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More landlords wish to expand property portfolios

According to a recent survey by specialist mortgage brokers Mortgages for Business, over half of all private sector landlords questioned were aiming to expand their portfolios over the next six months. Of the 55% planning this expansion, around two-thirds would require some form of refinancing. However, nearly three-quarters of those landlords approached during the research stated they
didn’t believe mortgage lenders were doing enough to support property investment.

Survey feedback demonstrated that 43% of landlords were hoping to remortgage, representing a 7% rise from the figures ingathered as recently as six months ago. Interestingly, the survey also
highlighted that around 39% of the landlords questioned had less than £25,000 income (other than money coming in from rent).

After establishing the various figures from the landlord returns, Mortgages for Business went on to analyse likely causes for particular trends. They concluded one of the reasons for desire to increase portfolios resulted from the potentially attractive yields available on residential investments. In the climate of continuing economic uncertainty, private property rentals continue to offer a high gross yield.

Investing in complex property was shown to be far less popular, although just over a quarter of the landlords stated they planned to purchase houses of multiple occupation, with 16% outlining a
preference for multi-unit freehold blocks. A smaller percentage were aiming to buy semi-commercial property (only 11% of those landlords questioned), while the figure was lower still for commercial
property.

Mortgages for Business concluded with the encouraging statistic that only 6% of landlords had indicated they intended trimming their portfolios over the next six months, a proportion that
was equivalent to the figure reported six months ago. Finally, although 45% weren’t planning on expanding their portfolios at all over the next six months, 25% were still planning to remortgage.

£8bn Mortgage debt paid off by borrowers in 2012 third quarter

Recent figures from the Bank of England have confirmed that more money was paid off the collective mortgage debt in the UK, outstripping mortgage borrowing for the eighteenth quarter in a row, although at just over £8 billion this repayment did not atch the £9.4 billion in the second quarter of 2012. This is a significant change from the behaviour of mortgage borrowers in the years 1998-2008, when significant amounts of equity was released, through remortgaging and secured loans. As an example, over fifteen billion pounds was withdrawn in the final three months of 2003.

The Bank of England’s view is not that these figures represent an increase in repayments on secured debts, but a general lowering of sales and remortgage activity in general. Because the criteria have changed enabling remortgaging and because the tandard rates are low even for those who have come to an end of a special introductory rate, remortgaging levels are likely to remain at this lower level for some time. Despite signs of life in the housing market, switching levels are still low, with remortgage numbers down by nearly 14% on the same period in 2011.

Housing expert Henry Pryor is of the opinion that these figures simply highlight the changes in shopping habits across the board since the millennium. He said, ‘Since the credit crunch consumers have been encouraged to become more prudent and whilst the government continues to print money it doesn’t have to stimulate the economy it appears that the fiscal fright that many people had after the collapse of Northern Rock and the austerity measures that the coalition government have introduced has convinced people that we need to be saving rather than spending.’ Since the credit crunch people are no longer using equity in their houses to fund major purchases such as cars and white goods, which is having a serious effect on consumer spending, which in turn is keeping the country in its economic downturn.

Parents Pump £1.3bn into UK housing market

Recent research by The Equity Release Council has revealed that more than 228,000 first-time buyers have relied on assistance from generous family members, amounting to a £1.3bn injection to the housing market. According to the feedback, around one-third of all first-time buyers have benefitted from a helping hand, with the average amount totalling 20% of the deposit. This indicates that over the last five years parents have been boosting the market to the tune of £23.05 million every month.

This philanthropy also extends to grandparents. With it becoming increasingly difficult to get that all-important foothold on the housing ladder, the older generation are also willing to help their grandchildren. About 6% of first-time buyers were in receipt of an average of 18% of their deposit

from grandparents, equating to over £125m over the same five year period.

Although almost one quarter of parents stated they were proud to be in a position to invest in their offspring’s future, concerns have been raised about families having to stretch finances in this way. Indeed, 36% of those surveyed suggested some children might never be able to cope on their own in the financial world. Another common worry was the divisive nature of these hand-outs, as one child receiving more than another could lead to friction. A further 15% highlighted the issue that older relatives ran the risk of running into financial difficulties themselves in later life.

Andrea Rozario, director general of the Equity Release Council, commented: “It is concerning that some people are delaying giving up work, using retirement savings or even re-mortgaging their homes to help their children financially”. He concluded that while over-55s were more likely to have housing equity to pass on, financial advice should always be sought before investing large sums.

Experts forecast no change to record low base rate until 2014

A survey of mortgage brokers by United Trust Bank has revealed the majority of UK mortgage holders believe the low base rate is set to continue. Two-thirds of respondents anticipated that the Bank of England would maintain its 0.5% base rate until 2014.

This record low level has persisted since March 2009, with the overwhelming majority of those intermediaries taking part indicating they had no reason to anticipate any change until at least 2014. A further 22% were optimistic that this inertia would persist until 2015. Of the brokers surveyed, 8% said they expected the base rate to fall even further.

Harley Kagan, the managing director of United Trust Bank, described how the Bank of England’s Monetary Policy Committee (MPC) had held this 0.5% base rate for 43 consecutive months. This was an unprecedented period, and the broker community were largely content with the trend. He stated: “We’re unlikely to see a change for at least another year. Under the leadership of new Governor Mark Carney it is expected that the MPC will continue with its low-interest rate policy”. Kagan added that borrowers would undoubtedly be hoping Carney would continue to steer the same course as his predecessor after stepping into his shoes in June 2013. He concluded: “Savers would welcome their nest eggs working a little harder.”

The 0.5% rate has meant low mortgage payments for millions of UK borrowers whose home loans are tied to the central interest rate. Many are on base rate trackers, while some are with lenders whose standard variable rates are also linked to the base rate.

The editor of new homes portal whathouse.co.uk, Keith Osborne, reiterated Kagan’s sentiments, suggesting that the economy’s fragile state was likely to promote consistency rather than provoke any dramatic change.

More Mortgage Borrowers are Overpaying

With low interest rates here to stay for the foreseeable future, many mortgage borrowers are taking the opportunity to pay off their home loans more quickly by overpaying. This particularly applies to those who have only recently taken out their loans. Research by the Council of Mortgage Lenders (CML) suggests that almost one third of those who have taken out home loans since 2005 (almost seven million in total) have deliberately overpaid, either regularly or on an ad hoc basis as they can afford it. The extra payments have totalled £31 billion.

A CML spokesman said, ‘The slashing of interest rates to their current historic low point has helped many borrowers make additional capital repayments. In doing so, they have built up a bigger equity stake in their property and reduced the impact on their finances of any subsequent rate increases. They will also have increased the likelihood of being mortgage-free sooner than anticipated, all of which increases their options should their financial circumstances deteriorate.’

In calculating its figures, the CML was rigorous in which customers to include, ignoring for example any who had overpaid by less than 5% of their scheduled payments as they felt this could slew the figures. They also ignored anyone who had, by overpayment or lump sum, paid off their mortgage entirely. The survey covered those taking out new mortgages between 2005 and 2011, giving a field of almost seven million mortgages. It found that the average overpayment in the qualifying borrowers was over £13,000 although many overpaid by less than £5,000. These were offset by those who overpaid by £20,000, ten per cent of the total considered. These figures do not square with those of the Bank of England who have calculated that there is little net overpayment taken over the whole 11 million mortgages currently held in the UK, but as the CML took a different range of borrower, this, they say, is perfectly acceptable.

Rental Costs to Increase in the UK in 2013

Renting a property in the UK will be more expensive in 2013 and the percentage rise is likely to be twice that of the increased cost of buying a home, the Royal Institute of Chartered Surveyors (RICS) warned recently. It has estimated that the percentage rise in house prices will be around 2% but renters will see their monthly outgoings increase by 4%.

The growth in house prices will be mostly driven by London, the North West and the South East. The latest figures suggest that the average cost of a home in the UK stands currently at £161,000 against a recent high in 2007 of £200,000. Simon Rubinsohn, the chief economist for the RICS said, ‘The average house price in the UK looks set to rise by a further two percent next year, despite the uncertain outlook for the economy. More positively, the amount of sales going through should also see an increase across the country, climbing to its best level since 2007, as the Funding for Lending scheme helps boost the availability of mortgage finance. Even with the Funding for Lending scheme and some other government policies beginning to be felt in the mortgage market, many first-time buyers will continue to find it difficult to secure a sufficiently large loan to take an initial step on the housing market.’

There is good news in that home repossessions are set to fall to less than 35,000 for the first time since 2007 and also that the number of housing transactions are likely to rise in 2013 compared to 2012. This must be set against the rise in rents, however, which will reach an average monthly outgoing of £745 in 2013, with the London average being £1,100. The RICS has called for the government to encourage more new builds to consolidate the first signs of recovery in the housing market.

Moving up the Property Ladder Costs More in the East

Those looking to take the next step on the property ladder in the East of England should expect to pay up to double the national average for the pleasure of doing so. In new research released by Barclays, 50,000 mortgage applications were looked at to reveal homeowners in the East aiming to upscale from a one-bedroom property to a two-bedroom property should expect to fork out an average of £46,000, compared to the UK average of £26,000.

What makes these figures even more notable is the fact that the same survey showed that 54% of homeowners in the East were planning to move home within the next three years. In fact, 61% were looking to move to a larger property; exactly the demographic this survey has shown to be most affected by the cost of upscaling.

For those looking to move from a two-bedroom property to a three-bedroom property, this will on average cost £58,639. This trend continues as homeowners move into larger properties, with the cost of moving from a three-bedroom to four-bedroom house costing a huge £128,505.

These figures obviously go to show that those in the East of England face a more difficult financial challenge should they wish to move into a larger property. However, one thing missing from this Barclays research is a reason why homes in the East are more expensive. The general consensusis that these figures simply reflect the quality of living, employment opportunities and general desirability of the area.

Elsewhere in the country, those resident in the North-East can realistically expect approximately a £10,000 price rise when moving from a one-bedroom to a two-bedroom home, whilst city-dwellers in the capital, London, can expect to pay four times the UK average, at a cost of £91,000.

Buying a Property Now Cheaper Than Renting in 90% of UK Towns

Paying for an interest only mortgage on an average property in the UK is now officially less expensive than the cost of renting. In new figures released from zoopla.co.uk, it now costs an average of £1080 less per year to own your property, rather than rent it.

This fact actually carries true in 90% of towns and cities around the UK, based on analysis of mortgage and rental prices in the 50 largest towns in the country. The research also reveals that the average rental price for a two-bedroom flat is now £668 per month, with the average asking price of the same properties being £138,769.

One key fact to take into consideration regarding these figures is that only interest only mortgages were used to calculate them. This kind of mortgage means that the property owner is only paying the interest on the mortgage, rather than actually paying off the value of the loan itself. When using a typical 90% loan-to-value interest only mortgage at a rate of 4.39%, the cost of renting a property is even more expensive.

For example, the average mortgage to purchase a two-bedroom flat would be £124,892 with the interest costing £457 per month. This produces an average saving of £2,532 per year, although of course does not include the initial 10% deposit.

Of all the towns and cities surveyed, York is the one where the cost of renting is most expensive when compared to that of buying, with tenants paying a 76.1% rental premium. In York, the average monthly rent is £1,083, whilst the average property price in the city is £147,624. Other cities in the top five most expensive cities to rent compared to buying include Peterborough, Reading, Milton Keynes and Northampton.

Coventry Building Society No Longer Offering Interest-Only Mortgages

After RBS and NatWest recently announcing the same change of policy, the Coventry Building Society has become the latest mortgage provider to stop offering interest-only deals. These decisions are in large part due to more affordable house prices and mortgage deals currently available. During the housing boom of a few years ago, many house buyers made use of interest-only packages to borrow the largest amount possible whilst limiting their repayments.

The sales and marketing director at CBS, Colin Franklin, said the move was in response to lessening demand. This type of loan form residential buyers had dropped to less than 2% of total mortgage applications, hence the removal of the service. Current customers with this kind of mortgage will be allowed to move their mortgage to a new property, but will not be able to borrow more without adapting their repayments. On a side note, interest-only mortgages are still available to buy-to-let buyers.

The move by CBS is certainly following a strong trend this year, with the Nationwide and Co-operative bank also stopping offering interest-only loans during the summer. This was at a time when the Financial Services Authority was about to release a report on the mortgage market which announced new rules for lenders. Ultimately a Although a ban on this kind of mortgage was declined, although the FSA dis say that lenders needed to be cautious about ensuring affordability to make sure borrowers were not receiving loans they could not ultimately repay.

Despite stricter lending criteria and more restraint among lenders and borrowers means interest-only mortgages are becoming a niche product, Santander, has announced that it is prepared to be more flexible. It had previously limited lending to 50% of a property’s worth if there was an interest-only element, but recently increased that amount to 75%, however, the interest-only portion of themortgage is still stopped at 50%.

Mortgage Rates Fall for First-Time Buyers and More Good News

Good news recently for prospective first-time buyers as it is slowly becoming easier for them to buy their first property with a number of high loan-to-value (LTV) mortgage packages now below 4%.

Previously, this kind of mortgage has been too expensive for many looking to get onto the property ladder for the first time.

Further good news comes in the form of Nationwide, one of the UK’s biggest lenders, announcing that it has doubled its amount of lending to first time buyers. This has made the company one of the go-to mortgage providers and it is now responsible for a huge 20% of all mortgages in the UK to first timers. In fact, in the six months leading up to September 30th, the Nationwide had lent over £2.5bn to help nearly 20,000 first-time buyers, a figure twice that of the corresponding period in 2011.

It is believed that the government’s Funding for Lending scheme has also had a big effect on the market. This scheme encourages banks and building societies to lend to both homebuyers and businesses, leading to lower mortgage rates for those who cannot stump up a large deposit. Coupled with the fact that the Land Registry has recently announced that average house prices in October fell by 0.3% and it is easy to see how encouraging the overall scene currently is. In that month, first time buyers paid an average price of £121,063, down a massive 20% from the £151,923 high point seen in the second quarter of 2007.

There are also a greater number of 95% loan-to-value mortgages being offered. Nationwide has its own Save to Buy system which allows people to save for a 95% LTV mortgage and claims to have 22,000 customers making use of it. The future seems bright for first time buyers.

Buying Houses since 1972