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When the market reopened there was a surge of pent up sales as people who were holding on could get moving again and the housing market is now experiencing a small boom. Aided by the stamp duty holiday introduced in July, sales have been encouraging. While demand is higher than supply, house prices are set to keep growing, up by 2.4% in May and 2.7% June.
Marie DalrympleMarie Dalrymple, Mortgage & Protection Consultant here at Ascot Lloyd says:
“The temporary stamp duty removal is motivating people to move house. Yesterday I interviewed a client who was planning on moving house in 2021. They have a product redemption penalty on their current mortgage of £600 and are tied in until Jan 2021. Now they want to move house this summer and will pay the £600 fee. They are looking at properties just below £500,000 so on a £495,000 purchase price their stamp duty saving is significant and far outweighs the redemption cost on getting out of their current mortgage arrangement.”
Rightmove reported a 75% increase of buyer enquiries in July 2020 compared to July 2019, and 44% of sellers that listed from 13 May 2020 have now been marked as sale agreed.
The motivations for moving are widespread. People are seeing the opportunity to take the next step up the property ladder with interest rates low. For some it has been a time to reflect on lifestyle and make the life-change they want. Working from home or remotely with much more flexibility from many employers has enabled some to see the opportunity to move out of the big cities and find their ideal life in the country or by the sea. Or indeed the Covid-19 pandemic and lockdown has forced others to reflect on their wider family support network and consider whether they need to be closer to loved ones. There is another group who, faced with lack of wider financial assets, and are further on in their life are now considering how they will complete their mortgage and there has become more urgency for some.
Marie goes on to say:
“We have received two enquiries this week from clients with interest-only mortgages who are reaching the end of their mortgage term. One is approaching his 70th birthday and does not have a repayment vehicle in place to repay his mortgage. This is the next ticking time bomb on the horizon.”
While mortgage rates are very low making borrowing attractive, the availability of mortgage finance has been cut in half. Unsurprisingly higher loan-to-value (LTV) mortgages above 90% are very hard to find. For the few that are around, the majority require a guarantor to provide additional security in lieu of a larger deposit or have postcode restrictions.
Indeed, for those that have been furloughed it can be a tough road ahead. According to “Which”, the UK’s 10 biggest mortgage lenders, existing customers re-mortgaging on a like-for-like basis won’t need to undergo affordability assessments. This means there’ll be no negative effects for people who’ve been furloughed. However, if people are looking to borrow additional cash when re-mortgaging, the lender will need to assess their finances, which makes things a little more challenging. It is more likely that people who’ve been furloughed will be able to do a product transfer with an existing provider than seek a new product with a new provider. Those that are lending are likely to consider furloughed income, not pre-covid income, but many aren’t lending at all to new furloughed customers.
So how do younger buyers or those facing employment stability challenges look for alternative ways to get onto the property ladder or make their next move?
Many of the older generation; those that have accumulated wealth and property assets are inevitably considering how they can help their families through different circumstances, while at the same time make sure they retain what they need for their own later life plans.
How you might choose to help children or grandchildren with their house purchase or home move depends on your individual circumstances and there are many things to consider; your overall assets including your own property and what you are wanting to do for yourself as well as them. Navigating the complexities of the tax implications of gifting can be daunting, as discussed in our most recent article with Gill Philpott, our Tax Specialist.
Equally equity release is a real option to release the funds to enable you to help your children move. That too needs careful consideration. The equity release market has seen its own ramifications of the pandemic and making the right choices often needs professional advice to steer you in the right direction.
Equity release can also be a consideration for those with a pending shortfall at the end of an interest-only mortgage, although taking action sooner rather than later to switch to a repayment mortgage is a better solution if time allows.
The average loan to value you can borrow for an equity release loan at age 65 is 32%, at age 70 is 36% and 75 is 42%. This money can be used to repay your standard mortgage, but it needs to be repaid in full. So, it is important that clients begin to repay their interest only mortgages before lenders start to ask for the money back. Most interest only mortgages need to be repaid by the time the borrower is aged 70
Mark RogersWhatever your circumstance and what you’re looking to achieve, for many it is a time to revisit your financial plan. Starting planning early on in life inevitably reaps rewards further down the line and puts you in a good place to be able to deal with the unexpected.
Mark Rogers, IFA at Ascot Lloyd has worked with Rob and Cath for many years now. This couple saved and invested for a long time with help from Mark. Planning well ahead into retirement their finances have been secure enough to see them through the ups and downs of market changes.
They’ve also built up enough to help their son with a deposit on a house and wanted to see him and his family enjoy the money when he needed it now, rather than waiting until they were no longer here to do so. Taking expert advice and revisiting plans enables you to not only work towards long term goals but also take shorter term decisions as your life circumstances change around you.
Rob and Cath on helping their son buy his home
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