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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

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

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

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?

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 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

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.”

Expert house price predictions for before Brexit and beyond

By Ele Clark for Which 13 Nov 2019

Whether you’re a staunch remainer or avid Brexiteer, there’s no denying that the uncertainty around when the UK will leave the EU, and the terms under which it may happen, are causing property market jitters.

The upcoming general election – scheduled for 12 December – is doing nothing to calm nerves.

With each of the major political parties taking a different line on Brexit, it’s impossible to predict the potential knock-on effect for property prices and the sector as a whole in 2020 – but looking backwards at what’s happened so far can give some clues.

We’ve analysed market activity before and since the Brexit referendum and spoken to experts from the estate agency, building, mortgage and buy-to-let sectors to bring you the insider’s guide to what could happen over the coming months.

What could a base rate cut mean for the property market?

The economic uncertainty caused by Brexit has undoubtedly affected the market, with house prices falling in some areas and fewer sales having taken place so far this year compared to the same time last year.

To add to the confusion, a base rate cut is looking more likely following the most recent vote by the Monetary Policy Committee, in which two out of nine members voted for a decrease.

Question marks over what this could mean for mortgage rates are making decisions even tougher for those weighing up whether to move house or remortgage.

What will a no-deal Brexit mean for house prices?

While many MPs are strongly opposed to it, a no-deal Brexit remains the default position if an agreement cannot be reached between the UK and EU.

Many business leaders and financial experts have expressed concerns about the potential consequences of leaving without a deal.

Accountancy firm KPMG has predicted that house prices would fall by around 6% following a no-deal Brexit, but that they could drop by as much as 20% in a worst-case scenario.

In July, the Office for Budget Responsibility said that a no-deal Brexit could lead to house prices falling by almost 10% by mid-2021.

Looking further back, Bank of England Governor Mark Carney said in February that UK growth would be ‘guaranteed’ to fall in the event of a no-deal Brexit.

What’s happened to house prices since the Brexit vote?

House prices did stagnate for a while following the referendum in June 2016, as you’ll see in the chart below. However, it was fairly normal for that time of year: prices generally grow in spring and plateau over the following few months, a pattern that was repeated in 2017.

But, with Brexit looming ever closer, house prices fell much more sharply than usual after last summer.

The good news if you’re a homeowner is that prices have generally recovered over the last few months, with September 2019 (£234,370) only taking a slight dip against August, which saw the highest average house price on our chart at £234,853.

As you can see in the graph, it’s normal for prices to peak in August before falling slightly from September, so this indicates a return to a more usual seasonal pattern.

Are UK house prices falling?

Looking at year-on-year house price change over the longer term can be another useful way of understanding what the market’s doing.
The chart below shows what the annual rate of change has been each June since 2014, plus September 2019 (the most recent data available at time of publishing):

As you can see, the rate of house price growth plummeted in the year after the referendum everywhere in the UK except Scotland, which remained flat.

Two years on, in June 2018, year-on-year price growth had improved in every UK nation except England.

By June 2019, with Brexit supposedly fast approaching, the rate of growth had slowed across the board to a UK average of 1.01%. However, by September this had picked up slightly to 1.26% despite the fact that, at that point, Boris Johnson was promising that Brexit would take place on 31 October.

This shows how difficult it is to draw a direct link between Brexit and house price activity: it’s impossible to accurately state the extent to which Brexit has influenced the figures. And some argue that the house-price slowdown is simply a long-overdue market correction, which could help the thousands of potential first-time buyers who’ve been priced out in recent years.

Transaction volumes since the referendum

Another way of judging the health of the housing market is to look at transaction volumes, meaning the number of property sales in any given month. A lower number of sales can indicate market uncertainty, which is often triggered by events such as an election or referendum.

Interestingly, the referendum itself didn’t seem to have much impact on transaction figures.

Earlier this year, however, transactions were quite sharply down compared to the same months in 2018. But activity has improved recently, with September showing a slight uptick in sales (101,740) compared to 2018 (99,420).

It remains to be seen whether transactions will decrease again in the run-up to the general election – data wasn’t yet available at the time of publishing this article.

(The spike you can see in the graph below was caused by investors rushing to complete their purchases before the 3% buy-to-let stamp duty surcharge came into force in April 2016.)

 UK figures are seasonally adjusted; individual nations are not. Figures represent all residential property transactions of £40,000 or above.

What’s the pre-Brexit market like for sellers?

Two commonly used measures of how the market is performing for sellers are stock per branch – which is the average number of properties on each estate agency’s books – and time to sell.

The chart below shows that it’s taken people longer to sell their homes recently than in previous years. In January, the average time for a property to go under offer shot up to 77 days, the highest on record.

It has since fallen, dropping to 62 days in June and remaining at that level ever since, but that’s still much slower than in previous years. Many commentators believe this is due to nervousness around buying a home in the run-up to the election and a potential Brexit.

Stock per branch is only slightly up year-on-year, from 52 in September 2018 to 54 in September 2019.

This could be indicative of seller frustration, with a July 2019 report from data agency TwentyCi pointing to 895,000 homes having been withdrawn from the market over the previous year.

Brexit house price predictions: what do the experts think?

The charts above show us what’s already happened, but what lies ahead? We spoke to a range of industry experts to find out what they believe the future holds for the UK property market, both before Brexit and beyond. Here’s what they said.

The mortgage broker: ‘Don’t just jump into a fixed rate’

David Blake, Which? Mortgage expert, says: ‘The political situation may be in turmoil but it’s important that buyers and homeowners don’t panic or make any rash decisions.

‘I’m sure many people are waiting until we know more about whether the UK will leave with a deal, but it’s tough putting your life on hold for an unknown.

‘Recent price drops in some regions mean that it’s becoming more of a buyers’ market, so you might be able to get a good deal. Besides, buying a property should generally be regarded as a long-term investment and, even if there is a short-term price drop, house prices will probably stabilise in the future.

‘Mortgage rates are incredibly low right now and many will want to fix into a low rate to give themselves security as we move into a period of uncertainty. But don’t just jump into a fixed rate without considering the alternatives – there are plenty of flexible products that would leave your options to remortgage open if rates did start to change.

‘Brexit is still a complete unknown, and while a professional mortgage adviser won’t have all the answers, they will be able to explain your mortgage options to help you navigate this period of uncertainty.’

The property pundit: ‘If you want to live there long term, buy now’

Kate Faulkner, housing expert and founder of propertychecklists.co.uk, says: ‘we’ve definitely seen a stagnation in the market over the last year in areas such as London, the South and East (which had all overheated), and this has spread to other areas over the last few months.

‘Buyers have held back in the hope that prices will fall, but as this hasn’t materialised across the board, they’re starting to come back into the market.

‘The difficulty now is lack of properties for sale, as people are worried they won’t get a good price for their property. This has led to a flurry of activity in some areas during the summer, but I think this will slow down due to the uncertainty of “what happens next?”

‘Personally, I don’t think buyers should be put off by fears of a house price crash as long as they mitigate the risks. If you bought a property now, even if it did drop in value in the short term, the market would probably have corrected itself by the time you wanted to move (assuming you stayed there for at least five years).

‘However, if you’re considering buying somewhere for the short term it’s more complicated. Transactions are likely to stagnate towards the end of the year unless we see some clarity over Brexit. ‘In terms of buy-to-let, demand from landlords has already reduced and many have sold up.

We are now seeing rent rises as a result – particularly since the tenant fee ban – so sadly this has impacted tenants more than agents or landlords.

‘With property deals available and rents on the rise, now isn’t a bad time to be a landlord as long as you really understand your objectives and whether the deal stacks up both now and in the long run.’
The estate agent: ‘Buyers and sellers are putting their plans on hold’

Mark Hayward, chief executive, NAEA Propertymark says: ‘Brexit is undoubtedly causing uncertainty in the housing market, which in turn affects sentiment and decision-making, and we’re seeing both buyers and sellers put their plans on hold as a result.

‘Recent research from accountancy firm KPMG suggests UK house prices could fall by more than 5% if there’s a no-deal Brexit, which won’t help consumer confidence.

‘Once the current political impasse is resolved and it’s clear how and when we’ll be leaving the EU, we hope there will be a degree of certainty which may trigger a flurry of activity. We hope this certainty is provided sooner rather than later.’

The buy-to-let expert: ‘Portfolio landlords will fare well’

Chris Norris, director of policy and practice at the National Landlords Association (NLA), says: ‘The issues troubling most landlords are the status of non-UK, and in particular EU, citizens, given their responsibilities to police the Government’s Right to Rent policy, as well as the overall impact that divergence [Brexit] will have on the stability of the housing market.

‘It is still too early to predict what impact Brexit will have on property values. A weakening of the appeal of UK investment could drive prices down or a lack of certainty could drive up interest in the relative stability of bricks and mortar.

‘Likewise, while news of a general election on 12 December might be music to the ears of those that want Brexit done and dusted, the uncertainty is not yet over. And aside from Brexit, landlords are concerned about what the next government’s plans will be for the private rented sector more broadly. All factors together have caused landlord confidence to fall to an all-time low.

‘On a day-to-day level, changes to immigration policy could reduce demand from those coming to the UK, or drive up interest from those taking advantage of new arrangements with states outside the EU.

‘It is likely that landlords with established, well-capitalised portfolios will fare reasonably well. However, those heavily reliant on finance may find uncertain conditions more troubling.’

The housebuilder: ‘We need skilled labour from abroad’

Stewart Baseley, executive chairman of the Home Builders Federation, says: ‘Unlike the wider housing market, where transactions have dropped considerably from the historical norm, the new-build market has remained relatively strong in recent months – although there are some challenges at certain parts of the market and areas of the country.

‘The confirmation in the Budget of an extension to the Help to buy scheme was welcome. The scheme is ensuring demand for new-build homes remains strong [and]… the certainty of demand is enabling builders to plan ahead to increase output in the coming years, as is demonstrated by the record high number of planning permissions being granted.

‘To enable increases to be delivered the industry needs certainty about future labour supply. It is essential that, post-Brexit, the industry continues to be able to access skilled labour from abroad if housing targets are to be met.’

What will Brexit mean for interest rates?

Find out how leaving the EU could affect savings and mortgage rates
By Ian Aikman for Which 7 Nov 2019

The Bank of England’s monetary policy committee (MPC) has held interest rates at 0.75% in its last meeting before the 12 December general election.The decision continues the 14-month-long streak of leaving interest rates unchanged. But for the first time since June 2018, it wasn’t taken unanimously.

At its latest meeting on 7 November, the Bank’s MPC voted 7-2 to keep interest rates at 0.75%. The two dissenters wanted to lower rates to 0.5%. Changes to interest rates can have far-reaching consequences, on everything from your personal finances to the wider economy. The Bank of England sets interest rates, also known as the base rate, in response to current events and expected economic performance, with the aim of keeping inflation around its 2% target.

In the past, holding rates has been described as a ‘wait-and-see’ approach to Brexit. But with the deadline looming ever-closer, the Bank might soon have to change course next year.
So what will it do, and what will its decision mean for you?

Why the Bank of England base rate matters

Sometimes known simply as the interest rate, the Bank of England base rate influences how much banks and other lenders charge you to borrow money, and how much interest is paid on your savings. In the case of a base rate rise, banks will tend to raise mortgage interest rates as well as loans, pushing up the cost of borrowing money. At the same time, interest rates on savings are also likely to increase, meaning your savings pot could grow a little faster.

Lowering the base rate could have the opposite effect, with mortgage rates becoming slightly cheaper, but savings deals offering lower returns.
After August’s growth figures revealed the UK economy shrank by 0.2% – the first contraction since 2012 – many in the City are called for a rates cut to increase spending and stimulate growth. The MPC did not bow to this pressure, and the base rate was kept the same in September.

Factors that influence the base rate

When setting interest rates, the MPC’s goal is to keep inflation as close to 2% as possible. Its decisions are informed by an inflation forecast, which takes into account:
• the current inflation level wage

• growth the cost of goods (including the impact of changes in the exchange rate)
• consumer spending
• investment levels

Interest rate decisions also consider unemployment rates and economic growth figures – the latter of which must not exceed a 1.5% ‘speed limit’ or inflation could rise above target.
The Bank of England puts it like this: ‘Overall, we know that if we lower interest rates, this tends to increase spending and if we raise rates this tends to reduce spending. So, to meet our inflation target, we need to judge how much people intend to save and spend given the current interest rates.’

Timeline: interest rates since the Brexit referendum

As Brexit looms on the horizon, you might wonder how this unprecedented political event might affect the economy.
While no one has a crystal ball, it can be helpful to look at what happened to the base rate during the past two years of Brexit votes and negotiations.

August 2016: Just over a month after the referendum on EU membership, the Bank of England cut the base rate in half – from 0.5% to 0.25%. This was the first time the interest rate had changed since March 2009.

Interest rates were already at a historic low before this reduction. In the wake of the 2008 financial crisis, the base rate fell dramatically from 5% to 0.5%, where it remained for almost a decade.
November 2017: the MPC restored the base rate to pre-referendum levels in order to combat rising inflation. The Bank linked this decision directly to Brexit, saying ‘the fall in the pound following the Brexit vote’ means that things from abroad cost more, ‘and that means higher prices in the shops’.

August 2018: The MPC raised interest rates from 0.5% to 0.75% – the first rise above 0.5% in almost a decade. This decision was based on the economy’s steady growth, and the accompanying report noted that most referendum-related price hikes appeared to have happened already.

March 2019: Just over a week before the UK’s original EU exit date of Friday 29 March, the MPC voted to keep interest rates at 0.75% once again, citing low unemployment and inflation almost exactly on target at 1.9%. Minutes from the group’s meeting did, however, discuss the negative effect Brexit could have on businesses.

November 2019: The MPC kept interest rates at 0.75%, with seven of nine members voting this way. The remaining two voted to cut the base rate to 0.5%, but they were overruled by the majority. This could be the first sign that a rates cut is on the way. Though there’s no guaranteeing that this is the case.

What decision-makers have said about post-Brexit interest rates?

The MPC tends to let is decisions do the talking, rarely revealing what those might be ahead of time. So far, it has taken a ‘wait and see’ approach to Brexit, meaning we might not see any base rate changes until after we leave the EU.
Still, key decision-makers have hinted at what form post-Brexit monetary policy could take:

Mark Carney, governor of the Bank of England

Since the referendum, Carney has been adamant that interest rates could go up or down after Brexit, depending on the circumstances. This was summed up when he said ‘it’s not automatic which way policy would go in the event of a hard Brexit’ at January’s World Economic Forum.
However, at the end of June, he told the Commons Treasury committee that a no-deal Brexit could likely lead the Bank to cut rates.

Gertjan Vlieghe, MPC member

Speaking to the Treasury Select Committee late in February, Vlieghe went slightly further than Carney, saying ‘just because [interest rates] could go in either direction, doesn’t mean that each one is equally likely’.
The rate-setter supported Carney’s point that any interest rate decisions will have to be made in real time, after the committee can see what impact Brexit has had.
Despite this, Vlieghe did outline how a likely fall in the pound’s value could lead to higher inflation, which would require the MPC to take action.
In mid-July he said a no-deal Brexit could see rates cut to almost zero: ‘I think it is more likely that I would move to cut Bank Rate towards the effective lower bound of close to 0% in the event of a no-deal scenario.’

The monetary policy committee (MPC)

In May’s inflation report, the MPC, which includes Vlieghe and Carney, said: ‘Whatever form Brexit takes, we will keep inflation low and support the economy.’
As we saw in 2017 and 2018, the MPC can opt to increase the base rate when they want to lower inflation. However, there will be other factors, such as a potential lack of consumer and business confidence that the Bank will have to contend with after Brexit.
Minutes from June’s MPC meeting said rates would gradually rise ‘were the economy to develop broadly in line with its May Inflation Report projections that included an assumption of a smooth Brexit.’ But the minutes also said that ‘domestically, the perceived likelihood of a no-deal Brexit has risen’.
In November’s decision, two MPC members voted against keeping the base rate at 0.75%, suggesting at least some members think it’s time for a change in tactics. If more members join the dissenters, we could see rates change soon.

What economists say about interest rates post-Brexit?

Rocio Concha, chief economist at Which?

‘It’s clear that the political uncertainty surrounding Brexit is preventing the Bank of England from raising rates beyond their current level. In the medium term though, the Bank’s intention is still to gradually increase rates closer to their pre-recessionary norms – but only if the UK’s departure from the EU goes smoothly.
In the event of a no-deal Brexit, we expect that the most likely response is for rates to fall in order to stimulate a weakened economy. But, as the Bank says, that is by no means certain. A fall in the value of the pound will undoubtedly lead to higher prices and the Bank may find itself in a difficult position, balancing economic stimulus with tackling inflation.’

Ben Brettell, senior economist at Hargreaves Lansdown

Brettell told Which? Money: ‘The Bank of England has been setting a neutral tone as Brexit approaches. The minutes of recent meetings reiterate that the MPC still sees the need for higher interest rates in the coming years, but a deteriorating global growth outlook and mounting Brexit uncertainty have put paid to any thoughts of tighter policy for now.
Where we go from here is highly uncertain, as we still have little clarity over what Brexit will look like, if and when it happens. An orderly Brexit could see the Bank refocus on wage growth and raise rates later this year. A no-deal scenario would likely see sterling fall 5-10%, causing a spike in inflation, but I’d expect the Bank to look through this and cut rates to support the economy.’

What can you do to prepare?
If the Bank of England base rate does change after Brexit, the key things that might be affected are your mortgage and your savings.

Savings
For savings, a base rate rise could see your account’s interest rate increase, giving you better returns. On the other hand, if the base rate is cut, you might see your interest fall.
Switching to a fixed-rate account will secure you against any potential Brexit turmoil, but you’ll miss out on the possible benefits of a base rate rise.
If you’re thinking of switching, you can compare hundreds of savings accounts at Which? Money Compare to find the best home for your nest egg.

Mortgages Variable-rate and tracker mortgage customers could face higher repayments if the base rate rises. If you’re worried about this, you could remortgage to a fixed-rate deal in order to secure cheaper repayments for a set period.

However, if the base rate is lower, variable rate borrowers may see their repayments become cheaper. You’ll miss out on this if you’re on a fixed rate.
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which?

Money Compare is a trading name of Which? Financial Services Limited.
Please note that the information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms & conditions of a provider before committing to any financial products.

Lisa takes centre stage as Help to Buy makes its exit

November 10 2019, 12:01am,

The Sunday Times, Kate Palmer

First-time buyers will no longer be able to open a Help to Buy Isa after November 30

First-time homebuyers have days to grab the best deals on the market before Help to Buy Isas, which pay up to 2.55%, close for business.
Savers have until November 30 to open a Help to Buy Isa. The accounts, launched in 2015, pay a 25% government bonus on a house deposit. However, some providers are pulling their products even earlier.

The rates on offer now are far better than those on the replacement product, the Lifetime Isa (Lisa), of about 1.5%.
The top-paying Help to Buy Isa is from Barclays, at 2.55%. Nationwide pays 2.5%, NatWest 2.47% and Monmouthshire Building Society 2.35%. All these rates beat comparable easy-access cash Isas, which pay up to 1.45% (Virgin Money).

Santander’s Help to Buy Isa, which pays 1.75%, or 2.25% to those with a 123 current account, will stop opening new accounts from November 28.

Help to Buy Isas let savers deposit a £1,200 lump sum when the account is opened and then save £200 a month. When a home is bought, the state pays out a 25% boost.
It is possible to have both a Help to Buy and Lisa but only to use the government bonus from one towards a property.

A Lisa lets people aged 18-39 save up to £4,000 a year towards a first home and receive a 25% state bonus. It can be opened with as little as £1 — but only deposit money if you intend to use it for a first home or lock it away until age 60.

Taking out the cash in any other way carries a hefty 25% exit fee, as the 25% bonus is automatically paid each year. A saver who deposits the full £4,000 after a year would be left with just £3,802.50, assuming 1.4% interest.

It is possible to use the Help to Buy Isa to buy a property and keep saving in a Lisa until age 60, or use the bonus from a Lisa to buy a home and keep the Help to Buy Isa open as a tax-free regular savings account. Savers should calculate how much the bonus would be worth on each account.

Any deposits in either Isa count towards your annual £20,000 Isa allowance.

Experts hope that with the end of the Help to Buy Isa, competition will improve Lisa rates. The best, from savings app Moneybox, is now 1.40%.

Tomorrow, Unity Mutual, which offers a stocks and shares Lisa, will open its 1.5% Lisa to individuals with £1 or more to invest. The money is invested in Unity’s portfolio of rental properties, with the rate guaranteed until April.

Steve Code, insurance director at Unity Mutual, said: “Time is running out for anyone who wants to open a Help to Buy Isa, but the Lifetime is a great alternative, as you can save more each year and benefit from a larger potential bonus.”

But Andrew Hagger of Moneycomms warned: “A Lifetime Isa is a fairly long-term product. The question to ask with Unity is whether the guarantee is watertight, and what happens after next April?”