Month: October 2019

Homeowners £350k better off than renters over next 30 years

Warren Lewis, Property Reporter
17th October 2019

New research from the Intermediary Mortgage Lenders Association has revealed the wealth gap between those who are lucky enough to get on the property ladder and those who rent.

According to the findings, today’s average homeowner could be better off by as much as £352,500 over the next 30 years, compared to the average private renter.

This ‘homeowner bonus’ includes the £133,700 an average homeowner could expect to save when paying a mortgage rather than rent over that time, as well as the additional £218,000 of equity gained from paying that mortgage off. It assumes no house price inflation.

Kate Davies, Executive Director of the Intermediary Mortgage Lenders Association, said: “Becoming a homeowner is a life-changing experience. It can also transform your long-term finances – and this research quantifies the extent of that transformation. The long-term benefits of being a homeowner are not just confined to the property value and the potential for house prices to increase – homeowners also potentially save hundreds of thousands of pounds compared to their private renter counterparts.

Despite the financial benefits of buying a house, there has been a marked decline in homeownership amongst younger people. This is not only due to the rise in house prices relative to income. Reduced mortgage availability after the financial crisis, and the need for buyers to find higher deposits, caused a sharp fall in the number of first-time buyers.

The overlay of stricter affordability criteria introduced into the mortgage rules has added to the problems faced by potential buyers trying to get on the ladder. People who have been renting privately and comfortably making their monthly payments are struggling to obtain a mortgage with the same or even lower monthly payments, while the near-disappearance of interest-only as a route to managing affordability has cut the number of options for first-time buyers.”

IMLA’s report The Intergenerational Divide in the housing and mortgage markets, has found that while private renters might expect to pay out £451,600 over the next 30 years, taking into account a projected increase of 2% in rent per year, a homeowner on a 25-year repayment mortgage could pay £317,900 if interest rates remain at current levels. Over a thirty-year period, a homeowner would pay £133,700 less than a private renter. When adding the accumulation of equity, the average homeowner could be £352,500 better off over the next 30 years than if they were to rent the average privately rented property, without factoring in any potential increases in house prices.

Beyond 30 years, the homeowner would benefit even further as they would no longer face mortgage payments, whereas someone who was renting would continue to have to do so into and throughout retirement.

The research from IMLA highlights the potential financial disadvantage facing those who do not or who are unable to step onto the housing ladder now, even if house prices don’t increase. Taking into account any house price inflation, the financial advantages of owning a home could be even higher.

The report also reveals that mortgage rates would have to be in excess of 11.5% throughout the life of a loan before owning and renting produced equal expected financial returns. This is far beyond even current stress-testing which lenders have to conduct when assessing borrower affordability.

The research suggests that rising house prices is not the main barrier to first-time buyers. Rather, it suggests that the sharp tightening of mortgage lending criteria in the wake of the financial crisis prevented many consumers from getting on the ladder while the subsequent increase in regulation has limited options for potential buyers to become homeowners. The virtual disappearance of higher loan to value loans meant that buyers had to find much larger deposits – something many found beyond their reach without significant help from family and friends – despite that fact that the prevailing low interest rate has meant that once a loan is in place, it is affordable.

IMLA is calling on the government to commission an independent cost-benefit analysis of the current regulatory regime for mortgages to assess whether current regulations could be contributing to potential consumer detriment by excluding some consumers from homeownership.

Kate Davies, Executive Director of the Intermediary Mortgage Lenders Association said: “This research identifies some very interesting statistics and we think that now would be a good time for the government to take stock and assess whether current mortgage regulation is working as intended, and in the interests of UK plc. We therefore suggest that the government commissions a cost-benefit analysis which takes account of the long-term costs to consumers of not being able to buy a home of their own. Such an analysis would hopefully indicate whether taking a more holistic approach, which considers the costs to consumers of not buying, would justify changes to the current regulatory position.

Whilst this report highlights a stark difference in the long-term financial position of those who buy as against those who rent, it also underlines the importance of a continuing and healthy private sector for those who are renting – whether they need to rent long-term or are saving up to buy their own homes. The PRS continues to play a vital role in Britain’s housing market as well and IMLA will continue to champion the need for a vibrant and competitive sector which provides homes for millions of people who need or want to rent. But we do think it is important that the FCA and the Bank of England should acknowledge and take account of the financial situation for those who cannot buy or enter social housing when implementing rules in the mortgage market.”

Help-to-buy ISA: last chance to get up to £3,000 of free government cash

If you plan to be a first-time buyer, getting a help-to-buy ISA is a no-brainer – but you need to get a move on

Rupert Jones, The Guardian

Sat 12 Oct 2019 07.45 BST

Time is running out if you haven’t taken advantage of the government’s offer of free money towards buying your first home.

That’s because the help-to-buy ISA – with which the government will give you up to £3,000 with only some strings attached – closes to new savers on 30 November. Provided you are in before that date, you can continue tucking money away for another 10 years.

So if you, or your offspring, are over 16 and have never owned a home but may well want to in the future, you might want to reserve your spot by signing up now. You can open an account with as little as £1, and don’t have to pay in every month, so some might say it’s a no-brainer to grab one now before they are withdrawn from sale.

However, to slightly confuse matters, there is another account that also offers a government cash bonus for savers: the lifetime ISA. So should you get that instead – or take out both? Here we run through what you need to know.

What is the help-to-buy ISA?

It was launched at the end of 2015, and the accounts are available from banks and building societies. If you are saving up to buy your first home and you put money into a help-to-buy ISA, the government will boost your savings by 25%. So for every £200 saved, first-time buyers can receive a bonus of £50.

You can save up to £200 a month, though to kick start your account, in the first month you can deposit a lump sum of up to £1,200. The minimum government bonus is £400. That means you need to have saved at least £1,600 into your ISA before you can claim your bonus. The maximum government bonus is £3,000. To receive that, you need to have saved £12,000

What does the money have to be used for?

To buy a home up to the value of £250,000 outside London, or up to £450,000 in the capital. That price cap will be problematic for some. This must be your only home, and it can’t be rented out or used as a holiday home. However, the government won’t claw back bonuses from people whose circumstances change after they buy, and who need to rent out their property as a result.

Who’s eligible?

To qualify, you must be 16 or over and be a first-time buyer – defined as someone who doesn’t own, and has never owned, a home anywhere in the UK or the world. If you have paid into a cash Isa this tax year, you will have to transfer the money over. A help-to-buy Isa has to be opened by the individual themselves – you can’t open one on behalf of someone else.

Can I open one with my partner?

If you plan to buy a home with someone else who is also a first-time buyer, they can open their own help-to-buy ISA. So a couple who save £24,000 between them can get a further £6,000 from the government.

What happens after 30 November?

They won’t be available to new savers any more – but if you opened your account before then, you can keep saving into it until November 2029, when accounts will close to additional contributions. You must claim your bonus by 1 December 2030.

Do I have to save £200 every month? No, the amount you save every month is up to you, as long as you don’t go over £200. However, you can’t roll over your allowance. So if you don’t save any money during January and February, this doesn’t mean you are allowed to save £600 in March.

Can I withdraw money from my help-to-buy ISA?

Yes, you can take out your money at any time.

So how does it work with the bonus money?

When you are close to buying the property, you will need to instruct your solicitor or conveyancer to apply for it, and this cash will then be added to the money you are putting towards your first home. But you only get the bonus money on completion – you don’t get it at the exchange stage, where buyers typically put down a 5% or 10% deposit to guarantee the purchase. However, you may be able to get the seller to agree to a smaller deposit at that point, on the basis that the bonus cash is on the way.

Will the interest I’ve earned count towards my bonus?

Yes, your bonus will be calculated based on the amount you have in your account when you close it.

Who offers these ISA’s?

Lots of banks and building societies. Top of financial information firm Defaqto’s table is Barclays, which is currently offering 2.58% interest on an account that can be opened with £1. Providers currently paying 2.5% include Nationwide, Nat West and Virgin Money, it adds.

Can I take advantage of the lifetime ISA too?

Yes, you can save into both schemes if you meet the eligibility criteria – but you will only be able to use the bonus from one to buy a house. The lifetime ISA lets you save for either a property or retirement. You can put away up to £4,000 each year and receive a government bonus of 25%. The money invested can be withdrawn after age 60, or earlier if it is being used to buy a first home worth up to £450,000 in the UK. Savers have the potential to earn a total of £32,000 in bonuses if they pay in the maximum £128,000 over 32 years from age 18. But to be eligible, you must be aged 18 to 39. And there is a hefty penalty if you withdraw money for any reason other than buying your first home, reaching 60 or if you are terminally ill.