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The impact of humble mortgage overpayments

If you’ve ever wondered whether it’s worth making overpayments on your mortgage, then new research1 could help you decide.

The data shows the benefits of a monthly £10 overpayment with interest rates at their current low level and illustrates that even modest overpayments can make a difference to the day when borrowers become mortgage free.

If a borrower took out a £200,000 mortgage over a 25-year term, they could save £1,146 in interest (based on current rates) and become mortgage-free four months earlier. By making a £100 overpayment each month on a £200,000 mortgage, a borrower could save £9,948 in interest and reduce their mortgage term by three years in the process.

Those with a £500,000 mortgage, making the same £100 overpayment, could save over £10,000 in interest and become mortgage-free one year and five months earlier.

Don’t forget to save too

Whilst these figures show that modest levels of overpayment can prove effective, it’s important to remember to keep some savings aside for rainy day events such as unexpected bills and expenses.

1Santander, 2018

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

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Shared ownership and tax relief

Shared ownership involves buying a share in a property and renting the rest. It’s a cost-effective way for first-time buyers to get a toehold on the property ladder.

The Chancellor’s 2018 Budget included plans to correct an anomaly from his previous Budget by cutting stamp duty for first-time buyers of shared ownership properties worth up to £500,000.

And there was more good news. The Chancellor applied the relief retrospectively from his 2017 Budget to shared ownership properties bought in England and Northern Ireland. Searching Stamp Duty Land Tax on www.gov.uk gives details of how to contact HMRC if you’re entitled to a refund.

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What you need to know about retirement mortgages

Whilst much is often made of the plight of first-time buyers, a lot less attention is generally paid to older borrowers who are looking for the right type of mortgage product for their needs.

However, banks and building societies are increasingly aware that borrowers are living longer and want to borrow for longer too. Many are developing new ways to support their borrowers, whatever their age.

For those looking to borrow to fund home improvements, travel the world or help a family member onto the housing ladder, there are now more options available. If you’re an older borrower looking for a mortgage, it makes sense to work with us. We know the market well and can recommend the right deal for your circumstances.

Lifetime mortgages

These are loans that are secured against your home that allow you to release some of the equity, the cash value you’ve built up in your home. Lifetime mortgages, also known as equity release mortgages, are available to those aged 55 and over. The mortgage loan and the accumulated interest is paid off when the last surviving owner of the property dies, sells the home or goes into long-term residential care.

Retirement interest-only mortgages

These are similar in many ways to standard interest-only mortgages and let you pay interest on the loan each month. There is no set end-date, and as with a lifetime mortgage, the loan is redeemed when you die, go into care or sell the property. Unlike equity release mortgages, borrowers are required to pass affordability checks and show that they have sufficient income to be able to make regular interest payments for life.

Good advice pays

Those who have a regular secure income may find a retirement interest-only mortgage applicable to their needs. A lifetime mortgage might be more suitable for those who aren’t in receipt of a secure income, or don’t want to make regular mortgage payments for life. As everyone’s circumstances are different, good advice is essential.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

Think carefully before securing other debts against your home. Equity released from your home will be secured against it. Your home may be repossessed if you do not keep up repayments

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First-time buyers need 13 times their salary to buy a home

Despite signs that the housing market is slowing down, especially in London, house prices have remained high due to the shortage of supply. This has meant that affordability has continued to be a major issue, especially in the south of the country.

Figures from the Office for National Statistics show that first-time buyers in London need to spend 13 times their earnings (based on full-time median gross salary) to get on the housing ladder, whilst in the North East the figure is five-and-a-half times earnings.

One in seven will be paying their mortgage at 70

With more people getting onto the housing ladder later in life, many homeowners are facing the prospect of paying their mortgage out of their retirement income or continuing to work into their old age. Recent research indicates than one in seven will still be paying their mortgage at the age of 703.

With more lenders providing a greater choice of later life mortgages, older borrowers could find that there is a better mortgage option available to them, so taking professional advice makes sense.

3Aegon,2018

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments

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How interest-only mortgages have evolved

Before the financial crisis in 2008, many borrowers opted for an interest-only mortgage. This was a cheaper option for them, as they only paid interest each month. Borrowers were expected to have adequate plans in place to repay the capital at the end of the mortgage term, as was the original intention with endowment mortgages. Lending wasn’t as tightly controlled at that time, and it subsequently became clear to the government and the regulators that some of these loans were at risk, as borrowers didn’t actually have sufficient resources to repay the capital when it became due.

Changes in affordability criteria

Lenders have become increasingly aware that some people with interest-only mortgages that are due to mature over the next few years are likely to face difficulties. They are engaging with them and providing information on alternatives such as repayment or lifetime mortgages (a form of equity release) in order to avoid the risk of borrowers defaulting and having to sell their property in order to repay the loan.

In 2014, the Financial Conduct Authority’s Mortgage Market Review introduced new criteria on lending risk and mortgage affordability. As borrowers were now subjected to more rigorous checks, interestonly mortgages became much rarer.

More lenders returning to the market

Several mortgage lenders are now offering interest-only mortgages, taking the view that there is nothing wrong with the concept, as long as the borrower can show that their application is backed up by clear plans to repay the capital. Borrowers who are likely to be granted this type of mortgage are older, with larger deposits and higher incomes, with assets available to repay the loan.

If you would like to know more about interest-only mortgages, or are considering your repayment options on an existing interest-only mortgage, get in touch.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

Think carefully before securing other debts against your home. Equity released from your home will be secured against it. Your home may be repossessed if you do not keep up repayments.

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Why the cheapest mortgage deal may not be right for you

Buying a house involves making lots of choices, and some can be simpler to make than others. Finding the right house in the right location can be the easy part, choosing the best and most suitable mortgage deal for your financial circumstances can prove to be more of a headache.

There are hundreds of different mortgage deals available in the market, so how do you know which one represents the best deal? The market is very competitive and if you aren’t familiar with the way it works it can be hard to understand what is on offer.

It’s hardly surprising then that so many people are choosing to work with a mortgage adviser to ensure they get the mortgage that’s best suited to their needs. Taking out a mortgage and buying a property is a big responsibility, and it can be a stressful time. So, it helps to work with someone who shares your commitment in making it all go as smoothly as possible.

HOW TO GET THE BEST DEAL

Like properties, mortgages come in all shapes and sizes. There are many different types to choose from (fixed, variable, tracker, and that’s just for starters). You’ll also find that lenders offer mortgages with different interest rates that can be fixed for various time periods. There are also special deals on offer that include extras such as survey fees, legal costs or cashback arrangements.

Looking just at the interest rate that’s being charged can be misleading. Although a low rate can look enticing, you also need to check out what the fees and charges are as these could be high, meaning you’ll end up paying more which could make the deal less cost-efficient.

GETTING GOOD ADVICE PAYS

Working with us will save you time, money and stress. We will be able to compare the deals available from various lenders, taking into consideration things like fees and charges that will affect the overall cost of your mortgage. We will ensure that your mortgage application goes to the most appropriate lender. What’s more, we are on hand from start to finish and can provide help with many aspects of the house-buying process, like getting your offer accepted, finding solicitors and organising property surveys. You’ll also be able to get good advice about putting protection policies in place. These are designed to provide financial safeguards that mean your mortgage would be paid if you experienced one of life’s unexpected events.

So, if you’re a first-time buyer, secondstepper, re-mortgager or would-be buyto- let landlord looking for professional mortgage advice, why not put us to the test?

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

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Homeowners choosing to improve rather than move

Once upon a time, homeowners moved four times after their first purchase; now it’s more like twice. New evidence suggests that in England and Wales, many more of us are putting down roots and choosing to stay in our current homes for longer.

Research1 carried out by Dr Ian Shuttleworth of Queen’s University Belfast points to a major cultural change, and highlights that at least a million fewer people moved between 2001 and 2011 compared with 1971 to 1981.

Staying put and renovating

This trend is borne out by recent research from insurer Hiscox2. They have identified a five-fold increase in the number of homeowners who have chosen to renovate their existing home in the last five years. The choice to renovate rather than move is likely to be influenced by a range of factors such as the continued rise in house prices in some regions, predicted rises in interest rates, the additional costs such as stamp duty, the lack of suitable property on the market, tighter mortgage lending criteria and the economic uncertainty that arose after Brexit. In addition, in some parts of the country property prices have hardly moved, meaning that families can find themselves held back because they have made little or no profit on their existing home.

In 2013, the research2 showed that just 3% of homeowners chose to improve as an alternative to moving, but five years later, this figure has risen to 15%. Local council figures show that requests for planning permission have risen by 29% in the last ten years.

Outwards and downwards

People are increasingly looking to adapt their property to meet their changing needs, with an extra bedroom high on the agenda of many families. Unsurprisingly, loft extensions head the list of alterations having increased the most, up by 114%. As reports in the media have highlighted, digging out basements to create extra accommodation is becoming increasingly popular, especially in fashionable parts of London.

1Queen’s University Belfast, Fewer people moved house in the ‘00s than the ‘70s, 2018

2Hiscox, Renovations and Extensions Report, 2018

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Mortgage options for the over 55s

Following the Mortgage Market Review in 2014, banks and building societies were required to adopt stricter lending criteria and affordability checks, and as a result many lenders restricted both their maximum borrowing and repayment age.

FACTORS TO TAKE INTO CONSIDERATION

Whatever their age and circumstances, older borrowers will need to go through the usual checks to ensure they can afford to make their monthly mortgage repayments. They will need to show proof of income and declare all outgoings, including any debts.

Lenders will need to consider issues that could affect an older borrower’s income, such as their state of health, and in the case of joint borrowers, what would happen to their finances if one of them were to die.

On the other side of the coin, older borrowers can often be free of other commitments that can burden younger borrowers – they are further into their careers and probably earn more, their children may have left home, and many may have already come into money through a family inheritance. Plus, it can be easier for a lender to assess whether a loan is affordable in the case of a potential borrower who is in receipt of a pension, as opposed to one who is likely to retire half way through the mortgage term.

TAKING ADVICE IS KEY

Getting advice from a mortgage adviser can really help. We know the lenders in the marketplace and the criteria they operate under, and so are able to ensure that your application goes to one that caters for your specific mortgage needs.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

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How can you pay for a mortgage if you lose your income?

Losing your income can be a major financial upset. However, there are policies designed to protect your income in this situation, giving you valuable peace of mind.

Income protection

These policies are designed to replace a proportion of your income should you be unable to work due to an accident or illness. You can also get policies that will cover you if you are made redundant, although these will cost more. Long-term income protection will cover you until you reach retirement, while shorter-term income protection policies are cheaper and will only pay out for a set period of time.

Mortgage payment protection

This will cover your loan repayments for a set period, generally up to two years if you lose your job or have an accident or illness which leaves you unable to work.

Critical illness cover

This pays out a lump sum if you develop one of a range of serious medical conditions listed in the policy. The conditions covered are very specific and normally include certain types and stages of cancer, strokes and heart attacks, but each policy is different. It can be bought alongside life insurance or separately.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

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Why mortgage protection insurance makes sense

Life can be expensive these days. The list of bills families have to pay is a long one and it soon adds up; there’s the mortgage, council tax, food and energy bills for starters. And then there are often credit card bills, personal loans, transport costs, holidays and perhaps school fees too.

So, if your children, partner or other relatives depend on your income to cover the cost of paying the mortgage, then it makes financial sense to think about the protection and peace of mind that a policy could provide. Being able to claim on a policy could mean the difference between your family struggling to make ends meet and being financially secure. Despite this, many of us simply don’t have any protection policies in place, which is sometimes hard to grasp when you think how vulnerable we all are to ill-health and accidents.

YOUR POLICY OPTIONS

There are various kinds of policies to choose from. Term insurance pays out when the policyholder dies within a set period of time. Term policies come in different forms, such as level term insurance, where the amount of cover remains constant throughout the policy. Decreasing term insurance, where the amount paid out reduces over the term, is often taken out alongside a repayment mortgage, with the sum assured reducing along with the outstanding mortgage debt.

Whole-of-life policies provide cover that lasts a lifetime. This type of policy doesn’t normally have an end date, so premiums are generally paid until you die, at which point the policy will pay out (sometimes premiums end at a certain age, but the cover continues until death).

Some families might need the security of a regular income in the event of the death of a breadwinner; a family income policy which provides a monthly tax-free payment until the end of the agreed term is a good way of securing this.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

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Phone: 01483 750575 | Email: enquiries@oakhillifs.com

Oakhill IFS Ltd is registered in England and Wales no. 3864703. Registered office, 94 Kingsway, Woking, Surrey, GU21 6NR.

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