Month: June 2019

Help to Buy or a Lisa? You should have both

Marc Shoffman outlines the differences between the schemes and how you can get two bites of the savings cherry

Marc Shoffman, The Times

June 21 2019, 5:00pm,

The government’s tax-free savings schemes, aimed at helping younger people to save or get a foot on the property ladder, have been a big hit. Almost 300,000 people have opened a Lifetime Isa (Lisa) since the accounts were introduced in 2017, and a similar number have bought homes using a Help to Buy Isa over the past three years.

Both schemes let you use your Isa allowance to build a tax-free savings pot, with the government chipping in a 25 per cent bonus. But which is better if you want to buy a home? Help to Buy Isa’s close to new applicants on November 30, so should you grab an account before they disappear? We compare the two schemes.

How much can you save?
You can save up to £4,000 each year into a Lisa to put towards a house deposit or retirement, until you are 50. The government will add a 25 per cent bonus to your savings once you have held the account for at least 12 months, up to a maximum of £1,000 a year. You can use your Lisa to buy a property anywhere in the UK up to the value of £450,000. If you use it for any other purpose than retirement or buying a house you pay a penalty that effectively forfeits the bonus.

The Help to Buy Isa can be used only for a deposit on a first home worth up to £250,000 (£450,000 in London). You can save £1,200 in the first month and £200 thereafter. The minimum government bonus is £400, so you will need to have saved at least £1,600 before you can claim. The maximum government bonus you can receive is £3,000, for which you need to have saved £12,000.

Age restrictions
You have to be aged between 18 and 39 to open a Lisa, and you can only pay into it until 50 (or when you buy your first home).

A Help to Buy Isa can be opened from age 16. You can continue saving into the account until you buy your first home, but you only have until December 1, 2030, to claim the government bonus.

Product choices
The money you put into either scheme comes under your annual Isa allowance of £20,000. You can hold cash Isa versions of either account, but the Lisa also has a stocks and shares option.

You can’t hold a regular cash Isa and Help to Buy Isa at the same time, unless your bank or building society allows this under a single product. Help to Buy Isa interest rates are higher than those of the Lifetime Isa. Barclays is offering 2.55 per cent and you can get 2.5 per cent through Nationwide. Penrith Building Society is offering 3 per cent, but you can only manage the account in branch or by post.

The best rate on a Lisa is 1.1 per cent from Nottingham Building Society or 1 per cent with Skipton Building Society. Savings in a Lisa can be invested through an investment platform, such as AJ Bell or Nutmeg, but this is not advisable if you are looking to get on the property ladder quickly.

Holly Mackay, the founder of Boring Money, a comparison website, says: “You can open a stocks and shares Lisa and get the potential benefits of the stock market as well as the bonus, but I would not consider this unless you have at least a five-year plan because markets can be volatile in the short term.”

The bonus
This is paid at different stages of the home-buying process under the two schemes.

You can use your Help to Buy Isa savings as a deposit on exchange of contracts, but you won’t receive the bonus until the house purchase completes. You can use the bonus money to reduce your mortgage. Lisa savers get their bonus at the end of the first year and then monthly from that point onwards, so it can accrue interest. Both schemes let you put money back into the accounts if the sale falls through. You can also use the Lisa to save for your retirement and access your money from age 60, but you can only use the government bonus once.

Exit penalties
You can withdraw money from a Help to Buy Isa at any time, but if you make a contribution in the same month the total can’t exceed £200. Don’t close a Help to Buy Isa unless you’re buying a home, or you will lose the government bonus. The Lisa is more punitive. You will pay a 25 per cent charge on any withdrawals made before you reach age 50 unless you use them to buy a house. Some feel that this is unfair. Tom Selby, a senior analyst at AJ Bell, an investment manager, says: “Lowering the exit charge and scrapping the age restrictions would supercharge the Lisa for future investors.”

 So what should I do?
Savers can hold a Help to Buy Isa and Lisa at the same time, but can only use the bonus from one to buy a house with. However, you can combine your bonus and savings if you buy property with someone else who also uses the schemes.

Mackay says: “Lisa’s are great options for younger people who can afford to save up to £4,000 a year. Help to Buy Isa’s won’t get you such high bonuses, but are probably a better bet for those who won’t be able to save so much, don’t want to go near shares and who want the flexibility of possible withdrawals. If you are under 40 I would probably have both to keep my options open. The best Help to Buy Isa rates are up to 2.5 per cent, so what is there to lose? You won’t get your bonus if you withdraw, but the Lisa will pay a 25 per cent bonus.”

Marc Shoffman

The Times

 

 

MORTGAGES are often one of the greatest expenditures a person will ever make, which is why many people will be keen to find the type of mortgage which suits them the best. What is a fixed-rate mortgage?

By JESS SHELDON, The Express

PUBLISHED: 13:56, Tue, Jun 18, 2019| UPDATED: 13:56, Tue, Jun 18, 2019

When applying for a mortgage, the type that you choose will likely come down to what suits your circumstances. The mortgage types are split into two: either fixed-rate or variable. Of the latter, mortgages are split into three different categories: known as trackers, standard variable rates (SVRs) and discounts. As it may be inferred from its title, a fixed-rate mortgage has a fixed interest rate, which doesn’t change for the length of its deal.

“You’ll see them advertised as ‘two-year fix’ or ‘five-year fix’, for example, along with the interest rate charged for that period,” the Money Advice Service explains.

Deborah Vickers, channel director and financial expert at personal finance comparison site moneyguru.com, also shared some insight into this type of mortgage.

She said: “Regardless of the mortgage deal, do your research. There are so many different types of deals. “Fixed rate mortgages are great as you know exactly what your mortgage will cost, so this can help you with budgeting,” Ms. Vickers said.

“The rates on a fixed deal are normally higher than variable products and if the interest rates fall, you won’t see your payments drop. “The channel director also suggested doing some research before committing to one type of deal.

She said: “Mortgage fees can add up, so look around. If you like to budget and know what you are paying, then fixing could be a good idea. “It’s difficult to predict future of rate moves. The rates may fall, but you still have fees to pay. “It is worth checking all rates and fees when reviewing mortgage deals.”

The Money Advice Service explains that an advantage of a fixed-rate mortgage may be the peace of mind that monthly payments will stay the same for the deal period – which may help some people to budget.

It does point out though that fixed-rate deals may tend to be slightly higher than variable rate mortgages. Additionally, a borrower on this deal would not benefit if interest rates fall. It may also be that they face charges should a person want to leave the deal early.

Ms. Vickers warned borrowers about simply going for the cheapest rate, telling Express.co.uk: “When looking for something cheap, you have to be careful. When it comes to mortgages there are lots of rates and fees to watch out for.

“Something that looks ‘cheap’ and affordable monthly may come with a higher arrangement fee, a longer term, etc. You have to understand all costs associated with a mortgage product.”

Standard variable rate (SVR)

A Standard variable rate is the normal interest rate which a lender charges homebuyers, and will last as long as the mortgage, or until another mortgage deal is taken out. “Changes in the interest rate might occur after a rise or fall in the base rate set by the Bank of England,” the Money Advice Service states.

It also points out that while this may give a person freedom to overpay or leave, their rate can be changed at any time. “Each Lender has an SVR and [they] are dependent on the Lender – they can be anything from two or five or more percentage points above the base rate,” Ms. Vickers said.

“They can be cheap in some circumstances, if the base rate drops, on the reverse of this, they could go up. The main thing to consider with this is the uncertainty, you may be better to remortgage.”

Discount mortgages

A discount mortgage is where a discount is offered off the lender’s SVR, for a particular length of time. This means that the rate may be cheaper, meaning monthly repayments in that period are lower. The amount one pays may also be reduced if the SVR is cut too.

That said, it may not be preferable for some, as the lender may raise the SVR at any time, and these borrowers could be affected if Bank of England base rates rising. Other options are tracker mortgages, offset mortgages and capped rate mortgages, which could be of interest to some borrowers. When it comes to picking mortgage deals, Ms. Vickers continued: “Looking at what type of deal you want is a big choice and it is never easy. There are two distinct camps, fixed or variable.

“With a fixed you know exactly what your mortgage will cost, your payments will not change, no matter how high the rates go. The downside is that rates are normally higher than variable products.”

 

From deals to interest rates and your own finances, there can be a lot for a first-time buyer to take into account when finding the right mortgage.

LOULLA-MAE ELEFTHERIOU-SMITH 

HOMES & PROPERTY WEBSITE

Thursday 23 May 2019 16:51 BST

 Getting your foot on the property ladder is a big step – and there are countless factors to consider, from your personal finances to pinning down your dream home

But while it can be a complex process, it’s one that first time buyers across the UK are navigating in increasing numbers.

New data from UK Finance shows that in the first three months of 2019 the number of first-time buyer mortgage completions rose in London by 1.6 per cent compared to the same period last year, while Scotland and Wales also saw increases, with the biggest recorded in Northern Ireland.

Before you even start looking you’ll need to have an idea of your budget, which will depend on how big a deposit you have saved and how much you will be able to borrow to fund your purchase.

 How many times my salary can I get a mortgage?

Mortgage lenders will lend anything between four and five times a person’s salary. But there are a range of things to take into account.

“One of the key points is dependent on how much of the deposit you’re putting into the property,” Richard O’Reilly, mortgage expert at Habito told Homes and Property.

“For example, Virgin Money will lend five times your income if you earn over £30,000 and have a 15 per cent deposit as a minimum, subject to credit checks and factors that will deduct from borrowing.”

It’s important to remember that outgoings such as credit commitments, personal loans, student loans, car loans “will start eating away at what you can borrow,” says O’Reilly, which is why a thorough evaluation of your income and outgoings is needed before applying for a mortgage.

Each lender has different criteria to stress test what they believe you will be able to afford if circumstances change, such as interest rates increasing.

Big commitments such as dependent children or dependent adults will be taken into account when checking your ability to afford a mortgage.

Getting your finances in order is a must. Being overdrawn at the bank can be viewed the same as having a credit card balance, while missing or defaulting on payments will also affect how willing a lender is to lend to you.

“Your credit file covers the last six years – make sure you pay your bills on time and always stay in the black if you can,” says O’Reilly.

 What is the maximum mortgage-to-income ratio?

Some lenders will go up to 5.5 times your salary, but that tends to be reserved for those with a six-figure income, according to O’Reilly.

 What is the minimum mortgage amount you can borrow?

This depends on the lender and many will have thresholds of anything between £25,000 and £75,000. Some, such as Halifax, have no minimum value for borrowing, but will assess each individual case on its merit.

If you find yourself in a position where you don’t need a big mortgage, O’Reilly suggests looking at a personal loan, though these tend to get capped at £15,000 and may have a higher interest rate.

 How long should I get a fixed-rate mortgage for?

It is possible to get a fixed interest rate on your mortgage for between two and five years, but there are increasingly options for seven or 10 years, too. The general advice is to shop around to find the best deal for you.

“For first-time buyers we recommend only a two-year deal,” Owen Cook, chartered independent financial adviser at Ablestoke Wealth Management says.

“After that deal ends you’re free to remortgage with another bank. If you go into a fixed-rate mortgage for five years but want to move after two you might have a penalty on that.”

If your circumstances are likely to change, it’s worth considering your options.

“If you’re buying your family home you’re much more aware that’s where you’ll be for 20 years, but if you’re a first time buyer you could be in a part of your career where you salary will likely rise, or you might meet a partner and be able to afford a bigger property elsewhere. Two years comes round quite quickly.”

But for people worried about interest rates increasing, for example, there are a number of seven and 10 year products on the market that let you fix for longer.

“And most lender’s products are portable so you could take that mortgage and use it on another property if you think you’ll move within five or seven years,” says O’Reilly.

 How much should I aim to have for a deposit?

You usually need to have at least five per cent of a property’s value saved, but essentially, the bigger the deposit the better.

“You’ll get a better interest rate, and if you’re in a position to make overpayments on your mortgage a lot of lenders will let you do this without giving penalties,” says O’Reilly. “If you can overpay by £300-£500 a month you can knock a good six or seven years off the mortgage.”

But Cook adds that it’s important to look at your finances holistically, as other personal factors can take precedent in finding the right mortgage.

“If someone has an inheritance, should they put some of it down on a deposit, borrow more and invest the rest? It depends client by client, but if you have debts in the background such as a student loan, paying that off first might be better than having a bigger deposit.”

 What can I do if I am on a low income or have a small deposit?

Having a lower income or only a small deposit to start off with can make getting a mortgage feel impossible, but there are schemes to help you on your way.

First-time buyers saving for a mortgage can open a Help to Buy ISA, where you earn interest on your savings and the Government will top up your money with a 25 per cent bonus.

The amount you can get a bonus on is capped at £12,000, which means you can get as much as £3,000 added to your savings pot, to put towards a home costing under £450,000 in London.

There is also a Lifetime ISA, which has been created for people to save for their first home or for their retirement, and also provides a 25 per cent bonus.

Paying into it is more flexible than the Help to Buy ISA, but either product will make getting on the ladder that little bit easier.

The Help to Buy scheme offers an equity loan, which is only available for new builds, where the Government will lend you up to 40 per cent of the cost of a London home, which will bring your cash deposit down to five per cent and your mortgage to 75 per cent of the purchase price.

And if you can’t afford to buy 100 per cent of your home you can buy a share of it through the Shared Ownership scheme. You can get a mortgage on between 25 per cent and 75 per cent of the property and pay rent on the rest.

 

Many borrowers unaware of role of mortgage advisers

Almost a third (31%) of consumers who went direct to a mortgage lender didn’t understand how an independent mortgage adviser could help with their search.

According to new research from Legal & General Mortgage Club among 2,000 UK homeowners, more than two-thirds (69%) of borrowers who went straight to a lender hadn’t remortgaged in the last five years and nearly three-quarters (74%) stayed put because they felt they had ‘a good deal’.

Legal & General Mortgage Club says that without seeking mortgage advice, these individuals would have missed out on the thousands of extra mortgages deals that are only available through a mortgage adviser.

 Customer misperceptions

Legal & General Mortgage Club plans to use the research to tackle the misperceptions about mortgage advisers and raise awareness about how they can help borrowers to find the right mortgage for their needs.

The analysis showed that the mortgage industry still needs to demonstrate the value of mortgage advice for borrowers – just 30% of those who went direct to the lender said that they would likely speak to a mortgage adviser next time.

Three in every five (60%) who didn’t seek advice when they took out their last mortgage didn’t know mortgage advisers were there to help the borrower, and just over a third (34%) thought a mortgage adviser was there to support the lender.

  More choice through a broker

Borrowers going through a mortgage adviser have access to thousands more mortgages than those going direct to the lender, including specialist mortgages for the self-employed and later life lending solutions such as lifetime mortgages.

Data from mortgage sourcing platform Twenty7Tec shows that almost 12,000 mortgages are available through mortgage advisers, compared to just over 2,000 directly on offer from lenders to consumers.

Homeowners who benefitted from a mortgage adviser searching the market for the best mortgage deal were more likely to have switched in the last five years (29%), compared to just one in five (19%) of those who went direct.

These borrowers would have benefitted from opportunities to pay less interest as rates on mortgages fell, with the average rate on a 2-year fixed term mortgage falling from 2.6% in June 2014 to 1.48% in June 2017.

Borrowers who used a mortgage adviser were also overwhelmingly in favour of doing so again. Nearly all (98%) said that they found the support of a mortgage adviser ‘valuable’ and a further 95% said they would recommend using a mortgage adviser to family or friends.

Kevin Roberts, director, Legal & General Mortgage Club commented: “Whether someone is taking out their very first mortgage or unlocking housing wealth in retirement, the value that mortgage advisers can bring to borrowers can make a huge difference when it comes to moving onto and up the property ladder.

“Yet, our research shows that potentially thousands of borrowers still don’t know how a mortgage adviser can help with their mortgage search and as a result they could be missing out on a better deal.

“The figures speak for themselves. Those who used a mortgage adviser when they took out their last mortgage would overwhelmingly recommend their family and friends to seek independent, professional advice.

“They’re also more likely to switch their mortgage product and when they do borrowers can have access to nearly six times the number of products available than if they went direct.”

By admin in Lending news

Mortgage Finance Gazette

3rd June 2019