mortgage interest rates

Why are mortgage interest rates important?

The mortgage interest rate determines how much the balance of the loan will grow each month. The higher the interest rate, the higher the monthly repayments. Interest rates are always calculated as a percentage of the mortgage's balance.

Most people have a repayment mortgage. With this type of mortgage, a set amount of the balance is paid each month, plus interest on top of that. Those with interest-only mortgages pay interest but none of the capital. However, there should be a mechanism to repay the capital by the end of the mortgage term.

Mortgage interest rates are either fixed or variable.

Fixed-rate mortgages

With a fixed-rate mortgage, the interest rate - and therefore monthly repayments - are fixed for a certain period. This can be as short as two years or as long as 10 years. Fixed-rate mortgages carry the same interest rate throughout the entire length of the loan. When a fixed rate mortgage deal ends, the mortgage will revert to the lender’s standard variable rate (SVR) of interest. This could be an opportunity for a financial spring-clean, as it may be possible to switch to an even better deal.

Variable-rate mortgages

With a variable rate mortgage, the interest rate could go up or down from month to month, meaning the amount to repay is subject to change. Most tracker mortgages follow the Bank of England base rate (which is currently 0.1%). The rate might be described as the 'base rate + 2%', which means that the interest rate would be 2.1%, but if the base rate changes, so too will the interest rate. It is important to note it is likely there will be a floor that the tracker is not able to go below. 10 years ago, in 2011, the average standard variable rate was 4.79%.

Some tracker mortgages follow the Libor rate instead of the base rate. The Libor is the borrowing rate banks charge to each other - though it is being phased out at the end of this year.

Tracker deals might be as short as two years or run for the entire term of the mortgage. Discount mortgage deals follow the lender’s standard variable rate (SVR), which the lender sets and can change at any time, minus a set percent. So, if the lender's SVR was 6.2% and the discount was 4%, the payment rate is 2.2%. With most mortgage deals, the interest rate will revert to the lender's SVR after the initial period ends. SVRs tend to be relatively high, so it often makes sense to switch - or remortgage - before being moved onto the SVR.

Which mortgages come with the lowest interest rates?

Generally, the interest rates on fixed-rate mortgages will be higher than those on offer from variable deals. This is because borrowers are paying a bit more for the security of knowing what their repayments will look like every month. The same thinking applies with longer fixed-rate deals of five years or more. The lender is taking on a bigger risk by offering these deals as rates in the wider market might rise during that time, so a longer-term fixed rate will often be higher than a shorter-term one.

What are the predictions for interest rates for 2022?

The cost of living surged by 4.2% in October, the highest rate in almost 10 years, due to rising fuel and energy costs and second-hand cars and the global supply chain disruptions according to new data from the Office for National Statistics.

The consumer price index measure of inflation is now more than double the Bank of England's target of 2%. Commentators are saying that this increase in inflation as well as the improvement in employment statistics should put pressure on the Bank of England to raise interest rates, but the country’s slowing GDP growth could hinder that path.

In response to rising inflation and in anticipation of an increase in interest rates lenders have been raising their mortgage rates over the past few weeks.

Zoopla forecasts house prices will increase three per cent next year, a far more moderate gain than the double-digit leaps seen across the UK in the past 12 months.

Get in touch with us now to lock in rates whilst they are at historic lows.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.

 


First-time buyers

House price growth delays first-time buyers getting on the property ladder

A new survey published by the Home Owners’ Alliance, revealed that First-Time Buyers are struggling more than ever to get on the property ladder.

The main obstacles for first-time buyers are the rise in house prices, saving for a deposit and concerns about their personal finances.

According to Zoopla data, average UK house prices have surged by more than £40,000, from £215,127 to £256,535, in the past 5 years – at an annual growth rate of 3.5%. In the same period, the average salary for full-time employees increased from £33,644 to £38,600 – at annual growth of 2.7%.

Despite Bank of England reports that the pandemic has enabled many households to accumulate more savings, in a study by Santander, less than one in five (17%) first-time buyers said lockdown enabled them to save more money for a deposit, compared to 31% of all buyer types. This inequality comes as younger buyers more harshly felt the effects of furlough, unemployment, and reduced income due to COVID-19, while many continued to grapple with the cost of renting. Nearly half (47%) of first-time buyers said they delayed their buying plans due to concerns about their personal finances.

Alongside this, over half (54%) believe that financial support for first-time buyers from the Bank of Mum and Dad will be less available post-pandemic. With parents having more financial pressures due to rising household costs and in some cases, redundancies, they may no longer be able to support their children in raising a deposit.  Estimates suggest that on average, the Bank of Mum and Dad provides more than £18,000 of financial support to a first-time buyer.  Currently, first-time buyers are having to scrape together a pot worth 70% of their income.

Higher Loan-to-Value (LTV) mortgage products like 95% mortgages, offer another route to homeownership for first-time buyers and those with smaller deposits. For those who are renting while trying to save a housing deposit, this path might help them to get on the property ladder slightly sooner. However, while this type of loan can make it easier for cash-strapped first-time buyers to take that difficult first step to becoming a homeowner, these deals are more expensive and higher risk.

When it comes to getting a mortgage, it is best to seek professional advice from a mortgage broker. This will help in making the best decision to suit personal circumstances.

There are a few important factors to consider before securing a 95% Loan-to-Value deal.

  • Higher interest rates– The higher the LTV ratio, the more interest you will pay on the loan. This is because you are borrowing a larger sum of the property’s value, you are deemed a higher ‘risk’ to lenders. Therefore, a 75% LTV mortgage deal will likely have lower interest than a 95% LTV
  • Remortgaging – Although not impossible, it can sometimes be more challenging to remortgage. This is because most mortgage lenders prefer homeowners to possess more equity. It might take a while for you to get your LTV down low enough for you to be eligible for the more competitive rates. If possible, overpaying on your mortgage can be an option to combat this as it will help get your LTV lower and reduce interest.
  • Negative equity– This is when your property is worth less than the mortgage secured on it. If the value of your home falls for any reason, there’s a chance you could end up in negative equity. The more equity you retain in your property, the less chance of this happening, however it’s important to recognise the value of a property can decrease for various reasons so you should always be aware of this.

 Some first-time buyers are choosing to live with their parents for longer to save enough for a deposit, whilst others are just having to rent for longer and curb their spending as much as possible to be able to save for a deposit.

Solutions for first-time buyers in getting on the property ladder

  •  Swapping their preferred search area with areas they can afford
  • Buying with a friend/partner
  • Utilising home ownership schemes such as Help 2 Buy
  • Considering a long-term fixed rate to take advantage of the current low interest rates

With potential homeowners being priced out of property in their own areas and the deficit in growth between earnings and house prices only widening, it is evident that the UK property market needs to adapt and focus on finding new solutions to combat the current property landscape, to ensure more and more people can take their first steps onto the property ladder.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.


How to save money when remortgaging

Many households will be looking for ways to reduce their monthly outgoings due to rising energy bills being seen throughout the UK and inflation expected to increase over the next few months, as well as the increase in national insurance contributions from April 2022.

For homeowners coming to the end of a fixed rate mortgage deal, or whose deal has already ended, choosing the right remortgage deal can help to save them money.

There is currently a rate war raging between mortgage lenders, which has led many lenders to reduce the rates on their remortgage deals to record lows. This mortgage rate war particularly benefits two and five-year fixed rate borrowers.

While the most competitive deals are often only available to those who own a high amount of equity in their home, usually 40% or more, the rate war has led to competitive rates now being available to those who own less equity in their home.

With rates competitively low, locking into a new mortgage deal or moving from a lender’s standard variable rate (SVR) and onto a new deal, could substantially reduce repayments.

For example, the current average SVR is 4.41%, which would mean that a homeowner with a property valued at £300,000 and who has a mortgage of £180,000 on a 20-year term would be making monthly repayments of £1,130.04. If this same homeowner remortgaged onto the current lowest two-year fixed remortgage rate of 0.84%, they would be making monthly repayments of £815.03 – £315.01 less per month.

Look beyond the mortgage rate

Product Fees

When looking to save money on their next remortgage, homeowners should also consider how much is being charged on product fees.  Locking into a lower mortgage rate will likely impact repayments, but It’s important to check product fees.  Some lenders will offer deals without charging any product fees, while other deals can have product fees of £1,500 or more. It may be better to choose a deal that has a low product fee, or no product fee, even if the actual rate is slightly higher.

Valuation and Legal Fees

Another way to save money when remortgaging is by choosing a deal that has the incentive of free valuation and legal fees. Fortunately, many lenders are offering the incentive of free valuation and legal fees on their most competitive deals, but homeowners may want to check that these are included before proceeding.

Making a lump-sum mortgage repayment

Consecutive lockdowns and working from home have resulted in some consumers being able to save more than they normally would.  It may be a better option for homeowners to use their savings to pay off a lump sum of their mortgage than keeping it in a savings account, especially when savings rates remain low.

Borrowers with a lump sum of money that can be used to repay part of their mortgage may find that when locking into a new deal it is the best time to make a lump sum repayment.

Also, making a lump sum repayment on a mortgage usually increases the equity the homeowner has in their home, which can result in them being eligible for more competitive mortgage rates. Even if the homeowner is not able to get a better deal through increasing the equity they own in their home, paying off a lump sum of their mortgage can help to reduce their monthly repayments.

 Seeking mortgage advice

Remortgaging options available to borrowers are dependent on their personal financial circumstances. However, there may be other ways that homeowners can reduce their repayments and save money. It is advisable for homeowners to speak to a mortgage adviser first who will be able to provide advice tailored to their individual needs and who will be able to select the best options and deals available.

Remortgaging checklist

  • See if your Loan-to-Value (LTV) ratio has changed since your last mortgage deal.
  • Make sure you keep a note of your mortgage end date.
  • Don’t automatically accept your existing mortgage lender’s remortgage offer.
  • Check the total costs of your remortgage including product fees and valuation and legal fees.
  • Have your circumstances changed since your last mortgage?
  • See if your credit rating has changed since your last mortgage deals. Before remortgaging it’s important to check your credit score.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.

 


independent mortgage adviser

Top Ten Reasons to Use an Independent Mortgage Adviser

Mortgages are the biggest financial commitment most people will ever make, so it’s vital to get the right product for your needs. That’s why it makes sense to work with an independent mortgage adviser to use their experience and knowledge of the mortgage market.

An independent mortgage adviser will help property buyers get the most suitable and competitive mortgage for their circumstances and smooth the path to an offer, making the process hassle-free.

Some buyers may choose to go directly to a lender to arrange their mortgage. However, by doing so, they could be missing out on many benefits and end up paying more for their mortgage.

Here are ten reasons to use an independent mortgage adviser:

1. Whole of market advice

Independent mortgage advisers can search for the right mortgage for your circumstances from across the whole market. Whole of market advisers work with every single lender on the market, which enables them to analyse every option to find the deal that is best for your situation. You’ll be offered personal advice tailored to your individual needs.

2. Money saving in the long run

Independent mortgage advisers are impartial and are not tied to a particular provider. This means they have no incentive to recommend one lender or another, which helps ensure that your mortgage is not costing you excessive interest charges that could be avoided. Going directly to lenders for a mortgage will mean that you’ll be limited to their deals. Independent mortgage advisers can find the most cost-effective mortgage deals that will save you money over the long term, which could be up to 30 years. Also, they usually have access to exclusive products that are not available from mainstream lenders.

3. Advice on every aspect of the mortgage process

The details and terms of mortgage deals can get complicated. Independent mortgage advisers can make the process much smoother and explain what everything means, breaking down the jargon for you. They can also offer reassurance throughout the property purchasing process.

4. Saving you time with a hassle-free process

Securing a mortgage and buying a home can be a complicated process with many forms to fill out and different parties to chase. There’s no need to spend time understanding how to complete forms as an independent mortgage adviser will do this on your behalf, so it’s just a question of reading the completed documentation and adding your signature to it. The adviser does the legwork for you and prepares your case as well as liaising between you and the lender, the lender and the estate agent and the solicitor and the estate agent. Mortgage advisers can help push the process along and make everything much smoother.

5. An independent mortgage adviser understands lender criteria

Good mortgage advisers deal with different lenders on a day-to-day basis. They understand which lenders are more likely to accept applicants and what information they need to see to improve the chances of your application being accepted.

6. Fully qualified and regulated

Independent mortgage advisers must have professional qualifications and they are regulated by the Financial Conduct Authority – either directly or as an appointed representative of a network. This means that the adviser has a regulatory responsibility to search for the most suitable product for you. If there is an element of your adviser’s service that you are not happy with, you have the option of complaining to the Financial Ombudsman Service.

7. Specialist needs

If you’re self-employed, have seasonal income or a history of bad credit, you may find it difficult to get a mortgage on the high street. Independent mortgage advisers have access to a wider range of specialist lenders and experience in helping those excluded from the mainstream market. They can find specialist lenders who provide mortgages to people with adverse credit history at the best interest rates available.

8. Wider Financial Advice

Independent mortgage advisers can help you arrange buildings insurance cover, which will be required by your mortgage lender. They can also talk about life insurance, mortgage payment protection insurance and other types of cover that might be suitable for you.

9. Loyalty

Independent mortgage advisers are there to help you review your options if your circumstances change. They normally contact you well in advance of your current mortgage deal ending, to see if they can find you a better one. They are interested in referrals and want you to recommend them to friends and family, so they’ll always act in your best interests.

10. Value for money

Independent mortgage advisers earn money on the commission paid by all lenders. This means that even ‘free mortgage advice’ is still paid for in one form or another, but not necessarily from you. Many mortgage advisers may also charge a fee, but this allows them to spend more time advising and supporting you throughout your application and be wholly focused on your needs.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.

 


Mortgage choice rises as lenders see growing borrowing demand

The number of mortgage products available has reached the highest level since the Spring of 2020. With lenders offering competitive deals, interest rates have fallen month-on-month.

As the UK housing market remains strong, house prices have continued to rise. At the same time, mortgage deals have increased to their highest level since the start of the COVID-19 pandemic, according to data from Moneyfacts.

Recent mortgage lending statistics from the Bank of England also reveal that lenders advanced £83.3bn of mortgage borrowing in the first quarter of 2021. This is the highest level since Q4 2007. Additionally, the value of mortgage commitments, which is lending that will advance in the coming months, was 15% higher year-on-year at £77.5bn.

Lenders gaining further confidence

Lenders are continuing to gain more confidence as the demand for borrowing has increased. At the same time, mortgage options have been on the rise, providing more choice for property buyers.

On 1 June 2021, 4,243 mortgages were available, according to Moneyfacts. This is a rise from 3,927 deals on 1 May. Year-on-year the number of mortgage deals has increased by 1,433 when 2,810 products were available on 1 June 2020.

Mortgage availability improved in several loan-to-value (LTV) ratios. A substantial number of new mortgages coming to the market are for first-time buyers with 5% and 10% deposits.

While improvements in availability were recorded across most of the LTV tiers, it was at 95% LTV that nearly a quarter of the new deals were launched.  It is important to note that although there is an increase in the number of products available to the higher LTV brackets, lenders are still wary when it comes to mortgages north of 80% LTV and the interest rates do reflect this.

As Mortgage rates drop below 1%,  it could be the time to remortgage and save thousands of pounds

New mortgage deals are at their lowest ever rates, with two-year fixes down to 0.95% and five-year fixes at 1.17%.

So, what is the cause of this?

  • Very low UK interest rates
  • A house-buying boom boosted by a stamp duty cut
  • Banks with a surplus of cash to lend as so many people built up savings during the pandemic

The result is fierce lending competition for the best customers. That means, for some, remortgaging  (switching deal without moving property) can result in savings.

Delays are rife right now – act in time to avoid moving to a Standard Variable Rate (SVR)

The stamp duty deadline and house-buying boom means brokers, lenders and conveyancing solicitors are in constant demand. This means the remortgaging process is taking longer, sometimes months right now.

People on fixed or discount mortgage deals ending this year will need to start planning remortgaging earlier than normal to avoid being automatically put on to the lenders’ far more expensive standard variable rates (SVRs). It is best to start planning remortgaging three to six months before your current mortgage is due to end. This is particularly important for self-employed people.

So do not delay, think about remortgaging today.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.


The property market boom and what the future holds post-pandemic

This blog provides a summary of the property market since it reopened in May 2020 during the pandemic, as well as an insight into what the future might look like.

A summary of the property market during the pandemic

The outbreak of the COVID-19 pandemic brought widespread economic uncertainty - a stark contrast to the property market which has been booming since it reopened in May 2020.  The stamp duty holiday has certainly helped in contributing to the buoyant market as well as an increased desire for buyers to swap urban living with country living due to more flexible working patterns.

The stamp duty holiday

As the market reopened, Chancellor Rishi Sunak unveiled a Stamp Duty holiday for main homes valued up to £500,000, in a bid to increase property sales. Without it, the ongoing coronavirus crisis would have severely dampened confidence in the market.

The surge in residential property sales

Residential property sales in February 2021 surged as home buyers rushed to meet the initial end of March 2021 deadline to pay less stamp duty, according to government figures. Figures released by HM Revenue & Customs  showed that there were 147,050 residential property sales in February, 48.5% increase on the same month in 2020.

Chancellor Rishi Sunak used his Budget at the start of March 2021 to extend the stamp duty holiday deadline to 30 June 2021 for properties of up to £500k, and to the end of September for properties of up to £250k.

House price increases

House prices have been rising and according to the Land Registry, the average price of a property in the UK rose by 10.2% year-on-year in March 2021 to reach £256,405, as shown in the graph below.

London continues to be the region with the lowest annual growth (3.7%) for the fourth consecutive month.

Research by Rightmove found the average time to agree a sale in April 2021 was 45 days, the lowest figure registered since the start of the pandemic.

The imbalance of supply and demand of housing leading to a strong seller’s market

As more people started looking at moving home, this has increased the demand, and led to a shortage of available properties. The continued imbalance of supply and demand is a concern and has led to a strong sellers’ market with properties being snapped up quickly at high prices, especially in sought-after locations.

As buyers are having to pay higher prices for properties, they are not in reality benefiting a great deal from the stamp duty holiday, but the thought of not having to pay the lump sum of £15,000 stamp duty is very appealing.

What is in store for the property market post-pandemic?

Such rapid growth would, to an extent, be self-limiting, given the increasing difficulty faced by first-time buyers. They are having to pay more to get on the property ladder. Lenders are encouraging them to put down a 15% deposit instead of 10%.

There are two factors that support further growth of the property market.

The first is that lockdown has, if anything, fuelled already traditionally high demand in the UK for homeownership and in some cases a greater ability to save. New figures show that 80 per cent of private renters are now saving for a deposit.

The second is the newly launched government-backed mortgages which offer help for those struggling to raise sufficient deposits. Announced at the Budget (March 2021), the scheme involves  the government ‘guaranteeing’ 95% mortgages for buyers with 5% deposits.  It is designed to encourage banks to start offering 95% mortgages again, after nearly every single one was withdrawn during the pandemic Under the terms of the scheme, the government guarantees the portion of the mortgage over 80% (so, with a 95% mortgage, the remaining 15%). In practice, it just means the government will partially compensate a lender if a homeowner fails to pay their mortgage.

It is available for purchases of up to £600,000 by both first-time buyers and previous homeowners. It joins other existing schemes such as Help-to-Buy Shared Ownership and the First Homes Scheme in helping sustain the market, particularly among first-time buyers.

Eventually, we can expect the market to slow. The tapering, the end of the furlough scheme and then removal of the stamp duty holiday will mean less frantic activity.

As we move to the latter half of the year, attention is likely to shift to remortgaging as borrowers look to lock in low interest rates. All buyers will have to be prepared to use a stamp duty calculator to factor in potential stamp duty costs, should they not complete on their purchase before the deadline.

Advisers will also start to look to the future and a post-pandemic normal.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.

 

 

 


Top Tips to getting a mortgage when you are self-employed

Self-employed people are always trying to be as tax efficient as possible, but this can be a detriment when applying for a mortgage. This blog aims to explain the steps self-employed people should take as a small business owner, freelancer, or contractor to give themselves the greatest chance of getting the best possible mortgage loan.

Positioning the business

Most accountants help clients position things so that the business – and/or the individual – minimises their tax outgoings. However, keeping more cash in the business (rather than drawing it as salary and dividends) could end up making self-employed people look less well off than might be the case. This could mean that even though accountants know the self-employed person can afford to repay the loan they are seeking, their personal income figures do not support this assertion.

Let us say they are earning £50,000 p.a. from their business, when equating the value of what mortgage loan they can have, their earnings might be only half of what they are, due to tax savings.  This means losing out on a more favourable mortgage loan amount.

Self-employed mortgage applicants must be sure to explain to their accountant that they are looking for a mortgage deal and tell them how much they hope to borrow. Together with their mortgage adviser, they will be able to advise as to whether it would be to their advantage to take more profit out as a dividend, so their personal income is boosted. This might mean having to pay more income tax in the short term to get a better mortgage deal. It is important to be aware that some lenders do take retained profits into account when looking at affordability –  mortgage advisers are likely to be able to advise on this – and accountants/financial advisers will be able to structure things accordingly.

Keep your business and personal spending separate

It is a good idea for self-employed people to keep business and personal spending separate. If there is a habit of putting business expenses on a personal credit card and paying the bill via the business account once a month, this should be reconsidered. To a mortgage lender looking at bank statements, that will look like personal spending and may have a detrimental effect on borrowing ability. Again, an accountant will be able to help see where potential pitfalls lie. Remember that a check will be run on the business address, too, so it is advisable to make sure all payments are up to date.

For any self-employed person planning to apply for a mortgage, they need to show a minimum of 2 years of accounts.  Halifax is the only lender that might look at just one year. Whilst having to show a minimum of two years’ worth of accounts can seem like a chore, if they are prepared and they show an upward trend, the more the better.

Key things to consider when looking for a mortgage

While there are various things to consider when looking for a mortgage, getting finances in order first, with the help of an accountant, financial adviser and a mortgage adviser, can make a huge difference to your borrowing capacity. It makes it easier for lenders to be able to assess a mortgage applicant’s financial situation.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.


budget

Spring Budget 2021

On Wednesday, 3 March 2021, the Chancellor, Rishi Sunak, delivered his second Budget as the rollout of the coronavirus vaccine across the UK gives hope of a return to some degree of normality during 2021. He announced new measures to help businesses and jobs through the pandemic and to support the UK’s long-term economic recovery and a series of tax-raising plans to help rebalance the public finances.

Key announcements on Stamp Duty and Mortgages

  • The Chancellor announced an extension to the stamp duty holiday in England and Northern Ireland until the end of June on properties worth up to £500,000. This relief will be reduced to the first £250,000 of a purchase until the end of September, before returning to its pre-pandemic level of £125,000 from the start of October.
  • 95% mortgages will be guaranteed by the Government. This means first-time buyers should get a wider choice of mortgages that require a deposit of just 5% of the loan. This will be available when buying properties worth up to £600,000.

A Definitive Guide to the Government’s Help To Buy Equity Loan Scheme

There are many government funding programmes, the Help to Buy Equity Loan Scheme is one that can be recommended to help first-time buyers in England to get on the property ladder. It is, in effect, a loan from the Government that is put towards the cost of buying a newly built home.

The Help to Buy Equity Loan Scheme helps first-time buyers in England get a property with just a 5% deposit. It is possible to borrow 20% of the purchase price (40% in London), interest free for five years. This scheme is currently available to home movers as well as first-time buyers, but this changes from 1st April 2021, when the scheme will only be eligible for first-time buyers.  New applications for the scheme opened from 16 December 2020 and will run until 31 March 2023.

This guide will help future homeowners to understand how this scheme can help them and how similar schemes work in the different countries of the UK.

How does the Help to Buy Equity Loan Scheme work?

The Government's Help to Buy Equity Loan scheme is designed to help those struggling to save for a deposit for a home to get on to the housing ladder in England. It is a scheme particularly well-suited for young professionals earning a reasonable salary with minimal savings, who need the scheme to help with a deposit.  They could in the future remortgage or sell up.

The required criteria for eligibility for the scheme are outlined below:

1. The scheme is eligible for home movers and first-time buyers until 31st March 2021

 2. From 1st April 2021 the scheme is only eligible for first-time buyers

This means:

  • Someone who's never owned a property at any point in the past
  • Someone who's never done so whether in the UK or abroad
  • If buying with a partner, they must be a first-time buyer too

3. Help to Buy equity loans can only be used to purchase new-build homes

This means, it is not possible to use the equity loan to purchase a home that has already been lived in.

4. Homes must be bought from a home builder registered for Help to Buy: Equity Loan

This means the equity loan will not be available on all new builds. First-time homebuyers can find which homes are available in their area through their local Help to Buy agent.

5. The loan must be used to buy a main residence It cannot be used to buy a second home or a buy-to-let property.

6. The maximum property price depends on where future homeowners are buying

Regional price caps restrict the value of the property and the difference between the two ends of the scale is substantial. In London, for example, a property can be worth up to £600,000, while in the North East the maximum property price is £186,100.

A breakdown of the regional price caps from highest to lowest

 

Region Maximum Property Price
North East £186,000
North West £224,000
Yorkshire and the Humber £228,100
East Midlands £261,900
West Midlands £255,600
East of England £407,400
London £600,000
South East £437,600
South West £349,000

 

The Help to Buy scheme cannot be used to purchase a property above these limits.

7. A deposit of at least 5% of the purchase price is required

It is possible to borrow 20% (40% in London) of the purchase price. This amount is interest free for five years. What the equity loan is doing is essentially 'topping up' the deposit – the aim being to give access to cheaper mortgage rates.  The rest can be borrowed (up to 75%, or 55% if residing in London) from a mortgage lender, on a repayment basis.

This scheme is a stricter lending capacity than other schemes as there is an additional calculator applied.

For first-time buyers the equity loan, the deposit saved, and the repayment mortgage cover the total cost of buying their newly built home.

When taking out an equity loan, the home buyer agrees to repay it in full, plus interest and management fees.

For information on how to repay the Help to Buy Equity Loan Scheme, visit the Government’s homebuyers’ guide.

 National Differences

The Help to Buy Equity Loan Scheme is available in England only.  See the links below for similar schemes elsewhere in the UK:

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.

 


leasehold system

The government is taking steps to reform the leasehold system in England

This reform of the leasehold system will give leaseholders in England the right to extend their leases by 990 years and end their ground rent payments once and for all.

The leasehold scandal has seen millions of homeowners burdened with unsellable properties due to escalating ground rents, uncapped serviced charges and difficulties buying their freeholds. Some buyers have argued that they were caught in a leasehold trap, with rising ground rents and unfair fees. Leasehold house owners are often charged expensive ground rent as well as fees if they want to make changes to their homes. A leasehold house can also be difficult to sell.

Under current rules, leaseholders of houses can only extend their lease once for 50 years with a ground rent. This compares to leaseholders of flats who can extend as often as they wish at a zero ‘peppercorn’ ground rent for 90 years.

The government has been investigating the leasehold system since 2017 and is now beginning to act on recommendations made by the Law Commission in July 2020.

 What do the government’s steps to reform the leasehold system mean?

The proposals mean leaseholders will be able to extend their leases for 990 years and will no longer need to pay an annual ground rent to their freeholder. In theory, this would end the practice of the freeholders charging ever-increasing ground rents and give the leaseholder the security of not needing to extend the lease again in the future.

Future buyers will be spared the punishing costs facing millions of existing leaseholders.

An online calculator may be created to determine how much the leaseholder will need to pay to extend their lease or buy their freehold. This would potentially stop freeholders asking for unreasonable costs.

The formula determining the cost of freeholds will include a discount for any home improvements the leaseholder has made.

The government has also announced it will set up a Commonhold Council, which will include leasehold groups and industry representatives. By doing so, this will prepare the market for a widespread take-up of a commonhold system in the future. Commonhold involves buyers of flats owning the freehold to their individual property and forming a management company with other residents in their block – thereby putting themselves in control of service charges and removing the need for third-party freeholders and management companies.

In summary, these new measures would fundamentally make home ownership fairer and more secure.

 When will the changes come into force?

The government says it will bring forward legislation on ground rents in the upcoming session of Parliament, which starts in the spring.

It has already pledged to ban new-build houses being sold as leasehold in the future and also confirmed that ground rents will be reduced to zero on new retirement properties.

The many homeowners who remain affected will need to extend their leases or buy their freeholds to be free of their current charges – and will therefore face a waiting game until these reforms come into force.

This is the biggest step the government has taken so far in outlawing issues with leasehold house and punitive ground rents, which were first raised in 2017.

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