First-time buyers still feeling the squeeze

The squeeze on first-time buyers intensified in April according to the latest figures from the Council of Mortgage Lenders.
The CML said first-time buyers in April took the lowest proportion of all house purchase loans for three and a half years, since before the financial crisis erupted.
Of the 40,000 loans totalling £5.7 billion advanced for house purchase in April, only 14,300, or 35 per cent, were made to first-time buyers, down from 39 per cent in March and 38 per cent in April a year ago. That represents the lowest proportion since September 2007.
The decline came despite the Labour Government’s March budget which scrapped stamp duty for first-time buyers with immediate effect on purchases below £250,000.

Michael Coogan, CML director general, said: “This shows that getting a mortgage remains problematic for first-time buyers who tend not to have a substantial deposit.”
Overall, the number of loans rose 15 per cent from a year ago and the total amount loaned jumped 26 per cent. Compared with March the number of loans dropped 9 per cent as the Easter break dampened home sales.
Andrew Montlake, director at independent mortgage broker Coreco Group, said: “Even taking into account the traditional Easter dip in activity, the figures for first-time buyers are still disappointing, and highlight how difficult it remains to secure finance without a sizable deposit.
“Lenders still need to offer more innovative first-time buyer products before we will see any marked improvement in this sector of the market.”
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Relentless house price rise goes on

House prices continued to rise last month, despite a sharp increase in the number of homes for sale.
The proportion of estate agents reporting a rise rather than a fall in new instructions from homesellers increased from 11 per cent to 23 per cent between April and May, the Royal Institution of Chartered Surveyors said.
At the same time, the proportion of surveyors reporting price rises rose 3 per cent as demand from buyers remained steady.
The institution said that the number of sellers was likely to rise further as the Government’s decision to scrap home information packs is likely to persuade even more homeowners to test the market — a trend that could lead to price falls. The balance of surveyors expecting a rise rather than a fall in prices dropped slightly, from 7 per cent to 5 per cent, as confidence in the pace of recovery begins to subside.

Last week Savills, the estate agency, predicted a “second slip” for the housing market, amid signs that austerity measures could knock the heat out of demand.
The level of sales per surveyor has remained static, at 17 for the three months to May 31. Simon Rubinsohn, chief economist at the institution, said: “Surveyors are generally confident that sales will continue to pick up over the summer months. The increase in supply as a result of the abolition of HIPs is helping to support this optimism despite continuing concerns about mortgage finance. A higher level of instructions should lead to a flatter trend in house prices in the latter part of the year.”
London and the South East continued to move ahead of the rest of the market. There were modest price falls in Wales, Yorkshire and Humberside and the West Midlands.
Agents in London said that a rise in capital gains tax could knock the recovery off course. Benson Beard, of Bective Leslie Marsh, said: “The Budget will determine the market for the rest of the year. CGT especially. Any rise should be limited at the higher level to short-term gains. Long-term gains should be tapered.”
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Overpaying the mortgage? Time for a rethink

ADVISERS are urging higher-rate taxpayers to begin topping up their pensions ahead of this month’s budget — a more profitable move than overpaying a mortgage for most homeowners.
The government is thought to be considering scrapping higher-rate tax relief on pension contributions altogether: at the moment, those who earn more than £130,000 will start to see higher-rate tax relief on contributions clawed back from next April.
Tom McPhail at Hargreaves Lansdown, the adviser, said: “The further loss of relief for pensions has become a real concern. Many of us in the office have begun putting more into our Sipps [self-invested personal pensions]. If you have available income and you want to contribute to a pension, this is the year to do it.”
Patrick Connolly of AWD Chase de Vere, another adviser, added: “We are encouraging high earners who are planning to make pension contributions to do so before June 22. The tax advantages will not get better by waiting until after the budget — and could potentially get worse.”

Research from Standard Life, the asset manager, shows that homeowners who have been overpaying their mortgage would be thousands of pounds better off putting this money into a Sipp. Furthermore, those on very low variable-rate mortgages — arguably the most likely to be overpaying — stand to gain the most by transferring these overpayments to their pensions.
While potentially a far more lucrative option for investing spare cash, there are as ever risks to putting all available income into your pension.
In addition to tying up your money in the short term, returns from your Sipp could vary according to what you invest in — while overpaying your mortgage is a very low-risk strategy.
Having said that, the returns are very attractive, particularly for higher rate taxpayers.
Say you are paying 2.5% annual interest on a £200,000 mortgage, with monthly repayments of £1,060. If you overpay the loan by £300 a month, you will reduce a 20-year mortgage term to 14 years and eight months and cut the cost of the loan from £254,353 to £239,063 — a saving of £15,290.
However, by paying £300 a month into a Sipp, a higher-rate taxpayer will amass a pension fund of £110,023 based on annualised growth of 3%.
From this amount, it is possible to take 25% tax-free. Those who remain higher-rate taxpayers in retirement would therefore have an additional £77,016 after tax — equivalent to a hefty return of 46%. A basic-rate taxpayer will amass a pension fund of £82,517 over the same 15-year period, or £70,140 after tax, or 33% return.
John Lawson at Standard Life said: “A higher-rate taxpayer would be an astounding £67,227 better off ‘overpaying’ their Sipp by £300, rather than overpaying their mortgage over the 14-year and eight-month term.”
Even those paying 4% interest on their mortgage — closer to the average standard variable rate — will do better by saving into a pension.
If they overpay by £300 a month, they will cut their mortgage term by 14 years and seven months, saving £26,679 on repayments.
Investing the same amount in a Sipp, however, could build a fund of £81,940 for a basic-rate taxpayer and £137,551 for a higher-rate payer before tax.
Lawson said: “In the current low interest rate environment, it may appear to make sense to take the opportunity to overpay your mortgage, however the interest saved might not be as significant as you think.
“Only when mortgage rates reach 8% or more does the advantage gained from overpaying a mortgage begin to equal the return from a pension.”
Overpaying a mortgage by £300 a month for 20 years at 8% would reduce the term to 14 years and one month, while saving £67,017, according to Standard Life.
Patricia Parkinson, 28, an account director from Streatham Hill, south London, has seen her mortgage repayments fall recently after her fix term expired. She is now paying 3.49% on her loan.
She considered maintaining her mortgage payments at the previous rate — closer to 5% — but has instead decided to amend her direct debit and top up her personal pension.
Parkinson, who is a higher rate taxpayer and therefore stands to benefit even more from boosting her contributions, said: “With my pension performing well in the past 12 months I am choosing to invest my extra money into that.”
However, Tim Whiting of Timothy James & Partners, the wealth adviser, said: “Topping up your pension makes sense if you can afford it — although your money is arguably safer in your mortgage, and with a flexible loan you may be able to withdraw it again if needed.
“Also bear in mind that you can pass your family home down to your children, whereas after the age of 75 your pension fund dies with you.”

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Millionaire mortgages hit the high street

HIGH STREET lenders are offering their best rates to housebuyers in the market
for large mortgages — even undercutting private banks for the first time
since the credit crunch.

Brokers report that cheaper rates can now be found on the high street than at
most private banks, as mainstream lenders ramp up competition in the “jumbo”
loans market.

Despite clampdowns on large loans by Lloyds Banking Group, historically
Britain’s biggest lender, and Northern Rock, there has been a flurry of
activity in recent weeks.

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Hold on to your home as house price recovery is set to stall

Homeowners are being warned to prepare for a double dip in house prices, as a
lack of mortgage funding, the expected rise in capital gains tax (CGT) and a
looming interest rate increase send prices falling.

Property experts say that, if you have the choice, now is not the time to put
your house on the market as prices are likely to slump by the end of this
year. They also caution that times are getting tougher for those not on the
property ladder as rents have been soaring and competition for flats and
houses is fierce.

The housing market has enjoyed a mini-boom this spring, with prices up 10.5
per cent over the past 12 months, according to the latest figures from
Nationwide Building Society. This has been fuelled by cheap mortgage rates,
which hit record lows in May. However, the property market is now balanced
on a knife-edge. The latest house price index from Nationwide shows that
prices rose by 0.5 per cent in May, while Halifax says that prices actually
fell by 0.4 per cent, highlighting the fragility of the market.

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Woolwich and Bovis Homes to offer 90 per cent deals

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The hopes of first-time buyers and borrowers with a small deposit have been
given a boost by a new deal from Woolwich, the mortgage brand of Barclays.

The UK’s fourth largest lender is to offer competitive new loans worth up to
90 per cent of a property’s value, but only to those who are willing to
purchase a Bovis new-build house or flat.

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Mortgage rates at record low

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The cost of the most popular mortgage deals fell again last month to the
lowest level on record, it was announced today, as brokers welcomed an
innovative new deal for first time buyers.

Figures from the Bank of England show that the average two-year fixed-rate
home loan worth up to 75 per cent of a property’s value dropped to 3.8 per
cent in May, compared to 4.47 per cent last September and the lowest since
records began in 1995.

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Q&A: house prices and mortgages

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Demand for reform of leasehold law

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Lawyers have called for a tightening of the rules on leaseholds, reporting
that some freeholders are taking advantage of homeowners who do not
understand their rights on lease extensions.

Paul Marsh, former president of the Law Society, says: “The key to
realise is that leases are a wasting asset. The shorter the lease when you
sell, the worse your position. And if you want to extend in a hurry, you’re
in a bad negotiating place.

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Money Made Easy

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BUILDING societies have been quietly increasing mortgage costs for new and
existing borrowers despite the ongoing freeze on official interest rates.

Britannia’s broker-only arm is raising the “reversion rate” on new loans for
customers with less than 30% equity in their homes. This follows Lloyds’
move to raise its standard variable rate (SVR) for new loans from 2.5% to
3.99% for its Cheltenham & Gloucester brand last month.

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