Mortgage Lending Innovation
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In our mortgage world it has been a very interesting week, with new mortgage lending innovation, doing huge levels of business, and general all-round positivity, so on that note, you may find some of the below of interest.
While much of the new schemes mentioned below are aimed at first-time movers/borrowers, they are the lifeblood of the property world, as if no one is there to enter the market, things fall down pretty quickly. So this does affect the top, as much as the bottom of the market.
That reminds me of my very religious upbringing. I remember very clearly looking around and thinking to myself “wow, the average age here has to be pushing 80, how long can this go on for…”. I always was a smart arse of an 8-year-old…
Genuine Mortgage Lending Innovation
You have to go all the way back to the pre-credit crunch (2007) days to see real mortgage lending innovation to lending/property ownership. All we have seen of late is the controversial Help To Buy scheme and the Government seems intent on still making a play in the property market as they have launched another similar scheme. Other options include:
40 Year Fixed Rate
- Kensington, a non-High-Street mortgage lender, has created a range of fixed-rate mortgages that can last up to 40 years. Due to the length of the fixed-rate, they do not need to do background ‘stress tests’ which typically inhibit borrowing, as lenders need to factor in a higher variable rate at the end of the initial product, plus any increase in interest rates in that time.
- As this mortgage is fixed for the term of the loan, they do not need to make these considerations meaning First Time Buyers, and those with an income of £100k + can borrow up to SIX times their salary.
- However, this is comparatively expensive, starting at 2.83% (with a 40% deposit to a term of 15 years) up to 4.30% (with a 5% deposit up to a term of 40 years), so if you need to borrow that amount to complete a purchase or remortgage, then that works well.
- If you need to borrow a more modest sum but wanted long term security, we would probably still recommend most borrowers take a standard 5 year fixed rate as they can start as low as 1.31% (with a 40% deposit) as interest rates are not projected to go high enough to justify the higher-margin that the Flexi Fixed range from Kensington offers.
- To put that in context, on a £250,000 repayment mortgage, over a term of 25 years, in the first 5 years you pay £70,124* with the Kensington mortgage compared to £58,653* with the current market-leading 5-year fixed deal. A huge £11,471 extra for ‘peace of mind’ against rate rises that we don’t feel will go that high.”
- A new type of lender called Wayhome offers a joint ownership structure when you put in a 5% deposit initially, they buy the remaining 95% of the property, and you ‘rent’ the remainder. You are free to buy parts of the property on a monthly or ad hoc basis until you own 40%. From that point, you need to move to a conventional mortgage in order to buy the rest of the property.
- This scheme allows you to borrow up to TEN times your income, as affordability will be evidenced in the rent you are already paying, and also there is technically no debt which is clever.
- Your income has to be between £30-140k to qualify and the maximum property value at purchase is £500k and must be within an approved area.
- This is very interesting as it is a different style of homeownership which is akin to Sharia-compliant finance. We may well be one of the first brokers to offer this scheme to our clients, so if you feel this is of interest to you, a colleague, or a friend, please do let us know and we can talk you through the finer details?
Help To Build
- Read this one very carefully, as it is NOT Help To Buy, but Help To BUILD. The structure of these loans will be similar to the popular ‘Help to Buy’ scheme’. It is open to self-builders, who are managing the project themselves, and ‘custom build projects, where the home buyer is working with a professional home builder.
- To qualify for a Help to Build loan, borrowers will need just a 5 percent deposit. The government will then offer an equity loan which can be between 5 and 20 percent of the total estimated cost – and up to 40 percent for London builds. The remaining cost of the project is covered by a self-build mortgage.
- No interest payments are charged on the equity part of the loan in the first five years. Normal interest charges apply to the commercial self-build mortgage.
- This Help to Build loan will cover projects up to £600,000. This will include the cost of the land if builders don’t already own it. The maximum on build costs is £400,000.
- So anyone who harbours plans of their very own ‘Grand Designs’ build, could well be in luck as previously you had to put in about a 25% deposit. This makes building your own home more attainable for those inclined to do so.
Money markets all nudged up last week for the first time in a while, but that is more of a leveling out compared to recent weeks.
If the new expectations are true, that the base rate will go to circa 1.25% by 2023, the current batch of 5 year fixed rate products look exceptional value so we do expect those to readjust in the coming weeks. That has started to happen as the best 5-year fixed is now 1.31% compared to 1.29% last week.
Therefore, our default position stands, unless you have any specific needs, we would most likely recommend a longer-term fixed rate if you have a 25% + deposit/equity, but keep it short term or flexible if less than that figure.
In the last week:
3 Month Sterling = up by 0.007 at 0.119%
2 Year SWAP = up by 0.030% at 1.137%
5 Year SWAP = up by 0.053% to 1.293%
Bank of England Base Rate = Held at 0.10%
2 Year Variable from 0.51%
2 Year Fixed Rates from 0.89%
5 Year Fixed Rates from 1.31%
BTL Rates from 0.99%
The actual rate you will be offered will be dependent on your personal circumstance and deposit level. Please speak to one of our advisers so that they can guide you through this process
Source: Twenty7Tec November 2021
If you would like more information on the mortgage lending innovation mentioned here, please speak to one of our advisers.