boutique finance e book - mortgage impact 2015

PUBLICATION OF BOUTIQUE FINANCE

HOW THE BRITISH GOVERNMENT WILL IMPACT MORTGAGES IN 2015BOUTIQUE FINANCE FINANCE & PROTECTION TAILORED TO YOU

How the British Government Will Impact Mortgages in 2015 2

CONTENTS

04 Introduction

06 The Conservative Approach to Housing

08 Right to Buy

10 Help to Buy ISAs

12 How to Pick the Right Mortgage

14 Fixed Rate

15 Variable Rate

17 Remortgaging

19 A Positive Future?

20 Boutique Finance


“ The Conservative majority government has arguably brought stability and optimism to the UK property market.”

How the British Government Will Impact Mortgages in 2015

Boutique Finance

4

INTRODUCTION TO MORTGAGES IN 2015

Despite widespread housing concerns in the run up to 2015’s general election, the Conservative majority government has arguably brought stability and optimism to the United Kingdom property market.

In fact, when news of the Conservative victory entered the public domain, homebuilders and estate agents - like Barratt Developments and Foxtons - saw their shares soar in the stockmarket.

The Bank of England also declared its confidence in the new government by, once again, freezing the base rate to 0.5% - continuing to make borrowing a very attractive option to mortgage buyers.

But this increased market confidence is arguably a sign of relief too. The Labour government had proposed a Mansion Tax on properties worth £2 million or more - meaning that many large-scale investors, particularly in London, felt wary about purchasing new properties.

These fears, however, have largley been erradicated since the majority government came into power. Fixed-rate mortgages remain extremely good value for money. Nationwide’s Chief Executive, Graham Beale, has publicly stated 2015 is likely to see Britain’s housing market grow even stronger - as made evident by the increase in the value of saving deposits from £458m to £2.9bn in one year.

The number of mortgages in serious arrears has also fallen to record levels since 2008.

With this in mind, this eBook aims to delve deeper in the UK property market and examine exactly how the new Conservative government will impact mortgages in the next 12 months. There will also be a strong focus on how buyers can leverage this new optimism to get the best value mortgage deal. Regardless of whether they are a first-time buyer, or an experienced veteran of the UK housing market.

1 http://www.ibtimes.co.uk/nationwide-profit-soars-1bn-chief-executive-graham-beale-announces-retirement-15025072 http://www.ft.com/cms/s/0/d49af806-fa33-11e4-a41c-00144feab7de.html#axzz3bEZ2OgfC


“ The steady drop in oil prices has kept inflation low and ensured that the borrowing rate remains at an extremely attractive level.”


Boutique Finance

6

THE CONSERVATIVE APPROACH TO HOUSING

Following the Queen’s speech on 27 May, the Conservative party has outlined its plans for tackling the UK housing crisis over the next four years:

■ To build 200,000 new Starter Homes for first-time buyers ■ To deliver an additional 275,000 homes by 2020 ■ To extend the Help to Buy scheme to 120,000 buyers ■ To extend Right to Buy to social housing tenants ■ To launch a new Right to Build scheme for local councils

These plans have been designed to alleviate arguably the most dangerous characteristic of the UK’s housing market: an imbalance of supply and demand. Historically, the government has failed to meet its ongoing housing construction targets since 2007 - when the economic downturn placed increased strains on the Treasury’s resources (table 1).

The new Conservative government, however, aims to build 275,000 more homes than the market currently requires - helping to bring down the average house price and make property more affordable to buyers. David Cameron has also made it clear that this ongoing building project will be funded, in part, by the selling off of social housing under the Right to Buy scheme.

Although this balancing plan is certainly optimistic on paper, a key concern for many is how long it will take for the government to sell off its social housing and then build more properties. Without a rapid turnaround, arguably the disparity between supply and demand could actually worsen.

Nevertheless, the Bank of England remains optimistic at this point of time. The steady drop in oil prices has kept inflation low and ensured that the borrowing rate remains at an extremely attractive level. So, for the foreseeable future, market stability and a commitment to increased property building strongly suggests that these low rates will continue throughout 2015.

HOUSE BUILDING HAS FALLEN SHARPLYHousing completions, England, 000s, four quarter rolling total


“ A policy that was first introduced by Margaret Thatcher, Right to Buy is part of David Cameron’s plan to alleviate the ‘cycle of renting’ that impacts hundreds of thousands throughout the UK.”


Boutique Finance

8

RIGHT TO BUY

The Right to Buy has been one of the Conservatives most popular, but deeply divisive, policies of the 2015 general election.

A policy that was first introduced by Margaret Thatcher, Right to Buy is part of David Cameron’s plan to alleviate the ‘cycle of renting’ that impacts hundreds of thousands throughout the UK.

As outlined in the Queen’s speech, Right to Buy will be extended to 1.3 million social housing tenants. This will mean that British councils will sell off 200,000 of their best properties to tenants, at a discounted rate, in order to fund cheaper property building in the future.

Overall, Right to Buy is welcome news to thousands of social housing occupants who would like to purchase their home but have previously lacked the financial means. The housing minister, Brandon Lewis, has stated that:

“Anyone who works hard and wants to get on the property ladder should have the opportunity to do so, which is why the Queen’s speech will include measures so a million more people have the chance to do that... we’ll take steps that will get workers on sites and keep the country building.”

However, there is one potential downside to this renewed government scheme. Some property experts fear that the selling off of social housing, without a solid commitment to build more property quickly, will exacerbate the housing shortage problem. It could even drive up property prices in the long term.

There is also concern about whether or not the social housing tenants will be able to afford their homes in the first place. As a result of the Mortgage Market Review, mortgage lenders have set in place a much stricter borrowing criteria for potential buyers. Even if some tenants wish to buy their home, for example, they may not meet the Bank of England’s strict mortgage rules. In this respect, there could still be some barriers in place before Right To Buy becomes readily accessible throughout the UK.


“ The number of mortgage deals has increased by nearly 20% in the last 12 months, offering an unprecedented range of options for buyers who want to take advantage of this renewed market prosperity”


Boutique Finance

10

HELP TO BUY ISAs

If Right to Buy has created some uncertainty in the housing market, then Help to Buy has certainly had the opposite effect. One of the benefits of stimulus package schemes, like Help to Buy, is that they have helped renew confidence in the UK housing market - and encouraged competition amongst lenders to offer the best possible deal. Some have even dubbed this recent development as the ‘mortgage price war’.

The number of mortgage deals has increased by nearly 20% in the last 12 months, offering an unprecedented range of options for buyers who want to take advantage of this renewed market prosperity. The launch of the Bank of Ireland Intermediaries is also a testament to this growth - indicating that more lenders are seeking to offer a competitive solution to market demands.

Consequently, good value mortgages are perhaps more available now than they have been for 8 years. This is particularly good news to those with small deposits, including savers who have previously been turned down for a mortgage in the aftermath of the recession.

In terms of Help to Buy ISAs, potential buyers have the opportunity to take advantage of attractive borrowing rates and also save money through the scheme. Each ISA member will receive a maximum of £3,000 in government contributions, including:

■ A 25% bonus on top of the saved deposit amount, e.g. £50 for every £200 ■ Saving up to £1,000 in the first month of your mortgage repayments, plus the bonus of £200

To qualify for Help to Buy, you will need to:

■ Be a first-time buyer aged 16 or over ■ Have saved a minimum of £1,600 ■ Be purchasing a home with the maximum value of £450,000 (London) or £250,000

(the rest of the UK)It is worth keeping in mind that the government will contribute a maximum of £3,000 for savings of £12,000. You also cannot contribute to a Help to Buy ISA if you already have another cash ISA.

3 http://www.theguardian.com/business/2015/may/23/uk-mortgage-deals-jump-by-nearly-a-fifth-as-competition-heats-up


“ An independent financial advisor will be able to examine your individual situation and help determine which type of mortgage will benefit you the most.”


Boutique Finance

12

HOW TO PICK THE RIGHT MORTGAGE

Whether you choose to take advantage of Help to Buy, Right to Buy, or the housing market’s improved borrowing rates, there is one decision that will impact everyone: which mortgage type to choose.

An independent financial advisor will be able to examine your individual situation and help determine which type of mortgage will benefit you the most:

PRO CON

FIXED

Consistent repayments for fixed time period

You won’t need to pay more even if rates increase

You can budget around your repayments

Your starting rate is likely to be high

If the rate drops, you will still pay the same

Early repayments will mean high penalty costs

TRACKER

You could enjoy consistently low base rates

The rate is dependent on the base rate, not lender

You can overpay without penalties

The base rate could rise, costing more per month

Insecurity in budgeting monthly payments

Early repayment fees if you want to leave

STANDARD VARIABLE RATE (SVR)

You could enjoy consistently low base rates

Potentially cheap mortgage repayments

Remortgaging can be easier

The base rate could rise, costing more per month

Insecurity in budgeting monthly payments

Little security

DISCOUNT RATEThe rate will always be lower than SVR

Low interest rates

No control over SVR, resulting in rate instability

Rate spikes after the deal ends


“ In the next twelve months, there is every reason to believe that these l0w rates will continue and buyers will have an excellent opportunity to purchase property at an attractive rate.”


Boutique Finance

14

FIXED RATE MORTGAGES

Fixed rate mortgages have always been an attractive option for buyers.

Whether it’s a two-year or five-year deal, this type of mortgage is an excellent option for anyone who wants to lock in their repayments and have complete peace of mind throughout the duration of their agreement. Moreover, in the past twelve months, fixed rate mortgages have become especially favourable amongst those who want more than just consistency. They also want to take advantage of low rates.

Thanks to low interest rates and a drop in wholesale funding costs, mortgage rates have fallen significantly in 2015. Both two-year and five-year deals have hit record rate lows. However, some of the biggest drops have actually been seen in four-year mortgage deals.

For example, in 2010 the lowest four-year fixed rate was 4.49%. Nowadays buyers can expect to purchase the same mortgage for as little as 1.84%.

Nevertheless, this fortunate development doesn’t make two-year mortgages any less attractive. According to Moneyfacts, the number of two-year fixed rate deals has increased significantly in the last five years - from 596 to 1,993. There has also been a small rise in the volume of five-year fixed mortgage types.

In the next twelve months, as inflation and oil prices remain low, there is every reason to believe that these l0w rates will continue and buyers will have an excellent opportunity to purchase fixed rate mortgages at an attractive rate.

What influences fixed mortgage rates:

■ Inflation rate ■ Expectation of future interest rates ■ The “swap” rate at which banks can borrow money to lend to customers

If the swap rate isn’t good and money is expensive to buy, this will be reflected in the fixed rate mortgages.

4 http://www.thisismoney.co.uk/money/mortgageshome/article-3088115/Four-year-fixed-rate-mortgage-deals-actually-dropped-most.html


Boutique Finance

15

VARIABLE RATE MORTGAGES It comes as little surprise that low mortgage costs have also impacted the popularity of variable rate mortgages. Whether or not you choose a variable rate mortgage will depend on a number of factors. The following guide contains impartial advice for anyone looking to purchase a mortgage in 2015.

TRACKER MORTGAGES ■ As long as base rates stay low, tracker mortgages will continue to have widespread appeal

amongst potential buyers. However, it’s worth keeping in mind that these rates could change at any time - meaning that your repayments could become expensive in the future

■ That’s why capped tracker mortgages, that limit your repayment amount, are good for added peace of mind

■ If you choose a tracker mortgage, you should budget for early redemption penalties in case you wish to remortgage in the future

STANDARD VARIABLE RATE MORTGAGES (SVRS) ■ Standard variable rate mortgages are default for borrowers who finish their fixed or

tracker agreement ■ The main problem for homeowners is that the rate is subject to the lender -

e.g. the bank or building society - and thus can be difficult to budget for ■ You could end up paying more than the Bank of England base rate

DISCOUNT RATE MORTGAGES ■ Discount rate mortgages are cheaper than SVRs, but borrowers have no control over any

potential price hikes ■ You are also likely to be subject to increased payments once the deal agreement ends


“ An independent financial advisor will be able to offer you impartial guidance and isolate any alternative mortgage deals that could have you money in the long run.”


Boutique Finance

17

REMORTGAGING

In addition to buying a mortgage, the increased optimism of the UK housing market has also had a knock-on effect on remortgaging.

As a result of low borrowing costs, mortgage rates have dropped and in some cases are as low as 1%. On the one hand, this is frustrating news for anyone who is on a SVR mortgage - but is also an attractive prospect for anyone looking to remortgage their home.

There are generally two reasons why a homeowner would choose to remortgage their property:

■ To take advantage of low mortgage rates from another lender ■ To increase monthly repayments by finding another lender and avoid early

repayment penalties

Some of the best candidates for remortgaging include those who have little equity in their property. If you are looking to repay your property in a quicker timeframe than previously anticipated, then remortgaging could allow you to take advantage of low rates that were previously unavailable.

In 2015, it is possible that homeowners who are approaching the end of their mortgage agreement date will benefit from examining their options in light of recent market developments. An independent financial advisor will be able to offer you impartial guidance and isolate any alternative mortgage deals that could have you money in the long run.


“ With the Bank of England’s base rate currently fixed at 0.5%, and low inflation, now has never been a better time to invest in a mortgage. ”


Boutique Finance

19

A POSITIVE FUTURE?

The new government has taken significant steps to make homeownership a reality for millions through the UK - such as extending Help to Buy and Right to Buy to more citizens than ever before. David Cameron has also promised to build another 250,000 homes in the next five years, which has the potential to drive down housing prices and make borrowing a mortgage a much greater reality.

With this in mind, there is every reason to believe that 2015 will be a positive year for anyone looking to purchase a mortgage or remortgage their home. All that matters is that you choose the right option for you - and that’s the job of a mortgage broker.

SEEK EXPERT ADVICE

Choosing the right mortgage will be one of the most important decision you ever have to make.

An impartial mortgage advisor will be able to examine your financial situation and recommend the very best option for you. Furthermore, with a portfolio of business connections throughout the housing sector, a broker can provide you with a mortgage deal currently not available on the market.

Quite simply, a mortgage advisor can help to take away the headache of financing your perfect home.


Boutique Finance

20

BOUTIQUE FINANCE

Saika has 22 years’ experience of the financial service industry.

In 1993 Saika joined Abbey National as a trainee independent financial advisor, before moving to Bradford and Bingley in 1995 to work as a compliance officer. She spent a further 6 years as a mortgage advisor working alongside one of the most respected figures in the mortgage industry today.

In 2002 Saika joined MMG as a senior consultant staying until 2008 to build on her knowledge and expertise. She quickly gained a reputation as an outstanding provider of mortgage advice. In 2009 it was time to fly solo, and Boutique Finance was born.

CONTACT US TODAY

Tel: 0161 932 1479 (Manchester Office) | 020 7183 5393 (London Office)Email: [email protected] | Twitter: @SA_boutique

Boutique Finance (Manchester)Spinningfields, 10th Floor, 3 Hardman Street, Manchester M3 3HF

Boutique Finance (London)2nd Floor, Berkeley Square House, Berkeley Square, Mayfair, London W1J 6BD

© 2015 All design and artwork contained in this document is the sole ownership of Boutique Finance.Boutique Finance, Spinningfields, 10th Floor, 3 Hardman Street, Manchester, M3 3HF | See more at: www.boutiquefinance.co.uk

FINANCE & PROTECTION TAILORED TO YOU

boutique finance e book - mortgage impact 2015

Documents

british government

impact mortgages

new government

new conservative government

labour government

fixedrate mortgages

number of mortgages

uk housing market