September Newsletter - Help to Buy scheme: what are your options?

In this month's edition, we start off with reports that stamp duty reform could encourage landlords to re-invest in the property market.

We also ponder if it's worth paying off your mortgage early, we offer an update on the proposed abolition of Section 21 and finally, if you're a first-time buyer wondering what your purchasing options are, why not read our guide on the Help to Buy scheme?

Could stamp duty reform bring landlords back to market?

 

Proposed reforms to stamp duty could offer dividends for the property market, with buy-to-let landlords set to reap the benefits should the Government make changes to the current system.

During his leadership campaign, Prime Minister Boris Johnson pledged to cut stamp duty in the cases of sales under £500,000 and over £1.5m, alongside a suggestion that further cuts could be made to help those at the lower end of the property market in an effort to assist first-time buyers.

At present, landlords or other homebuyers are required to pay a 3% stamp duty surcharge when purchasing a second property, a significant deterrent for the Buy-to-Let sector at a time when homes worth between £250,001 and £925,000 are already subject to a 5% surcharge.

But research suggests that just 10% of properties purchased in 2019 so far would have been liable for stamp duty should the second property tax be removed, leaving landlords in a healthier position financially and encouraging them to invest in Buy-to-Let homes. The impact on the market as a whole is easy to see; more properties purchased makes for a healthier market as a whole, alongside offering more options for renters.

Managing Director of mortgages.online Paul Flavin offered the following on the current state of play: “The increased stamp duty payable on buy-to-let purchases, and the removal of the ability to offset mortgage costs has put many investors off the property market, with a knock-on effect of reducing the stock of rental properties.

“We have two basic messages for the Chancellor (Sajid Javid). Relief for buy-to-let investors and measures to stabilise the economy with clarity once and for all on Brexit, are both needed urgently. We would encourage the Chancellor to look again at the negative impact these measures have.”

Plans to switch stamp duty from buyers to sellers in an effort to encourage more first-time buyers to enter the market have already been quashed by Javid, but it’s clear that reforms on stamp duty are required in order to encourage buyers, whether landlords or otherwise to purchase property.

Help to Buy scheme - what are your options?

 

If you’re a first-time buyer looking to purchase a property, then you’ll almost certainly be aware of the Help to Buy scheme and its success in helping people get onto the property ladder. What you may not be aware of is how the scheme works, and how it helps buyers to secure deposits for homes that would otherwise be out of their reach.

With that in mind, we’ve put together a rough guide to how Help to Buy works.

Can you get a sufficient deposit together?
Most standard mortgages require a deposit of at least 5% of the value of the home you want to purchase. If you are able to get the capital required, then you may not need to apply for any scheme.

Equity Loans
If your deposit doesn’t stretch that far, however, never fear! This is where Help to Buy comes in. If you have a 5% deposit, you can apply for an equity loan for purchasing new-build properties. The Government will lend you up to 20% of the property’s price, but you’ll have to start paying interest on that loan after five years.

For example, should you purchase a £200,000 house, you’d pay £10,000 (5%), get a mortgage for £150,000 (75%) and the Government would loan you the remaining £40,000 (20%).

ISAs
If you’re still saving for that all-important deposit, then a Help to Buy ISA is available to you, with the Government adding 25% on top of the value of your savings, with up to 2.6% interest tax-free. A word of caution; if you’re considering this option, then you would need to apply for your ISA prior to 30th November this year. Click here to learn more.

Shared Ownership
If you can’t stretch your finances to be able to afford the entirety of a mortgage, Shared Ownership provides you with the opportunity to buy a share of your home (between 25% and 75% of the property’s value) whilst paying rent on the remaining share. You can also buy bigger shares in the property once you’re able to, offering you flexibility for the future whilst owning a significant stake in the home you wanted.

Purchasing a home doesn’t have to be beyond any first-time buyer. Speak to our financial experts about your Help to Buy options and find out how you can finally buy the property of your dreams.

Section 21 - an update on the proposed abolition

 

With the news of government plans to abolish Section 21 shaking those in the lettings industry, many within property have been quick to condemn the proposals. We’ve pulled together the latest opinions and updates since the announcement in April this year…

In brief, Section 21 is the right for landlords to evict tenants from their property after their fixed-term contract has come to an end, and with no need for a reason as long as eight weeks’ notice has been given. The Government had announced earlier in the year that they intended to abolish this in order to give tenants more security and longer-term guarantees in their rental fees.

Both negative and positive reactions have been recorded with tenants deeming the move as positive due to the additional guarantees which will be extended to them and landlords worried about potential difficulties when removing problem tenants.

A prominent agent recently came out in favour of the abolition, seeing it as a gateway to a newer type of tenant who is a lifestyle renter, rather than renting out of financial necessity.

However, Richard Lambert, CEO of the National Landlord Association, has stated; “Claims by the Government and tenant support groups that Section 21 is the leading cause of homelessness are not supported by the available evidence. They are factually incorrect, misleading and just plain wrong. No reasonable landlord would seek to evict a tenant without good cause.

“Most evictions are a symptom of wider issues, such as the freeze on local housing allowance, insecure jobs, and the lack of support for vulnerable tenants to sustain private tenancies successfully. The increase in the use of no-fault evictions through Section 21 is because landlords simply don’t have faith in the courts being able to deal with eviction cases, however justified their reason.

That’s why we’re appealing directly to the Prime Minister to save section 21. Landlords are running businesses and have very few options when it comes to managing the risks they face. The focus should instead be on fixing the issues that contribute to this risk.”

With government proposals moving forwards, and the consultation period on the proposal currently running to 12th October this year, we could see the proposals come into place either towards the end of 2020 or start of 2021.

Iain McKenzie, CEO The Guild of Property Professionals, said of the Government’s proposal and coming into law: “What this means is that should the law come into place, it will not impact tenancies that are already in place at the time it is passed. So, landlords in these agreements will still be able to use Section 21 until the tenancy comes to an end. Any new agreement thereafter will then become an assured tenancy,” he adds.

Should you pay off your property's mortgage early?

 

New research from financial services firm Hargreaves Lansdown has shown that one in six of us who have purchased a property will either be over 65 by the time the mortgage is fully paid off, or the loan will never be fully paid off. The question stands, therefore, as to whether you should pay your mortgage off early or not?

As the average age of homeowners creeps upwards, and first-time buyers are entering the marketplace beyond 30 years old, the prospect of entering into retirement with a mortgage still to pay is going to be a reality for many. Research conducted by the Financial Conduct Authority supports this notion, with the FCA forecasting that 40% of first-time buyers in 2017 would still be repaying their home loans at 65.

First and foremost, do your sums to see whether you have anything to worry about in the first place. If you are going to be receiving a healthy pension anyway, then the prospect of continuing mortgage payments may not be anything to worry about. On the other hand, if you are going to be on a lower income than you’re currently accustomed to, then mortgage payments may well prove to be a stretch. If this is the case, here are a few options to help you pay that mortgage off sooner:

Overpay whilst you can
Speak with your mortgage provider to see when your prospective final payment is, and use this to incentivise yourself to pay early when you can afford it. Many mortgages will not charge you for overpaying, instead embracing the higher payments so double-check with your provider and overpay in order to bring forwards that final payment date.

Consider remortgaging
With interest rates at record-low levels, many borrowers are now considering remortgaging in order to obtain a more favourable mortgage. Eventually, you will be moved onto your lender’s standard variable rate (SVR) if you do not remortgage or move onto a different deal during your mortgage term. Avoid these less favourable mortgage rates which will extend your mortgage term, and you could slice years off your repayment schedule just by switching providers or plans.

Reduce your mortgage term
Rather than overpaying on your current mortgage plan, reassess your financial status to see what you can really afford now. You will most likely be in a different economic position now to when you first purchased your property, and potentially able to afford higher repayments. If this is the case, and you are likely to remain in a stable position for the foreseeable future, then reducing your term and increasing your monthly payments is a guaranteed way to pay off your mortgage more quickly.