A hung parliament and the UK property market

It’s an outcome nobody could have predicted— a hung parliament. After a lacklustre campaign from the Conservative party, and a surge in support for Labour leader Jeremy Corbyn, neither party achieved a majority and the country now waits in a state of anticipation and uncertainty. As for what will happen next, nobody can be sure.

As the party with the most votes, history dictates that the Conservatives would go on to form a government with the support of a smaller group which they have done with the Democratic Unionist Party (DUP) . However, Jeremy Corbyn has also said he is ‘ready to serve’ and is reportedly in talks to form a coalition.

General Election ends in hung parliament

Those currently in the process of buying or selling a home may wish to pause for several weeks until the country’s future is more certain; at this moment in time it is difficult to tell which party will be taking the country forward. However, it should be noted that the market has been slow of late for many other reasons, such as inflation overtaking wage growth, changes in buy to let lending regulations and the impact of additional stamp duty taxes.

The only thing currently certain is the UK faces more uncertainty. The pound nosedived after exit polls successfully predicted the hung parliament outcome.

But there is a silver lining for many clients as the current uncertainty offers potential advantages. A dip in the pound could in fact benefit foreign investors looking to purchase in the UK, as exchange rates could be more favourable. Experienced investors who feel confident of their ability to take a long-term view could also benefit from the hesitation of others to secure good deals at favourable prices.”

What is an Offset mortgage?

What is an offset mortgage?

An offset mortgage links your savings, and in some instances your current account, to your mortgage. As a result, instead of earning interest on your savings, you pay less interest on your mortgage.

For example, if you had a £100,000 mortgage and £20,000 in savings offset against it, you would only pay interest on £80,000. However, your monthly mortgage payments will probably be based on the full £100,000 loan meaning you effectively over pay each month. As a result not only do you pay less interest on your mortgage, you will also pay it off more quickly.

Some lenders will let you reduce your monthly payments so that they are based on the value of the outstanding mortgage once the savings have been offset. However, while this may help bring down your repayments you won’t pay your mortgage off any quicker.

Offsetting can also be extremely tax efficient. Ordinarily you pay income tax on any interest you earn on savings (apart from ISAs). However, if you offset your savings against your mortgage, you don’t earn any interest so there is no tax to pay.

Offset mortgages only account for about 6% of the total mortgages although with savings rates in the doldrums because of the low Bank of England base rate, they are becoming more popular. If you are looking for a new mortgage, an offset is definitely worth considering – it won’t be the right option for everyone though.

What are the advantages of offset mortgages?

With an offset loan, you pay no tax on your savings interest, and the rate you earn is the same as your mortgage rate; as mortgage rates are typically higher than easy access savings rates, you effectively get a better return.

A key benefit is the flexibility you get, as you can always retain access to your linked savings account or current account, meaning you can dip into it at a future date as and when you need to.

By contrast, if you’d used money from your savings pot to overpay your mortgage and then decided you needed some of that cash back, you would not have the same flexibility.

While offset deals are particularly beneficial to higher-rate taxpayers and those with a large amount in cash savings, lower-rate taxpayers can benefit too.

If you have savings as well as mortgage debt, an offset mortgage can offer the best of both words, as you will still be able to access that nest egg. However, you need to be aware that if you withdraw money from your savings at any point, there will be less in the pot to offset against the mortgage.

Offsetting can be an especially useful option for the self-employed who put money aside for their tax bill, as these individuals can make their money work that little bit harder – before handing it over to the taxman.

Not for everyone though…

While an offset mortgage will work well for many people, offsetting won’t be the most suitable option for everyone.

You tend to pay a slightly higher rate of interest than on a standard mortgage, although the premium has narrowed in recent years. But it means that if you don’t have much in savings, offsetting may not work out to be best value.

There is no hard and fast rule which says if you have more the £x in savings an offset is the best option – it will depend on the mortgage and savings rates available at the time.

The importance of your credit rating when applying for a mortgage

9th May 2016

Getting a mortgage can seem like one of the most daunting tasks that you can face in your life, but it doesn’t need to be, as there are a number of small things you can do that could greatly increase your chances of getting your dream home.

The important thing to remember is that every lender is different in what they view as the ‘perfect candidate’ to lend to. Just because you don’t fit one’s criteria, doesn’t mean you won’t fit another’s.

What does a lender judge me on?

There are a lot of factors that go into a lender deciding whether it can lend to you or not. These can range from the size of the loan you want to take out and your outgoing costs, to your credit rating and employment status.

Is my credit rating that important?

Your credit score enables lenders to see that you have the financial means and discipline that will be required to pay back your mortgage. Key things lenders will check include your history of repayments, so if you have any ‘black marks’ where you have missed payments on credit cards, catalogues or any other existing debts within the last three months, this may hinder your chances.

It isn’t just your score that you need to be aware of, either…

Unfortunately, break-ups happen, so if you’ve got financial links to someone else, such as a joint bank account from a previous relationship, you will need to sever that link. If your ex-partner, or whoever the account is linked to, makes a late payment or any other credit mishap, it will reflect on your own report.

To distance yourself from the joint account, you can write to the credit agencies and ask for a ‘notice of disassociation’.

Managing your credit…

It sounds obvious, but managing your credit availability is imperative when looking to secure the deal that you want.

Your ‘credit’ isn’t just your credit card limit. It’s also your debit balances on your bank accounts and overdraft limits.

The key is to get the right mix between the two. If you do have debts, credit experts suggest that they should make up less than 50% of your available credit, so if you have a £5,000 credit card limit, you should spend no more than £2,500.

Don’t apply for credit shortly before a mortgage

When applying for a mortgage, your last three months’ account statements will come under scrutiny. Because of this, it’s a good idea to avoid applying for credit at this time as it could lead to rejection, putting a dent in your chances.

If you have to apply for credit and end up getting rejected, do not apply again straight after. Lenders search your file every time you do a “hard search” for credit – be that for a mobile phone contract or a new credit card – and the more that you apply, the more ‘frantic’ your spending looks.

Managing your credit is just one part in ensuring that you give yourself the greatest chance of getting the right deal for your circumstances. Applying for a mortgage can be a scary prospect, but, with the help of a professional mortgage adviser, it doesn’t need to be.

The ins and outs of Stamp Duty

16th May 2016

Thanks to the newly-reformed Stamp Duty Land Tax (SDLT), over 780,000 home-buyers saved £657 million in 2015, according to the HM Treasury.

The government changed the way SDLT worked, away from the ‘slab’ system, in December 2014 and, as a result of the change, 98% of people who paid SDLT saw a reduction in their cost.

What are the new rules?

Previously, under the ‘slab’ system, buyers would have had to pay SDLT at a single rate on the entire property price.

For example, if you bought a £280,000 property, you would have paid £8,400 SDLT, as you are buying a property between £250,000-£500,000, and this bracket requires you to pay 1% SDLT.

However, under the reformed system, buyers now only have to pay the relevant amount of tax on the part of the property price that is within each tax band.

So, with that same £280,000 property, you will only pay £4,000 SDLT.

This is because, under the new rules, you don’t pay any SDLT on the first £125,000, but then pay 2% on £125,000-£250,000 (£2,500), then 5% on anything above £250,000.

So, in this case, you will pay 5% on the £30,000 to make up the £280,000 (£1,500).

The bands for SDLT can be found in the table below:

Does this affect everyone?

Yes. And even though the new rules has saved 98% of home-buyers thousands of pounds so far, it should be noted that homes that cost their buyers anything over £937,000 will have seen their SDLT costs increase.

What about the changes that the government made in April this year?

The changes that the Chancellor brought in for April during his 2016 Budget in March mean that, if you go to purchase an additional property on top of the one(s) that you already own, you will have to pay an additional 3% SDLT on top of the standard amount.

So, if that £280,000 property mentioned earlier was your 2nd, you would have to pay £12,400, rather than £4,000.

The same process applies when working out SDLT for additional properties and the table below explains the different bands:

Additional Property Purchase Price Band Rate of Stamp Duty Rate of Stamp Duty (3% surcharge)
£0-£125,000 0% 3%
£125,001-£250,000 2% 5%
£250,001-£925,000 5% 8%
£925,001-£1.5 million 10% 13%
Over £1.5 million 12% 15%

So, what defines an ‘additional property’?

Simply put, any property that you buy that isn’t where you live (your main residence), is classed as additional.

This includes buy-to-let properties and holiday homes, so even if your main residential property is abroad and you decide to purchase in the UK, the surcharge will still apply to you.

If you find yourself buying a new home without selling your old home first, you will also need to pay the additional SDLT.

It’s important to remember that these changes also affect you if you are buying a home with your partner, or for your child, but already own a property yourself, as it will still be seen as your 2nd home.

In April last year, Scotland replaced SDLT with its own Land and Buildings Transaction Tax (LBTT). Despite this, the additional surcharge will still apply to you if you buy a property in Scotland.

Are there any exceptions where I won’t have to pay SDLT?

SDLT does not apply to properties that are valued at less than £40,000 and this is also the case for caravans, houseboats, mobile homes and non-residential/mixed-use properties such as flats on top of shops.

You can also find yourself exempt from the additional 3% SDLT if you find yourself going through a divorce, and are buying an additional property.

Is there something I can use to work out how much SDLT I will pay?

The HM Revenue & Customs SDLT calculator can be found here and, as with any change or adaptation to the housing and mortgage industry, it is beneficial to speak to a professional mortgage adviser.