Residential 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.

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”.

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.

Under the Support for Mortgage Interest (SMI) scheme, the Government makes interest payments on the first £200,000 of outstanding mortgages for those who can’t afford it. This is normally paid directly to the lender. But while it’s currently a grant, from April 2018 it will be treated as a loan to all new and existing SMI claimants.

The Government says current claimants will receive guidance in advance on how this will work, and will need to decide if they wish to continue under the new loans system.

However, the Government has confirmed the loan will not be backdated, so any SMI that’s been paid to claimants before April 2018 will remain a benefit, with no obligation to be paid back.

How will the loan work? A low level of interest will be charged on the loans – forecast to be 2.9% in 2018/19 – and will be updated every six months in line with a complicated Government forecast for the value of gilts.

The loans will be secured on the claimant’s property as a ‘second charge’ (effectively a secured loan on top of the existing mortgage).

Technically, as this is a secured loan, the Government could repossess your home if you don’t repay the loan. However, the Department for Work and Pensions says in reality the Government would never repossess your home under these circumstances.

Loan recipients will then be liable to pay back the loan the sooner of when they return to work, or when they sell their property. When someone gets a job a repayment plan will be agreed. If you refuse to repay the loan it’ll be recovered from the sale of the property.

What happens if I can’t afford to pay the loan back? In the case of those who receive SMI for a long time (e.g. into their retirement and up to their death), the amount of SMI paid plus interest, along with an administration charge, would be recouped from the equity in the property when it is sold.

 

Will the Government pay my mortgage?

Short answer: no, it won’t. The one remaining scheme, Support for Mortgage Interest (SMI), can pay the mortgage interest for you. You’ll have to find the rest of the money yourself, if you can switch to an interest-only mortgage temporarily.

If you’re eligible for the Support for Mortgage Interest scheme, the Government steps in and makes interest payments on the first £200,000 of your outstanding mortgage for the time you can’t afford them. The level of interest is set by the Government; your specific rate isn’t used.

The current interest rate is 3.12%, although it’s subject to change each time the Bank of England average mortgage rate moves by at least 0.5% away from the current SMI rate.

This means as mortgage rates go up, the SMI rate will too – and similarly it will go down if mortgage rates drop, though the change only takes place a couple of months after the target’s hit.

Who’s eligible for SMI?

You need to be receiving income support, income-based jobseeker’s allowance (i-JSA), income-based employment & support allowance or pension credit. So if you’ve recently lost your job or had an income cut, it’s important you sign on, or you won’t get SMI.

The benefit currently kicks in 13 weeks after the person (or couple) responsible for paying the mortgage claims the initial benefit (except pension credit where you can claim straight away). However, it’s been announced that the waiting period for SMI will be increased to 39 weeks from April 2016. The cash will be paid directly to your lender.

If you are claiming jobseeker’s allowance, then you can only get SMI for up to two years. There’s no limit for recipients of other benefits.

Your eligibility for the scheme will automatically be assessed when you apply for an income-related benefit. It’s up and running in England, Wales and Scotland, with a similar system in Northern Ireland.

SMI stops paying out once your benefits stop – it’s usually when you return to work, or start working extra hours to earn more. However, you may be able to claim Mortgage Interest Run On (MIRO) to help you make the transition.

MIRO lasts for four weeks, and will be the same amount Support for Mortgage Interest paid, but the big difference is that MIRO’s paid to you, instead of to your lender as under SMI. Check if you’re eligible at Gov.uk.

Who can’t claim Support for Mortgage Interest?

You can’t claim if you’ve more than £16,000 in savings, or if you own more than one residential property.

If the benefit you’re claiming is pension credit, then the amount of mortgage that you can claim interest payments for is capped at £100,000, not £200,000. However, in this instance, you don’t have to wait the initial 13 weeks before claiming SMI either (39 weeks from 1 April 2016).

The mortgage landscape is evolving and changes are being made throughout the industry, from MMR to the impending EU Credit Directive in 2016. Most recently, the Financial Conduct Authority (FCA), the Council of Mortgage Lenders (CML) and Her Majesty’s Revenue and Customs (HMRC) reviewed the online documentation that HMRC produces for its self-employed customers looking to apply for a mortgage.

Following a discussion last year between senior mortgage officials, it was felt that mortgage lenders shouldn’t solely depend on tax calculations (SA302s) because the information provided is just a duplicate of what self-employed customers tell HMRC about their incomes. HMRC does not verify the data and customers can simply change the data and details if they want to. Issues were flagged that relying exclusively on tax calculations is effectively self-certification of income and this was a customer conduct and governance control concern for the industry.

In order to paint an accurate picture of a self-employed customer’s income, it was recognised that the Tax Year Overviews that HMRC asks customers to complete is also a valuable document. The Tax Year Overview shows how much tax the customer has paid towards the tax due on the income reported for the tax return. Both documents play an important role in showing the holistic income of a self-employed individual.

Today, self-employed applicants who provide SA302s as evidence of income will also need to provide Tax Year Overviews for the corresponding tax years to support their application. Some self-employed applicants use an accountant’s certificate as evidence of income, at Santander we have always accepted accountant references from qualified accountants and this will continue.

SA302s and Tax Year Overview information and the necessary forms can be found online at the HMRC website, applicants will need an online account with HMRC and will then be able to print all documentation from the site.

The majority of lenders (over 75% of the market) have adopted this new approach and now ask for Tax Year Overviews.

Mayor of London announces two first-time buyer schemes

The Greater London Authority (GLA) is to fund two new schemes aimed at helping Londoners into affordable home ownership and to accelerate the delivery of new homes.

Shared ownership is to be given up to £180m through the First Steps Challenge Fund. The fund aims to accelerate the delivery of 4,000 new homes between 2015 and 2020.

In addition, the Mayor of London announced up to £40m of loan finance for a new housing product where buyers will need no deposit or mortgage to purchase their home 100% outright.

This scheme, Gentoo Genie, aims to deliver 2,000 new homes over the next 10 years, helping people who would struggle to save a large deposit for a mortgage.

Gentoo Genie, provides long-term home purchase plans for first-time buyers and long-term renters which enables them to buy shares in their home every time they make a monthly payment.

The scheme is being introduced to London following Genie’s successful work in the North East of England. The GLA’s funding is from the Mayor’s Housing Covenant revolving fund and will be repaid in full within 10 years. Steve Hicks, managing director of Genie, said: “There has been a lack of innovation in the housing market which has left would-be homeowners feeling frustrated and unable to buy their own house.

“This 10-year partnership with the GLA will help customers into a minimum of 2,000 new homes in the capital who otherwise would have struggled to own their own homes, because of the difficult market conditions in London.” “The First Steps Challenge Fund is part of the £1.45bn secured from the government for affordable housing delivery in 2015-18.”

The money could take the form of an interest-bearing loan or equity investment, to encourage new players to deliver shared ownership homes and greater institutional investment into the tenure. When the funding is paid back it can be reinvested into delivering more homes.

Boris Johnson, the Mayor of London, said: “Shared ownership is crucial in helping the unprecedented numbers of people in London desperate for good quality low cost housing.

“I want the funding announced today to help thousands more Londoners own homes and create more developments like Erith Park delivering excellent affordable properties.”

Erith Park is an area of South East London which is under development.

Mortgages for the over 65’s

Over 65 and looking to remortgage or purchase a property. Is your current loan due to be repaid shortly and the back cannot extend the term?

You may be looking to consolidate some debts or would just like to raise some additional funds to possibly buy a new car.

Most of the high street banks and building societies restrict the term you can have your mortgage over, therefore being over 65 this could therefore restrict you to a maximum term of 5 years and must be in a repayment basis. However there are lenders and products that will consider applicants over the age of 65 up to the age of 89.

Mortgages for the over 65’s are still based on affordability and if you are over the age of 70 years, then this will be based on your pension income only.

Loans are generally taken out on a Repayment basis (Capital & Interest), however the lender will consider loans for the over 65’s on an Interest Only basis as long as you have a plausible repayment plan or vehicle.

If you would like a personal quotation, please call one of our qualified advisers who can take the facts and then advise you accordingly.

Call us on 01489 580020 or complete the “Contact Us” form for mortgages for the over 65’s.

Principality stops lending to payday loan users

Principality Building Society is set to stop lending to applicants who have taken out a payday loan within the previous 12 months.

The Wales-based lender Principality has stated that it would continue to process transactions under its current criteria until close of business on 18 February, meaning borrowers applying for a mortgage from the 19 February with the Principality must not have taken out a payday loan in the previous 12 months.

Principality is the latest lender to explicitly exclude recent payday loan borrowers, you need to consider your actions before taking out this type of credit as it can impact on your ability to obtain a mortgage.

Principality has also tweaked a number of other areas of its mortgage criteria, including for debt consolidation and for cases where the borrower takes part in online gambling. The lender will request further information at its discretion, where it identifies online gambling or any gambling debts on an applicant’s history. It says this is to ensure there is no underlying affordability issue.

The Principality has reduced its maximum LTV for debt consolidation mortgages from 90 per cent to 75 per cent and will now only offer them on a capital-repayment basis.

If you would like to review your financial position to see if you would be better off remortgaging to another lender offering a more competitive rate than taking out a short term loan.

Call us on 01489 580020 or “contact us” and one of our qualified advisers can discuss your requirements before you apply to the Principality and get declined.

BarclaysBarclays to launch into Help to Buy 2 next Tuesday

The lender will offer two products including a three-year fix at 5.35% and a five-year equivalent at 5.49% from Tuesday 14 January.

Both products are fee-free and available up to 95% loan-to-value. A minimum loan size of 50,000 and maximum of £570,000 apply to both products.

The Help to Buy mortgages will be available through all channels, both direct and intermediary, and the products will be available on new build and existing properties. Only house purchase loans will be accepted by Barclays.

To find out more about Help to buy and for a personal illustration, please give one of our qualified advisers a call or email us via “Contact Us” page with your requirements.

 

Help to BuyHelp to Buy ‘Mortgage Guarantee’ scheme

5% Deposit

90 – 95% LTV products in support of the Government’s Help to Buy scheme. The scheme is open to first time buyer and home movers.

It can be used for existing properties up to maximum purchase price of £600,000 in the UK (England, Wales, Scotland and Northern Ireland).

Applicants must not own or have an interest in any other property, wherever situated (UK or overseas) or whether mortgaged or mortgage free.

You must be purchasing for your own occupation.

Remortgages, Buy to Let, second homes, shared equity / shared ownership, Right to Buy and Guarantors are not eligible for this scheme.

For a personal quotation, please call us on 01489 580020 or contact us today where a qualified adviser can discuss your financial requirements.

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