Mortgage Market Review
The Mortgage Market Review (MMR) comes into effect on the 26th April and will distinctly tighten up lending. Due to new MMR rules lenders have become stricter on their affordability calculators and we will find that a customer may not get offered the mortgage loan amount they require or in worst case scenarios not even be offered a mortgage.
The big difference to the past is lenders will look a lot closer at a customers expenditure and how they spend their money. Stress testing will also be much more vigorous whereby lenders will ascertain whether you can afford the mortgage payments assuming a higher interest rate.
Although there are many negatives of the MMR one advantage is that affordability can now be extended past a 25 year term. This means that is some cases a customer may need to opt for a longer term than 25 years to meet the lenders affordability calculator, but in doing so may obtain the mortgage loan amount they require.
Short or long term rate
Many customer ask should they have a short term fixed/tracker rate or longer term. Personal preference aside, short term (2 year) rates are some 1% cheaper than longer term (5 year) rates. If its about monthly costs then a 2 years rate would be the one.
What is the Bank of England base rate going to do over the coming years I hear you ask! Well with the recent news coming from the Governor and with RPI coming down to 2% then there is less pressure on the BOE to increase rates anytime soon. With the economy still sluggish it is reasonable to assume that rates will not increase until 2016. Even if they do it is not expected to be big increases but small amounts from time to time.
However, in saying this 5 year rates are very competitive, particularly below 70% loan-to-value and therefore if interest rate increases worry you there are some good deals to be had.
Help to Buy
The Help to Buy scheme is there to help both first-time buyers and next-time buyers. There are two schemes, 1 and 2.
Scheme 1 is to purchase a new-build property with as little as a 5% deposit. The government provides upto 20% of the purchase price (maximum £600,000). You must pay back the governments share within 25 years. Although you won’t pay any interest on the 20% government bit for the first five years of the mortgage loan, after five years you will be charged 1.75% above the base rate (currently 0.5%).
Scheme 2 is basically for a next-time buyer with again a minimum of 5% deposit. It is for a new-build or second hand home. The government is basically guaranteeing the lender on any losses over 80% of the property value. You cannot have any interest in any other property and therefore this must be your only property.
Scheme 1 is relatively widespread with a number of lenders offering this type of mortgage. However, at this time there is only Halifax and Nat West offering scheme 2 with a few other lenders expected to come into the market in 2014.
Funding for Lending Scheme
The FLS continues to drive product rates and we have recently seen some superb fixed rates at a all time low. This will probably continue through the year ahead, so now is the time to look at the rate you are paying and possibly fix for the next 3-5 years.
Change in financial services regulator
Well the Financial Services Authroity has gone and been replaced by the Financial Conduct Authority and the Prudential Regulation Authority.
The Financial Conduct Authority is responsible for consumer protection and therefore supervises every firm that deals with consumers. The Prudential Regulation Authority will supervise the Banks and Insurers which means that some Firms like Banks will have dual supervision.
We hope that the new regulator will be more proactive in the market, particularly their involvment with major banks and product providers who reckless management and products can seriously damage both consumers and the economy.
Gender Neutral Pricing
With the 21st December fast approaching you are running out of time to get that insurance cover in place.
From the 21st December males and females will be treated the same for insurance cover. So if your looking to obtain some life cover or critical illness then now is the time. After the 21st your premiums for this type of cover are expected to increase by some 10-15%.
Standard Variable Rates still on the increase
Santander has recently put up its standard variable rate to 4.74%. At the same time a number of lenders have reduced their fixed rates including the likes of Woolwich and Halifax.
Now is the time to fix into that low rate. If you have at least 20% equity in your property you should be looking for a better deal.
SVR’s on the increase
You may have recently been notified that your standard variable rate (SVR) with your lender is going up. Halifax, Royal Bank of Scotland/Nat West, The Co-Operative Bank and a few others are increasing their SVR’s to create higher margins and retain more capital. This increase will undoubtably affect many people as your monthly mortgage payments increase.
This should now prompt you into looking at your mortgage and reviewing whether a more competitive rate is available.
Budget
There was no particular good news for the property market. We had hoped that the stamp duty threshold for first-time buyers would be extended to stimulate this sector but it was not. With the news that properties over £2m would now be taxed at 7% it seems both the top and bottom ends have been affected.
The good news for the first-time buyers is the ‘Newbuy’ scheme launched in conjuction with the Government and certain major housebuilders. This means a first-time buyer with only a 5% deposit will be able to purchase a new property upto a certain value.
Gender Pricing
Gender pricing comes into effect in December 2012. This means both male and female must be priced equally. Add together the new Solvency II rules then we anticipate insurance cost will increase accross the board by some 10-15%.
