Mortgages

Your mortgage is likely to be your biggest financial commitment. It is therefore important that you know what your choices are and what is available to you.

HMO – What you need to know

As you may or may not have heard, the Government is changing the Regulations that apply to Houses in Multiple Occupation (HMOs), these changes will give you a new reason to contact your existing HMO customers and target new ones. So, what is changing and what do you need to know?

The licencing rules are changing:

Currently only HMOs that meet the following criteria require a license:

  • A ‘large’ HMO rented to 5 or more people who form more than 1 household
  • At least 3 storeys high

The new rules extend the scope to:

  • Any HMO rented to 5 or more people who form more than 1 household
  • Any number of storeys
  • Purpose built flats where there are up to two flats in a block.

There is also an extension to the ‘mandatory licence conditions’ for HMOs

  • This will include conditions relating to:
  • minimum sleeping accommodation standards
  • maximum occupancy of such rooms
  • and the disposal of domestic waste in HMOs

All these changes will come in to effect on 01 October 2018.

Landlords and letting agents will only be able to recover “reasonable incurred costs” from tenant deposits, under new government plans.

Renters must be provided with evidence of costs before they can impose charges, as part of amendments to the Tenant Fees Bill.

It means tenants will no longer be forced to pay “excessive” costs for minor damages.

For example, landlords or agents will not be able to charge hundreds of pounds for damaged items that cost only a few pounds to replace.

Other changes to the bill include steps to make sure tenants get their money back quickly by reducing the timeframe that landlords and agents must pay back fees that have been unlawfully charged.

Under the new law, letting agent fees will be banned and deposits at the start of the tenancy will be capped at six weeks’ rent under the new laws.

The bill is set to save tenants around £240m a year, the government said.

Minister Rishi Sunak MP said: “Tenants across the country, whatever their income, should not be hit with unfair costs by agents or landlords.

“This government is determined to make sure our housing market works and this new provision in the Tenant Fees Bill will make renting fairer and more transparent for all.”

The Bank of England has raised the base rate to 0.75%, just the second time it has been hiked in a decade.

Members of the Monetary Policy Committee (MPC) voted unanimously to raise the base rate by 0.25%, taking it to 0.75%.

The last time the base rate was above 0.5% was in February 2009 when it stood at 1%, and in November 2017, interest rates rose from 0.25% to 0.5%, 15 months after they were dropped to an unprecedented low.

The move came as no surprise as the markets were pricing in a 91% chance of a rate hike, but it does come in the face of weak and fragile UK economic growth figures.

The MPC said that the recent data which showed a dip in output in the first quarter was temporary, as momentum recovered in the second quarter. GDP is also expected to grow by 1.75% per year on average and unemployment is low, and is projected to fall a little further.

Turning to inflation, which stood at 2.4% in June, the MPC said it lingers above the 2% target due to “external cost pressures“, resulting from sterling’s past depreciation and higher energy prices. These pressures are projected to ease over the forecast period while domestic cost pressures are expected to rise.

Minutes from the MPC meeting noted: “Taking these influences together, and conditioned on the gently rising path of Bank Rate implied by current market yields, CPI inflation remains slightly above 2% through most of the forecast period, reaching the target in the third year.

“The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal.

“The Committee judges that an increase in Bank Rate of 0.25 percentage points is warranted at this meeting.

“The Committee also judges that, were the economy to continue to develop broadly in line with its Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.”

From 1 April, new lets and relets with an energy performance certificate (EPC) rating of ‘F’ or ’G’ cannot be rented out, and existing tenancies have until 1 April 2020 to upgrade their EPCs. Any landlord letting a property that fails to meet the standard required could face a penalty of up to £4,000.

 

UK interest rates rise for first time in 10 years

The official bank rate has been lifted from 0.25% to 0.5%, the first increase since July 2007.

It is likely to rise twice more over the next three years, according to Bank of England governor Mark Carney.

The move reverses the cut in August of last year, which was made in the wake of the vote to leave the European Union.

Almost four million households face higher mortgage interest payments after the rise, but it should give savers a modest lift in their returns.

The main losers will be households with a variable rate mortgage.

Borrowers at risk from end to mortgage benefit

Consumers and lenders risk being caught out by a little-known Government change to mortgage benefits currently claimed by 140,000 households, experts say.

The change could see the most vulnerable fall into arrears, face repossessions and see increases in already high levels of household debt.

Next April the Department for Work and Pensions will stop paying a current benefit called Support for Mortgage Interest.

SMI, also known as Help with Housing Costs, gives claimants cash to pay off their mortgage.

It can be claimed by those who already get income benefits, or those who are either unemployed or pensioners.

But from 5 April next year SMI will change from a benefit to a loan from

DWP, secured by a second charge on the claimant’s property.

Claimants need to repay the loan, plus daily interest, when they sell the house or transfer its ownership.

Low awareness

While the DWP is currently writing to consumers to inform them of the change, overall awareness is low.

Scottish Widows protection specialist Johnny Timpson says the SMI change is not known by many.

Although the Government originally consulted on the issue in 2011, the matter went quiet until the 2015 summer Budget.

It was then not finalised until this summer, when the Loans for Mortgage Interest Regulation 2017 passed through Parliament without fanfare.

Building Societies Association head of external affairs Hilary McVitty says:

“The DWP’s own research into attitudes towards SMI shows that knowledge of the scheme is limited among claimants.

“Around 50 per cent of them are in receipt of pension credit and some of these may be vulnerable consumers.

“It is essential that customers are well-signposted to organisations such as the Money Advice Service and Shelter and encouraged to speak to their lender if they are concerned that they may fall into arrears.”

Waiting list

Shelter is worried that the waiting list for SMI has increased from 13 to 39 weeks, according to the charity’s head of policy and research, Kate Webb.

She says: “SMI can buy struggling homeowners some crucial extra time to sort out their mortgage payments and keep hold of their home.

“But, following a change in the rules in 2016 you now have to wait nine long months before you can apply for SMI. We are deeply concerned that this extended waiting period will mean some people lose their home before they are even eligible for help.

“Based on our experience of supporting families at risk of repossession and negotiating with lenders, we would urge the government to reverse the waiting time to a more manageable three months.”

Opting in

The DWP has also not yet told lenders if claimants have decided to opt in or not.

The BSA says this is a problem for lenders, as they may suddenly find that their monthly interest payments dry up with no warning.

McVitty says: “As SMI is paid direct to the lender in most cases, the first a lender may hear is when SMI stops being paid, unless a customer gets in touch.”

Arrears risk

Current SMI claimants do not get the new loan automatically from 5 April, and need to apply separately.

There is a risk of arrears if this catches consumers unawares, according to McVitty.

She says: “It will be up to claimants to ‘opt-in’ to the terms of the loan. Any who don’t engage with these changes will stop receiving the benefit in April and could risk falling into arrears at that point.”

But lenders will work to avoid arrears and repossessions, according to a UK Finance spokesman.

He says: “Lenders will always work with a borrower experiencing payment difficulties to help them recover their financial position and avoid possession of their home, which remains the last resort.”

Rates rising

Timpson says that financial protection is one solution to the problem. He adds that the whole issue will be worsened if base rate rises, fixed mortgage rates rise as a result and more consumers struggle to meet their monthly repayments.

He says: “It does raise the question, if interest rates do start to tick up again and people do start to feel a squeeze, will we start to see the number on this benefit start to tick up to back where it was when interest rates were at normal levels, so to speak?

“This is potentially just going to add to peoples’ burdens that they are carrying as a household.”

The Bank of England has said that higher inflation and a pick up in growth could lead to a rate hike in “the coming months”.

Members of the Bank’s nine-strong Monetary Policy Committee voted 7-2 to keep interest rates on hold at 0.25%.

But the committee was talking in much stronger terms about an increase, analysts said.

The pound climbed nearly 1% against the dollar to $1.3314 after the Bank’s announcement.

It said the growth outlook was slightly stronger than it had predicted last month.

The nine policymakers on the panel believed “some withdrawal of monetary stimulus was likely to be appropriate over the coming months”.

Let property campaign: your guide to making a disclosure

The Let Property Campaign is an opportunity for landlords who owe tax through letting out residential property, in the UK or abroad, to get up to date with their tax affairs in a simple, straightforward way and take advantage of the best possible terms.

If you’re a landlord and you’ve undisclosed income you must tell HMRC about any unpaid tax now. You’ll then have 90 days to calculate and pay what you owe. This guide explains how you can do that.

For more details and guidance “Click Here”

The Bank of England has tightened mortgage affordability rules to prevent loosening underwriting standards, which it warns will cause some lenders to raise interest cover ratios.

The Bank formerly said that lenders should test affordability by checking how borrowers would react to a three per cent increase in base rate.

But the new rule says lenders should instead consider how borrowers would handle a 3 per cent increase in firms’ standard variable rates.

The Bank says lenders have been using different approaches and coming up with different stressed interest rates to test affordability, leading to “lack of consistency across the market”.

The old rule let some lenders choose between whether correct rate was the one at the point the mortgage was sold or the rate it reverted to.

The Bank’s latest Financial Stability Report says: “Indeed, there has been significant variation across lenders on the stressed mortgage rate used to assess affordability compared to their current SVRs.”

This difference in lender approach means that around 0.5 per cent of all 2016 mortgage approvals would not have met the requirements of the new rules.

The Bank says some lenders will have to increase their ICRs as a result of the new rule, though it expects the overall impact on mortgage lending to be small.

From 1 April 2018, new regulations state that Landlords, in England and Wales, who lease domestic properties must have a minimum performance rating of E on an Energy Performance Certificate (EPC). The new law, which has been put in place to reduce energy bills and reduce emissions also restricts Landlords from letting a property or renewing an existing tenancy if the rating is below E.

In 2020 all properties with existing tenants will also need to be E or above too. If the rules are not followed, there could be civil penalties, if the minimum requirement isn’t met.