront fine and fixed penalty, you might find yourself without tenants until your property meets the necessary standards, losing out on income, which can be avoided.

The most expensive consequence of failing to comply with the new MEES is a potentially hefty fine. If you don’t make sure your building at least holds an E rating before letting it out, and you still let it to tenants, you could be facing fines of more than £4,000, possibly even higher depending on the circumstances and your property.

At only £60 to £120, obtaining an EPC for your property is definitely a better option than possibly being fined thousands for not complying with the new MEES. You simply book a qualified assessor to inspect your property and assign you a rating. If it doesn’t meet the new legal requirement of E, some things you can do to improve it include:

  • Changing lightbulbs to low energy versions
  • Insulating your roof
  • Ensure any cavity walls are filled (funding is sometimes available for this)
  • Install renewable energy sources, such as a small wind turbine or solar panels
  • Introduce a room thermostat, individual radiator valves or a boiler programmer
  • Replace your old boiler with a more efficient model

Whilst it might not seem like the most appealing way of spending your hard-earned profits, especially if you don’t personally live in the building you own, you could greatly improve the quality of life of your tenants. Not only this, but if you should find yourself without tenants, you could attract potential tenants much quicker if your property complies with the new MEES, as well as increasing the value of your property if you come to sell if one day, or even the monthly rent price.

With potentially no tenants in the property until the EPC rating is improved, it could mean that months of rent are missed, meaning you’re losing out on valuable months of income. Not only does improving your EPC rating benefit any future tenants on cheaper fuel bills, but, if there is a period of time in which there is nobody renting the property, the landlord is generally responsible for bills. Especially during the winter, when turning the heating on in your properties helps keep damp and frozen pipes at bay, this will be much more cost effective for all involved if your property is more energy efficient.

Mortgage Broker or Bank?

February 13th, 2018 . Posted in News |

Whether you are a first-time buyer looking for a mortgage, remortgaging, looking to move into a bigger home or want to take advantage of the government’s Help to Buy scheme, you have one important decision to make: whether you should use a mortgage broker or bank.

In this article we will look at the benefits and pitfalls of going direct vs using a firm of independent mortgage advisers like Visionary Finance.


Going Direct to your Bank/Building Society

Of course, it is possible to approach your bank or building society and arrange your mortgage directly with them. One of the major benefit of doing so is that the bank will know your profile as a customer thereby potentially reducing the requirement of supplying supporting paperwork and documentation. They may also be able to offer you a pre-approved lending limit so you will know at the outset how much you lending you will be eligible for. By having a pre-existing and long-term relationship with your bank/building society, however, provides no guarantees that you’ll benefit from any preferential mortgage rates, because banks and building societies can only offer mortgages from their own product range. A further limitation to using your own bank/building society is that you have to fit their specific eligibility criteria. If your circumstance does not meet the rigid lending criteria you will either be offered a lower loan amount or declined an offer for lending. This lack of flexibility in lending policy, as well as limitations in mortgage products, can mean that you may be paying a higher rate of mortgage interest and not benefitting from the best deal in the mortgage market.


Using a Mortgage Broker

When identifying which firm of brokers you would like to work with, it is important to consider the following:

  1. Is the broker independent of all banks and building societies?
  2. Does the broker offer mortgages from the whole of the mortgage market or are they tied to a limited panel?
  3. Is the broker charging a fee for their service or are you getting a fee-free brokerage service?

Some mortgage brokers are tied to certain lenders only, meaning they are restricted in the number of lenders they have access to, thereby limiting the possibility of you getting the best mortgage deal. As a consumer, your best position would be to engage with a broker who will offer you mortgage options from the whole of the mortgage market meaning you get the lowest rate based on your circumstance. Many independent mortgage brokers charge a brokerage fee which will be payable to them once they arrange your mortgage for you. In addition to the brokerage fee charged, the broker will also receive commission from the lender. Paying a brokerage fee doesn’t mean that you will receive any special access to rates or lenders because if the broker is whole of market a non-fee charging broker can do exactly the same things as a fee charging broker. Charging a fee in addition to receiving commission is merely brokers topping up the amount they earn on a case.


Why Visionary Finance?

We have built our reputation on providing excellent customer service, and what makes us an attractive brokerage is that we do not charge a brokerage fee and we are an independent whole-of-market mortgage broker.

Our service offering provides a very convenient solution for our clients ensuring that most of our document verification is done electronically. We also transact with many of our clients by telephone and email allowing their mortgage to be facilitated without having time consuming face to face meetings. We’re able to utilise and leverage our wide knowledge of the market to provide you with a mortgage deal that suits your circumstances. Our expert mortgage advisors are able to provide you with impartial advice and we take pride in offering a personal service.

We are also specialists in the new build sector and for help-to-buy mortgages. We have built relationships with some of the largest housing developers in the country, offering a tailored solution that helps first-time buyers to get on to the property ladder.

Additionally, we have extensive knowledge in buy-to-let mortgage market particularly since the recent PRA and FCA changes that were introduced in September 2017. We have built an excellent reputation with landlords across London and the South of England. Our knowledge of the buy-to-let mortgage market and the tax implications for landlords puts us in the best position to provide expert advice.

If you are considering a mortgage broker or bank, check out this useful guide from, or get in touch with our team today by calling us on 01908 465100 and we’ll demonstrate our customer service.

Is now a good time for interest rate security on your mortgage?

February 12th, 2018 . Posted in News |

In light of the recent announcement by the Bank of England that rates are likely to rise sooner than first expected, why not allow us to review your mortgage and to explore the option of fixing your mortgage to hedge against any interest rate movement.

In February’s Bank of England Monetary Policy Committee meeting, it was decided that the base rate would be kept at 0.5% but warned that an increase in the base rate would come sooner than was anticipated. Ben Broadbent, the Deputy Governor of the Bank of England, said on Friday that he did not think that a couple of interest rate rises in the space of a year would come as a great shock. On the back of these comments the financial markets are predicting that there is a 70% chance of a rate rise in May 2018.

As a result of these forecasts we have looked into the best fixed-rate mortgage options for you to consider, in order to minimise your exposure to interest rate movements.

If you would like to discuss your specific circumstance or mortgage requirements with us, then please get in touch immediately on 01908 465100. We will run through a few questions to understand your circumstance and will be able to instantly provide you indicative mortgage options.

Insurance Cover – Online vs Human

January 18th, 2018 . Posted in Protection |

Life insurance isn’t the most engaging of topics at the best of times. If the thought of life insurance is making you want to sink in to an early grave, bear with us. Even if you come away with a half-smile, having learned something mildly interesting, it’ll be worth the read.

As the technological landscape changes, so does how we get around, how we communicate and how we source products. It used to be that we implemented technology to help us adapt to a more demanding market, but it seems of late it’s us who are now having to adapt to an ever evolving, unrelenting, technology-ridden culture. Technology has certainly made some things easier now. But does that mean they’re better?

With protection products, like anything from music to underwear, you can buy it online. It’s fast. It’s easy. And you can do it at your leisure. So, why not buy online?

If you know what you’re looking for and genuinely read the Terms and Conditions for everything you buy or subscribe to, there’s no reason not to buy protection products online – but at your own risk.

By buying life insurance, critical illness cover or income protection online yourself, it’ll mean you won’t have access to the Financial Services Compensation Scheme as the onus is on you to fully understand what you’re purchasing and its limitations. If, like 73% of people in 2014 (source: Guardian), you do not fully read the T’s & C’s, you could be in for a huge surprise when it comes to a claim.

If you misunderstood a question and accidently answered incorrectly when applying, the insurer could class that as ‘non-disclosure’. Simply put, it could mean they don’t pay out. This often adds to the myth that life insurance policies never pay out. To ease your mind with this regard, the Association of British Insurers (ABI) confirmed in 2015 98.2% of all term assurance policies (the most popular type of life insurance policy sold) paid out (source: ABI).

On critical illness policies, there are definitions the insurers use for illness covered. These definitions have a minimum standard laid out by the ABI. For example, the definition for stroke with some insurers will be such that the claimant will have to have been told by doctor (or medical practitioner) they’ll have permanent residual symptoms brought on by the stroke in order for them to pay out a claim. Other insurers may say they’ll pay out after 24 hours of the claimant having symptoms of the stroke.

When buying online, there is little material available and that which is available is cumbersome and non-specific. ‘Key facts’ documents rarely have the full definition in writing. You’ll have to have purchased the policy and had ‘the handbook’ sent to you via post for you to see the particular definition – or search it online, then compare with other insurers. Then, liaise with someone with a medical background to establish which definition is more robust. Even when this is done, you’ll be led to complete an application online and if you have a medical disclosure, family history of things like diabetes, cancer or Huntingtons Disease or your occupation requires overseas travel, you could be stuck with a price increase (known as a rating or loading) and/or have exclusions applied to your policy.

Sadly, most people will either just take it on the chin and keep the policy they applied for, as they don’t have time to go through another application, reapply with another insurer and get a similar situation, or they’ll give up on protecting themselves completely.

This needn’t be the case.

If you speak to a professional, preferably someone with an R05 qualification, they can ask about health, lifestyle, occupation etc up front. They can also speak to the underwriters to establish an accurate quote. Furthermore, they will have a good understanding of the quality of the policy (particularly with critical illness cover and income protection). They will also be able to give sound advice around how best to structure the cover to keep costs to a minimum.

Give one of our Protection Specialists a call today and we’ll do just that.

This article was created by Kish Gohil, senior protection consultant.

A fee-free mortgage brokerage service

January 16th, 2018 . Posted in News |

At Visionary Finance, we believe first and foremost in the importance of providing excellent customer service. It’s the foundation that we have built our business on, established since 2008. We understand that the house buying process is a stressful and expensive process, with various fees and charges payable along the way. Some of these fees include solicitor fees, search fees, estate agent fees, valuation fees and mortgage product fees. All these fees can amount to thousands of pounds and therefore to reduce the fee burden on our clients, we offer a fee-free mortgage brokerage service.*

We manage the entire process on our clients’ behalf, from the initial fact-find, product and research stage, right through to application submission until the mortgage offer has been issued by the lender. For this end-to-end professional service, we do not charge our customers any brokerage fee. We only recover a procuration fee from the lender on completion of our client’s mortgage transaction. That means that we will stay completely engaged with our client’s mortgage application from the first conversation, right up until the mortgage funds are secured and completion of the house purchase has taken place. As providing excellent customer service to our clients is paramount, we have our own mortgage processing team who keep our clients updated throughout the application process. This ensures speed and efficiency of service, resulting in queries and document requests from lenders being responded to promptly.

We provide our customers with honest and impartial advice. We have got access to over 50 different high street and specialist mortgage lenders, some of whom aren’t available directly and only available via mortgage intermediaries like ourselves. This provides our customers with exposure to the whole of the mortgage market, giving us the ability and flexibility to service all personal circumstances and mortgage types.

We are approved by some of the largest new-build housing developers in the country. If you are looking to secure a new-build property, we can provide you with some excellent new-build mortgage options. We also provide specialist advice for the government help-to-buy mortgage schemes. If you’re seeking to get a foot on the property ladder, our vastly experienced mortgage consultants can discuss your options.

Our knowledge in the buy-to-let sector is unrivalled and we work with numerous experienced and professional landlords to help facilitate mortgage funding. Due to recent changes in the buy-to-let lending sector this area of mortgages has become very specialised. We are confident that by working with us you can be sure to be receiving the best buy-to-let mortgage advice, all for zero brokerage fee.

We’ve built our business on the firm foundations of providing a service we can be proud of. If you’d like to begin the process of securing a mortgage without having to pay a broker a fee and receiving unrivalled customer service then please get in touch with our team.

Please read our customer testimonials, demonstrating our credibility and give us a call on 01908 465100 if we can help secure a fee-free mortgage.*

* There may be a charge applicable for foreign mortgage applicants.

Investment Choices for Landlords in 2018

December 18th, 2017 . Posted in Landlords |

There’s no denying that 2017 has been another challenging year for property investors. With more obstacles to overcome and inevitable changes in the pipeline, specialist Landlord Insurance provider Just Landlords looks at the investment choices that landlords have going into 2018…


Be prepared to change your strategy

The buy-to-let sector has faced a barrage of legislative and regulatory changes over the past couple of years, which could have left your portfolio a little worse for wear. In a changing market, you may find that you need to make changes to your investment strategy, in order to make your portfolio more profitable.

To be as prepared as possible for a potential change in strategy, start assessing how well your portfolio has performed over the past year and highlight any areas that need addressing. If you find severe issues, for example, if one of your properties is making a loss, then you know that you need to make changes in the New Year.


Consider moving to a limited company 

One change that you could think about making is moving your property portfolio into a limited company structure. This particular adjustment relates specifically to the Government’s reduction in tax relief on landlords’ finance costs. If you operate as an individual landlord, then you may be aware of the changes, which have been brought in on a gradual basis from April 2017.

Next year, further reductions will be applied, so you should start looking at your taxes on a long-term basis, considering whether moving onto a limited company structure could be the best bet for you – limited companies are exempt from the changes.


Think about your whole portfolio 

Furthermore, the Bank of England’s Prudential Regulation Authority (PRA) introduced some additional underwriting standards on portfolio landlords – those with four or more mortgaged properties – at the end of September this year. This could make it more difficult for you to expand your portfolio using mortgages in the future.

In addition, buy-to-let landlords also have the Government’s 3% Stamp Duty surcharge to consider when purchasing more properties. However, you must think about whether these short-term hurdles are significant enough to damage your portfolio in the long-term.


Look at how your portfolio is managed

While the Chancellor appeared to give landlords a break in his latest Budget announcement, 2018 is still set to bring with it some regulatory changes in the private rental sector, most notably a ban on letting agent fees for tenants. This could see agents pass these costs onto their landlord clients instead.

If your finances aren’t as healthy as they used to/should be, one option to think about is managing your properties yourself, rather than using a letting agent. However, you must ensure that you have enough time and knowledge to fulfil all of your legal obligations as a landlord before choosing to self-manage.


In such uncertain and shifting times, it can be difficult for investors to stay completely on top of all of the regulations and financial changes that they face. Remember that it’s wise to always seek professional advice before making financial decisions.

The 95% mortgage conundrum

November 6th, 2017 . Tags: ,
Posted in Help to Buy |

In 2013, Help-to-Buy was released in a flurry of excitement – first-time buyers could get onto the property market with a 5% deposit and lenders were cushioned in the event of the homeowner defaulting on a mortgage.

The Help-to-Buy 95% mortgage loan-to-value guarantee scheme saw 20% of the mortgage amount underwritten by the government to encourage lenders back to the marketplace (after the FCA set strict lending criteria) by limiting their potential losses. While the later Help-to-Buy equity loan saw the government lend up to 20% of the cost of a new build home (up to 40% in all London boroughs since 1 February 2016), provided the buyer could find 5% cash deposit and a 75% mortgage – however, after five years, interest was due on the government loan and the government due its share of the equity growth or loss on its sale. The situation as it stands currently is that the mortgage guarantee scheme was discontinued in December 2016 while the equity loan scheme will continue until 2021, as confirmed by then Chancellor, George Osborne in November 2015.

This month, October 2017, Theresa May said the government will find an extra £10bn for the Help to Buy scheme to let another 135,000 people get on the property ladder. Details of this funding are due to be announced in November’s Budget.

This additional support raises some interesting questions. Why has only the Help-to-Buy equity loan continued? And why can’t the principle of an underwritten mortgage scheme be used to help first-time buyers who would like to buy a period property rather than a new build?

After all, what is the difference between a Help-to-Buy mortgage and a 95% loan-to-value (LTV) mortgage anyway? For many lenders, this is the most interesting question. Help-to-Buy was essentially a 95% mortgage that the government guaranteed (in part) that encouraged lenders to offer higher LTV ratios than they had previously. The mortgage for first-time buyers of new builds gave the property market a much needed boost.

To answer why one element of the Help-to-Buy scheme is continuing when the other hasn’t, it’s worth considering the house builders themselves. Currently 60% of new properties are built by ten companies; it stands to reason that those ten companies just can’t keep pace with demand. With the mortgage guarantee element scrapped but a continuation of the equity loan scheme, the government seems to be keen to support the developers who have already invested in future projects to increase the housing stock.

Two important things have happened since the introduction of Help-to-Buy then: one, developers have been supported to increase the much-needed housing stock and two, after seeing the reality of 95% mortgages, lenders are now feeling comfortable enough to increase the scope of the rest of their products. Proof of this is the fact that some have begun to offer mortgage products at high LTV ratios without government support and outside Help-to-Buy’s remit. These low-deposit mortgages are perfect for people who are already homeowners, perhaps young families, looking to take the next step but not able to save the finances to do so thereby helping to keep the market fluid.

Without governmental underwriting however, there are fewer products available in the 95% LTV range. The 95% mortgages are a higher risk for the lender (obviously without the government’s underwriting) and are likely to have higher interest rates. At the time of writing the comparison between the interest rates for Help-to-Buy and 95% mortgages is stark. Help-to-Buy: 1.39% (two-year fixed interest) versus a 90-95% LTV product at 3.89%.

So in much the same way as Help-to-Buy supported first-time buyers to buy a new-build, could the same principle be applied to support first-time-buyers to purchase a period property or a so-called ‘second-hand’ property? Could the government extend its underwriting support to all 95% LTV mortgages? According to Sarah Davidson in This is Money’ from January this year, the leap from 49 Help-to-Buy products in 2013 to 242 in 2017 shows that the Help-to-Buy scheme stopped lenders from seeing first-time buyers as ‘risky’ customers. In fact, since its launch, the scheme has helped more than 200,000 buyers, accounting for one in 12 of all first-time buyer transactions.

If the government could be encouraged to re-enter a mortgage guarantee scheme which included second-hand properties, as opposed to purely new-builds, then surely it would open up the housing market and give an entire swathe of the population some financial flexibility and better life choices, especially in areas of the countries where new-builds are not so prevalent.

If you would like to discuss first-time-buyer mortgages or the Help-to-Buy equity loan options that are available to you and find competitive rates, make contact with the Visionary Finance team today.


Buy-to-let mortgage changes for portfolio landlords

October 10th, 2017 . Tags: ,
Posted in Landlords |

From the 30th of September 2017, the Prudential Regulation Authority will implement changes to the way buy-to-let mortgage applications are assessed for portfolio landlords.

It seems that the Government and financial regulatory authorities are not prepared to forgive and forget that careless mortgage lending played a significant part in 2008 global financial crisis. Tougher mortgage assessments have already been implemented for private residential property owners and now it’s the turn of portfolio landlords.

Portfolio landlords are defined as having four or more distinct mortgaged buy-to-let properties, either together or separately, in aggregate. They are currently assessed for a buy-to-let mortgage based on the rental income and property value of the property they are applying for. Lenders may limit the number of buy-to-let mortgages that can be taken out with them but don’t concern themselves with mortgages a landlord may have with other lenders. So buy-to-let portfolio landlords have always been able to mix and match to get the best deal, and spread outgoings across their portfolios as standard practice. For example, the majority of their buy-to-lets are profitable then they cover any shortfalls on the ones that aren’t. For buy-to-let landlords, the business has always been about finding the balance between outgoings and profit.

In recent years, that business has experienced a few hurdles however. The Wear and Tear tax allowance has been removed; an additional 3% Stamp duty is now charged on second or more property purchases; from April this year, tax relief has begun its tapering descent from 40% to 20% by 2020; and now, for any buy-to-let mortgage application, lenders will have to assess the value and risk of the whole portfolio.

Yes, the whole portfolio. Lenders will have to work out the amount of aggregated debt, the cash flow and associated costs from multiple properties alongside the risks from the property itself. What’s more, they will assess the landlord’s history in the business to work out their risk.

Depending on the lender’s comfort levels, their decision to lend will be based on a landlord’s property investment experience, total borrowing across all properties, assets and liabilities (including tax obligations), total income and whether the new application will add to or detract value from portfolio. Landlords are advised to keep an up-to-date property portfolio spreadsheet, business plan and cash flow forecasts, the past three months’ bank statements, SA302s, tax return documents and tenancy agreements handy.

In addition, lenders will apply a stress test to the loan based on a landlord’s ability to pay should the interest rate rise above 5.5% (between 4% to 5.5% on 5 year fixed rates) and only once the affordability criteria has been met will a lender consider the mortgage based on whether the property’s projected rental value would equal 145% of the monthly mortgage payment.   Plus the whole process will need to be repeated for every new mortgage application or refinancing. The fallout from the 2008 financial crisis is still being felt and all this is to make sure that lending is responsible.

For lenders, it goes without saying that the volume of paperwork will increase exponentially and for some, buy-to-let mortgage products will become more trouble than they are worth. So are landlords facing a dreary future of paperwork, more expensive mortgages with fewer product options? Perhaps, but the likelihood is most lenders will “up-skill their underwriters” while other specialist buy-to-lenders will simply diversify their products to take into account the changes. It also will make brokers more important than ever.

Julian Sampson, Partner (Lending and Real Estate) at TWM Solicitors, also advises: “What has become apparent since the PRA announcement is that lenders have been waiting on each other to release details on how they are treating portfolio borrowers. This, in turn, has knocked onto the intermediary community.

“Those most capable of assisting in such short notice have been those with the internal capacity to assess each lender’s requirements in short measure, which means turning to specialists rather than dabblers will be the most important outcome.

“Landlords should already be able to identify their weakest assets, and the PRA changes will mean underwriting in the round will not be achievable. Therefore, Landlords should look at their leverage positions generally, and work to even their collateralisation as best possible.”

Brokers could end up being the buy-to-let saviours. Advising portfolio landlords on what information needs to be submitted, what products on the market best suit their needs (including a wide selection of specialist lenders often with preferential rates based on their business relationship with the broker), experience navigating the waters of complex buy-to-let finance and whether listing the business as a limited company is worth considering for tax purposes.

Sampson adds: “The macro-economic situation in the United Kingdom means that buy-to-let remains a vibrant market, and whilst it will suffer its fears alongside other areas, it will remain a strong stable market for those Landlords who control leverage, act professionally and keep abreast of legislative changes such as the Energy Act impact on EPC’s next year. Buy-to-let will continue to see new lending entrants and growth in 2017, and so they clearly foresee this is an area worthy of their funds.”

Vidhur Mehra, Finance Director at Benham & Reeves Residential Lettings advocates making sure your “house is in order”. This means ensuring that the information you need regarding your properties is up to date, organised and readily available. Vidhur insists this will be invaluable in assessing any impact of the changes.

We also asked Vidhur what’s the most significant change on buy to let mortgage changes for portfolio landlords? And in this case how should landlords approach it?

  • Regulations: whilst sometimes onerous, they are there for protection which is beneficial to the market overall.
  •  Excessive borrowing can become a problem. The stress tests will become an important consideration.
  •  Using debt finance is sensible but plan ahead and don’t over-leverage

In the uncertainty of September’s changes, this advice and support will be invaluable. Matching the portfolio landlord and their mortgage requirement with the right lender will make a huge difference in terms of time, effort and cost. So why not make an appointment to talk through your buy-to-let borrowing options with Visionary Finance today?


Updated: 11th October 2017

The cautionary tale of the interest-only mortgage

September 28th, 2017 . Tags: , ,
Posted in Landlords |

There was a time that interest-only mortgages were viewed as a win/win option because for the term of the mortgage, the repayments were only the interest on the loan. For people looking to buy their own home, they were a lower-cost option that meant homebuyers could buy a higher value property than they could have considered on a repayment mortgage (though still subject to the normal affordability checks) or limited by their own variable income when applying for a mortgage.

For landlords, they were a low-cost, high-profit investment that could be sold to clear the mortgage debt once the repayment period ended. So why did the Financial Conduct Authority refer to them as a “ticking time bomb”?

Simply because not enough emphasis, then and now, has been put on the need for a strategy to repay the underlying debt. According to the Council of Mortgage Lenders, one in ten families has no idea how they will pay off their loan when they reach the end of the term and still owe the amount they borrowed. Even those who have made provisions, such as a feeder account that they can pay extra into or an endowment policy linked to the stock market, may find that the final amount falls way short of the loan. Without the ability to raise the necessary funds, they will have to sell their homes to clear the debt.

Holly Thomas writing for The Guardian notes that interest-only mortgages are: “Seen as one of the worst examples of irresponsible lending in the years running up to the credit crunch, when their popularity soared. The majority of deals were taken out without any proof that borrowers could pay off their debt.” Obviously with today’s tightened mortgage affordability checks, no new interest-only mortgages are being approved without a water-tight repayment plan but that doesn’t help the two million people who have the debt deadline looming and have failed to make any repayments. Nor does it help those who have consistently made repayments into a stock market-linked endowment policy or ISA and are finding the amount is far lower than will be needed.

So what can be done? Taking independent financial advice is the best course of action. For some, there may be time to switch to a repayment mortgage or even for a portion of the mortgage if a repayment ISA or endowment policy has fallen short. For others, it may be possible to apply for a new, more appropriate, mortgage on the basis that property values have risen and circumstances have changed. Downsizing to another property is always an option or negotiating to make overpayments or extend the term of the existing mortgage are viable considerations too. There is another element to the interest-only story however, and that is the number of pensioners facing the “interest-only time bomb” for whom the above may not be possible.

Research by More 2 Life shows 41% of over 65-year-olds, 37% of 65 to 74-year-olds and 56% of 75 to 84-year-olds have an outstanding interest-only mortgage. Naturally, mortgage age limits prevent them from being eligible for a new mortgage arrangement or even negotiate their existing mortgage arrangement; setting up a repayment or endowment or even overpaying may be too little too late and selling may be the only option, provided they are eligible for a new mortgage deal. It is a pretty worrying state of affairs and one which is currently being investigated by the FCA.

For pensioners facing this problem, equity release is a serious consideration – essentially using the value of the property to pay for it. Figures show that £1.25bn has been released from homes in the first half of 2017 alone, that’s £6.9m a day, according to Key Retirement, and it will have been used, amongst other things, to pay off interest-only mortgage debts. Equity release firms are no doubt carrying out due diligence that the mortgage can be repaid in total from their payments (otherwise there may be legal implications over the ownership of the property with the mortgage lender once the occupant passes away). It has also led the Council for Mortgage Lenders to warn that for some, the equity in their homes isn’t sufficient to pay the mortgage debt.

For many reasons, the Financial Conduct Authority was right in its assessment. Interest-only mortgages require a great deal more thought than many were initially led to believe was needed. If you have an interest-only mortgage, or are interested in applying for one, make an appointment with Visionary Finance to discuss your options thoroughly and make informed decisions. As an independent FCA-regulated broker, we will discuss with you the best offers available in the marketplace to suit your personal circumstances.

Help to Buy: what’s on the horizon

September 28th, 2017 . Tags:
Posted in Help to Buy |

Back in 2013, against a backdrop of tentative economic recovery driven by the property market, the government introduced an inspired home buyer’s scheme known as Help to Buy. It would encourage more people to market by giving first-time buyers a helping hand with the deposit or mortgage costs especially when rising prices and stringent affordability tests were locking many buyers out.

Under the Help to Buy Equity Loan, the government lends up to -20% of the purchase price (up to 40% in London) to help buyers to get on the housing ladder, especially helpful for those who are perhaps struggling to save a deposit.

The Help to Buy ISA scheme boosts savings by 25% to help towards a deposit and in addition, the Help to Buy Shared Ownership scheme allows people to buy a portion of their home if they can’t afford mortgage payments on the full amount. They pay rent on the share of the property that they don’t own and can buy greater shares when they are able to.

With so many options, first-time buyers are no longer finding the first rung of the property ladder out of reach and house builders are experiencing a welcome boost in demand.

The good

In fact, figures from the Department for Communities and Local Government show that Help to Buy has been responsible for £17.7bn worth of properties; for between a third and a half of all new-build transactions; for 80% of purchases by first-time buyers; and for 14% of all new residential builds. More than 100,000 people have benefitted from taking out a Help to Buy loan in one form or other.

New builds are particularly attractive under the scheme because only a 5% deposit is needed. Legal and General Mortgage Club noted that between 35-40% of its new build sales were through the scheme. So news that Help to Buy is under review and that’s its future is uncertain has been greeted with concern from all corners.

The bad

For all its success, the scheme has drawn criticism. Some financial experts have commented that the three different elements – the Help to buy Equity Loan, the Help to Buy ISA and the Help to Buy Shared Ownership – make it unnecessarily confusing. Other market watchers have noted that in creating a swathe of first-time buyers, it has boosted demand beyond housing stock capacity and driven up house prices further.

Liberum analysts commented that many people are using the scheme “do not actually need it” and there is the worry that house builders are setting too much store by the scheme. According to Emma Haslett writing for City A.M., more than 50% of sales at Persimmon are Help to Buy, a figure that is 40% at Taylor Wimpey, Galliford Try and Redrow.

The ugly

Further proof of house builders’ dependence on the scheme came in the form of a drop in share prices when an independent review by the London School of Economics was announced. Shares in Barratt, Taylor Wimpey and Persimmon fell by 5%, Bellway and Crest Nicholson fell 3.5% when it was rumoured that all options for the scheme’s future were being considered.

Once the Department for Communities and Local Government (DCLG) announced that the LSE evaluation was part of a regular review process, house builders recovered their share values. But it shows that Help to Buy has become a vital part of the property market, something that LSE will no doubt take into consideration.

Despite the initial panic, there is little likelihood that the scheme will finish before its scheduled 2021 end date. Some possibilities are that the scheme ends abruptly in 2021, or there is a tapering-off up to or after 2021, or the property price cap of £600,000 could simply be lowered and Help to Buy continues. In fact, new housing minister Alok Sharma commented: “We have committed £8.6bn for the scheme to 2021, ensuring it continues to support homebuyers and stimulate housing supply. We also recognise the need to create certainty for prospective homeowners and developers beyond 2021, so will work with the sector to consider the future of the scheme.” Home buyers and builders will await the LSE’s review with great interest.

If you would like advice on how to make the most of Help to Buy over the next four years then make an appointment to speak to the Visionary Finance team.