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Miles Bradley

Mortgage Market Volatility: Your Questions Answered

Mortgage Market Volatility: Your Questions Answered 1920 1080 Kind Financial

You may have heard a lot in the news about mortgage lenders withdrawing their products or changing their rates.  This may have caused you some concern if you are currently in the middle of a mortgage application or if you are unsure how it may affect your current mortgage.  We hope the following information will ease your concerns.

Homemovers & Remortgages

My mortgage application has already been submitted; will I receive the interest rate I applied for?

If you have not yet received your mortgage offer but your application has been fully submitted, then your mortgage lender should honour the deal. This will be dependent on your lender having received all the required proofs of income and documents they may have requested from you, so it will be important to make sure you have provided everything your adviser needs as soon as possible.

I have received my mortgage offer from the lender, will they honour it, or will they revoke my offer now that the rates have increased?

Once your mortgage lender has approved and sent you the mortgage offer, it is binding, and the rate offered stands as per the terms of your mortgage offer document. For residential mortgages, these are regulated mortgage contracts and the lender cannot withdraw that mortgage offer unless you have breached any of the terms detailed in the offer, for example, if your circumstances have changed, such as you’ve left your employment and no longer have the same income to support the mortgage.

For Buy to Let mortgages, these are unregulated mortgages and although it is unlikely that a lender would revoke an offer, a Buy To Let mortgage offer is not binding on the lender.

Why are mortgage rates changing so quickly and why are lenders stopping lending?

Mortgage lenders themselves borrow money, in large-scale tranches, to fund their mortgage products. The interest rates they charge customers for their mortgage products are priced on the cost of the money they have borrowed.

The Bank of England base rate, amongst other factors, is affecting the cost of the lenders’ funding so erratically that the borrowing rate they are charged is changing daily and even hourly in some cases. What this means is, when the lender has used up the current amount they have borrowed and offered mortgages at a certain % fixed rate, they then go back to the wholesale market to borrow more but the price has dramatically changed, meaning they need to reprice their mortgage products accordingly.

Lenders cannot provide mortgage products at a rate that is less than the cost they are borrowing the money, so they then need to withdraw their mortgage products from the market, often at very short notice, and increase the rate.  Otherwise, the lender could be in a situation where they are providing mortgage products at a lower rate than they are paying to borrow the money themselves.

Due to the work involved in processing the huge number of applications they receive as well as needing to reprice all their mortgage products, some lenders must stop lending completely to give them time to catch up on open mortgage applications and work on repricing products.

Existing Borrowers

My mortgage deal is coming to an end, what should I do?

There have been several reports in the news that mortgage lenders are withdrawing from the market, but this does not mean you will not be able to review your deal.  Mortgage lenders are not withdrawing permanently, rather they are withdrawing particular deals which they will then replace with a new rate.

Although the new rate is likely to be a higher rate than what you were on previously, your mortgage adviser will be able to help you review your mortgage needs and advise you of your options.

My mortgage deal will end next year, should I pay a fee to exit early and move onto a new deal now?

You may be concerned that when your mortgage deal eventually ends interest rates may be even higher than they are now. Although it can be daunting to not know what interest rates will be in the coming months there a few things to consider before deciding to secure a new deal early:

  • Your early repayment charge could be anything from a few hundred pounds to several thousand, depending on how much your mortgage balance is and how much time is remaining on your current deal.
  • If you plan to borrow money on your new mortgage deal to repay your early repayment charge, your loan amount will be increased, and you will be charged interest on a bigger loan than what you previously borrowed.
  • If your existing mortgage rate is lower than the current market rates available, for example, your rate is 2% and doesn’t end for another 12 months, then you will be sacrificing the lower rate early, paying an early repayment charge, and subject to the higher rate immediately, as opposed to remaining on your lower rate for as long as possible.

I’m currently on a fixed rate deal with my mortgage provider, which doesn’t end for another 9 months. Can my lender change the rate now?

No. If your rate is a fixed rate, then a lender cannot change your interest rate or your monthly mortgage payment. It is only when your deal is a variable rate that the rate can change.

I have a variable rate mortgage, what does this mean for me?

If you have a tracker rate mortgage, then the rate you are charged will change because the interest rate tracks the Bank of England base rate. In this scenario, your mortgage provider will always write to you to confirm the new rate and how this will affect your monthly mortgage payment.

Even if your mortgage is not deemed a ‘tracker’ mortgage, you may be on a variable deal. Although variable deals do not specifically track a base rate, variable deal interest rates are set by your mortgage provider and will fluctuate in line with market conditions. If your mortgage is on a Standard Mortgage Rate (SMR) or Standard Variable Rate (SVR) then it’s highly likely your interest rate will increase moving forward, so your mortgage provider will write to you shortly to confirm how this will affect your monthly mortgage payment.

If you no longer wish to remain on a variable rate then speak with your mortgage adviser who will be able to review your options.

If you have more questions or concerns, please get in touch with us.

Planning Your Remortgage - Analysis from Kind Financial

Planning Your Remortgage

Planning Your Remortgage 1920 1080 Kind Financial

Why it’s so important to plan your remortgage.

As we all know, interest rates are on the increase. However, when we look at the news it tends to focus on the Bank of England base rate. Whilst the Bank of England base rate is vital in controlling inflation and an indicator of what is going on in the wider economy, in reality, unless you are on a variable rate mortgage it’s not the most important driver in dictating your fixed rate.

Why are fixed rates going up?

At the moment there are two main drivers that are pushing interest rates up. Firstly it’s the swap rates. Swap rates are the rates at which banks buy and sell money between themselves. So when a lender offers a fixed rate at a specific rate for a period of time it’s because they know how much that money has cost them and they can work out how much to sell it to you in order to work out the profit margins. These rates are increasing and the reason for that is that uncertainty in the market and economy tend to push these rates up.

The other factor is the lenders’ appetite to lend. Lenders really do want to lend at the moment however the problem that a lot of them are facing is that due to a spike in applications and a shortage of staff they are really struggling to keep up with demand. What many lenders do when this happens is increase the rates in an attempt to become less popular with advisers like myself who will always be looking to get the best rates possible. However, if all lenders are suffering the same problem then what can happen (which we are seeing now) is that lenders are almost in competition to not be within the top 3 lenders as they know that will drive too much business their way.

All these factors are meaning that as a mortgage adviser I’m seeing emails on a weekly basis from multiple lenders putting rates up. This means that waiting for a week or two to arrange the remortgage of your property can have a significant impact on the rates available to you and the total cost of the mortgage over the next 2 to 5 years depending on what we recommend you do for the next stage of the mortgage.

With this in mind, it’s vital that anyone with a mortgage that is due to expire within the next 6 months begins looking to arrange a suitable replacement for your current rate as it’s likely to increase – but we can potentially limit the increase by securing you a rate at the earliest time possible.

Why 6 months?

The reason that we recommend looking at reviewing your mortgage at 6 months is that for most lenders the mortgage offer that they issue is valid for 6 months. What that allows us to do is secure the rate with the lender when we submit your application. The lender will honour that rate even if rates increase over that time because that was the rate when you submitted the application to them.

What if rates start reducing within that 6 month period while I’m waiting to switch mortgages?

At the moment rates are just going up and if that continues then it’s likely that you will have secured a rate lower than any currently available on the market however if we see rates start to reduce we can still potentially take advantage of this. Our options are to either apply to another lender or to request a new offer on the lower rate with the existing lender we’ve applied for. I would weigh up whether any costs or fees involved with this are worthwhile for the savings you would make but I keep a constant eye on rates and trends so would be able to tell you if we need to reconsider our options within that 6 months between the mortgage offer being issued and the mortgage completing.

What if rates reduce during my fixed rate period?

Once your mortgage completes and has officially switched over to the new fixed rate you would not benefit from any interest rate reductions. This is why it’s important at the beginning of our conversations about your remortgage that we discuss how long you want to commit to a fixed rate and all the benefits and risks involved.

In summary

If your current deal ends anytime within the next 6 to 7 months please do not hesitate to contact me to discuss as planning your remortgage could lead to large potential interest savings, dependent on circumstances.

Intergenerational Mortgages

Intergenerational Mortgages 940 788 Kind Financial

There has been lots of talk in the news recently about using 50-year or intergenerational mortgages to help younger people get on the housing ladder and reduce the gap between wages and house prices. However, mortgages already exist where a parent or grandparent helps the younger generation to buy a property.

The lenders have numerous ways of doing this and they tend to have slightly less catchy names and whilst useful they aren’t suitable for everyone. They are not usually offered by high street lenders which is why it’s important to speak with an adviser who understands the range of options available. Here are the mortgage tools that are currently available to us in order to advise on intergenerational mortgages…

Gifted Deposits.

Most lenders will allow a family member to gift them the deposit for their property. However, the family member needs to have the liquid assets for this, and they also must agree that it’s a true gift and can’t be paid back. The young person taking the mortgage still needs to be able to afford the mortgage in their own right.

Joint Borrower/ Sole Proprietor.

These mortgages are only offered by a handful of lenders, but they allow the mortgage to be in joint names but the property ownership to be in a sole name. This means that a family member could go on the mortgage to assist with affordability but would be able to avoid 2nd home ownership which can have implications for stamp duty and capital gains tax. The downside of these mortgages is that if that family member were to pass away then the loan might be unaffordable so I would always advise that life cover is taken if possible (depending on the age and medical history of the client it might not be). Also, some lenders that offer this take the age of the oldest applicant into account and this might restrict the term we can put the mortgage over and potentially make this unaffordable.

Family Assist Mortgages.

These come in many forms. Some allow a family member to deposit savings with the building society for a period of time and that allows the building society to offer a higher-risk mortgage such as a 95% mortgage. Some lenders take a charge on the property of the family member. These mortgages can in some cases offer better rates compared to a traditional 95% mortgage, however, this doesn’t really solve the problem of the person buying the property still needing to afford the mortgage in their own right and also still needing to find a 5% deposit which in some parts of the country can be a significant amount.

I feel that whilst I welcome any reform to the mortgage market that allows more people to buy their homes, I wonder if there is a way to support lenders to offer more of the options that we currently have.

Sabrina Hall

Bank of England Announces End of Affordability Stress Tests.

Bank of England Announces End of Affordability Stress Tests. 1920 1080 Kind Financial

The Bank of England has recently announced they are going to scrap the affordability stress tests that were put in place following a review of the mortgage market after the 2008 credit crunch. The timing of this announcement is very strange for a number of reasons, with many feeling that while the country is in crisis over the cost of living, long-term affordability should be the current top priority.

What is the affordability stress test?

Lenders and Financial Advisors are required to demonstrate that a customer can afford the lending they are offering them, both at the current rate and on the lender’s standard variable rate (the rate it reverts to after the deal ends) plus 3%. This can often be more than double the interest rate that a customer is actually paying on the mortgage and the probability of someone being forced onto the lender’s standard variable rate is low. Both the adviser and the lender have a duty of care to inform borrowers of when their current deal ends and make sure that the customer is on the best deal that’s available to them at that time.

What impact will it have on my ability to get a mortgage?

We will not know for sure until we get more detail on how lenders are going to implement these changes, but I suspect that ending affordability stress tests will not have a huge impact.

All lenders use an affordability calculator to assess how much someone can borrow. This usually factors in the customer’s income and expenditure, but also factors in general costs of living. Many lenders use the Office of National Statistics (ONS) figures to estimate the cost of living. These figures are regularly updated and adjusted and so an affordability calculation now will take these higher costs of living into account.

The main driver of affordability however is something called the “loan to income flow limit” which is essentially a cap on how much someone can borrow against their income. Many lenders cap this at 4.5x income but some go up to 5x and higher under certain circumstances. Lenders must report how much of their lending is at these higher levels so that the Bank of England and the Financial Conduct Authority can keep track of this higher-risk lending. This is staying in place and tends to be a much bigger indicator of what lenders will lend over the affordability stress test.

In summary 

This is a bit of a chicken and egg problem. Greater affordability can push house prices up, meaning that we need to increase affordability, in turn, to make sure people can afford homes, which in turn can increase prices, and so on. This can cause spiralling house prices and potentially create a bubble at risk of bursting. These affordability restrictions were brought in because of that situation happening before Whilst the economic challenges we’re facing now are very different, we need to remember the lessons from the past.

Can I Get a Mortgage When I’m a Contractor?

Can I Get a Mortgage When I’m a Contractor? 1024 768 Kind Financial

Many contractors worry that they won’t be able to get a mortgage due to their complex income structure. Lenders do assess income for contractors slightly differently to self-employed or employed applicants, but an understanding these differences can help to get the best mortgage for you. An experienced adviser who has specific knowledge in this area will be able to guide you through your options.

 

Income and Affordability Assessments.

 

Mortgage lenders need to establish if a mortgage is affordable to you right now, and if it will continue to be affordable in the future. For an employed applicant, this is pretty straight forward because the income is the same each month. For a contractor they have to factor in the significant fluctuations that can happen over a single year as you move between different projects.

 

Most lenders that specialise in contractors and understand contractor income will use a multiple of your day rate. The actual multiple varies between lenders, but is typically between 46 and 48 weeks. For example if your day rate is £300 this would be multiplied by 5 (days a week assuming those were your contracted days) and then by 48 weeks, which would give you an income of £69,000 per year to use for your affordability assessment.

 

Some lenders treat contractors as self-employed for the purposes of the mortgage assessment, with these lenders you need tax calculations and tax year overview documents. Your adviser would look at both options and assess which is most favourable to you in terms of income and lender’s rates in order to be able to make a full recommendation.

 

Employment History & Gaps Between Contracts.

 

In order to assess how stable your income might be the lenders may ask for certain criteria to be met, such as having at least 6 months remaining on your existing contract, having a contract of 12 or more months lined up, or having previously been renewed by your current client. It’s vitally important to talk to an adviser well in advance of looking for a property because the timing of your mortgage application in relation to your contracts could have a significant impact on the number of lenders available to us.

 

The sector you work in can also have an influence on a lenders assessment. I had a case recently where the contractor had only a few months left on a project, however due to them being in a sector which has an experience and skills shortage (and after looking at the applicants experience) they decided that he would be able to get a new contract without any issues at the end of the current one.

 

Lenders may also be wary if you have lots of gaps between contracts for longer than 3 months at a time. The reason for this is that it might be a sign that you are struggling to find replacement contracts. We know however that in some cases you might deliberately plan gaps between contracts to allow for holidays, down time or childcare. If this applies to you your adviser will potentially need to exclude some lenders when looking to make a recommendation.

 

Minimum Income

 

Lenders can sometimes seem old fashioned in how they assess risk. We live in a world where contracting and flexible working is more common than ever, however lenders still consider contractors to be slightly higher risk than an employed applicant. Due to this some lenders have put in place a Minimum Income Criteria which means that in order for your income to be considered in the application you need to have a minimum income above a set threshold which is typically around £50,000 and can be as much as £75,000. Not all lenders have this in place and so please don’t be alarmed of your income in below this level, it just means that your adviser will exclude those lenders from their search when they are looking at the most competitive interest rates for you.

 

Umbrella Companies

 

If you work under an umbrella company on a PAYE basis, some lenders will ask for additional documents such as payslips and P60’s in addition to your contractor information in order to verify the umbrella company. From the payslips and P60’s they will be able to establish that tax in being paid correctly on your behalf.

 

In summary, whilst there are additional factors to take into account when it comes to assessing your income as a contractor, working with an adviser can significantly increase your chances of getting a mortgage. Most importantly working together with someone who has expertise on mortgages for contractors at an early stage in preparation for this step will give you a much greater chance of getting the best deal for your circumstances.

 

If you would like to talk to someone in more detail please contact Kind Financial Services today on 0121 796 6655 or [email protected]

 

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

The Future of Property Looks Green

The Future of Property Looks Green 1920 1080 Kind Financial

Three letters are all over your social media feeds, your inbox and the trade publications you read right now: EPC. Energy Performance Certificates have been required for any building being sold, let or constructed since 2007, and measure how energy efficient a building is on a scale from A to G. Scoring a building takes into account a wide variety of factors including insulation, windows, and heating systems.

The increase in conversation around EPCs can be attributed to a few key factors. From 2018, landlords needed to ensure their properties were at least an E rating for new tenancies. Last year the government has announced that in 2025, that will increase to a minimum C rating for new tenancies, expanding to all tenancies in 2028. The penalty for a property not having a valid EPC will also increase substantially, from the current £5,000 to £30,000 in 2025.

That means anyone currently renting out property, or buying and building property to let, needs to start planning ahead now. There have been some gloomy reports of landlords deciding to sell off their portfolio rather than bring them up to the necessary standard, but much of the industry recognises this as an opportunity. More energy-efficient homes are cheaper to live in and run and will increase tenant satisfaction, potentially delivering better returns for longer.

The cost of upgrading houses is a serious consideration though, and one that we’re beginning to see solutions to. Several specialist lenders are now offering green Buy to let loans that factor in EPC grades – a more energy-efficient home can net the borrower a better deal. I think over the next 12 months we’ll see more and more green deals both from the High Street and alternative providers, enabling developers to create future-proof portfolios of property that are 2025 ready.

If you’re concerned about how the changing EPC rules could affect your plans, get in touch today and one of our advisors can discuss future growth plans and your current situation.

Life Insurance: Protecting Your Family

Life Insurance: Protecting Your Family 1600 900 Kind Financial

Death is a sad but unavoidable part of life, and in the insurance business, we have reason to think about it a lot more frequently than many people. Still, no matter how many of them I see, looking over reports on life insurance pay-outs is always sobering reading.

The most recent reports from Aviva showed that in 2020 the most common reason for life insurance claims for those under 30 and those aged 30 – 39 was suicide, followed by cancer as the most common cause in all other age categories. Cardiovascular problems are also very prevalent, being the second most common overall cause for a claim, followed by respiratory problems and Covid-19. Vitality’s reporting showed that while the majority of deaths for people aged over 40 were caused by cancer, for the under 40s the leading cause was “unnatural death” – a grouping which includes suicide, but also motor accidents, drownings, falls and alcohol and drug-related deaths.

I think we have a tendency in my line of work to focus on older customers and think primarily about illnesses as the causes of death, but these statistics are a vital reminder that there’s value in being insured and protected at any age.

It’s encouraging then, to see consistently high payout rates. The most recent numbers from Aviva show 99.3% of life insurance claims are being paid out, along with 87.5% of income protection claims and 92.7% of critical illness claims. With VitalityLife, 99.6% of life insurance claims are paid, along with 96.8% of income protection claims and 91.3% of serious illness cover.

At Kind Financial Services we take pride in searching for the best and most suitable products for our clients and make sure all customers have the right protection in place – whether it’s for life cover, critical illness or income protection.

These aren’t pleasant topics to consider, but I think it is important to plan ahead and make sure you’re covered just in case. The loss of a loved one is never easy, and it can be made much worse by the stresses of the financial burdens created by a family member passing.

Get in touch today to discuss your insurance needs. Maybe you’ve not thought about life cover before and are currently uninsured. Maybe you took out a policy years ago and are unsure as to what cover is and is not included. We can take a look and talk through what will happen in the event of you falling critically ill or passing away. Whatever your current situation, we can make sure the right plans are in place to ensure that your loved ones will be taken care of.

Johan Kruger

[email protected] / 07758781574.

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