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Workers Struggle To Afford To Live In London

London workers pay up to 60% more on housing in order to live in the city they work than those living 1 hours travel away.

Research by Lloyds Bank has found that for Londoners, living in the most central areas of the city adds 60% or a total of £447,015 to average property prices. This is compared to the average property prices in established commuter areas, where good transport links allow access to central London through 1 hours travel.

Wellingborough, Southend, Sittingbourne and Rugby, all around 1 hours travel away from the heart of London have an average house price of £294,903, compared to the £741,919 necessary to buy the average property in central London.

Cost Of Commuting Far Cheaper Than Buying In London

The cost of commuting an hour each way is a sizeable £4,989 annually but when compared to the £447,015 difference in house prices, it would take a massive 89 years to even out.

For those living 40 minutes of travel away from central London, namely Hatfield, Billericay, Orpington and Reading, average house prices are £389,000. It would take almost 100 years of £3,534 annual train fares to make up the £353,000 difference.

Other Reasons People Commute

Director of mortgage products at Lloyds Bank, Andrew Mason says that people also consider other issues when deciding where to live. In their findings, “quality of life is also a major factor: family circumstances, better schools, physical environment and homes that offer better value for money also come into the equation.”

Mr Mason states that “commuters are often prepared to pay a premium to commute when they could be better off in purely financial terms living closer to their place of work.” This is the case in cities such as Birmingham and Manchester.

For Independent Mortgage advice please contact us at Hoskin Mortgages for more information.

Clare Allen.

Hoskin Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority number 613005. The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

New Push To Grow The Interest-Only Mortgage Market

Leeds Building Society looks to widen the market for interest-only mortgages.

The chief commercial officer of Leeds Building Society, Richard Fearon believes that mortgages that do not include repaying the capital value of a property have “become the domain of the wealthy”. He adds his company wish to serve “the mass affluent too, the self-employed, and those wanting more flexibility.”

Market Yet To Recover Fully After 2008 Credit Crisis

The credit crunch of 2008 led to greater restrictions in many areas of credit provision. This squeezing of the market was combined with greater regulator scrutiny, cited by many organisations as a contributing factor behind them leaving the market. The activity of the regulators of the City gave rise to stricter rules presented in the 2014 Mortgage Market Review.

Mr Fearon states that throughout this time L.B.S. “never left the interest-only market” and he now expects that “we will see other lenders get interested in coming back to the market over time.”

As of the end of 2015, Council for Mortgage Lenders data shows that Britain had £238bn of interest-only stock, of which £208bn was purely interest-only.

The New Products

L.B.S. is increasing the percentage they are willing to loan based off a property’s value from 50% to 60% across all interest-only mortgages. Part-and-part mortgages can also get 60% loan-to-value mortgages with a further 15% available through their capital repayment component.

Affordability tests will be the same as capital repayment mortgages and stress-tested in conditions of up to a 7% interest rate.

Predictions

Market research carried out by the Financial Conduct Authority and GfK found that by the year 2020, around 600,000 interest-only mortgages will mature. Almost half of all interest-only mortgages are predicted to have a shortfall and a third of shortfalls in 2020 are expected to be greater than £50,000.

For Independent Mortgage advice please contact us at Hoskin Mortgages for more information.

Clare Allen.

Hoskin Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority number 613005. The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

Hundreds Of Thousands Trapped In Negative Equity Due To Where They Live

Homeowners in the north of England remain stuck with homes worth less than the value of their mortgage while London property prices surge ahead.

According to the latest analysis by online estate agent House Simple, British homeowners are slowly escaping the mass negative equity that followed the 2008 economic crash. As Alex Gosling, House Simple’s chief executive puts it, “there is light at the end of the tunnel with prices now climbing across the country, and that should help bring many more homeowners out of negative equity”.

North/South Divide

There is however a vast disparity in how quickly different regions are returning to their pre-crash heights. If you have owned a property in London between 2007 and February 2016, you will have enjoyed a rise in the average value of a property of 56%. Owners in the north of England have not been as lucky, with the area home to 17 out of the 20 towns and cities worst affected by the crash that are now facing the longest roads to recovery. The north west of England contributes 40% of the 20 areas with the highest rates of negative equity.

In total, 75 towns and cities were analysed, reporting the percentage change in the value of the average house from 2007 to February 2016. Of these, 53% where found to have current prices still lower than in 2007.

Blackpool and Middlesbrough performed the worst overall with current house prices nearly 30% below their 2007 mark. Alex Gosling admitted “it’s going to take some time” for these areas to “come close” to their previous worth.

Top 20 Performing Towns and Cities In The Housing Market

Town/City Region Average Prices in 2007 (£) Average Price in February 2016 (£) % Difference between 2007 and February 2016 Prices
1 London London 339,511 530,368 56.20
2 Winchester South East 310,089 447,046 44.20
3 Stevenage East Anglia 207,765 289,265 39.20
4 Warwick West Midlands 200,546 278,396 38.80
5 Bedford East Anglia 190,938 256,282 34.20
6 Brighton South East 223,378 298,653 33.70
7 Bath South West 314,896 412,211 30.90
8 Slough South East 181,994 236,023 29.70
9 Reading South East 208,364 270,002 29.60
10 Sale North West 202,452 252,203 24.60
11 Oxford South East 242,896 300,717 23.80
12 Bristol South West 181,588 223,688 23.20
13 Canterbury South East 217,992 266,621 22.30
14 Eastbourne South East 208,170 254,585 22.30
15 Stockport North West 169,813 206,368 21.50
16 Worcester West Midlands 177,492 208,620 17.50
17 Milton Keynes South East 171,861 201,081 17.00
18 Cambridge East Anglia 191,331 223,837 17.00
19 Colchester East Anglia 200,740 234,680 16.90
20 Luton East Anglia 145,595 169,184 16.20

Sale and Stockport are the only towns outside the south of England to make it into the top 20, seeing 25% and 22% rises respectively.

For Independent Mortgage advice please contact us at Hoskin Mortgages for more information.

Clare Allen.

Hoskin Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority number 613005. The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

A third of people expect to be paying mortgage into their retirement

A recent survey carried out by the Halifax has found that 1 in 3 people expect that they will have to work beyond the age of retirement to help pay off their mortgage.

The survey interviewed over 8,100 people aged 18 to 45 years old about how they felt about mortgages and their worries around borrowing. Populus who were commissioned by the lender found that 44 per cent of those questioned were worried that they will not be able to afford their mortgage payments when they get to retirement and 51 per cent were worried that their ability to save for retirement would be hampered by their mortgage repayments.

Less than half of all respondents believe they will be mortgage free by the time they retire, falling to just 30 per cent of non-home owners.

The survey however did find that the aspiration to own their own home was strong and many are taking steps to ensure that their financial burdens are eased when they join the property ladder.

Recent statistics have shown that the numbers of first-time buyers have risen back to previous levels over the last few years. 30,000 in 2015 were stepping on to the ladder for the first time.

The average age of the first-time buyer however has risen. It is now nine months older than it was recorded in 2010, with the average age now at 30.4 years old.

Over an 8-year period the percentage of first-time buyers who were taking up 35 year mortgages rose from 16 per cent in 2007 to 26 per cent in 2015.

Mortgages with a 20–25 year term however dropped during this same period. Only 30 per cent of mortgages were taken out with this term in 2015 compared to 48 percent in 2007.

The Mortgages Director of Halifax, Craig McKinlay, has advised that borrowers should be cautious when looking to extend a mortgage beyond 25 years.

“This will not only increase the overall cost of the mortgage, but could have a potential knock on impact on their quality of life in retirement.

“A longer term will reduce monthly payments, but as a homeowners build up equity they should look to reduce this term or make overpayments to ensure that the dream of owning their own home doesn’t turn into an unnecessary nightmare in later years.”

Scottish Widows pensions development manager, Robert Cochran, added that their research has suggested that many people in their 30’sand 40’s are prioritizing spending now over saving for later in life.

“Yet with younger generations expecting to be paying mortgages into retirement, it is more important now than ever that people push retirement saving up their financial agenda and get a better understanding of how pounds in a pension pot translate into income in retirement to avoid facing a financial time bomb at the stage when they want to stop working” says Mr Cochran.

For Independent Mortgage advice please contact us at Hoskin Mortgages for more information.

Clare Allen.

Hoskin Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority number 613005. The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

 

 

 

 

 

Selling a Buy to Let Capital Gains Tax

Selling an investment property triggers liability based on the increase in value of the asset during ownership, minus certain costs. Where you have lived in a property as your main home , for any point of your ownership, the period is discounted when calculating the gain – in a process called “appointment”.

How CGT is applied

The rate of tax you pay on capital gain is calculated by adding the taxable gain to your taxable income.

If you remain within the basic rate tax band, you will pay 18% tax on the gain. If you fall into the higher rate tax band, you will pay 28%on at least some of it.

For 2015-16, the personal income tax allowance is £10,600 and the basic rate band is £31,787. Anyone with income over £42,385 pays higher rate tax on the excess. Everyone is entitled to tax free capital gains, worth £11,100 this tax year. Only gains above this are taxed.

If you earn £20,000, for example, and make a taxable gain of £10,000 (after your £11,100 annual allowance), the £30,000 total will fall within the basic rate band and you will pay 18% CGT.

If on the other hand you earn £35,000 and make a taxable gain of £25,000 you will be in the higher rate band. The £7,385 of the gain which is still within the basic rate band will be taxed at 18%, while the amount over £42,385 will be taxed at 28%.

Aside from well-known steps to reduce your CGT bill, such as transferring a share of the property to a spouse to utilise their CGT allowance, private letting relief and principal private residence relief, there are some little-known tricks that can save you thousands.

Use your pension

By making a lump sum contribution to your pension, you could save up to £4,000 on your CGT bill.

All pension contributions worth £40,000 a year, or 100% of your salary if it is lower than £40,000, attract tax relief at your marginal rate.

A pension contribution can be used to reduce the tax you pay on capital gains by boosting your higher rate threshold. Someone who earns £45,000 and who makes a taxable gain of £25,000 would pay 28% CGT, giving a bill of £7,000. But by making a gross pension contribution of £28,000, they would receive tax relief on the contribution. This means that high rate tax is only payable on income over £70,385 (£42,385 + £28,000), so the £25,000 gain is taxed at 18%, rather than 28%.

The CGT bill would fall to £4,500 – a saving of £2,500. The most that can be saved through this trick is £4,000.

Use an Investment vehicle

There are a couple pf ways to offset, or delay, paying CGT, which could reduce your overall costs. These methods are more risky because they require investment in small and often start-up companies, so are only recommended for experienced investors with a diversified portfolio.

Investors with a CGT liability might consider investing in Enterprise Investment Schemes (EIS) as they could get an income tax credit but EIS can also be used to defer a CGT liability. EIS’s offer a 30% income tax credit to investors who buy shares in small, unlisted companies. The minimum holding period is three years.

Landlords with a CGT liability could postpone the gain they have mad by investing the equivalent amount in EIS shares. Through CGT deferral relief, the liability would only recrystallize when you sell your EIS shares. In theory, high rate tax payers could defer the liability until they retire and become basic rate tax payers, or continue rolling over the liability right up until death, when EIS shares would be exempt from inheritance tax and the CGT liability would dissolve.

For more help and advice please do not hesitate to contact us at Hoskin Mortgages.

Clare Allen.

Hoskin Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority number 613005. The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

The Bank of England is likely to introduce stress tests for buy-to-let mortgages, which will restrict the amount landlords can borrow, brokers have warned.

It has been suggested that the Bank might look to use other tools other than interest rate rises to control the housing market without endangering growth in the rest of the economy. The Bank of England revealed they have an FPC, which works alongside the MPC. It has tools which can put limits on the amount of indebtedness that household can take on and so can reduce the banks’ ability to lend very risky loans.

The FPC is to receive powers to temper the buy-to-let market which could suggest tougher controls on lending to landlords. While the FPC is set to gain greater control over the sector, it is still down to the committee to decide whether to use the extra powers, which have yet to be decided.

When the Chancellor confirms the FPC’s powers over the buy-to-let market, they may try to introduce the same stress test as they require for residential mortgages, which is to test affordability against a 3 per cent interest rate rise. Because rental cover requirements for buy-to-let are normal 125 per cent at a 5 per cent interest rate, the stress test would have the effect of restricting LTVs. It is quite likely that the bank will do that at some stage next year.

The bank of England would like to curb the housing market and they might do something to limit buy-to-let LTVs. If they start stress testing for a 3 per cent increase in rates that would clearly cool the market and limit borrowing, but it depends on exactly how they calculate this.

Lenders are already starting to introduce stress tests though and buy-to-let growth has been slow and sustainable, with much of the increase in lending coming as a result of landlords re-mortgaging rather than new purchases.

For more help and advice on mortgages please contact us @HoskinMortgages.

Could Mortgage Rates Fall Further???

Mortgage rates could be set to fall further after the Bank of England suggested base rate could remain on hold throughout 2016. The BOE warned in its inflation report that the global growth outlook had weakened.

The BOE indication that an increase in base rate may be further off than expected has been viewed as a U-turn after it was suggested in July that the MPC may consider increasing rates at the turn of the year.

When it looks like interest rates might have to rise something else happens globally to derail that, such as the slowdown in China or the fall in oil prices, and therefore cheap mortgage deals should continue to stay low for at least 6 months.

Two year fixed rates may get cheaper and five year fixed rates could reduce further with the addition of low ten year deals.

For more information help and advice please do not hesitate to contact us @HoskinMortgages

Clare Allen.

Say Goodbye to your Standard Variable Rate (SVR)

Whilst many homeowners choose to re-mortgage as they reach the end of their current deal, many still opt for the flexibility of their lender’s Standard Variable Rate (SVR). Around 3.2 million residential mortgage accounts in the UK are on a SVR scheme – that’s a market size of around £280 billion*.

With the Base Rate at a standstill, many borrowers might just stick with the flexibility of their SVR, paying an average interest rate of 4.92%**. But with new mortgage rates at an all-time low, this does mean that many of these borrowers are missing out on the opportunity to save money, or pay off their mortgage early by re-mortgaging.

Reasons for your re-mortgage

· Put money back in your pockets – a new mortgage deal could reduce monthly payments.

· Help shorten your mortgage term – if you continue paying the same monthly payment as you are currently these overpayments could pay your mortgage off sooner.

· Switch form interest only to repayment- if you are a homeowner with an interest only mortgage, you could move a portion or all of your mortgage to repayment basis, with the added benefit of paying off some of or all of the capital.

· Free up some cash – re-mortgaging could free up equity to pay for things like home improvements.

· Peace of mind – switching to a fixed rate lets you know exactly what your monthly payments will be and help you to plan for the future.

For more help and advice on Mortgages please do not hesitate to contact us @ Hoskin Mortgages.

Older borrowers with interest-only loans using equity release to clear mortgage trebles

The number of borrowers using equity release as a means of paying off an interest-only mortgage has trebled.
Lenders have tightened up on their lending into retirement criteria over the past 2 years, possibly in prospect of the Mortgage Market Review launched last April.

It has been estimated by Age Partnership that the number of people to have used an equity release plan to pay off their interest only mortgage has risen by 193%. The study showed that 229 people used an equity release plan in April 2015 whereas only 78 people did in April 2014. It was also estimated by the retirement provider that over the past 12 months a total of 2246 older borrowers have used equity release to pay off an interest-only mortgage.
Age Partnership has stated that the average interest-only mortgage held was £61,856 in April 2015 but customers actually released an average of £73,980.

It has been estimated by the FCA that 260,000 of the 2.6 million outstanding interest-only mortgages do not have a repayment strategy in place to repay the capital at the end of the term.

The affordability criteria introduced by lenders as a consequence of the Mortgage Market Review has made the interest only time-bomb all the more devastating meaning that few older home owners have the opportunity to set up a new strategy to clear their debt. It is now harder for lots of home owners to clear their interest only debt whilst still remaining in their home. In the worst cases, retirees are being forced to sell their homes and move to a smaller property to pay down their debt. Understandably, this is a stressful outcome which often causes unnecessary upset later in life.

Borrowers with interest-only deals should not be forced to abandon their life-long homes.

Interest Rates to Fix or Not To Fix

The proportion of borrowers opting for fixed rate mortgages fell in September despite the market expecting base rate to increase within the next year. The proportion of purchase borrowers choosing to fix fell 2 per cent from September 2013’s average of 94 per cent.

Re-mortgage borrowers’ preference also swung towards variable rates in September, with 89 per cent choosing to fix compared with 92 per cent 12 months earlier.

The fall in tracker rate pricing, combined with the Bank of England stating any rise in interest rates will be gradual, have prompted borrowers to choose variable over fixed rates.

It appears that interest rates will remain at historic lows for the foreseeable future, as the economy continues to recover and will probably remain low for the medium term.

The question of interest rate rises is not an ‘if’ but a ‘when’. That being said, the Bank of England has made repeated assurances that interest rate rises will be gradual, and this seems to have filtered through to some customers, who are willing to opt for variable mortgages to take advantage of lower pricing.

Once interest rate rises become a reality, the swing back to longer-term fixed rates may occur.

Lenders will price in a change in base rate well in advance of any decision to increase and therefore current best buy rates are not going to be around for long.

Now is an ideal time for existing homeowners to check whether their current mortgage is still the best deal, acting fast before interest rates rise and could prove beneficial in the long-term.

Despite the Bank’s move to reassure borrowers that rate hikes are not imminent, brokers believe other factors mean borrowers still should be considering fixed rate mortgages.

The reality is a rate rise of just 0.5 percent could see the average mortgage bill increase by £750 per year. Five-year fixed rates have already begun to rise. The five-year swap rate, used to calculate the loans, hit 1.7 percent in January up from below 1 per cent last spring. This rise is a 65 percent jump in relative rates.

Borrowers do not need to panic about rates rising right now, however they should maybe plan for when they eventually do. A five-year fixed rate in the medium term represents good value.

Borrowers should therefore look at their options and talk to an Adviser to tie down a more favorable deal.

The Bank of England is trying to convince the market of that fact and using unemployment as a guideline clearly did not work as planned. So the switch to a broader range of criteria allows for greater flexibility when it comes to adjusting rates.

Borrowers should remain cautious about eventual high mortgage repayments.

For more help and advice please donot hesitate to contact Clare Allan @HoskinMortgages.