Houses and even flats are flying off of the market like hot cakes.
Now that buyers with as little as 5% deposit are in the mix, they have more choice and are competing with first time buyers and home movers for properties that would have previously been unaffordable and out of their budget.
In terms of applying for a mortgage, the same affordability factors apply (i.e annual salary, debt to income ratio and stress testing).
This new initiative means that those who can generally afford a £200,000.00 property, but just didn’t have £20,000.00 for a 10% deposit, can now buy a property within that price range with a 5% £10,000.00 deposit.
It’s important to note that nothing is ever done as a good will gesture. This kind of lending does present risks to lenders which is why you’ll find that interest rates are a lot higher when a buyer is presenting less deposit and borrowing more (loan to value).
Before the pandemic and the 5% deposit initiate, a 90% mortgage which meant the borrower would of been presenting 10% deposit, had interest rates in and around the 1.89% region. Now for the similar kind of mortgage, you’re looking at 3.49% interest rates. Shocking! That’s almost double!
Find out how much a bank is willing to lend you & get a decision in principle (known as a DIP or AIP)
Look for properties within your budget. See it, view it & make an Offer on the property within 24 hours.
“I called the Estate Agent to arrange a viewing as soon as the property came on the market and within minutes it was gone!“
Over the years we have discussed putting in the ground work to ensure that your credit is up to par and you have the right processes in place to save more than you spend.
We then went on to discuss the Mortgage Application process, affordability and the difference between a Mortgage Broker and going straight to a High Street Bank.
In the midst of the above we discussed the valuation process, covenants and the enemy of progress that is known as Japanese knot weed.
We’ve briefly touched on making an Offer on a property and ways in which you can justify offering 5 to 10 thousand pounds less than the asking price.
Today we are going to focus on the last leg of the property acquisition process – Solicitors!
It is so easy to get tangled up in a tumbleweed of legal jargon and be scared away by the legal process, but it is quite simple, especially with Residential purchases.
Below are my top 3 tips to dealing with solicitors and ensuring your case is dealt with in a timely manner.
Fill out all questionnaires and property packs following the instructions of your solicitors to a T. If it says to use block capitals and black ink, do it! If for whatever reason the solicitors forget to do something later on down the line, they can turn that delay back around on you and claim that they were waiting for “correctly filled out forms”.
2. Reply to all emails in a timely manner responding to ALL questions. If you need to do a little bit of research, do it. Don’t reply to an email in parts. Respond answering all questions in one go. Be very specific and over share if you think any detail will help. Delays often occur when solicitors have a response to question 1 & 3, but are waiting for a response to question 2. This may come weeks later and get lost within the email thread.
3. Searches. These need to be done promptly as some can take up to 6 weeks to come back. Some solicitors require some sort of payment before carrying out any searches as these are non-refundable and will need to be paid for whether the transaction goes ahead or not. Pay the fee and get the ball rolling from day 1.
There are so many other details we can dive in to, but the top 3 have sometimes been the difference between someone completing on their purchase in 7 weeks and someone completing in 7 months.
This is a very popular topic and one that comes with a lot of questions requiring clarity.
A couple with a Joint Bank account will both be responsible for the behaviour and management of that account.
Because a joint account tends to play second fiddle to someones main sole account it is easy to go in to an unarranged overdraft without noticing.
Once the account goes in to an unarranged overdraft of say £7, months and then years pass and you are paying interest on interest with being none the wiser. This account balance in the *minus without an arranged overdraft will appear on both of your credit files. The same for any joint utility bills that are not managed well and fall under “missed payments” or the “returned direct debit” bracket.
*Solution= Check your accounts bi-weekly. All of them. Analyse your payments, be aware of when direct debits are due and make sure you have enough funds. Transfer funds between accounts if you need to.
Debt & your Credit Score Joint loan accounts, Mortgages and the like.
Any unpaid debt, missed payments or defaults will affect the both of you. Even if the payments for the commitment had a direct debit set up from a sole account (Mr), if a payment is missed, this will be attached to both parties as the account is in joint names and both are responsible for the upkeep of it. This will bring down both of your credit scores. Credit agencies like Experian also have a feature where it has an area that lists “linked/associated” accounts. This will bring up your husband, wife, partner etc that you currently or previously had a credit account with or simply have a marital connection to.
When is the right time to open a joint account?
Everyones situation and set up is different, however we found that the right time for us to open a joint account and merge our finances was when we got engaged. We knew that we were committed for the long run and were in the process of planning a wedding, buying a property and supporting one another where necessary so it was crucial that the finances were clear, accessible and shared.
If it wasn’t for marriage or saving for a property I wouldn’t be too keen on having a joint account or intertwining my credit.
Similarly, I know some married people that keep their finances separate. No joint account, no joint mortgage. One pays for the residential home, bills etc and it’s all in his name. One pays for and manages the buy to let property and it’s all in her name.
Do whatever works for you.
Expenses & Savings Goals
The key to staying on top of joint expenses, commitments and saving goals is a spreadsheet! I love me a good spreadsheet, especially one available in a shared Google drive as both you and your partner can edit, access it wherever and whenever you want. The latest version is also always being updated and saved.
We edit the spreadsheet on a monthly basis and are both able to see how much savings we have, the “free” income we have to play with and the bills that need to be paid.
We’re both very visual people so we colour code most of what we do and have regular breakdowns for as much as possible.
A key to us making this work is sharing the load, setting up standing orders and constantly updating the spreadsheet.
Since having this spreadsheet, we have saved more in 6 months than we were able to save in 1 year due to being disciplined and making sure every penny is accounted for.
We have no debts (except a Mortgage) and are enjoying the fruits of our hardwork.
Side Note: We use our credit cards for large purchases like holidays, electronics etc, but clear them within 24 hours. This is so that we can make use of purchase protection, fraud, returns, points and ultimately credit cards act as a level of insurance. I will dissect this topic further another day.
An example of a similar style of spreadsheet my husband and I use to stay on top of our finances can be found below:
I hope this helps.
If you have any questions, please feel free to get in touch via the “Contact Me” tab.
The concept of equity is quite simple and in practice is a great way to see a return from an investment.
Whether you are purchasing a family home or a buy to let property for rental purposes, the location and aesthetics of the property are crucial for its potential.
2016 Purchase Price £220,000 Mortgage Attained £198,000 (10% Deposit) 4 Bed property bought just outside of the M25 Walking distance from station Local supermarkets not far Good school catchment area En-suite Bathroom
2020 The same house sells for £300,000 The Mortgage balance has been decreasing repayment after repayment for the last 4 year Mortgage Balance (guesstimate) £188,000 (Dependent on interest rate)
This means that on the property you bought for £220,000 in 2016, you have made £80,000 as the value has gone up by this much across the 4 years.
When you sell the property for £300,000 you will clear the remaining Mortgage balance of £188,000 and be left with £112,000
You will then have other fees like solicitor fees, capital gains tax (on the *gain, not the sale price) and if you sold your property before the fee free period on the Mortgage product you are locked in to, you may have to pay an exit fee.
*The gain here is £80,000
All in all, worse case scenario you are left with £90,000. That is a profit of £68,000 when you take away the £22,000 deposit you initial invested for the property.
This is why many people buy properties well outside of London, fix them up and then sell them on. The money that can be made is mind blowing. However, that is only possible if you get it right!
Next week I will be speaking about what questions to ask and what to look out for when you go for a house viewing.
Great news. Bad credit doesn’t mean that you can’t obtain a mortgage, nor does it mean that you won’t be accepted for a loan or credit card.
However, what it does mean is that you will be hit by higher interest rates and less favourable products.
What is a product and an interest rate?
Interest rate – this is the rate a bank or other lender charges to borrow its money. The current Bank of England base rate is 0.75%
The Bank of England base rate is the UK’s most influential interest rate and its official borrowing rate. It is currently 0.75% – a historically low figure. The base rate impacts all other interest rates. When the rate is low, it costs you less to borrow money, however lenders are free to make their rates as high or low (no lower than 0.75% otherwise they will not make profit – just break even) as they see fit.
Product – lenders bundle their interest rates and incentives in to something called a product. For example a product for a first time buyer with Halifax could mean a 1.68% interest rate over a 2 year fixed period with a 2% early repayment charge and £500 cash back to assist with legal fees. Products vary and can be packaged with multiple or no incentives.
Expanding on the above example, this means that over the 2 year fixed period, your monthly payments will reflect the 1.68% interest rate. If you decide to Remortgage or sell your property earlier than when the 2 year fixed period ends, you will have to pay a 1%+ fee (% depends on the terms) of your remaining mortgage to do so.
Interest Rates & Products – These are things you need to take in to consideration. Some people would rather go with a lender that has a product with a slightly higher interest rate which allows them to exit the deal early without a penalty.
These kind of products are good for those that are Remortgaging due to their current product expiring, but wanting to keep their options open and not be fixed in to a lengthy deal as they have the intentions of selling/moving in the near future – within the year or so.
Does having bad credit mean that I can’t get a Mortgage to assist in the purchase of a property?
Having good credit means that your options are limitless. You can get favourable deals from high street lenders with low interest rates and great package deals.
Having bad credit, defaults and missed payments means your options are limited. You are limited to specialist lenders who lend to people with a less favourable credit file. Due to this, the interest rates are high, come with a product fee and little, but mostly, no incentives. An example of this kind of Lender is Pepper Money.
Someone with “bad credit” will be offered a Mortgage with a 5% interest rate at a specialist lender opposed to someone with “good credit” who has more options and can get a Mortgage from a high street lender with an interest rate as low as 1.42%.
Why do specialist lenders have such high interest rates?
This is because they’re offering something that you can’t get anywhere else – they can take advantage. Having “Bad credit”, you are also a liability. How do they know you are going to pay? How do they know that you aren’t going to continue with the same behaviour pattern seen on your credit file? Interest rates that are 3x higher than their high street competitors mean that a specialist lender reclaims like for like funds 3x quicker than said high street lender. Remember the Bank of Englands base rate is 0.75%. Most lenders have accounts with the Bank of England so benefit from a low base rate whilst also benefiting from the profits of a high interest rate when lending to others.
Bad Credit: County Court Judgement, missed payment, default, settlement of unpaid debt within the last 6 years etc.
Good Credit: Active credit card with less than 20% limit in use, none of the above.
Exception: Sometimes a high street lender will want an explanation for a negative marker on your credit file.
For example, “Why did Mr X miss a payment on his mobile phone bill 2 years ago twice?”
Reasonable explanation would be: There was confusion with the Direct Debit dates and account the funds should be retrieved from. This was resolved with the mobile phone company and won’t happen again.
Be responsible with your credit. Your future house buying self will thank you.
Stay away from flats with ACM material and/or flammable cladding.
Think with me: If you are having difficulty obtaining a Mortgage to buy it, you will have difficulty Remortgaging and selling it!
You can usually spot the flats that may cause you issues with a naked eye.
If the surveyor that goes round to value your property is cautious of the material on the exterior of the building, this hesitance alone causes a delay for you.
This delay is caused as you will be required to prove that the material on the exterior of the flat is not flammable. This is in the form of a fire report that the Estate Agent, Managing Agent or vendor should have.
Valuers have become increasingly concerned, because Advice Note 14 means the owner has to say the building’s material is fully safe, which is very difficult to do while the building waits for inspection results and while everyone waits for the government’s cladding test outcomes.
Surveyors and mortgage lenders are requiring building owners to demonstrate that cladding meets Advice Note 14’s criteria. If they can’t, the properties are valued at zero.
Most building owners cannot immediately provide these assurances, so they are having to get trained professional engineers to carry out lengthy and costly checks, holding up sales, purchases and Remortgages.
If you’re currently suffering this issue as a Home Owner Remortgaging your property, then the best person to speak to regarding this kind of report is the leaseholder/the managing agent. If the building hasn’t undergone a fire and risk assessment since the Grenfell tragedy, then this is probably currently in the works and you will not be able to do much until you have the results of this report back.
It is extremely inconvenient and disheartening, however you have to understand that there are hundreds, maybe even thousands of buildings nationwide that have to adhere to this new advice note since the multiple lives lost in the Grenfell fire due to the deadly flammable materials used on the block of flats.
As you can imagine, a surveyor is not going to deem your property as suitable security for a Mortgage if they cannot prove that it adheres to relevant legal requirements.
Advice to those wanting to Remortgage a property with cladding issues Stay with your current lender and do a rate switch. This is simple, you choose a new product from their latest Mortgage product range and avoid going on the variable rate. A valuation is not required for this. You can make this kind of switch in branch, over the phone and sometimes online.
Advice for those wanting to Buy a property with claddingissues Avoid avoid avoid. Don’t do it. Walk away.