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Mortgage advice for the self-employed

The growth of what’s been dubbed the ‘gig’ economy has led to more people joining the ranks of the self-employed and becoming small business owners. In the past, it could sometimes be more difficult for people who don’t have set employment and salary patterns to get a mortgage. However, times are changing and more lenders are adjusting their lending criteria to meet the needs of this growing group of workers.

LENDING CRITERIA

As a first step, you’ll need to make sure you have all your relevant financial documents to hand, and ensure that any information you provide in support of your application is clear and concise and suited to your lender’s requirements.

The good news is that, by and large, mortgage lenders are less likely to be concerned by what you do for a living, or how often you do it. What they will want to see is evidence that you are able to make your monthly repayments in full and on time each month. They will generally ask for accounts for the last two years, and you’ll need to be prepared to answer questions about any fluctuations or discrepancies in your level of income.

MAKING THE RIGHT MOVES

Having a good credit score will help. If you’ve had a financial hiccup in the past or don’t have a credit history, you might want to acquire a credit card and make sure you make repayments in full and on time, to demonstrate you can manage your money.

If you have set up your business as a limited company, you may well take a small salary and pay yourself a dividend. You’ll need to make sure that you provide details of both of these, so the combined total can be taken into consideration when assessing whether you can afford your monthly repayments.

The information contained in this article is purely for information purposes only and does not constitute advice.

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

15 June 2018/by motive

Home Finance, Investments, Mortgages, News

Later life mortgage borrowing has become standard practice for many

The mortgage landscape has changed in a number of fundamental ways over the last few years. Diverse factors such as the increase in house prices, students leaving university with larger debts, the trend towards couples buying their first homes and starting their families later in life, the ability to access pensions from age 55, are all having an impact on homeowners’ borrowing requirements and repayment patterns.

For the majority of us, our mortgage represents the biggest single financial commitment we are likely to make. Repaying it has a major impact on how we manage our finances. Over the last few years, more mortgages have been granted for terms in excess of the standard 25 years, not least because stretching the monthly repayments over a longer period can make them more affordable (although this does mean that the borrower will be paying interest for longer).

With house ownership proving a challenge for many young buyers, the average age at which they take on their first mortgage is more likely to be in their 30s. This means that many more borrowers will find themselves repaying mortgage debt well into their retirement years.

The amount of mortgage debt held by over-65s is set to double to about £40bn by 2030, according to a May 2017 study supported by the Building Societies Association.

KEEPING YOUR MORTGAGE UNDER REVIEW

If you are in the situation where your mortgage is likely to run on into your retirement, keep it under review. There may come a point where you may want to consider shortening the mortgage term if your finances mean that you can afford higher repayments. Alternatively, you might want to consider making overpayments to reduce the amount of mortgage outstanding. Getting good advice will help ensure that you manage your finances effectively, especially later in life.

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

23 May 2018/by motive

News

Two-thirds without life insurance despite health worries

A recent ‘Health, Wealth and Happiness’ report1 shows that poor health (29%) and concerns over family members’ health (24%) top the list of things likely to impact happiness, above the sudden death of a family member or friend (24%), terrorism (23%) and the impact of Brexit (17%).

Despite health worries topping the list of concerns expressed, 57% of respondents haven’t taken out life insurance, with a further 11% not sure whether they have or not. This is particularly worrying when you consider how many of these people are likely to be homeowners who have mortgages.

Life insurance can be a financial lifeline at a sad and difficult time, paying off a mortgage if the borrower were to die. Critical illness cover can pay out a lump sum on the diagnosis of a serious illness as defined in the policy.

HOW PROTECTION POLICIES HELP FAMILIES

Protection policies don’t just pay a lump sum on death or the diagnosis of a critical illness, they can also help provide an income for families hit by an accident, sickness and unemployment, help parents pass their wealth on to future generations, and can have a major role to play in Inheritance Tax planning too. A payout from a policy could make the difference between your loved ones facing a financial struggle at a challenging and emotional period in their lives, and being able to maintain the sort of lifestyle you would want them to enjoy.

INCOME PROTECTION

With state benefit provision representing merely a basic safety net, how would you pay the bills if you were sick or injured and couldn’t work? If the unexpected were to happen, how would you and your family manage financially? Coping with a long-term illness or injury can be stressful enough without the added pressure of money worries. Taking out an income protection plan offers peace of mind and security for your family, and means that you would receive a regular replacement income every month for a defined period of time.

PEACE OF MIND

With so many different types of policy available it can be hard to know which one is right for your circumstances and offers the best value for money. That’s where we can help.

1 LifeSearch, 2017

23 May 2018/by motive

Home Finance, News, Pensions

Equity release topped £3bn in 2017

Many people approach retirement owning a family home and want to benefit from the cash tied up in what’s probably their biggest asset. For some, the thought of downsizing and moving in later life to release cash is too daunting to contemplate. An equity release plan allows you to turn some of the capital value of your home into cash, without having to sell up and move away.

For those reaching retirement, equity release continues to be a way to top up their income, carry out home improvements, have a holiday of a lifetime, or pass on capital to other family members. In 2017, more than £3bn was released, according to figures from the Equity Release Council.

Lifetime mortgages – a type of equity release – have a seen a major surge in popularity amongst older homeowners, and have become the fastest-growing sector of the mortgage market.

Independent professional advice is essential; equity release isn’t the right solution for everyone. Releasing cash from your home reduces the value of your estate and the amount of inheritance you leave, so you should discuss it with your family.

Think carefully before securing other debts against your home. Equity released from your home will be secured against it.

20 May 2018/by motive

General Insurance, Home Finance, News

Airbnb – Implications for home insurance

Airbnb is an amazing business success story – there are now more than four million homes listed around the world. But homeowners who list their property on Airbnb or similar sites need to think carefully about their insurance position, as when they have a tenant in their property, they may not be insured under the terms of their cover.

Typical contents insurance won’t necessarily pay out if you make a claim on damage caused while your property was being let out. So, if you’re already a host on Airbnb, or thinking of joining the network, then you will need a comprehensive insurance policy that specifically allows you to rent out your property for periods of time, or covers you if you have tenants who sublet.

Airbnb do provide what they call a host guarantee, but make it clear that it isn’t an insurance policy and they recommend that you take out your own separate cover. There are now new top-up policies on the market to protect hosts. They provide cover for homeowners, tenants and landlords who let rooms, annexes or whole houses, and some allow you to increase your cover on a short-term basis.

In addition it is vital that homeowners considering letting a room or property in this way, seek consent from their mortgage lender first, restrictions may apply.

15 May 2018/by motive

Home Finance, Housing Market, News

First time buyers use stamp duty savings to cut mortgage costs

Low mortgage rates, high levels of employment and government schemes, such as Help to Buy, are all helping first-time buyers enter the housing market.

The recent abolition of Stamp Duty for a majority of first-time buyers looks set to provide additional help by reducing the upfront costs associated with making a first home purchase.

STAMP DUTY CHANGES

Except in Scotland, Stamp Duty was abolished last November for first-time buyers on homes worth up to £300,000. Particularly to help those buying in very high-priced areas such as London, a stamp-duty exemption is in place on the first £300,000 purchase price on properties valued up to £500,000; the additional amount up to £200,000 will incur 5% duty.

From April this year, property Stamp Duty matters in Wales will, as in Scotland, be devolved. The above concession will then cease to apply in Wales, but the new Land Transaction Tax there will have a £180,000 threshold for all purchases, not just those of first-time buyers. The Scottish Government has proposed a higher £175,000 (from £145,000) Land and Buildings Transaction Tax threshold for firsttime purchases as from 2018-19.

The government’s decision in November has had a mixed reception. Many believe that it won’t have a material impact, and some have warned that it will drive up house prices, leading to first-timers paying more for their houses than they are likely to save. A spokesman from the Number 10 press office defended the change in Stamp Duty, claiming in early January that 16,000 first-time buyers had already made a saving of up to £5,000 as a result of the cut, and estimated that more than 1m more would stand to benefit over the next five years. They also said that 80% of all firsttime buyers will pay no Stamp Duty under the rule change.

Those purchasing a £300,000 property are set to save the most, benefiting by £5,000. First-time buyers of more costly homes up to £500,000 see their Stamp Duty lowered by £5,000. However, there are also substantial worthwhile savings to be made on less expensive homes. Purchasing a property worth £208,000, the average price paid by a first-time buyer, would previously have given rise to a Stamp Duty payment of £1,660, but a first-time buyer will now be able to save this amount.

MORE HOUSING STARTS NEEDED

Some commentators have been quick to point out that the move doesn’t tackle the major issue which is the UK’s chronic housing shortage. The government has announced a series of measures designed to fix what they see as “the broken housing market”, and freely admits that at least 300,000 new homes are needed every year to keep pace with demand.

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

30 April 2018/by motive

Home Finance, Housing Market, News

More homeowners climbing the ladder

There’s some better news for those who are looking to

make their move up the housing ladder. Second-steppers, as they are often referred to, are mostly couples and young families seeking to move on from their first home to somewhere bigger.

Figures from Lloyds Bank1 show that more than 370,000 homeowners were able to step up the housing ladder and purchase their next property with a mortgage in 2017, the highest recorded figure for the last ten years. The only region to record a fall in the number moving up was Greater London.

Homeowners ready to take their second or subsequent move have found it easier lately, thanks to a combination of factors, including low mortgage rates, high employment and the equity they have accumulated in their first home.

Strong house price growth has led to many second-steppers being in the happy position of having substantial equity in their homes.

This often means that they can afford to put down a bigger deposit on their next property, helping to get a better mortgage deal.

A LITTLE HELP FROM THE BANK OF MUM AND DAD

According to Lloyds, the difference in price between a typical first-time buyer’s

home and their next purchase is around £126,000. Their research found that on average they have £105,000 in equity from the sale of their first home, leaving a funding gap of around £21,000. It’s at this point that parents and grandparents often step in and help.

MAKING THE NEXT MOVE

In order to get more living space, second-steppers are adopting a number of buying strategies. Many are moving out of larger towns and cities to areas that are potentially less fashionable, but are less expensive. Some are actively seeking homes that they can extend to get the living space they need.

Multigenerational homes are becoming more common too, with families pooling their resources to buy a home that can accommodate them all. This has the benefit of allowing older homeowners to release equity that they can then share with their children, and younger families get the space they need to grow. Homes with annexes or with potential to be split in two can work well, as both generations get to retain their privacy and independence.

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

1 Lloyds Bank, Jan 2018

9 April 2018/by motive

Housing Market, Mortgages, News

Borrowing age elevated by extra-long mortgages

The traditional 25-year mortgage may soon be a thing of the past as many firsttime buyers are choosing loan terms of 30, 35 or even 40 years. Data from estate agents Countrywide1, shows more than one third of mortgages taken out in 2017 are unlikely to be repaid until after the borrower has turned 65. This trend means more mortgages could extend beyond the current state pension age, in some cases up to age 85.

The Financial Conduct Authority urged lenders to be more innovative in their approach to the needs of older borrowers. An increasing number of lenders are now prepared to grant mortgages for a maximum term of 40 years, softening their attitude to lending that extends well into a borrower’s retirement years, providing that they can meet the necessary affordability tests.

STRESS TESTS

Getting a mortgage has become more difficult since the introduction of rules designed to “stress test” a borrower’s ability to comfortably make mortgage repayments if interest rates were to rise to at least 3% higher than those offered on their loan. By extending the term of the mortgage, borrowers can stand a better chance of getting their application accepted as their monthly repayments could be more affordable, although they will pay more interest as a result.

However, having a mortgage more than the standard 25 years could give rise to other problems. The longer the period of the borrowing, the greater the likelihood that the borrower might encounter unexpected problems like ill health. There is also the risk that long-term mortgages could leave borrowers with large debts to pay off in the run up to retirement and beyond.

Whilst longer mortgages can be an advantage in the early years, it makes good sense to regularly review your deal. That way, you can ensure that your mortgage keeps in step with your financial circumstances.

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

1 Countrywide, 2017

19 March 2018/by motive

Home Finance, News

How to add value with a home renovation

The continuing rise in property prices has also fuelled a sharp increase in homeowners extending their properties with a view to adding value. In the year to June 2017, 197,000 people in England obtained planning permission to improve their homes, with a further 23,700 adding extensions under permitted development rights1. The figures suggest that, on average, one homeowner was extending or improving their property for every five who were buying a home.

ADDING SPACE

How much value you can add by updating the kitchen, the bathroom or adding another bedroom, will of course, depend on a variety of factors, including the type and location of the property. Research by a major insurance broker2 shows that converting a single garage into a room could add as much as 20% to your home’s value, and building a loft extension could add around 15%.

A conservatory provides extra space, although it will restrict the size of the garden. Unlike an extension, it won’t usually require planning permission as long as it doesn’t cover more than half the area of the land occupied by the original house (your local council planning department can advise). Having one could add around 7% in value.

Basement digs have also become popular over the last few years. However, they are usually only undertaken where house prices are so high that the value they add covers the cost of the work.

AFFORDABLE WAYS TO ADD BUYER APPEAL

Even simple make-overs, like painting and decorating the exterior and tidying the garden, could result in a 10% rise in value.

If you don’t have the budget to completely renovate your kitchen, replacing the worktops, cupboard doors and flooring can make it more attractive to buyers. In the bathroom, a new suite can make a big difference, but if funds are tight, simply replacing taps, painting walls and cleaning the tiles can improve its appeal.

1 Savills, 2017

2 Towergate Insurance, 2017

7 March 2018/by motive

News, Protection

Protecting your family’s future

When making their Wills, many parents appoint relations and close friends who would act as the guardians of their children in the event of their deaths. Although anyone nominated to fulfil this important role would be gratified to be thought of as worthy of carrying it out, it’s important to remember that there could be all sorts of financial implications for both them and their families.

PLANNING FOR THE FUTURE

If family members had to step in and look after the children, they would need to have sufficient financial provision in place to be able to do so. If, for instance, a guardian lives in a different part of the country, they might have to move both house and job to look after the children’s needs. As any parent knows only too well, raising a family is a life-affirming experience but it can also be very expensive.

POLICIES TO PROVIDE FUNDS

This is where life cover comes in. It can provide the funds necessary to ensure that a family’s needs are protected, and they can enjoy the sort of lifestyle you would have provided had you still been around. Life cover provides a payout on death that can ensure that families don’t face financial burdens at a difficult time. Critical illness cover provides funds if you are diagnosed with a serious illness. Income protection can enable you to pay off loans and maintain your standard of living if you have an accident or illness that means you can’t work.

HOW WE CAN HELP

We’re always on hand to help you choose the most appropriate protection policies based on your needs. We know the life insurance market well, and can save you hours of internet searching and calls to insurance companies for quotes. We help make the process far less stressful and time-consuming, and you won’t be charged a fee for this service; we’ll be paid by the companies whose policies we recommend.

22 February 2018/by motive

LENDING CRITERIA

MAKING THE RIGHT MOVES

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