Lenders urged to accept child support as income

People who are divorced, or those whose relationship has broken down, are being penalised because many mortgage lenders don’t accept child support as income, meaning that they could be forced to keep their ex’s name on the mortgage, or be denied a mortgage altogether.

Two lenders, don’t accept child support payments as part of a borrower’s income at all.

Two others don’t generally accept child support as income, but say they will look at applications on a case-by-case basis.

A further two lenders, only accept a percentage of child support income  - in one case only 50 per cent.

Six lenders insist on a court order or Child Support Agency (CSA)/Child Maintenance Service (CMS) payment order or similar.

Only five lenders accept child support as income without a court order or official CSA/CMS payment plan in place.

Mortgage lenders that ignore child support or restrict how much is taken into account may say it’s because these payments aren’t guaranteed and they need to check the support is due to be paid for several years, but few jobs come with a guarantee these days.

Mortgage lenders must make sure mortgages are affordable, which is right, but should also understand that the income of divorced women , and men – may include child support.

The family law organisation Resolution agrees and spokesman Nigel Shepherd said: “Privately agreed child support payments should be accepted as relevant income.”

It is sensible for a lender to require to see the private agreement between the parties setting out the terms of the maintenance payments, plus a track record of regular payments, which can be proved by the applicant providing bank statements for, say, six months, to satisfy themselves the arrangement are robust although maintenance payments are only likely to be reduced or temporarily cease if the payer loses their job, i.e. exactly the same risk of any mortgages generally, which are based on earned income.

Rather than restricting acceptance of maintenance payments to only 50 per cent or 60 per cent, as some lenders do when calculating affordability, once the principle is established there is a strong argument for not only accepting 100 per cent, but going further and grossing up the payments in view of the fact that maintenance payments are tax free.

As government policy is to encourage the parties to come to a private arrangement for maintenance payments, a policy being reinforced by the CMS under plans to impose charges on both parties when its services are used, it is seemingly illogical for lenders to discriminate against applicants who are able to agree terms for maintenance without involving the court or the CMS.

 

The interest only time bomb

The interest-only mortgage timebomb is ticking loudly and will only get louder according to statistics revealed in the Financial Conduct Authority’s (FCA) thematic review into interest-only mortgages, which was published earlier this year.
 

The review revealed there are now 2.6m interest-only mortgages due for repayment by 2041.

 

 

Worryingly, as many as 48% of those face a shortfall at repayment day, with an average figure of around £71,000.

 

 

Even more worryingly, the review found that 260,000 (10%) borrowers have no repayment plan of any kind.

 

 

Many of these borrowers believe they only have very limited options. Either they can hope that their mortgage provider does not notice that their mortgage term has ended and continue paying interest as they have always done, or they can sell their home.

 

 

By downsizing to a smaller property they could afford to pay off the original mortgage. The first option, for obvious reasons, is unlikely and just not sustainable in the long term, while the selling up option is undesirable for many.

 

 

At the same time, recent figures have revealed that the UK’s over sixties are sitting on properties with a total value of £1.28 trillion - a massive figure, illustrating the potential of utilizing property effectively to support the income of older homeowners and help those struggling for viable options when dealing with their interest-only mortgages.

 

 

A growing amount of customers are older homeowners with interest-only mortgages who are faced with the problem of their own personal mortgage ‘timebomb’ and losing their homes if they do not have sufficient funds at the end of the mortgage term to pay off the remaining debt.

 

 

An equity release lifetime mortgage can offer a solution to this, as it allows homeowners to unlock capital from their home whilst retaining ownership of their own home, negating the need to downsize.

 

 

If you are sitting on a valuable asset why not use it to your advantage?

 

 

A lifetime mortgage also means very little change from the customer’s current mortgage situation, as they can continue to make monthly interest payments as they have always done.

 

 

However the key benefit is that the customer no longer has to worry that their mortgage provider will come knocking on their door asking for the remaining debt.

 

 

After all, they have probably spent much of their life looking after their home – isn’t it time perhaps that their home looks after them?

 

 

If you know someone who potentially may be facing this problem, I would be more than happy to talk to them about it, and go through the options available to make sure that their roof stays exactly where it should be – over their head.

 

 

As always , thanks for your attention.

 

 

Mark (mark@themortgagemonkey.co.uk)

Interest rates could start to rise in 2014

The quarterly inflation report out today suggested the Bank of England could raise rates as early as the end of 2014 if unemployment continues to tumble and the economy improve.

 

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Governor of the Bank of England Mark Carney commented Bank statisticians forsee a 40% chance unemployment will reach the 7% threshold by the end of next year. He added there is a 60% chance it will happen by the end of 2015.

Under the terms of Carney's Forward Guidance, the MPC will not consider raising rates until unemployment hits the 7% trigger.

He said: "Through that guidance we are giving businesses and households the confidence that interest rates won't go up until jobs, incomes and spending are recovering at a sustainable pace.

"In line with the unexpected strength of demand, the unemployment rate has fallen a little more rapidly than expected in August. That is to be welcomed: 100,000 more people are in work as a result."

Carney said the unemployment threshold is a staging post for assessing policy, not a trigger for an automatic increase in Bank Rate.

"When the threshold is reached, the MPC will set policy to balance the outlook for inflation against the need to provide continued support to the recovery in output and employment," he added.

With the recovery taking hold, our task now is to secure it, he said.

But he added that the bank will remain vigilant to risk to stability from the housing sector, in terms of price rises or household leverage.

In a fix? Now's your chance

A sharp spike in swap rates has prompted a warning that fixed rate pricing has bottomed out and borrowers could miss out if they wait to secure a mortgage.

Between 12 and 14 August, two-year swap rates have jumped 7 basis points to 0.84 per cent, while five and 10-year swaps have rocketed by 17 and 15 basis points to 1.75 per cent and 2.76 per cent, respectively.

Perhaps surprisingly, swap rates remained fairly static in the days after new Bank of England governor Mark Carney last week announced his decision to introduce “forward guidance” on the potential movement of base rate.

He announced the BoE would not increase base rate from a record-low 0.5 per cent until the UK’s unemployment rate fell below 7 per cent, or if inflation spikes.

This all reinforces that fixed rates are on the floor and for most people there is little or nothing to be gained by waiting for lower rates.

For those looking to remortgage, increasing property prices, a trend likely to continue for at least two years, will enable some homeowners to benefit from the cheaper rates available at lower Loan to Value %, especially if they are on a repayment mortgage and/or overpaying.

Depending on the rate they are currently paying, borrowers in this situation may benefit from waiting a short while to enable them to take advantage of the better rates available at lower Loan to Value %.

However, this strategy runs the risk that rates will rise before the lower level is achieved.

If you would like to see what you can achieve currently , feel  free to get in touch.

As always , thanks for your attention.

Mark

  

Three point nine million

Three point nine million.

Is it the miles a London tube train runs before serious refurbishment?

Or the golden parachute a chief executive of a bank when shareholders have had enough after a few years of highly paid incompetence?

All reasonable guesses, although it's none of the above.

Instead, it's a recent count of pet insurance plans in the UK.

Nearly four million households spend a typical £250 a year on covering their animals against a number of perils, the most important being the cost of a serious visit to the vet.

Now compare that with people protection. Starting from a higher base, it's obvious human cover could not grow even five-fold over the same period.

I recently read that “only 56% of owners take out pet insurance”. I love that “only”.

If “only” 56% of people took out some sort of personal cover to look after themselves as well as they look after their pets ( the wellbeing of whom in fact is ultimately down to the health of the premium payer.)

Remember that 3.9 million? It's roughly 10 times the number of people who have taken the step to protect their income with what is known as Income Protection.

Assuming the self-employed are the natural income protection consumers as their ‘health is their wealth’ so to speak, that means just one in 10 are covered. In fact anyone who is self employed could need short term cash help for injuries preventing their work.

Ah, but I can hear you saying – too expensive.

Well there is another way of looking at premiums – they are cheaper than a payday loan or a visit to a pawnshop. These have mushroomed, taking up empty retail space far faster than even bookmakers, pound stores, chicken shacks and charity shops – as well as dominating a fair slice of online space.

Income protection at around £20 a month is a far sight cheaper route to £1,500 a month than borrowing at thousands of percent a year as well as being better for all concerned than selling or pawning the wedding ring.

And in case you are wondering whether I practice what I preach (?) – yes , I have had my income protected since I took out my first mortgage in 2002.

Want to find out a bit more?  Feel free to get in touch.

 

Bank of Ireland

Bank of Ireland is writing to 13,500 of its buy-to-let and residential customers on tracker mortgages to warn them of plans to more than double the base rate differential it charges them.

Around 7 per cent of Bank of Ireland UK mortgage customers will be affected by the changes to the interest rate differential, over 50 per cent of which are buy-to-let holders.

For buy-to-let borrowers, the rate will jump from Bank of England base rate plus 1.75 per cent to rate plus 4.49 per cent from 1 May.

For residential borrowers, the increase will be applied to in two separate stages. From 1 May, it will rise from base plus 1.75 per cent to base plus 2.49 per cent. From 1 October, it will then be subject to yet another increase, taking it to base plus 3.99 per cent.

A statement from the bank argues the increases reflect higher funding costs.

It says: “This change reflects the significant increase in the cost of funding these mortgages since 2008 and the need for banks to maintain greater levels of capital.”

One industry commentator remarked “This is a shocking move by Bank of Ireland. It shows a blatant disregard for the fortunes of its customers. It is all very well offering to waive redemption penalties for those who can move but, for those who cannot, it creates unnecessary issues and will surely breach boundaries of the FSA’s Treating Customers Fairly initiative.”

If you are concerned about this , please feel free to get in touch.

As always , thanks for your attention.