Higher loan to value mortgage deals are more needed than stamp duty holiday

The end of the stamp duty holiday for first-time buyers on 24 March will have little impact on the housing market compared to the availability of 95% loan to value deals.

The increased availability of 95% deals, which hit a four-year high, is likely to have a far more positive effect on the housing market.

Recent data in fact shows the concession has done little to stimulate the market since the 1% tax for first-time buyers purchasing properties worth between £125,000 and £250,000 was removed two-years ago.

Ultimately what was more of an issue was deposit affordability, so while there may be an uplift in the amount of first-time buyers in the weeks remaining before the deadline, this is more likely to be influenced by the greater number of 95% LTV mortgages currently available.

Now whilst not every first-time borrower would be able to meet the criteria, the increased availability of mortgage finance was more of a factor influencing first-time buyer numbers and as such, the introduction of the government's New Buy scheme could help to sustain the availability of finance for buyers with small deposits.

We’ve not seen the specific details from lenders yet but the proposed mortgage indemnity scheme will guarantee 95% loans up to £500,000 on new-build homes, with developers and taxpayers providing funding and I think it would be fair to say that reducing the size of the deposit needed to buy a property will provide a stronger stimulus for the market.

However we still hope the government will perhaps reconsider the decision to remove the stamp duty holiday – as although the evidence suggests it has done little to stimulate activity – its removal creates unnecessary confusion as some buyers will be trying to complete before the deadline expires and may abandon their purchase if they don’t think they will be able to complete in time which would be nothing more than counter productive to all those involved.

As always thanks for your attention.

Parents unaware of critical illness benefits

Parents are risking the financial security of their families should they become seriously ill by not considering critical illness (CI) protection.

Of the small percentage of those who have purchased insurance, a significant number also did not know if it included cover for their children.

It is a sad fact but of the 40 plus conditions covered by most critical illness policies, children's illness remain the fourth highest claim reason on critical illness policies – ranking only behind cancer, heart attack and stroke.

According to a recent study, only one in twenty (6%) parents has a CI policy in place and one third (31%) of those did not know its coverage of children's diseases.

It estimated that almost 300,000 parents needed to check their policy to see if it extends to covering their children.

And of the one million parents who have a CI policy in place, 35% of those are just themselves covered by their CI policy.

Surprisingly, only one third of parents with cover (33%) have a comprehensive CI policy includes children as standard, in the event they become critically ill or seriously disabled.

It was also found that parents in the West Midlands were most aware about whether their CI policy covered their children (56%), while just 10% of those in the East Midlands were certain.

If you have children and are in any way concerned about whether your existing policy would cover them if needed, please do feel free to get in touch.

As always , thanks for your attention.

Mark ( mark@themortgagemonkey.co.uk)

The end of interest only borrowing ?

Interest-only mortgages are set to disappear as a major high street bank restricts access to home owners.

Santander has become the first major high street bank to insist that home owners need a 50pc deposit – or 50pc equity in their home – if they want an interest-only mortgage.

This move not only affects those buying a property, but will also hit existing borrowers who are moving home. If their current home loan breaches these new rules they will have either to switch to a repayment mortgage or to pay off a significant slice of their debt.

 Before the credit crunch interest-only mortgage deals were particularly popular with first-time buyers looking to get a foothold in the housing market, as the monthly repayments were lower when compared with borrowing the same amount on a repayment basis. This enabled some buyers to effectively borrow more.

 Since then, most lenders will allow homebuyers to borrow only up to 75pc of the property value on an interest-only basis.

This is a significant move, and we are likely to see other lenders tightening their criteria. This move will no doubt force others to review their policy.

This won't just hit the more reckless borrower, who doesn't have any repayment plan and is simply banking on house price inflation to enable him to pay off this debt. It will also hit those who have taken a more informed decision and have a repayment plan in place.

 Mark Harris, the chief executive of SPF Private Clients, said: "This sets a precedent. There is a danger that other lenders might follow suit, leading to the end of interest-only borrowing as a realistic option for the majority of borrowers. Yet interest-only borrowing is not necessarily reckless, as long as the borrower has a repayment strategy in place."

Other high street banks have become far stricter on what they consider to be an acceptable repayment vehicle. Relying on a future inheritance, pay rise or an increase in house prices is often not deemed suitable. Even investment plans, such as equity Isas, may not be considered satisfactory.

Barclays, for example, will consider equity Isas, but its calculations assume there is zero growth on the plan. In addition customers have to have been contributing for 12 months before taking out the mortgage.

Bank of England to determine shape of mortgage market ?

Tough new rules to ban unsustainable mortgages and prevent another housing bubble are to be handed to the Bank of England, the Chancellor signalled last night.

George Osborne told MPs the Bank of England was set to win powers to vary what mortgages customers can buy to prevent overheating in the housing market.

A new Financial Policy Committee at the Bank would be able to set loan-to-value ratios on mortgages to burst credit bubbles before they become too big.

This could mean that when house prices are soaring, buyers could be forced to put down large deposits - for example, around 25% of a home’s value - before being approved for a mortgage by banks or building societies.

 But the Bank would also be able to intervene when the economy is in the doldrums, encouraging more attractive mortgage packages that would require deposits of only 5 or 10%.

As always , thanks for your attention.

Mark (mark@themortgagemonkey.co.uk)

Britain is a nation of animal lovers...and insurers?

People living in the UK would still rather insure their pets than themselves or their loved ones.

Although parents are more likely to buy protection, almost two-thirds (60%) do not have any cover in place.

The research found that less than one in ten (9%) people have bought critical illness (CI) protection, while 12% have pet insurance.

One fifth of parents said they would have to rely on savings if they needed money for medical treatment or to fund time off work.

Less than half the respondents (42%) were prepared to pay up to £20 a month for cover; 15% willing to pay £5 a month, 17% £10 a month and 10% £20 per month.

The findings are similar to those published last year which revealed people were twice as likely to insure pets as they were to protect their income.

It's clear though that parents are willing to pay to protect themselves and their children for a reasonable monthly amount.

When it comes to insurance , something is better than nothing , and a small amount of critical illness cover can be taken out for the same monthly outlay as a pet insurance policy, and will provide a vital support at a time of need.

State should pay benefits to match mortgage rates

Lenders are urging the government to pay out Support for Mortgage Interest (SMI) to reflect borrower's mortgage rates and save around £26m a year or almost £40m with a cap of 1.5%.

Borrowers are eligible for SMI  if they are on income support, jobseeker's allowance and pension credit , and can claim payments to cover their mortgage interest at a flat rate of 3.63%, with all payments paid direct to the lender.

The Council Of Mortgage Lenders (CML) has also proposed in the case of overpayments, any extra money should be credited to the borrower's account, instead of the lender's.

The trade body advised the government the £200,000 qualifying level and the 13-week waiting period for entitlement to benefit should be maintained.

The CML also expressed an opinion that payments should continue to go directly to lenders, instead of benefit claimants to avoid further missed payments.

A two-year limit on payments of SMI may be appropriate for benefit claimants of working age, said the CML, and to help recover costs of paying SMI to elderly or long-term disabled claimants it accepts the principal of placing a second-charge on the property.

New-build 95% mortgage indemnity scheme to extend to all UK buyers

The mortgage indemnity scheme originally intended for first-time buyers is to be extended to all UK buyers of new homes at up to £500,000.

Housing minister Grant Shapps has renamed the scheme New Buy Guarantee, and it is to be launched officially in March.

The NewBuy Guarantee scheme is welcome news for aspiring home owners, significantly reducing the deposit needed to buy their own home by around 75%.

On a home worth £120,000, buyers would only need a deposit of around £6,000 rather than as much as £24,000. In this case the £18,000 reduction could mean the equivalent of around three years of hard saving for a couple, both earning the average UK wage.

The Scheme mirrors the previous Home Buy Direct scheme but the equity share provided under New Buy is a combination of Government and House builder assistance. The scheme typically will offer successful applicants an equity loan as a deposit of up to 20% of the value of a new build property (maximum value £280,000). This deposit will be funded by the Government (10%) and House builder (10%).

You may still need to have 5% of your own in some instances to use the more mainstream lenders (High street names) as they will lend up to 75% of the purchase price, but it very much depends on the mortgage products available at the time.

It is perhaps a pity that the scheme could not be widened to existing housing as we believe this new initiative from the Government could help those disadvantaged by tougher lending rules realise their dream of moving up the property ladder.

For those who perhaps did not wish to do this scheme , we are currently able to offer 95% on new build properties which is only open to a very limited number of brokers of which , I am pleased to say , we are one.

As always thanks for your attention.