The Help to Buy ISA

Last month’s Budget contained good news for prospective first time buyers with the announcement of the Help to Buy ISA.

It won’t actually be available until the Autumn but when it does launch the scheme will let savers deposit £1,000 up front and then add up to £200 per month thereafter. When they use that money as a deposit for their first home the government will pay out a 25% bonus, up to a maximum of £3,000. One ISA is available per person so couples could potentially gain £6,000 from the scheme.

That’s a much higher return than regular savings accounts offer and is bound to prove very attractive, but the £200 per month limit means it’ll take some years to reach the full benefit. That said, it’s not the only savings route available and a 25% return on some saving is still much better than on none.

They’ll be available from banks and building societies as current cash ISAs are but we don’t yet know what the actual products will look like – expect to see more information coming out around August and September. Until then, it’s worth building up (or perhaps freeing up) that first £1,000.

The other good news – somewhat overlooked – is the raising of the tax-free savings allowance to £1,000. That means the first £1,000 interest earned on savings will be entirely free of tax, which will be more than enough for the vast majority of savers (especially with savings rates as low as they are at the moment) and basically makes the cash ISA redundant.

Effectively savers will get a 20% boost in the interest they earn (since that’s the tax they’re no longer paying) which can only help accumulate a deposit quicker and, again, is significantly better than not having it.

Of course this is all fairly long term but both the Help to Buy ISA and the increase in personal allowance offer substantial benefits compared to the existing regime, and hopefully will help boost the confidence of potential buyers.

Guild Mortgage Service, Provided by London & Country Mortgages

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

LAND REGISTRY DATA: MARCH 2015 (released 30 April 2015)

The March 2015 Land Registry data show a monthly fall of minus 0.8 per cent in house prices across England and Wales as a whole, compared to a rise of 0.5 per cent in February. London saw a monthly price increase of 0.2 per cent, while the South East region experienced the highest monthly rise at 0.8 per cent. Every other region experienced a fall, the greatest drop being in the North East at minus 4.0 per cent.

On an annual basis, the increase for London was 11.3 per cent, followed by the South East region at 10.1 per cent, while the North East saw the only fall at minus 2.9 per cent. The overall annual growth in prices dropped for the sixth month in a row to 5.3 per cent making the average house price in England & Wales £178,007 and £462,799 in London. By property type, semi-detached properties had the highest annual increase at 6.1 per cent.

In greater detail, 20 counties and unitary authorities saw an annual price fall, the greatest being Darlington at minus 6.2 per cent, while Bracknell Forest and Hertfordshire showed the highest annual rise at 13.6 per cent. Conwy experienced the strongest monthly growth with an increase of 3.4 per cent, while Blackburn With Darwen saw the most significant monthly fall with a movement of minus 4.3 per cent.

Trafford overtook Salford as the metropolitan district showing the largest annual price rise at 9.2 per cent, while Bolton again experienced the greatest annual fall at minus 3.5 per cent. Sunderland saw the highest monthly price increase at 1.9 per cent, while its near neighbour South Tyneside had the greatest monthly fall at minus 1.8 per cent.

No London borough exhibited an annual price increase above 20 per cent compared to the 17 that did so in November 2014. Newham maintained the highest annual price rise at 19.8 per cent, while Kensington & Chelsea continued to experience the lowest annual growth for the fourth month running at 5.2 per cent. On a monthly basis, Hackney’s fortunes reversed from February and showed the highest increase at 1.6 per cent, while Kensington & Chelsea had the greatest monthly fall at minus 1.6 per cent.

The volume of properties sold in January 2015 was 18 per cent lower than in January 2014 in England and Wales and 26 per cent lower in London; similarly, properties sold for more than £1 million fell by 19 per cent in England and Wales and by 23 per cent in London over the same period.

Month on month, the total number of properties sold across England and Wales fell by nearly 25 per cent from 70,470 in December 2014 to 53,168 in January 2015, compared to a rise of 3.5 per cent between November and December 2014. The number of property transactions from October 2014 to January 2015 averaged 71,090 per month, compared to 76,056 over the same period a year earlier.

Can you get a mortgage on a temporary work contract?

There’s no denying that many of us are working differently these days and contracting is becoming increasingly common.  That can suit the individual well and contract work can often become their standard employment type.  Of course the type of contract can vary dramatically, some in the form of long fixed term contracts whereas others could be zero hours contracts.

At the same time mortgage lending criteria has got tougher, so what impact will contract work have on your chances of getting a mortgage?

It’s all to do with proving the level of income adequately to meet the lender’s criteria.  The reason some lenders can have a problem with short term or zero hours contracts is because the applicant’s income doesn’t carry any guarantees for any significant period of time.

The good news is that some lenders have now recognised the need for more flexible criteria regarding contractors, so being on a fixed term work contract won’t necessarily stop someone from getting a mortgage.

The key factor in any mortgage application is proof of income.  For contractors lenders will want to see some track record that they can base their lending decision on.  Therefore lenders will usually want to see that there is at least 12 months history of contracting without a break in employment.  They will often like to see that a contract has been, or will be, renewed and that there is 6 months or more remaining on the current contract.

For those with zero hours contracts it can be difficult to establish a pattern but lenders are prepared to consider applications where there is track record, so the longer the history of the better.

Lenders are becoming more flexible in how they approach contractors especially in sectors where contracting is more commonplace.  For example a lot of IT professionals work on a contract basis so more lenders will be able to be help.   In addition, some specialist lenders may be able to take a more individual view of a borrower’s situation, for example considering whether the previous employment was in the same field.

Having a big deposit will help but although it can seem tougher for contractors there are mortgage options that may be able to help.

Guild Mortgage Service, Provided by London & Country Mortgages

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Parental Assistance

With the average deposit for a First Time Buyer now pushing £30,000, it is understandable that so many turn to the Bank of Mum and Dad for help. There are a number of ways in which parents or grandparents can help, and not all of them involve handing over their savings.

One First Time Buyer approached the mortgage service for the Guild of Professional Estate Agents, originally intending to purchase a property in her sole name, and putting down a 15% deposit using a combination of her own savings and a gift from her father.  After speaking to a mortgage adviser she decided to proceed with a fixed rate to ensure her payments were stable for the first 2 years of her mortgage.

Unfortunately the client fell short of the strict calculations used by lenders to assess affordability, and the available borrowing dropped significantly. After a discussion with her family, her father offered to buy the property with her, taking the mortgage in joint names and therefore combining their income to increase the borrowing potential.

Guarantor mortgages are rare today, but most high street lenders are happy to lend to a parent and child on a joint basis, even though the parent will not be living at the property. Applicants must be mindful of potential Capital Gains Tax liabilities, as it is not the parent’s main residence. Some lenders however, including the bank used for this application, will allow the mortgage to be taken out in joint names, and the property title to remain in the child’s name only.

The age of the older borrower can be an issue, and in this case the lender required that the term of the mortgage be reduced to fit in line with criteria, but both applicants confirmed that they were happy to proceed on this basis. With the help of family, the deposit was increased to 20%, taking the mortgage into a lower Loan-to-Value bracket and allowing their mortgage adviser to secure a lower interest rate.

Guild Mortgage Service, Provided by London & Country Mortgages

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

ECONOMIC NEWS 26 MARCH 2015

The headline event relating to housing this month was the Government’s Budget announcement that it would introduce a Help to Buy ISA in autumn 2015. This comes on top of the Government’s Help to Buy scheme started in April 2013, which allows people to purchase a home with just a five per cent deposit, and in addition to the discounted Starter Homes scheme, which launched in December 2014.

First-time buyers aged over 16 years will now get Government help to raise their deposit. Savers can start their Help to Buy ISA with a lump-sum of up to £1,000 and then add up to £200 per month. For every £200 saved the Government will add £50 or 25 per cent up to a maximum bonus of £3,000. Anyone who has never owned a home before can open an account, which means a couple buying together can claim up to £6,000 towards their first property. Money in one of the new accounts can be accessed at any time, but the Government payment will only be added when the money is used for a deposit on a home. The minimum savings to qualify for the bonus are £1,600 but no minimum monthly investment has been stipulated. Mortgage lenders and brokers believe the new scheme may cut the time it takes first-time buyers to save for their deposit by about a year.

Following the Budget, official figures from the Office of National Statistics (ONS) showed that Consumer Price Index (CPI) inflation fell from 0.3 per cent in January to zero per cent in February, the lowest since records began in 1988. The drop was sharper than many analysts expected, boosted by lower prices for food and computer goods. The CPI only became the main measure for inflation in 2010; previously the Retail Price Index (RPI) was used, which included housing costs and mortgage payments. The RPI fell to 1 per cent in February from 1.1 per cent in January.

The Bank of England has previously said that falling oil prices and cuts in energy bills could result in negative inflation in March. Many economists believe that there is little risk of a long and damaging period of deflation because robust employment growth and a pick-up in wages will maintain consumer demand. ONS figures for UK retail sales in February seem to bear this out, showing an increase of 0.7 per cent over January.

The ONS further reported that average house prices may be falling across the UK. Based on mortgage completions, prices fell by 0.2 per cent between December last year and January 2015, the first monthly fall since March 2014. Annual house price inflation fell from 9.8 per cent in December to 8.4 per cent in January, while in the capital the January rate was calculated at 13 per cent, compared to a peak of 20.1 per cent in May 2014.