From gifted deposits to guarantor mortgages: how to help your child buy a home in 2020

From gifted deposits to guarantor mortgages: how to help your child buy a home in 2020

First-time buyers rely on ‘bank of mum and dad’ as average age hits 33
By Stephen Maunder, Which? 22 Feb 2020

First-time buyers around the country are seeking help from the ‘bank of mum and dad’ as high property prices lock them out of home ownership. The good news for parents is that this help can come in many forms, from gifted deposits to joint and guarantor mortgages.

Here, we explain the challenges facing first-time buyers in 2020 and offer advice on how you can give your child a boost on to the property ladder.

Why first-time buyers are getting older

A new report by the Mojo Mortgages has uncovered quite how much harder it is for first-time buyers today compared with 50 years ago.
The online mortgage broker claims that first-time buyers in 2020 need to borrow 18 times more than those in the 1970s, and that the cost of a first home has increased from four times the average salary to eight times. These affordability issues have resulted in the average first-time buyer age rising from 25 to 33 in the past 50 years.

First-time buyers relying on ‘bank of Mum and Dad’

In such a difficult market, cash-strapped buyers are increasingly relying on help from their parents and grandparents.
And one of the most common ways parents help their children is by gifting them some or all of the money for a house deposit.
Research by Habito found that 40% of first-time buyers are now gifted cash by a family member, with this figure rising to 60% in London.

Region and percentage of buyers given a cash gift
London 60%
South East 45%
West Midlands 35%
South West 33%
Scotland 32%
North West 31%
Yorkshire & The Humber 28%
East Anglia 27%
Wales 24%
North East 24%
Northern Ireland 13%

Source: Habito, February 2020.

Should you gift your child a deposit?

Gifting a deposit might seem like a straightforward way of helping your child, but you will need to think about any tax implications.
That’s because cash gifts of more than £3,000 in any one year could be subject to inheritance tax (IHT) if you die within seven years of making the gift.
Even if that’s unlikely to be a concern for you, holding off gifting a deposit could prove be a costly decision.
A cross-party group of MPs has proposed an overhaul the IHT system, including introducing a flat 10% tax rate on gifts of more than £30,000.
If you do decide to give your child money for a deposit, you’ll need to provide a letter confirming you provided the cash and that it won’t need to be paid back.
Some lenders may also require you to sign a declaration that you will have no legal interest in your child’s property.

Key points:
Gifting your child a deposit will allow them to take out a mortgage on the open market.
With 90% and 95% mortgages dropping in cost this can be a simpler and more cost-effective option than tying yourself into a guarantor or joint mortgage – if you have the money to spare.

Guarantor mortgages
An alternative to gifting cash is to use your property or savings to help your child get on to the ladder with a guarantor mortgage.
Guarantor mortgages are sometimes described as 100% mortgages, as many don’t require the borrower to put down a deposit.
Instead, the parent will either lock up cash in a savings account with the lender or agree to have their property used as collateral if the child defaults.

Option 1: Using your savings as security These deals generally require either 5% or 10% of the cost of the new property to be placed into a savings account with the lender for a set number of years (three and five years are the most common periods).
How much interest is paid on savings varies from deal to deal, and some products don’t pay any interest at all.
Key points: These deals allow you to keep hold of your savings rather than giving them away, but you’ll be locking your cash up for a number of years, and not necessarily with a good interest rate. Your child will also have far fewer mortgage options than on the open market.

Option 2: Using your property as security These deals involve a lender securing a charge against the your home in case your child defaults on their mortgage.
The rules vary by lender. Some will set a 10% charge against the home, while others will set a charge of as much as 25%.
The charge is then released after a set number of years or once your child has paid back a big enough proportion of the mortgage.
You’ll usually need to have a certain amount of equity in your property, but again this varies by lender.

Key points: Using your property as security can avoid the need to part with any cash, but it puts your home at risk if your child defaults on their mortgage. Again, these deals aren’t particularly common, so there’ll be less opportunity to shop around compared with the open market.

Joint mortgages

Joint mortgages allow you to buy a property with your child.
This could significantly boost your child’s chances of getting a mortgage as your income will be taken into account, but can be an expensive and risky.
The biggest concerns are that your name will be on the deeds of your child’s home, so you’ll need to pay the stamp duty surcharge if you already own a property, and you’ll also be jointly liable for the mortgage repayments.

Key points: Joint mortgages are a good way of boosting your child’s borrowing power, but stamp duty implications make this a less-attractive option.

JBSP mortgages

Joint borrower sole proprietor (JBSP) mortgages offer an innovative way of buying a property with your child but without needing to paying the stamp duty surcharge
JBSP deals take into account the financial circumstances of both you and your child when assessing affordability, but only your child will be named on the property deeds.
This mean you won’t officially own any share of the property. You will, however, be named on the mortgage and will be considered jointly responsible for repayments.

Key points: JBSP mortgages are a good idea in theory, but they’re not widely available. Lenders are more likely to offer these deals to first-time buyers in industries where their salary is likely to increase significantly. Banks will also take into account your age at the end of the mortgage term, so older parents may be ruled out.

Tips for parents helping first-time buyers

If you’re considering one of the mortgage options above, consider taking advice from a whole-of-market mortgage broker, who can assess your financial circumstances and explain which deals might be most suitable.

You can find more advice in our guide on how to help your child buy a home, which includes 10 key things to think about before handing over money or signing up for a guarantor mortgage.

Which? Money Podcast: buying your first home

In December, the Which? Money Podcast went back through the decades to investigate whether it was once easier to buy your first home, and assessed the difficulties facing first-time buyers in 2020. You can listen to the full episode below, or find it on Spotify, Google Podcasts, and Apple Podcasts.

Cost of buy-to-let mortgages fall year-on-year

Cost of buy-to-let mortgages fall year-on-year
13TH FEBRUARY 2020 PROPERTY NEWS, UK
BY RYAN BEMBRIDGE

The cost of buy-to-let mortgages have fallen year-on-year, research from Property Master has found.

The biggest fall was for 5-year fixed rate buy-to-let mortgage offers for 65% of the value of a property, which fell by £48 per month between February 2019 and February 2020 for a £150,000 mortgage.

Angus Stewart, chief executive of Property Master, said: “Another fall in the cost of borrowing is very good news for landlords.

“We know that there are landlords languishing on expensive SVR mortgages as the uncertainty around Brexit and political instability has put them off moving on to a more competitive fixed rate.

“With the current record low rates on offer these landlords should act quickly because if the “Boris bounce” becomes a reality it may allow interest rates to begin to rise back to more normal levels.”

Five-year fixed rates for a £150,000 mortgage for 50% of the value of the property fell year-on-year by £46. Five-year fixed rate offers for 75% of the value fell by £38.

Falls for two-year fixed rate buy-to-let mortgage offers were more modest.

The cost of a typical two-year fixed rate mortgage for £150,000 for 75% of the value of the property was down £25 per month year-on-year and for 65% of the value of a property by £19 per month.

Stewart added: “We are expecting a particularly busy next few months. This April it will be four years since significant changes were made to Stamp Duty.

“The decision by the then government to slap on a 3% surcharge on buy-to-let properties led to a mini-boom as landlords rushed to buy properties to beat the deadline.

“We suspect many of those landlords will be coming to the end of fixed rate mortgages around now and should be pleasantly surprised at what the market is prepared to offer them in terms of a good deal.”

Home ownership among young people rises after decade of decline

Home ownership among young people rises after decade of decline

Help-to-buy scheme has helped 25- to 34-year-olds get on property ladder, say analysts

Joanna Partridge The Guardian

Thu 23 Jan 2020 18.12 GMT Last modified on Thu 23 Jan 2020 19.35 GMT

The proportion of 25- to 34-year-olds who own their own home in England has increased for the first time in over a decade, according to official figures.

The latest English Housing Survey found that 41% of people in the age bracket live in a home they own, with the same proportion living in private rented accommodation. This is the reversal of the trend seen in the decade after 2003-04, during which the number of young owner occupiers fell from 59% to 36%.
the annual report from the Office for National Statistics found that the overall number of homeowners remained the same for the past six years. Home ownership peaked at 71% in 2003 and has steadily declined to 64% since then, which equates to 15m owner-occupier households of an estimated total of 23.5m.

Housing analysts said the government’s help-to-buy scheme, which launched in 2013 and gave financial support to homebuyers, had contributed to the increase in young people getting on the property ladder, along with stamp duty relief for some first-time buyers.

“Help-to-buy and stamp duty relief are behind the march of the first-time buyers, who will be powering a recovery in home ownership in this age bracket,” said Joseph Daniels, the founder of Project Etopia, which develops modular homes.

“Falling home ownership among the young still threatens to become a national crisis rooted in high property prices and stretched affordability but the tide has finally started to turn,” he said.

“It will take considerable time and momentum until owner occupancy among younger people returns to the 59% seen in 2003-04.”

Privately rented accommodation now accounts for 4.6m households, or 19%, which has remained unchanged for six years. But this sector is double the size it was in 2002.

The housing secretary, Robert Jenrick, welcomed the rise in the proportion of young people owning their home. However, the figures also showed an increase in overcrowding in the social rented sector, where people rent largely from councils or housing associations at a rate pegged to local incomes.

Overcrowding, which is measured by whether households have fewer bedrooms than notionally needed for its occupants, remains at its highest rate in the social rented sector, with 8% of that group living in overcrowded accommodation.

Polly Neate, the chief executive of the housing charity Shelter, said: “More and more families are crammed like sardines into homes that are too small for them because they can’t afford to rent anywhere bigger.

“The odds are stacked against struggling families. What this country desperately needs is an alternative to private renting, which is why Shelter is urging the government to build a new generation of genuinely affordable social homes.”

First-time buyer guide: how to get a mortgage and buy a house

First-time buyer guide: how to get a mortgage and buy a house

Whether you’re still saving a deposit or have started viewing, here’s everything you need to know about getting on to the property ladder, says Ruth Jackson-Kirby

The Sunday Times, January 26 2020, 12:01am

If you’re finding it hard to get onto the property ladder, you are not alone. Government stats show that the average first-time buyer is 33 years old and the biggest hurdle is saving for a deposit — which on average now exceeds £50,000, according to Moneysupermarket.com. While that is a lot of money, don’t abandon hope: there is a lot of help available if you know where to look.
From parental help to government schemes to buying with friends, this guide outlines the ways you can finance your first home, as well as giving you some helpful tips for viewings and conveyancing.

I need help saving for a deposit

Nearly a quarter of first-time buyers surveyed by the online broker Habito said a family member provided more than 80% of their deposit. The Bank of Mum and Dad, as it is dubbed, is expected to have provided £6bn this year to help with deposits, according to Legal & General.

“For many first-time buyers, parental help is crucial,” says David Hollingworth, from the broker L&C Mortgages. “In many cases that will be in the form of a cash gift to boost their deposit funds.” Be aware that lenders prefer it to be given as a gift rather than a loan. “If a lender accepts parental loans, it will factor any monthly repayments into the affordability assessment, which could put a dent in the amount you can borrow.”

Patrick Connolly, a financial planner at Chase de Vere, recommends using the government’s help to boost your deposit. “The Lifetime Isa can play a valuable role for those who are trying to get on the property ladder,” he says. “They can be opened by people aged between 18 and 39, who can save up to £4,000 each year, benefit from a 25% government bonus and access their money tax-free.”

You can use a Lifetime Isa towards a home as long as the property costs £450,000 or less, you have been saving into the account for at least 12 months and you are buying with a mortgage. A couple who saved up £20,000 each in Lifetime Isas would get a government bonus of £10,000. Save £330 a month and you’d have a £50,000 deposit between you in less than five years.

If your property’s total value is less than £300,000, remember that you won’t have to save up extra to pay stamp duty, as first-time buyers are exempt up to this amount.

Myth buster: You can’t buy a home unless you have a huge deposit. Several lenders offer 95% mortgages meaning you only need a 5% deposit – that’s £9,888 for the average first home.
By numbers
£197,760
The average cost of a first home, according to HM Treasury
£50,174
The average deposit buyers put down on their first home. (Moneysupermarket.com)
33
The average age of a first-time buyer. (Government figures)

I only have a small deposit and I can’t borrow much

If this is the case, there are a number of government schemes that could work for you, of which Help to Buy is the best known. This is where the government lends you up to 20% of the value of the home you want to buy (40% if you are buying in London). You need to have a 5% deposit, you cannot own another property and the house must be worth less than £600,000.

The loan is interest-free for the first five years, but after that you’ll pay 1.75% interest that increases with RPI plus 1% every year. You only repay the interest on the loan – the equity is repaid when you sell your home or after 25 years. “It’s important that those using the scheme consider whether or not they can afford the loan repayments on top of their mortgage when the interest-free period comes to an end,” says Rob Houghton from Reallymoving.com.

Help to Buy can only be used on new-build homes, which are usually more expensive than buying a resale. Reallymoving.com says Help to Buy properties tend to sell at a 10% premium.
Another option is shared ownership. This is where you buy a portion of a property and rent the rest from your local authority or a housing association. You buy a stake in the property — usually 25% to 75% — then pay a reduced rent on the rest.

For example, £56,000 will buy you a 40% share in a two-bedroom penthouse in central Newcastle, according to Sharetobuy.com. It calculates that you would need a £2,800 deposit, then your monthly costs would be £618: £270 for your mortgage, £219 rent and a £129 service charge to maintain the communal areas.

“For many, it makes financial sense as it reduces the size of a deposit, purchasers own a share of their home and they can build up equity if they wish, while the monthly cost can be cheaper than an equivalent privately rented home,” says Matt Bartle, director of products at Leeds Building Society.

Each housing association has different eligibility criteria for shared ownership. They are usually restricted to people with a household income of less than £80,000 (£90,000 in London).

The drawback with shared ownership is the ongoing costs. While you may only own a share of the property, you are liable for the full maintenance and repair costs. You can gradually buy more of the property until you eventually own it outright through a process called “staircasing”, but you will need to pay fees each time you increase your share for things such as conveyancing and valuations.

“First-time buyers need to go in with their eyes open,” says Paula Higgins, chief executive of the HomeOwners Alliance. “For example, selling a shared ownership property is not straightforward and subletting is usually forbidden, even if you just want to let out the spare room.”

Alternatively, you could opt for a Rent to Buy property. You pay a subsidised rent (typically about 80% of the market rate) for up to five years with the option to buy the property, but you are meant to use the cut-price rent as an opportunity to save for a deposit.
“None of the government schemes is perfect,” says Angela Kerr, director of the HomeOwners Alliance. “Buying on the open market is always the preferred option if you can.”

Myth buster: Help to Buy is for first-time buyers only. Until April 2021 you can use a Help to Buy equity loan even if you have owned property before.
By numbers
£12,800
The average deposit paid for shared ownership (MHCLG)
221,405
The number of properties bought using Help to Buy equity loans up to March last year, with an average loan of £56,300 (MHCLG)
£2,360

The average amount first-time buyers save from avoiding stamp duty (AJ Bell)

Can I buy with a friend or family member?

If your family don’t want to hand their savings over, or can’t afford to, you could look at family mortgages. Offered by several lenders including Barclays, Lloyds and Halifax, these are linked with a family member’s savings account, which acts as a deposit so you can get a mortgage. The money is still theirs and they will get it back with interest as long as you make all your repayments on time over a few years.

You could also consider buying a home with a friend. Typically, mortgages can be taken out by up to two people, but more lenders are allowing mortgage applications from up to four people. By pooling your deposit and including more incomes on your application, you could borrow more to get a home.

Just make sure you consider the legal implications of buying a property with friends. During the buying process, ask your solicitor to draw up a Declaration of Trust. This will reflect how much you each put into the property and what you will each get back if and when it is sold.

How do I get a mortgage?

A mortgage, or home loan, is the biggest financial commitment you are ever likely to make and it typically lasts for 25 to 35 years. How do you make sure you are able to borrow the amount you need at the best possible rate?

This will depend on how much you earn. There are numerous online calculators that will give you an idea of the amount you can borrow. “A rule of thumb for borrowing amounts is likely to be around 4 to 4.5 times your income,” Hollingworth says.

Start thinking about your mortgage application at least six months before you apply. Check your credit score at Experian, Equifax or TransUnion. If it’s low, take some simple steps to improve it: check and correct any mistakes; reduce the amount of credit you have access to if you aren’t using it; and register to vote, as this can add 50 points to your credit score, according to Experian.

Lenders are looking to see that you have reliably repaid debt in the past. “If you don’t have a credit card, apply for one, make at least one purchase a month and set up a direct debit to pay the account in full each month,” says Raymond Boulger, senior mortgage technical manager at John Charcol.

Also, go through your statements and take an axe to your spending. When you apply for a mortgage your lender will assess how much you can afford to repay each month by studying your outgoings. Cancel that expensive gym membership, shop around for cheaper insurance and curb your shopping.

When it is time to apply, speak to a mortgage broker. Over a five-year period, a 2% mortgage rate on a £200,000 25-year mortgage would cost you £1,750 more than a 1.7% rate, so getting help finding the best deal will pay off. Some brokers are free and make a commission, but others will charge a fee, usually about 1% of the mortgage value.

Myth buster: LTV stands for long-term value
A survey by the Home Owners Alliance found that 76% of buyers thought LTV stood for long-term value, meaning the expected property value increase over time. It is actually an acronym for loan to value and represents the percentage of the home’s value that is borrowed. For example, an 80% LTV mortgage means you’ve put down a 20% deposit and the mortgage is covering the other 80% of the price.

By numbers
£145,702
The average amount borrowed by a first-time buyer (UK Finance)
80%
The average loan to value for a first-time buyer’s mortgage (UK Finance)
£723

The average monthly mortgage repayment (Santander)

How do I start the buying process?

It is finally time to start viewing properties. This is the fun part, but don’t get carried away. “Having waited so long to save a deposit, it’s important not to rush the final decision — take your time when viewing a house and try to resist the pressure to commit before you’re ready,” says Ben Leonard, chief executive of FirstHomeCoach.

“The more information you have on the property, the better equipped you are to make an offer. Don’t be shy: ask as many questions as you like, view the house more than once and at different times of the day, take pictures on your phone and make notes as you go.”

Before you make an offer, ask the agent whether they recommended the guide price or the vendor. “You might not get an answer, but their response will be a sure indication as to whether the agent has confidence in the price being asked,” says James Mackenzie, head of Strutt & Parker’s country department.

Once you’ve had an offer accepted, the legal process takes over. “Do not sit back and assume it will all be taken care of by your solicitor,” says Carol Peett, managing director of West Wales

Property Finders. Contact them once a week for an update; if they are waiting for anything from the vendor, urge the estate agent to chase them up. “Nearly a third of purchases fall through between an offer being accepted and exchange, and this will help ensure yours is not part of this statistic.”

Make sure you carefully read through all the documents your solicitor sends you. A lot of first-time buyers purchase leasehold properties, which adds an extra dimension to the legal work. “Don’t rely on your solicitor to check the length of the lease,” Kerr says. “Leases below 80 years are a problem and they can be costly to extend. You also need to have owned the property for two years before you are eligible to do so. Leases under 60 years are best avoided.”

Myth buster: You don’t need a survey if the mortgage company is doing one
When mortgage lenders carry out a survey on a property, it is simply a valuation survey. This means it is merely checking the property is worth what you are paying for it, and may not spot problems.

By numbers
6
The number of months it takes on average to buy your first home (Reallymoving.com)
£850–£1,500
The average legal fees for buying a property (Home Owners Alliance)
4%

The average amount below asking price that properties end up selling for (Zoopla)

Fall in inflation raises prospects of interest rate cut

Fall in inflation raises prospects of interest rate cut

BBC News 15 January 2020

The UK’s inflation rate fell to its lowest for more than three years in December, increasing speculation that interest rates could be cut.

The rate dropped to 1.3% last month, down from 1.5% in November, partly due to a fall in the price of women’s clothes and hotel room costs.

December’s inflation rate was the lowest since November 2016.

Analysts said it raised the chances of a rate cut, with inflation below the Bank of England’s target of 2%.

“Very soft UK inflation data for December leaves the door wide open for a Bank of England rate cut on 30 January,” said Melissa Davies, an economist at stock broker Redburn.

The Bank’s main interest rate is used by banks and other lenders who set borrowing costs. It affects everything from mortgages to business loans and has a big effect on the finances of individuals and companies.

City traders who spend their working lives trying to anticipate moves in interest rates are convinced of it today: the Bank of England is likely to cut the official interest rate when it meets later this month. Market indicators suggest a 60% chance of it happening.

Here’s the thinking: at 1.3%, the official measure of consumer price inflation in the year to December was lower than expected and well below the 2% target. With the economy barely growing (even shrinking if you are prepared to rely on the official November estimate of a 0.3% contraction) there’s little sign of inflationary pressure in the near future.

Granted, there was a sharp rise in the price of crude oil – a barrel was up 4.9% in the month and 17.4% on the year. But in spite of that, producers were still paying slightly less for their raw materials and supplies than they were last year.

The assumption has been that the November contraction was a temporary period of weakness induced by pre-election political uncertainty – and that there will be a recovery as businesses and consumers regain a new-found confidence to spend and invest.

The risk the MPC will have to contend with is that that hoped-for post-election recovery does not materialise.

Earlier on Wednesday, Michael Saunders, one of the rate setters on the Bank’s Monetary Policy Committee (MPC), reiterated his view that borrowing costs should be lowered.
“It probably will be appropriate to maintain an expansionary monetary policy stance and possibly to cut rates further, in order to reduce risks of a sustained undershoot of the 2% inflation target,” he said.

Last week, two other rate setters and Bank governor Mark Carney also suggested that rates could be cut, depending on how the economy performs.

On Sunday, MPC member Gertjan Vlieghe told the Financial Times he would consider voting for a rate cut depending on how the economy has performed since the December election.

However, members of the MPC could take the latest inflation figure with a pinch of salt, said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
“Half of the decline in the headline rate was driven by a sharp fall in volatile airline fares inflation,” he said.

He expects inflation to rise to 1.6% in the first three months of 2020, and this could mean enough MPC members will decide to wait rather than voting to cut rates.

Emma-Lou Montgomery, associate director for personal investing at money manager Fidelity International, said the inflation data painted a bleaker picture for the UK economy than before.

“Today’s UK CPI figures simply add to the growing sense of unease many feel when considering the outlook for the UK economy, with the rate of inflation continuing to lag well below the Bank of England’s target of 2%.”

A cut would ease the finances of borrowers, but create a tougher environment for savers, she added.

15 things buy-to-let landlords need to know in 2020

15 things buy-to-let landlords need to know in 2020

The key rules for buy-to-let property investors and owners, from the letting fees ban to Section 21
By Stephen Maunder Which? 2 Jan 2020

As we head into a new year, buy-to-let landlords face another swathe of complications, from an overhaul of the eviction process to confusion over local licensing.
It’s a tricky time to be a landlord, but Which? Can help you get your head around the various regulations you’ll need to be aware of when investing in buy-to-let.

Here are our 15 top tips on what to watch out for in 2020.

1. Mortgage interest tax relief changes

The government has been phasing out tax relief on mortgage interest since April 2017, with the proportion you’re allowed to deduct slowly being reduced each tax year.

This will come to a head in April, at the start of the 2020-21 tax year.
From then, you’ll only be able to subtract a flat credit of 20% of your mortgage expenses from your rental income when filing your tax return.

These changes to tax relief are controversial, and have long been cited as one of the primary reasons landlords are selling their buy-to-let.

2. Letting fees ban

In 2019, letting agents in England and Wales were banned from charging fees to tenants. In England, the changes also involved deposits being capped at five weeks’ rent, or six weeks’ on tenancies where the annual rent is more than £50,000.

While these moves were designed to crack down on letting agents overcharging, they’ve had a knock-on effect on landlords, who now face the burden of paying for processes such as referencing and inventory checks.

Letting agent fees are already banned in Scotland. Northern Ireland hasn’t introduced an outright ban, but tenants can formally complain if they’re asked to pay fees that solely ‘benefit the landlord’.

3. Section 21 evictions

‘No fault’ evictions were a major topic of debate towards the end of 2019, with the government consulting on repealing Section 21 of the Housing Act.
Section 21 allows landlords to end a ‘rolling’ tenancy with two months’ notice, without giving any reason for doing so. T

The government believes repealing Section 21 will offer tenants greater security, but landlords fear the proposed changes could mean they have to take troublesome tenants to court to repossess homes.

The National Landlords Association says the proposals are ‘ill thought through’ and that Section 21 should remain unless the rules around evicting problematic tenants are reviewed.

4. Local licensing

Landlords operating Houses in Multiple Occupation (HMOs) are likely to be up to speed with the licensing rules adopted in October 2018, but confusion remains around other local licensing schemes.

More than 60 councils in England operate ‘additional’ or ‘selective’ schemes. The former adds extra stipulations to the mandatory HMO rules, while the latter can apply to every landlord within the area.

Local licensing schemes have faced significant criticism, with some councils failing to make landlords aware of the requirements and suffering huge processing delays.

In November 2019, data from Nottingham City Council showed it had only successfully issued 472 licences, despite receiving 17,523 applications from landlords.

The Residential Landlords Association described Nottingham’s scheme as ‘a farce’ and a ‘purely money-making bureaucratic exercise’. Find out more: the areas where landlords need licences

5. Changes to private residence relief

An overhaul of property residence relief rules could hit smaller landlords with higher capital gains tax bills when they sell their property.

Currently, you can claim up to £40,000 in capital gains tax relief if you let a property that is, or has been, your main home – even if you haven’t lived in it for a long time.

From April, this loophole will be closed, and landlords will need to actually be living in the property at the time of the sale to claim the relief.

6. Energy efficiency rules

From April 2020, more landlords will need to meet the new Minimum Energy Efficiency Standard (MEES) regulations, which require rented homes to have a minimum Energy Performance Certificate (EPC) rating of E.

Landlords with properties that don’t meet the regulations must carry out energy efficiency measures on their homes, up to a cap of £3,500 a property.

The rules were first introduced in 2018, but originally only covered new tenancies and renewals. From April, however, they’ll apply to all existing tenancies.

7. Electrical checks

In July 2018, the government announced plans to make landlords carry out electrical safety checks on their homes every five years.

So far, however, it has yet to set a start date for these checks to be introduced. This could happen in 2020, but it’s likely that landlords and managing agents will be given at least six months’ notice before implementation.

After implementation, a two-year transitional period will apply, with new tenancies being brought under the regulations first, followed by existing tenancies a year later.

8. Client money protection schemes

New rules introduced in April 2019 mean that all letting agents in England must belong to a client money protection scheme.

This provides insurance to landlords and tenants alike against malpractice from agents. Agents in Wales and Scotland also need to belong to a scheme as part of the Rent Smart Wales and Letting Agent Code of Practice respectively.

9. Rogue landlord database

The rogue landlord database has been something of a damp squib so far. A Freedom of Information request by the Guardian found that only four landlords were added to the database in its first year.

In July, the government said it plans to open up the database to tenants, allowing them to check whether their landlord or managing agent was included.

Following this, it launched a consultation into reforming the database, which closed in October. It is currently analysing the responses.

10. Stamp duty

Stamp duty has been towards the top of the list of landlord gripes since 2016, when the government introduced a 3% buy-to-let stamp duty surcharge for property investors.

Now, the latest rumours are that a new stamp duty surcharge could be brought in for foreign buyers investing in UK property.

Whatever happens, stamp duty is always an area of political interest and is certainly something landlords should keep an eye on.

11. Right to Rent

The government’s Right to rent initiative has provoked much debate since being launched in 2016, and that’s unlikely to change this year.

Right to Rent requires landlords to check whether tenants have the right to live in the UK, with the threat of criminal sanctions for those who fail to adhere.

In March 2019, the policy was ruled incompatible with human rights law by the High Court after an immigrant welfare group raised a legal challenge.

As part of the ruling, Right to rent cannot be rolled out in Scotland, Wales or Northern Ireland without further evaluation.

12. Leasehold reforms

The government’s attempts to stop unfair leasehold practices – such as spiralling ground rent clauses and high ‘permission fees’ – could finally come to fruition in 2020.

This is likely to involve the banning of new houses being sold as leasehold, and the possibility of caps on service charges, permission fees and ground rents.

The Competition and Markets Authority is currently investigating whether existing leasehold homeowners were mis-sold their properties.

The uncertainty in this area means landlords should pay particular attention to the tenure of properties if they plan to expand their portfolios in 2020. Find out more: buying a leasehold property

13. Property prices

Last year was a slow one for the property market, with the most recent Land Registry data showing that UK prices increased by just 1.3% year-on-year.

With this in mind, landlords can’t rely as heavily on property price growth as they once might have done.

This has resulted in some investors looking to cheaper markets in the north of the country in search of better rental yields.

If you’re thinking of expanding your portfolio in 2020, it’s especially important to conduct thorough research before investing.

14. Mortgage rates

Buy-to-let mortgage rates fell steadily over the course of 2019, to reach an average of 3% in December.

With the price war between lenders likely to continue early in 2020, it’s a great opportunity to consider refinancing your portfolio and lock in a great rate.

One word of advice: always price up the full cost of the deal rather than focusing on the initial rate and any incentives such as cashback.

For example, cashback of £1,000 might sound great on paper but set against a large upfront fee or higher interest rate it’ll quickly lose any attraction.

15. The economy, Brexit and government intervention

Last but certainly not least, landlords will need to ready themselves for more economic peaks and troughs in 2020.

Depending on the outcome of Brexit, the Bank of England base rate could shift in either direction, having an effect on mortgage rates.

In addition, any further economic uncertainty could mean this slower property market continues through 2020.

And with a new government sure to impose its own plans on the buy-to-let industry, it’s more important than ever for landlords to keep an eye on the latest developments.

House prices set for new year bounce

House prices set for new year bounce

Gurpreet Narwan
December 19 2019, 12:01am, The Times

House prices will grow twice as fast next year and rents will accelerate on the back of greater political certainty created by last week’s general election, according to a sector survey.
The Royal Institution of Chartered Surveyors said that house prices would grow by 2 per cent next year, more than double the 0.8 per cent growth rate recorded this year, while rents are expected to increase by 2.5 per cent.

The forecast backs up a similar report by Rightmove, the homes website, which is also predicting house price growth of 2 per cent next year.
Rightmove said the Conservative majority gave homeowners a “window of certainty” that will release pent-up demand for the spring selling season.

It expects the largest increases in northern England, where prices could rise by 2 per cent to 4 per cent. London and the South East will record more modest growth of about 1 per cent. But price growth would be subdued until there was greater clarity about Britain’s future relationship with the EU.

Tarrant Parsons, an economist at the royal institution, said: “Challenges around affordability and low stock levels will continue to drag on the market, and Brexit uncertainty could resurface as the next deadline draws closer. As such, we expect house prices to rise by just 2 per cent next year, with the outlook for overall sales volumes broadly flat.”
RICS said lingering uncertainty would hold down transaction numbers, with sales volumes expected to remain flat next year. According to the most recent official figures, sales fell between September and December.

Alongside the shortage of properties coming to the market, RICS noted that the number of new landlord instructions has been stuck in negative territory for 14 successive quarters.
Rents are expected to rise by an average of 2.5 per cent as a result. In London, rents are expected to rise at an even faster pace of 3 per cent.

How will the election affect your finances?

How will the election affect your finances?

James Coney
December 8 2019, 12:01am, The Sunday Times

INCOME TAX

Currently, everyone can earn £12,500 tax-free, thanks to the personal allowance. From this level up to £50,000, income is taxed at 20%, then 40% up to £150,000 and 45% on anything more, writes James Coney.

Other restrictions apply for higher earners, the most onerous being a cut in the personal allowance if earnings top £100,000: it shrinks at a rate of £1 for every £2 earned, dropping to zero at £125,000.

Workers generally pay national insurance at 12% on earnings higher than £8,632 a year, then 2% on £50,000-plus.

Labour has promised to lower the 45% income-tax threshold to £80,000 and introduce a new top rate of 50%, payable from £125,000.

The Liberal Democrats want to raise income tax by 1p in the pound for all, making the rates 21%, 41% and 46%.

The Conservatives have backed away from Boris Johnson’s early pledge to start the 40% band at £80,000. Now they want to raise the national insurance start point to £9,500, and eventually bring it into line with the income tax threshold.

The Scottish National Party plans no additional changes to income tax (rates there range from 19% to 46% and there are more bands). However, it wants to reform VAT.

SAVINGS AND INVESTMENTS

Everyone can save £20,000 in an Isa, with tax-free returns and dividends. Most people can pay £40,000 into a pension and earn tax relief; the allowance is capped at £10,000 for top earners.

Investors can take £2,000 a year in dividends tax-free, with anything more subject to a 7.5% levy for basic-rate taxpayers, 32.5% for higher-rate payers and 38.1% for top-rate.

Individuals get a £12,000 annual allowance for capital gains tax (CGT). Basic-rate taxpayers then pay 10%, or 18% on a second home, while higher-rate payers face a 20% or 28% levy.

Labour, in effect, wants to strip back the system to just one CGT allowance of £1,000, with all further gains taxed at the individual’s marginal rate, and scrap the dividend allowance, again levying the marginal tax rate.

The Lib Dems have pledged to abolish the CGT allowance, and tax gains at marginal rates. The Tories and the SNP have made no specific proposals on capital gains or dividends.

PENSIONS

On the state pension, the biggest pledge has come from Labour, which wants to give £58bn to those women born in the 1950s who have been worst affected by rises in the qualifying age.

The party also plans to freeze the state pension age at 66 and allow workers in some jobs to claim earlier.

The SNP is against plans to lift the pension age to 68 by 2039, and wants to extend auto-enrolment to the self- employed.

Labour, the SNP and the Conservatives have all promised to maintain the “triple lock”, which links state pension rises to inflation, average earnings or 2.5%, whichever is higher. (The Lib Dems want to keep the triple lock only for people on the old basic state pension.)

The Tories and the Lib Dems have promised action on the rules that mean many high-paid NHS staff face big tax bills on their pensions.

PROPERTY

All sides have promised reforms to promote house-building. The Tories have raised the prospect of 25-year fixed-rate mortgages again, to give long-term stability to buyers. They also plan 3 percentage points extra stamp duty on overseas buyers of property. Labour would go further, charging as much as 20 points extra.

The Lib Dems want to increase council tax by up to 500% for second homes, and would levy a stamp duty surcharge on overseas buyers.

BENEFITS

Labour and the Lib Dems want to scrap the marriage tax allowance, which is worth up to £250 for some couples.

The Lib Dems would also make the bereavement allowance more generous. They also want to reinstate the widowed parent’s allowance, which could be claimed for up to 20 years, and extend it to unmarried couples.

 

The Lib Dems want working parents to have free childcare once their youngsters reach nine months. Labour has pledged to extend 30 hours of free childcare to all children aged 2-4, and would make private school fees liable to VAT.

The Conservatives want to spend £1bn on after-school clubs and other care for school-age children.

The SNP wants free TV licences for the over-75s to be maintained.

Halifax launches 2019’s cheapest mortgage, but is it worth the risk?

Halifax launches 2019’s cheapest mortgage, but is it worth the risk?

Halifax has fired the first shot in a winter mortgage rate war by offering a new deal with an initial rate of just 0.98%.
New two-year tracker deal offers an initial rate of 0.98% for home movers

By Stephen Maunder for Which? 24 Nov 2019

It’s the first time in a year that a lender has broken the 1% barrier, but a word of warning for borrowers – it’s a bit of a gamble.
Here, we explain how Halifax’s new deal works, and offer advice on whether now is the time to gamble on a tracker mortgage.

Halifax launches sub-1% tracker mortgage

Home movers can now get a mortgage with a rate of just 0.98%.

The new tracker deal from Halifax is available to borrowers with a 40% deposit, and comes with an up-front fee of £999. It’s only available to people moving home, so first-time buyers and remortgagers will need to look elsewhere.

Mortgage deals with initial rates below 1% are very rare, with Halifax the first lender to take the plunge this year. Last year, Skipton Building Society and Yorkshire Building Society offered 0.99% deals, as did HSBC in the summer of 2017.

What’s happening to mortgage rates?

It’s been a good year for borrowers, with mortgage rates falling across the board.
And with lenders looking to get business over the line before the end of the year, don’t rule out prices dropping further.

Right now, the average rate on two-year fix and five-year fix is the lowest we’ve seen so far in 2019. Trackers, meanwhile, are priced just 0.01% more than when they hit their 12-month low in August.

How does the Halifax tracker work?

The vast majority of borrowers take out either a two or five-year fixed-rate mortgage, but this new deal from Halifax is a tracker. Data from Experian shows that just 3.1% of borrowers searched for a tracker in October, compared with the 91% who shopped for a fixed rate.

Tracker mortgages follow the Bank of England base rate plus a percentage, so if this goes up or down, so too will your monthly payment. The Halifax deal is priced at the base rate (currently 0.75%) plus 0.23% – a total of 0.98%.

If the Bank of England increases the base rate to 1%, you’ll pay 1.23%, or if it reduces it to 0.5%, you’ll only pay 0.73%.

Should I risk taking out a tracker?

With a tracker mortgage, you’re abandoning the security of a fixed-rate deal and gambling on what’s going to happen to interest rates.
You should only take out a tracker if you expect the base rate to fall or if the deal is significantly cheaper than the equivalent fixed rate.

Is the Bank of England base rate likely to fall?

You’ve got this far without us mentioning the ‘B’ word, but there’s no way around it – the base rate could depend on what happens with Brexit. With lower-than-expected GDP forecasts in place, there has been speculation that a drop could be on the way, though this hasn’t yet materialised.

Earlier this month, the Banks of England’s Monetary Policy Committee voted to keep the base rate at 0.75% by a majority of seven to two. This means three ‘no’ voters will need to change their mind if rates are to fall when the committee next meets on 19 December.

Right now that seems unlikely, but with an election to be fought in the interim, stranger things have happened.

Is this tracker cheaper than a fixed rate?

If the base rate falls, you could end up paying 0.73% – which makes this deal far cheaper than anything else on the market. If you don’t think the base rate will drop, however, it’s probably not worth choosing this product over a two-year fixed rate.

That’s because Halifax also offers a new market-leading rate of 1.05% on its equivalent fixed-rate deal, so you’ll only be saving 0.06% – or just a few pounds a month – by choosing the tracker. And while it’s unlikely, it’s not beyond the realms of possibility that the base rate could even increase next year, which would give you a far less competitive rate of 1.23%.

You can see how Halifax’s two deals compare below.

Type of deal              Initial rate          Revert rate         Fees

Two-year tracker        0.98%                     4.24%          £999

Two-year fix                1.05%                      4.24%          £1,499

* Source: Moneyfacts. 19 November 2019. *This deal is also available with a £999 fee, subject to a higher initial rate of 1.08%

How does Halifax rank for customer service?

In our annual mortgage satisfaction survey, Halifax ranked 10th out of 25 lenders, with a customer score of 69%.
The bank scored well on its application process and online statements, but achieved middling scores in everything else, such as overpayment rules and transparency of charges.

In 2019’s survey, three providers – Nationwide, Principality and Coventry Building Society – achieved Which? Recommended provider status.
How to find the best mortgage

1. Consider your future plans: the right deal for you isn’t necessarily the cheapest one. Before making your decision, think about how long you’ll be living in the property, your finances and your appetite for risk.

2. Look at the full cost of the deal: low initial rates are exciting, but keep an eye out for other fees. High up-front fees can wipe out the benefit of a cheap rate, while early repayment charges can scupper a good five-year deal. If you’re looking at a tracker, ensure it doesn’t come with a collar that will prevent the rate getting any lower even if the base rate falls.

3. See if saving more is worth your while: mortgages have been getting cheaper across the board, but if you can lower your loan-to-value (LTV), you could make significant savings. This is especially the case if you’ve got a small deposit, with the gap in initial rates between a 90% and 95% mortgage as much as 0.7-1%.

4. If in doubt, don’t gamble: in this time of economic uncertainty, a tracker might sound tempting, but it’s still a risk. If you run a tight monthly budget and like the security of a guaranteed fixed payment each month, then it’s best to play it safe and choose a fixed-rate deal.

5. Take advice from a mortgage broker: if you don’t know where to start, a whole-of-market mortgage broker can do the hard work for you and find you a suitable mortgage. A good broker should also be able to access intermediary-only deals, which could help you save money and get a better rate.

Last dash: the Help to Buy Isa deadline is days away

Last dash: the Help to Buy Isa deadline is days away

First-time buyers have only a short time to grab a Help to Buy Isa before the scheme ends, but should they be considering a Lifetime Isa instead?

Kenza Bryan November 23 2019, 5:00pm, The Times

First-time buyers who want a Help to Buy Isa must open an account by next week or risk missing out. The closing of the government’s flagship saving scheme, designed to help people to save to buy their first home, could be a blow for younger people trying to get on to the property ladder.

Santander says that to open an account by the deadline on November 30 its customers need to put in an application online or in branch and receive confirmation that the application has been successful on Thursday. Clydesdale Bank said it will also stop accepting new applications on Thursday.

An application should not take long to process — you could request an account on Thursday morning and have it confirmed in the afternoon — but if a bank raises queries to comply with its regulatory obligations, the process could take days. To be sure of success you should apply as soon as possible. The Help to Buy Isa scheme offers a government bonus of 25 per cent of any money saved, up to a maximum of £3,000, with the total amount you can save capped at £12,000.

A quarter of a million homebuyers have received a total of £285 million in bonuses, yet this is only a fifth of the numbers the Treasury hoped would take up the perk.

A problem with the scheme is that the bonus is paid only after exchange of contracts, which means it cannot be used towards a home deposit, and this is often the biggest hurdle for first-time buyers. Many people put the money towards solicitors’ fees instead.

The scheme has also been accused of artificially inflating house prices, ultimately making it harder to save for a deposit. Yet UK Finance, a trade association, suggests that this isn’t the case. There were 370,000 first-time buyer loans in the UK in 2018, compared with 297,520 in 2015, when the scheme launched. It has also helped some buyers to get on the housing ladder more quickly — the average age of homebuyers purchasing through the scheme is 28, compared with 30 for the market as a whole. At the start of the year the average value of a house bought using the Isa was £173,470, lower than the average first-time buyer price of £190,999.

At midnight on November 30 applications for the Isa will not be accepted by any provider, and the only government homeownership saving scheme will be the Lifetime Isa (Lisa).

This is a tax-free savings account into which you can save £4,000 a year up to age 50, to which the government will add a 25 per cent bonus, paid each month, up to a maximum of £1,000 a year. The scheme is open to anyone aged 18 to 39 and is designed for first-time buyers purchasing a home valued up to £450,000, or for people saving for retirement.

A problem with the Lisa is the penalty for early withdrawal, which is 25 per cent of your total savings. If you put £1,000 into a Lisa and receive an annual £250 bonus, but need to withdraw some money, you would lose a quarter of your £1,250 savings, which is £312.50. But you keep £937.50 of the original £1,000, which means you only lose 6.25 per cent of your original investment.

HMRC collected more than £1 million in these penalties, averaging £695 per fine, between April 2017 and April 2019.

Which one should I go for?
It depends how you want to use the money. If you aren’t entirely sure, the Help to Buy Isa, which does not charge a penalty, might be best. You have to save a minimum of £1,600 in the scheme before you can claim the bonus. After you have saved £12,000 you stop receiving a bonus. With the Lisa there is no minimum before receiving a bonus, and you can save £4,000 a year as long as the scheme is available.

The Help to Buy Isa rates are higher, but the Lisa bonus is greater and ultimately could make you more money, despite its lower rates.

Andrew Hagger, the founder of Moneyfacts, a financial advice website, suggests that savers can have the best of both worlds by taking out a Lisa and Help to Buy Isa, although you will receive only one of the government bonuses.

Another option is a Help to Buy equity loan scheme under which the government will lend you up to 20 per cent (40 per cent in London) of the value of a new-build home interest-free for five years if you have a 5 per cent deposit. The scheme is open until 2021.

Which bank has the best deal?

About 27 banks and building societies offer a Help to Buy Isa and the best interest rate is 2.58 per cent from Barclays. Its branches will process applications up to closing time on November 30, but existing customers can open an account on the phone up to 9pm or online until 10pm. Most companies will accept applications until November 30, except for Santander and Clydesdale.

There are five cash Lisas available. The two best rates are from Oak North Bank, in conjunction with the Moneybox savings app, at 1.4 per cent, and Nottingham Building Society at 1.25 per cent.
What happens after next Saturday?

Existing account holders can keep saving into their account until December 1, 2030. You can have as many Isas as you want, but can only pay into one cash Isa each tax year up to a maximum of £20,000. Help to Buy Isas offer better rates than ordinary cash Isas. The best easy access cash Isa is the Ford Money Flexible Cash which offers 1.27 per cent, while the Virgin Money’s double take Isa offers 1.36 per cent but allows only two withdrawals. If you fix for three years you can get 1.76 per cent with Hinckley and Rugby Building Society.

CASE STUDIES
‘Help to Buy was just right for me’
Alec Lawrence, 22, works for a London mortgage company. He was promoted this year and the salary boost has allowed him to open a savings account for the first time.

Two weeks ago, after a little bit of encouragement from his mother, he decided to take out a Help to Buy Isa with HSBC, earning 2.25 per cent interest on the money he saves each month.

“Maybe it’s Mum’s way of suggesting that I should leave her house,” Alec says. “I still enjoy living at home, but this is preparation for moving out in the future.”

Alec can expect to earn a £600 boost from the government if he pays in £200 a month for a year and then uses this to buy a first home worth less than £250,000, or £450,000 if it is in London. The government adds 25 per cent to your savings and allows you to put in £1,200 in your first month then £200 a month after that. The maximum government bonus available over the course of the scheme is £3,000, for which you have to have saved £12,000.

The scheme works well for Alex because £200 is about the amount he has to spare each month He spends most of his salary on commuting to London from Hertfordshire, going out with friends at the weekend and supporting West Ham United.

Hannah Wright: ‘The Lisa offers free money’
‘The Lifetime Isa is for me’

Hannah Wright, 26, says she is the only one in her circle of friends who does not expect to lean on the bank of Mum and Dad to buy her first home.

She is striving to save at least £15,000 over the next few years to put down a deposit on a small house in Surrey, where she now lives with her mother.

In April 2017 Hannah, who earns £34,000 a year on the graduate scheme at the Department for Transport, decided to boost her savings by opening a Lifetime Isa, which pays a 25 per cent government bonus on anything she saves if she uses the money for a first home or in retirement.

She chose the Lisa over the Help to Buy Isa scheme because of the potential to earn a bigger bonus. The maximum available through the Help to Buy Isa is £3,000, compared with £33,000 if you opened a Lisa at 18 and paid in the maximum amount up to the age of 50. Although Hannah could only afford to pay in £5 a month when she first opened her Lisa, she has since been able to increase her payments to £400 a month.

“I’m always banging on about Lisas, but few of my friends have them,” Hannah says. “I haven’t got a lot of money so I need to be careful about where I put it. The Lisa offers free money, so I don’t understand why anyone would choose not to have one.”