New Mortgage Rules Could Derail House Price Recovery

mortgagesTough new mortgage rules are expected to cut the number of buyers enough to cause the housing market to stall over the summer, UK property experts have warned.

The new rules, introduced by regulators under the Mortgage Market Review (MMR), mean that borrowers will now face intrusive checks on their income and spending habits. Lenders are also testing whether borrowers are able to cope with increased repayments in the case of rising interest rates. Consequently, many new buyers and even existing borrowers wishing to remortgage are expected to have their applications rejected.

The Government’s controversial Help to Buy scheme has been criticised by some for increasing the demand for properties and pushing up prices, allowing buyers with as little as a 5% deposit to access mortgages. Whatever the cause, the latest figures from the Office for National Statistics report that the average UK house price rose to £253,000 in February, up 9.1% over the previous 12 months, with most regions seeing strong year-on-year growth in property prices. In England, prices are now higher than the pre-financial crisis peak of January 2008, with London seeing the largest growth: the average home in the capital now costs £458,000, up 17.7% over the year to February.

Under the new rules, lenders will be responsible for assessing whether buyers can afford a loan, regardless of their deposit. Consequently, lenders have developed affordability questionnaires that ask what some might consider intrusive questions, including whether a borrower gambles, has ever taken a payday loan, regularly eats out or has pets or any expensive hobbies. Some are going further, asking how much applicants spend on haircuts, cleaning products, eye-care, and parking. In fact, many go as far as to ask whether borrowers are planning any major life changes that could impact on their income such as starting a family or becoming self-employed.

Lenders are also applying more rigorous stress tests to ensure borrowers will be able to afford their loan when interest rates rise, with the particularly cautious assuming rates will reach 6-7% in five years’ time. Such an increase would require borrowers to have a considerable cushion in their disposable income to show they will be able to meet their repayments in the future.

And it’s not just new borrowers who will face the tough new tests. Existing customers who want to remortgage or move their loan to a new property are likely to be caught out and could find they no longer qualify. Although many mortgages were sold with assurances that they could be moved – or ported – to a new property midway through the loan, and in spite of new MMR rules stating that existing borrowers will only need to be put through the new affordability requirements if they want make changes such as increase their borrowing or change the length of their loan, some lenders will be applying the tests to people who simply want to move house.

Problems are likely to arise because many existing borrowers would not qualify for their mortgage if they were reassessed under the tough new affordability tests, even if their income had improved or they were moving to a cheaper property. These borrowers could be the next group of “mortgage prisoners”. Many are likely to be told they cannot afford their lender’s most competitively priced loans, and forced onto the expensive standard variable rate.

These tough new mortgage affordability tests could be in danger of killing off the boom in UK property prices as lenders reject thousands of borrowers who would previously have been accepted. Both executives within the lending industry and economists alike, have warned that the impact of the new rules, devised and enforced by the new City regulator, the Financial Conduct Authority, could be enough to strangle a nationwide recovery in the property market. Figures published yesterday by the British Bankers’ Association showed mortgage approvals have already started to fall back, reaching a four-month low in March

Off Plan Properties: a Seducing and Flexible Investment

Buying off plan not only offers a convenient way to maximize investments whilst properties are still being built, but it is also possibly the best way to get the location and specifications you want. And as the processes of property design and construction increasingly make use of cutting edge imaging technology, those buying off plan can now see and plan their properties in three dimensions even before the foundations are laid. If buying off screen doesn’t get you excited, the possible returns might clinch the deal.

Off_PlanA leading financial centre and tourist destination, boasting the world’s largest city airport system, the largest concentration of higher education in Europe, and the first city to host the Summer Olympics three times, London has a well-deserved international reputation. But the tag “Major World Capital” rarely comes without its price. In general terms, if you live in the UK, the closer you live to London, the higher the cost of living. While Britain may be in the early stages of recovering from the global economic crisis, house prices are on the rise once again, nowhere more so than in London. Whilst buying a property in the capital is still out of reach for many, for those looking to invest, it continues to be an attractive prospect; with a market in growth, off plan properties can offer outstanding returns. In addition, many investors enjoy the chance to take part in the often-rewarding creative process of designing their dream house, whether buying for themselves, re-sale or to let, investing in off plan property can meet a variety of demands.

Like all investment, buying “off plan” comes with its risk and pitfalls, some specifically linked to the incomplete nature of the property when sale is agreed. There are many advantages though, not least when it comes to financing a deposit. Typically, you can buy off plan with as little as a 10% deposit due before completion, and so on longer-term construction schedules, this can offer you up to four years to raise the capital. It is also common for developers to offer financial incentives to early adopters in the form of a discount, in some cases up to 10% off the asked price. Additionally, investors can benefit from property price growth during construction, after the price has been agreed and before the final sum, or any mortgage payments are due. In a rapidly rising housing market, property investors may achieve substantial capital gain. The figures are persuasive: 10% property price growth on a property reserved for 10% of its price returns 100% on invested capital. To maximize returns, off plan properties should be sourced in the highest growth area you can afford, preferably on construction projects at least one year until completion.

The reasons why people choose to investing in off plan property vary, with many buying as a medium to long-term investment, owing to the fact that completion may take a few years. Off plan properties can also be re-sold before completion of construction, if this becomes necessary or advantageous. One advantage to selling early is the avoidance of up to 4% stamp duty, which is due only for fully constructed properties. For those investors who decide to keep the property, however, the balance may be paid with a mortgage or their own funds and, quite often, is then rented out.

From a quality and aesthetic perspective, those looking for a home benefit also from having their say at every stage of construction. Indeed, investors are able to choose how they wish their finished property to look and feel: from the best views to their preferred fixtures and finish. Post-completion, those who have bought off plan usually benefit from a structural guarantee issued by the National House-Building Council or another similar organisation. New build homes are also easier to maintain, manage, rent out or sell. No wonder then, that latest research shows that as many as two in five of London ́s new-build homes are now bought off plan.

Better be Safe than Sorry: As you would expect, everything may not go plan or run to schedule, so when buying off plan it is advisable to get a specialised conveyancer to review the contract, investigate the potential impact of a value fall after exchange or what would happen if the developer goes bust. Keep routine visits to the site and make sure you have to hand a tearing survey before moving in.

Buying Privately – Why It Makes Sense

With house sellers’ asking prices lifting to record highs for two months in a row, and amid a poor supply of homes for sale in many areas of the South, is buying privately the answer?

New seller asking prices in England and Wales hit a new peak of £262,594 in April, up 7.3 per cent on a year ago, marking the fastest annual rate of increase seen since October 2007. So buoyant is the market that many popular locations are suffering from for sale sign “black spots” due to properties being snapped up within days of doing on the market. In London, asking prices are up by 15.9 per cent on a year ago typically and since 2007, London sellers have typically hiked their prices by more than the cost of an average home in the North West. And it’s not just the capital, prices are higher in every region across England and Wales than they were a year ago. It’s a sellers’ market again, but can buying privately help redress the balance in power?

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Buying privately puts you in control of the buying process and offers many advantages over the more common process of buying through an agent. Primarily, communication is direct and so tends to be quicker and less complicated; you can get immediate answers to your questions and an instant decision on any offers. Negotiations too, can be quicker and more simple, and by dealing directly with the vendor, you will be able to get quick and accurate updates of the sales process. In fact, in many ways, buying privately is much easier than buying through an estate agent, but more than ever, it is advisable to do your homework before attempting to buy a property without one.

Researching the market is key no matter how you decide to buy, but not just the listed prices on agency websites. Check the actual sale prices of houses in the area using sites like Zoopla, taking into consideration the readily available market statistics to calculate the most likely up-to-date figures.

Having already sold your home, or being a first time or cash buyer can put you in a strong negotiating position. Whether or not your offer is accepted may depend upon other factors and your own personal circumstances. Be sure to include this information when you make an offer, particularly if it is in your favour. It is also worth getting all the necessary information ready to go before you make an offer. Simple things that make you look well-organised and reliable, like supplying your contact and financial details promptly can make a difference.

Meanwhile, the Royal Institution of Chartered Surveyors (Rics) predicts that house prices will continue surging by around 6 per cent annually for the next five years, mortgage support schemes such as Help to Buy and improving consumer confidence have prompted more buyers to flood into the market in recent months, and London continues to attract strong interest from overseas investors. It seems like the sellers’ market is here to stay, but buying privately is one way to lessen the cost and stress of purchasing property, making it the right time to buy too.