Most house purchase mortgages and many remortgage products will include a fee charged for a ‘basic valuation’.
This valuation is not for your benefit; it does not protect you against a property defect or if work is required, such as damp treatment or for subsidence.
You are paying for some form of valuation to satisfy the lender that the property is suitable as security and estimate its value. The surveyor owes no duty of care to you as the buyer, even though you pay for it.
Many borrowers believe that this ‘basic valuation’ is suitable evidence that the property is in a good state of repair; many have found out in court, to their dismay, that this is not the case.
Some valuations will not even involve entering the property; it may just be a ‘drive-by viewing’ or even performed on an AVM or ‘auto valuation model’. The latter is just a computerised average.
Many lenders will offer either a ‘home buyer report’ or a ‘full structural survey’ as an upgrade to a basic valuation. These survey types do offer you some legal protection and do entitle you to a duty of care from the surveyor in question.
A home buyer report is intended to identify mainly major problems and structural defects with less detail; a full structural survey should be thorough and identify any serious issues in more detail.
Although, both types of report would not usually involve invasive testing or inspection of concealed areas.
If you are buying a property and you want to know that it is structurally sound, do not rely on a basic valuation to protect you; unfortunately, it will not.
Many people blame subprime mortgages for the credit crunch; others point the finger at merchant banks and hedge funds, whilst some have even suggested that China is directly at fault for the current state of Western finances.
To a certain extent, all these views carry some merit (particularly regarding the subprime mortgage sector). But another factor that comes into play regarding those mortgages; is perhaps more fundamental and likely to cause long-lasting damage.
Over the last decade and a half, the average house value skyrocketed. Some houses increased by as much as 100% in value over a decade. This rise in prices; sustained by a ready supply of credit on increasingly generous terms; increased demand massively, and due to the relatively fixed housing supply, the only place prices could go; was up.
That resulted in large numbers of people taking loans far beyond their means. It seemed that everyone could get a large enough mortgage to pay for a house regardless of their financial circumstances.
For those who have stretched their income, now is the perfect time to reduce your borrowing and save money in the long term on your mortgage repayments.
The new government and the recent emergency budget indicate we should see relatively low-interest rates for some time, although the bank base cannot remain this low forever.
So it is time to look at remortgaging, and trackers, in particular, can look like good value for money in the short term.
There are several ways to reduce your mortgage in this period of low-interest rates.
You can remortgage and reduce your mortgage term, but pay attention to how this will affect your repayments when rates do rise.
Another option is to look at offset mortgage products which allow you to pay no interest on the equivalent amount of savings held in the offset account; however, offset rates continue to be uncompetitive.
For many, the best way to reduce your mortgage may be to use a savings account and then use the typical 10% overpayment facility on most products.
It’s worth checking whether you have the right to make overpayments and to what extent. Savings interest rates aren’t too attractive currently, but banks like Santander offer some excellent deals on savings accounts that are worth a look.
If you’ve survived the bubble bursting; whatever state your finances are in, it may be a good idea to pay down any debts you have whilst interest rates are low and save what you can to give yourself a bit of a cushion; so should the situation deteriorate further, or if interest rates rise in the future, you are less exposed to increasing costs.
A recurring theme when speaking with buy to let investors across the country at the moment is the difficulty being caused by the dire lack of realistic products for remortgaging or making new purchases.
With current requirements for a minimum deposit of at least 25% and interest rates beginning around the 4% mark for variable rates with deposits of 40% and over its easy to see how many think the current markets offerings are nothing more than a cynical attempt to recoup wider losses by the big banks. And with arrangements fee’s going at anything up to 3.5% I have to agree with them.
There is however another option for Landlords who hold several properties or who have a sizeable income aside from their rental. The private banking sector is increasingly taking up a larger share of this market and with potential interest rates starting from 2.5% or so above base rate and fees typically between 1-2% of the loan balance they make a very attractive proposition to the right clientele.
These lenders not only have the experience in dealing with larger loan sizes and non standard properties, but the human underwriting to look at individual cases which would not meet the standard criteria of high street buy to let mortgage lenders.
The downside is that they typically require assets of around £250,000+ without taking your main residential property into account and or an income of over £100,000 per annum. So while they could prove invaluable for those landlords with a decent portfolio gearing with 25% or more in equity or for the first time investor with a good main income they won’t provide any refuge for the many landlords who worked at maximum leverage and left themselves with less than 25% equity in the their overall portfolio.
If you have several buy to let properties on or about to come onto their standard variable or indeed of you have a significant income instead and would like to find out whether a private banking arrangement could be suitable contact speak to one of our mortgage advisors on 0845 4594490 for independent mortgage advice.
Question; I have been advised to place my life insurance policy into a trust; why is this?
There are several reasons why some life insurance or assurance policies might be placed into a trust. Generally, they are to do with avoiding tax liabilities or ensuring that the proceeds of a policy will reach the intended recipient.
About two-thirds of people in the UK do not have a valid will and testament and die intestate, which is the term for an estate which does not have a valid will to determine where and how the estate proceeds will be divided up (sometimes there is a will in place which is no longer accurate and can be invalid for this reason too).
In this case, complex rules govern who receives the estate (the laws of intestacy), which could leave the proceeds of a life insurance policy to unintended recipients.
A good example is an unmarried couple who has arranged a life policy on the life of a breadwinner to repay the mortgage in the event of death. In this case, if there were no valid will in place, the proceeds would likely be passed on to the deceased person’s family; rather than the surviving partner, which could include children from a previous marriage, or the deceased person’s parents, for example.
That scenario could realistically lead to someone losing their family home.
In another scenario, a life policy intended to pay out to a couple’s children on the second death; to cover inheritance tax liabilities; would also become part of their estate and be liable to inheritance tax itself. Something placing the policy in trust could avoid.
The rules around the taxation of trusts change regularly, and mortgage advisors will recommend a regular review of your circumstances. A policy written into a trust may one day be better off outside of it, so it is vital to check regularly that existing provisions are still the most tax-efficient and prudent arrangements.
If you have a life insurance policy you think may need to be placed into a trust or to speak further to an advisor, call 0345 4594490 for independent advice.
This is an interesting question for me as it crops up quite a lot; however, remember that borrowing from a bank is not the same as depositing money.
Firstly, on the reasons you should use small regional lenders, they are currently leading the market in terms of mortgage and savings rates, and you may well find their customer service slightly more endearing than the bigger banks.
Small building societies are releasing very competitive products currently, and there is little reason to shy away from them.
Were your mortgage lender to fail, though, there would be very little likelihood of the administrators coming around with repossession orders (if the law even permitted them to do so).
Selling all the properties in an entire loan book would be ludicrously complex and likely produce a much lower return than simply selling the book of loans to another institution, which is commonplace trading among banks and institutional investors.
Even if no buyer were forthcoming to purchase the loan book, the administrators would likely let the book run and pass administration to an outsourcing firm; again quite common.
The current UK government has made it clear that it will not allow any financial institution in the UK to fail, regardless of its size. The FSCS or Financial Services Compensation Scheme, currently does not discriminate between the size of institutions either, so as long as the provider is a part of this scheme and falls under UK regulation, your protection as a consumer is equal regardless of an institution’s size.
