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 OK, I know the mortgage market isn't always the most interesting subject, but this week in mortgage terms it really did 'kick off'.
The FSA published their Mortgage Market Review which contained their proposals for the future of the mortgage market, and reflected their intention of a more obtrusive approach. So, here I offer a quick rundown of the points and my own take on their impact:
Banning 'self-cert' mortgages.
Up to 1 million of mortgages were arranged on a self cert basis. As I have mentioned before, if self cert is banned, then these people will be at risk of never being able to get a mortgage again, even when the market improves. So, unable to move OR remortgage, they are left to sell up or stick with their current lender.
Now, as most mortgage interest rates are low this may not intially be a problem, but as rates rise it will become more of an issue - some may be able to switch to a fixed rate (if the lender is gracious to offer a product transfer) but if you are with a lender who doesnt offer product transfers, or a lender who has left the mortgage market, then you will be at the mercy of those interest rate rises. In fact, the irony is that for someone stuck in this trap, it could result in mortgage arrears and ultimately being repossessed - and this will be a direct consequence of new regulation to protect the consumer!
Lenders will be required to hold more capital and liquidity.
This has certainly happened already and the effect is simple: fewer and more expensive funds available within the mortgage market.
Regulation to cover buy-to-let (and all lending secured on a home).
I haven't quite got my head round the impact this may have. From a brokers point of view (which I have) most of our buy to let advice is treated as regulated anyway (best business practice etc), however it all depends on what impact it has on the lenders. For example, if stricter affordability practices are adopted, it could lead to even more restrictions on the number of buy to let mortgages anyone person can have.
Imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer's ability to pay.
I can only imagine this is going to mean more comprehensive underwriting, which no doubt will lead to longer application time lines and possibly more rejections.
So lets get cliched here - where there's a change there's opportunity (and other such motivational ramblings), so if you have solid provable income, keep your credit clean and have access to cash deposits then now's the time to take advantage of a market in flux.
TIP OF THE WEEK 1: 40% of your life insurance claim could be at risk.
Over the last few months we have helped many of you property investors to get the right cover in place to protect your buy to let properties. We look at your current circumstances from a property investors viewpoint and in almost every case we have found ways to improve your cover.
What does this really mean? - Well, if you died today do you have things in place to cover your portfolio?
- Would your partner struggle to remortgage your properties should the lenders call the loan in?
- Are you paying money every month from a standing order and not even know what it covers you for?
In most cases the answer is really simple - consider putting your life cover in trust.
1. Quicker payment of claims. If someone dies and their plan is not in a trust, their representatives will have to obtain Grant of Representation before they can deal with the plan. This can take several months.
2. The plan proceeds may be free of inheritance tax. 3. At the moment, inheritance tax is payable at 40% on any part of an estate valued over £325,000 (2009/2010). But you can use a trust to gift some (or all) of the benefits on the plan to other people. The gifted benefits would no longer be part of your clients estate if they die, which means these benefits would not be subject to inheritance tax.
If you do have life cover remember this - every month a payment is coming out of your bank account - make sure it counts!
TIP OF THE WEEK 2: Using your spouse to save property tax.
Another top tip from Stephen Fay - the property investor's accountant. Please feel free to contact Stephen, who is on hand to answer any more detailed questions - his email is
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Using your spouse to save property tax: Jointly owning investment property with a spouse can generate
substantial tax savings for married couples (and Civil Partnerships).
This is mainly because several important tax reliefs and tax bands are
available on a per person basis e.g. the personal allowance & the
basic rate tax band. This is especially useful where one spouse is in
a different tax band to the other, or if a spouse does not use up
their personal allowance. It is possible to have any split of beneficial ownership for
properties owned jointly as Tenants In Common (it is easy and cheap to
switch properties held as a Joint Tenancy to a Tenants In Common basis,
the change does not incur capital gains tax). Changing the beneficial ownership of a property means that rental
income and profits can be shared in a different way to the legal
ownership of the property. This then means that income tax is charged on the profits according to
the agreed split, and not on a 50-50 basis. Couples need to jointly
elect for the income to be split in accordance with the beneficial
title in the property.
As always, call one of our advisors today for more information 01424 205 373
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