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Boost for first-time buyers as more ultra-low deposit mortgages hit the market

In a further boost to first-time buyers, more lenders are bringing 5 per cent deposit mortgages onto the market.

New deals announced by Metro Bank and Cambridge Building Society are not part of a new government-backed mortgage guarantee scheme which was launched this week to increase the availability of 5 per cent deposit loans.

Major lenders including Halifax, HSBC UK, Barclays, NatWest and Santander are taking part in that scheme and unveiled new 5% deposit products earlier this week.

Cambridge Building Society said that, from 5 May, it will launch deals including a two-year fixed-rate mortgage at 3.99 per cent, with a £199 application fee and a five-year fixed-rate mortgage at 4.09 per cent with the same fee. The maximum loan for this range is £400,000.

Metro Bank is now offering a five-year fixed-rate deal at 3.89 per cent for borrowers looking to get on the housing ladder with a 5 per cent deposit. The maximum loan size available is £570,000.

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The bank said it had already been developing its new mortgage when the government mortgage guarantee scheme was announced in the recent Budget.

Metro Bank launched into near prime residential mortgages in March, offering flexibility for borrowers who may be struggling to get a mortgage elsewhere.

Charles Morley, director of mortgage distribution at Metro Bank, said that the bank has been making a number of new hires across its mortgages business recently.

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Pandemic recovery

The number of low deposit mortgages generally available fell dramatically in the early days of the coronavirus crisis as lenders became more concerned about riskier loans and the possibility of house prices falling.

Under the new government scheme, lenders can purchase a government guarantee that would compensate them for a portion of their losses in the event of a repossession.

It mirrors a previous Help to Buy mortgage guarantee scheme, which was launched in 2013 in response to a similar shortage of low-deposit mortgages following the 2008 financial crisis.

By Michiel Willems

Source: City AM

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First-time buyer numbers close to 12 year high

The number of first-time buyer mortgages in August 2019 edged towards the highest monthly total since August 2007, according to the latest data from UK finance.

In August this year, 35,010 first-time buyer mortgages completed compared to 35,070 in August 12 years ago just before the financial crisis struck.

The August 2019 rise was 0.7% on the same month in 2018.

There were 35,380 homemover mortgages in August 2019, a drop of 5.5% on the same month a year earlier.

A downturn in remortgaging

Remortgages with additional borrowing in August, fell by 2.9% year-on-year to 18,640 cases and the average additional amount borrowed was £55,000.

There were 18,100 new pound-for-pound remortgages (with no additional borrowing) in August, 2.3% fewer than in the same month a year earlier.

Buy-to-let numbers fall

A total of 5,900 new buy-to-let mortgages completed in August 2019, representing a drop of 3.3% from August 2018.

There were 13,800 remortgages in the buy-to-let sector, 0.7% fewer than in the same month the previous year.

Rob Barnard, sales director at Masthaven, commented: “This summer has been encouraging for the mortgage market. Lending activity has remained steady and first-time buyers continue to reap the benefits of Help-to-Buy.

“Remortgagers are taking advantage of the competitive deals available with lenders intensifying competition in the market by offering innovative products to homeowners who would rather stay put than move in the current climate.

“However, affordability and complex financial circumstances still leave many customers unable to secure a mortgage. With Help to Buy coming to an end in 2023, the mortgage market needs to continue to provide innovative solutions to encourage individuals onto-and-up the property ladder.”

By Joanne Atkin

Source: Mortgage Finance Gazette

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The government to review national model for shared ownership

The government will review a new national model for shared ownership to make it easier for people to buy more of their own home, including allowing them to buy in 1% increments.

Housing Secretary Robert Jenrick (pictured) said that this is among a raft of measures to help people on lower incomes get onto the housing ladder.

Jenrick said: “Building the houses this country needs is a central priority of this government. We know that most people still want to own their own home, but for many the dream seems a remote one.

“My mission is to increase the number of homes that are being delivered and to get more young people and families onto the housing ladder, particularly those on lower incomes.

“That’s why I am announcing radical changes to shared ownership so we can make it simpler and easier for tens of thousands trying to buy their own home.

“Help to buy, the cut to stamp duty and our home-building programmes are already making a real difference, but I am clear we need to go much further if we are to make the housing market work.

“I will be looking at ensuring young people from Cornwall to Cumbria aren’t priced out of their home areas and how we can build public support for more house building and better planning.

“This government will help a new generation to own their home.”

At present, borrowers have to buy an increased share in 10% chunks which can be as much as £45,000 per time.

This process of increasing the stake until the property is bought outright is known as ‘staircasing’.

People use shared ownership to buy a proportion of their home which can be as little as 25% then pay a subsidised rent on the rest.

The Housing Secretary also said he will look to reform the planning system to increase housing delivery and make home ownership more affordable for people looking to buy their first property, particularly in areas which are least affordable.

This could include increasing the number of homes sold at discounted prices to people trying to get onto the property ladder, boosting homeownership and helping build local support for new development.

Homeowners buying a property under help to buy will be given new freedoms which will make it easier to take out a 35-year mortgage.

The government has also closed a loophole with immediate effect that prevented people from taking out a mortgage with a term of more than 25 years.

Ross Hunter from Post Office Money added: “It’s important that we take steps to enable people from a variety of economic backgrounds to find routes on to the housing ladder.

“In 2018, a first-time buyer household income in the UK was £48,289 on average, and the average cost of a property in the UK was £282,713 – it can take years to save for a deposit and 69% of first-time buyers will depend on additional help from their loved ones to save the necessary funds.

“Any step to support people on lower incomes in their journey to realise their aspiration of owning a home is welcome.”

Marc von Grundherr, director of Benham and Reeves, said: “The latest changes to shared ownership are a novel idea from Robert Jenrick but as we’ve seen before through the likes of Help to Buy, an idea that will further fuel demand rather than address any real supply imbalance.

“While helping those in shared ownership will provide a leg up to some, the 200,000 homeowners in this position account for less than one percent of UK properties.

“Reducing the barrier to homeownership via shared ownership properties doesn’t supply more homes and it will be interesting to see if any concrete strategy on doing so comes from this latest government rhetoric.”

By Michael Lloyd

Source: Mortgage Introducer

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First-time buyers save £426m in stamp duty

The government is facing calls to extend first-time buyer stamp duty relief and increase access to the housing market as figures showed £426m was relieved since the exemption was introduced.

Statistics released by HM Revenue & Customs today (21 November) showed that in the most recent quarter 58,800 transactions claimed first-time buyers’ relief, bringing the total number of claims since the relief’s introduction to 180,500 – a monetary value of £426m.

The relief was introduced in November 2017 to purchases of residential property by first-time buyers for £500,000 or less and then extended in last month’s Budget to first-time buyers buying through shared ownership schemes.

The HMRC figures showed stamp duty transactions increased by 11 percentage points to 307,100 between the second quarter and third quarter of this year.

The latest transaction figures are 8 percentage points lower than those recorded in the third quarter of 2017 but this data was not directly comparable due to the devolution of stamp duty to Wales in April 2018.

But there were concerns stamp duty remained a “financial barrier” to those higher up the housing ladder.

Kevin Roberts, director at Legal & General Mortgage Club, said this was particularly the case for growing families looking to upsize or last-time buyers looking to downsize.

He said: “The changes in the Chancellor’s recent Budget were certainly welcome, however, if we are to create a housing market that is accessible to all we must do more for older homeowners by extending the stamp duty exemption.

“After all, encouraging movement higher up the ladder allows properties further down the ladder to be freed up, which could help lift the stagnated transaction market we have been seeing.”

Shaun Church, director at Private Finance, said the stamp duty exemption had arguably been one of the most successful initiatives at getting more buyers onto the housing ladder but he said it should not end there.

He said: “We urge the government to turn its attention to last-time buyers as too many would-be downsizers remain in their family homes unwilling to move due to the hefty tax bill they would incur.

“Encouraging these homeowners to move to smaller and more suitable homes would unglue the housing market, and unlock a supply of properties for prospective buyers further down the chain, helping to rebalance the supply of UK property in relation to demand.”

Source: FT Adviser

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Parents Failing To Save For Their Children As Interest Rates Stay Low

From help with university living costs to a helpful leg up onto the housing ladder, the so-called ‘bank of Mum and Dad” is increasingly expected to do at least some of the financial heavy lifting when children leave home and begin to make their way in the world. But according to a new report from peer-to-peer lending platform, Zopa, many parents are failing to put money aside to help the next generation. Some because they find it impossible to save, others because they want to encourage self-reliance. But as the peer-to-peer lender sees it, low-interest rates are also acting as a disincentive.

The so-called millennial generation arguably faces a tougher set of financial challenges than their immediate predecessors – not least in terms of getting onto the property ladder. In the wake of the financial crisis, Mortgage lenders typically ask for a deposit of at least  5.0% and with the average price of a flat now standing at more than £200,000, that means a deposit in the region of £10,000. With wages remaining fairly stagnant and rents high, saving the initial amount required to purchase a home can be tough, especially for those who are also repaying student debt.

And as a report published in May by the Resolution Foundation think tank highlighted, the generation born since 1980 are decidedly gloomy about their financial prospects. Most expect to be worse off than their parents. That, in turn, puts pressure on previous generations to help out.

Can’t Save/Won’t Save

First the good news. A  majority of parents are making an effort to save and 62% have a long-term strategy stretching over four years or more.

But  Zopa’s research suggests that around 20% of parents are not saving, either for themselves or for their children. Out of that group, more than half say they simply can’t afford to set money aside.  Meanwhile a small but significant minority – one fifth – say they want their children to stand on their own two feet.

As Andrew Lawson, chief product officer at Zopa pointed out, low wage growth and high inflation have made it more difficult to put money aside. However, lack of cash is not the only factor. With interest rates still at very low levels, there is perhaps very little incentive to save.

“Unfortunately, the British public will struggle to find a savings account paying out interest higher than two per cent,” he said.  “And with the most recent UK inflation rate being posted at 2.4 per cent, anyone using one of these accounts as their primary “long term” savings vehicle can most definitely find a better route.”

The survey suggests that Most savers are not seeing their money grow. For instance, 50% of those questioned in the Zopa poll are using standard bank savings accounts. This compares with the 34% who use Junior ISAs (potentially offering better returns) and just 9% investing via Stocks and Shares ISAs.

Savings Options

So-called ‘Easy Access’ savings accounts are attractive to those who want to set money aside in a separate account while also keeping open the option to dip into the pot from time to time and get cash out immediately. However, the price for the convenience of having instant access to funds is low interest rates. Even the best performing easy access accounts offer an annual return of not much more than 1.3% and in many cases, it is lower.

“Notice Accounts”  tend to offer slightly higher rates (the best is currently) between 1.6% and 1.7% but savers can’t access their money immediately.

Despite the unexciting returns, bank accounts provide a great way to get adults and also children into the savings habit. Robert Gardner is the co-founder of RedStart, a charity set up to teach young children about money. He recommends that children have their own accounts.

“Shop around. Most banks and building societies have a children’s savings account. Again a child can learn that if they save £1 a week they can have over £50 at the end of the year to buy a bigger toy,” he says.

Gardner is also keen that children learn about the benefits of longer-term savings.

“If you want to teach your children how to ‘grow’ their money and benefit from compound interest then you should consider either a Junior ISA (JISA) and invest in stocks and shares and or a pension,” he adds.

It Pays to be Adventurous

Investing in the share and bond market takes savers away from the safe comfort zone of the bank account and into the rather more volatile world of the financial markets. But according to Ben Faulkner, Communications Director for wealth management company  EQ Investments, it pays to be adventurous.

“In almost all cases an investment for a child implies a long timescale. This situation is ideal for adopting an adventurous investment strategy, where you accept the greater volatility that comes with the potential for greater returns in the long term,” the spokesman says.

ISAs are an obvious first port of call. The Junior ISA (JISA) in particular has been designed to encourage young people between the age of five and eighteen (or more likely parents acting on their behalf) to save for the future. Under JISA rules, £4,260 can be saved every year and the returns are tax-free. There are risks, though. Returns on Stocks and Shares JISAs are not guaranteed and, in theory, any downturn in the stock market could mean the saver receiving less than has actually been put in. Alternatively, parents could invest in a standard Stocks and Shares or Cash ISA.

Robert Gardner urges parents not to forget pensions, which can provide huge benefits to children later in their lives.

“The advantage of a pension is you get tax relief. That’s free money from the government. Just 50p a week from birth until the age of 10 will grow to be worth over £100,000 by the time they retire. And they can’t access it and spend it when they turn 18,” he says.

There is also a new kid on the savings block in the shape of peer-to-peer lending platforms – of which Zopa is one. These platforms lend to individuals and businesses, with the money sourced from thousands of individual investors who are rewarded with returns that are higher than those offered by bank savings accounts. Zopa itself offers a fund with a 4.6% return to lenders.

So there are a lot of options to consider, each with their own characteristics in terms of the risk involved and the potential return. If the rate of return over a long timescale is the priority, Ben Faulkner says that evidence points to shares and property.

“A child’s portfolio should be invested largely in equities (shares in companies) and property, since these are the types of asset that, historically, have always produced the highest returns, over the long term.”

But the starting is a commitment to saving.

Source: Cash Lady