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The Mortgage Brokers Blog; news, views and insights

Welcome to the brokers blog; where we discuss the latest developments, common queries, spurious sources and the sublime, ridiculous and esoteric aspects of the mortgage industry.

Latest Posts:

Traditional Buy to Let mortgages not the only option for larger landlords

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.

Q&A; Why is a life insurance policy written into trust?

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.

Q&A; Is it safe to use small regional lenders, or would I be safer borrowing from a larger bank?

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.

Q&A; What is a Higher Lending Charge?

Question; What is a higher lending charge, and how does it affect me as a borrower?

A higher lending charge is a fee lenders may apply to loans over a certain percentage of a property’s value (or loan-to-value).

For example, a lender may impose an extra charge on borrowers who borrow more than 80% of a property’s value, or perhaps more than 85% etc.

Often the fee will be a percentage of the amount of borrowing that exceeds this threshold.

A typical example would be a 5% charge on all lending over 80% of the property value. In this case, if your home was worth £100,000 and you borrowed £90,000, you would pay 5% of the £10,000 over and above the 80% limit, giving a higher lending charge of £500.

It’s important to consider how the fee is calculated, for each lender. It could be based on the whole loan, meaning the fee could be considerably higher than the example above.

Another important consideration is what the lender does with the fee.

Some lenders charge a fee to increase their profit margin on these loans to cover potential losses if they have to sell properties below market value at auction.

If the lender uses the fee to buy insurance, though, often referred to as a ‘Mortgage Indemnity Guarantee’ (which insures the lender against such losses), in the event of you handing back the keys and the property selling at a loss, the insurer would then have the right to pursue you for their losses under the ‘right of subrogation’.

The FSA forced lenders to stop referring to these charges as ‘Mortgage Indemnity Guarantee’ fees because it was worried that this gave the impression that such insurance policies would benefit the borrower, as well as the lender; so be aware that if you pay this fee or have done in the past, it will not protect you from the lender or insurer pursuing you for any outstanding balances should the property have to be sold at undervalue after repossession.

Woolwich announce new low-fee, fixed-rate products up to 75% loan-to-value

The Woolwich announced several new fixed-rate products yesterday, which herald the return of low-fee, low-rate mortgage products to the market, and are a pivotal moment in the UK’s turn from recession to recovery.

The rates, which include a two-year fixed at 3.89% available up to 70% loan-to-value, and 4.09% up to 75% loan-to-value, have an application fee of just £199, free valuation and legal work on remortgages or £200 cash back towards legal costs if using your own solicitors. Early repayment charges apply of 3% until 31/01/2012, and APR for both products is 2.8%.

They have also included a three-year fixed product at a similarly competitive rate.

That is a big departure from the glut of products currently offering headline rates with either £995 or even 2% arrangement fees and will kickstart the lending industry back into competitive pricing with more than just on-paper rate cuts.

The products are also available on new purchases and equally competitive in that space, although standard valuation and legal fees will apply on purchases.

Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. We do not usually charge a fee for mortgage advice, although you may pay up to 1.5% of the loan amount. Some buy-to-let and commercial loans are not regulated by the Financial Services Authority.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS 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. PLEASE NOTE THAT SOME MORTGAGES SUCH AS COMMERCIAL BUY-TO-LET ARE NOT REGULATED BY THE FCA.

RIGHTMORTGAGEADVICE.CO.UK FCA NO. 500795 IS AN APPOINTED REPRESENTATIVE OF JULIAN HARRIS MORTGAGES LTD FCA NO. 304155, WHICH IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

THE FINANCIAL OMBUDSMAN SERVICE (FOS) IS AN AGENCY FOR ARBITRATING ON UNRESOLVED COMPLAINTS BETWEEN REGULATED FIRMS AND THEIR CLIENTS. FULL DETAILS OF THE FOS CAN BE FOUND ON ITS WEBSITE AT WWW.FINANCIAL-OMBUDSMAN.ORG.UK.

THE GUIDANCE AND/OR ADVICE CONTAINED WITHIN THIS WEBSITE IS SUBJECT TO THE UK REGULATORY REGIME, AND IS THEREFORE TARGETED AT CONSUMERS BASED IN THE UK.

© RIGHTMORTGAGEADVICE.CO.UK 2010-2024.

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