Whether you are a first-time buyer, multiple property owner or looking to help your children get onto the property ladder, there’s a mortgage out there for you. At least, that’s what we’re led to believe…
In fact, broadly speaking, mortgages fall into one of only two types - repayment and interest-only.
Under a repayment mortgage, your monthly payment will clear both the month’s interest on the loan and a small part of the capital. The end result being that, when the final payment is made at the end of your agreed mortgage term, you own the property free and clear.
Under an interest-only mortgage, the monthly repayments simply clear that month’s interest that has accrued, however, the capital (the original loan amount) remains untouched. At the end of your mortgage term, you will still have to repay the original loan amount, and the sum will be due to be repaid in full immediately.
Monthly repayments on an interest-only mortgage are typically cheaper than those under a repayment term. First-time buyers tend to opt for interest-only as they appear to be the more attractive, cheaper option. If finances are tight, some borrowers change their mortgage to interest-only, telling themselves at the time that it’s only for the short term and they will change back when finances aren’t so tight. People who do so are unlikely to put repayment plans in place due to the cost. Borrowers believe they will switch to a repayment mortgage when the current deal comes up for renewal, or when finances get easier. The reality is they never do because interest-only will always be the cheaper monthly option.
Some of you may be wondering what an HMO is? Put simply, your home is a standard HMO if both of the following points apply:
Furthermore, your home will be classed as a large HMO if all of the following elements apply:
For clarity, a household is either a single person or members of the same family who live together. A family includes people who are:
HMOs are an attractive proposition for residential landlords as the yield is generally higher than that which can be realised on properties in single occupation. However, there is additional administration which must be adhered to fully.
If you do let an HMO, under current rules and regulations there is a mandatory need for a licence for large HMOs. As of 1 March 2018, there will also be an additional licensing requirement for standard HMOs. This additional licence will only apply in the following Havering wards: Brooklands, Elm Park, Gooshays, Harold Wood, Havering Park, Heaton, Mawneys, Pettits, Rainham and Wennington, Romford Town, South Hornchurch and Squirrels Heath.
Sloane Stanley Estate Trustees v Mundy  UKUT 223 (LC) is a case that challenges the system of lease valuation, specifically the ‘relativity graphs’ used by surveyors and others in the property industry to calculate the value of the property following the increase in the lease. It is the position of the applicant that the existing models are currently too generous to the freeholder. In May 2017, the Upper Tribunal (Lands Chamber) ruled against a new relativity graph proposed by the applicant which would have reduced the cost of lease extension premiums for flat owners.
Leases are known as ‘wasting assets’ as they diminish in value as they expire over time. Traditionally, mortgage lenders wouldn’t provide loans on leases below 70 years, although over the last ten years many lenders have increased this with some lenders requiring 85 years of unexpired term; 5 years beyond the point at which the ‘marriage value’ comes into effect. The marriage value is the additional premium on lease extensions paid to the freeholder that reflects the increase in the value of the property once the lease has been extended.
As a result of the increased lease extension premiums, many leaseholders who have allowed their leases to run down now face inflated costs when looking to extend. In some cases, the premium increases to the point where the property has to be sold at a reduced cost to allow the purchaser to immediately extend the lease at the same time as their purchase to obtain mortgage finance.
Whatever the result of Mundy v the Sloane Stanley Estate, here at Pinney Talfourd we advise all leaseholders to look into extending their lease long before it reaches 85 years. If you have allowed your lease to run down beyond this point, then it really is a ‘sooner rather than later’ scenario to make sure the property is marketable when you look to sell the property or extend the lease. If the legal challenge is successful, we expect changes to the way that leasehold premiums are calculated that could benefit leaseholders - but it may take time for any changes to come into effect.
The big announcements are that stamp duty will be abolished for first-time buyers on property purchases up to £300,000. The Chancellor has also confirmed that in areas of high-cost housing where property purchases are over £300,000 (but under £500,000), the first £300,000 of the purchase cost will be free of stamp duty.
While we can be certain that any reduction on stamp duty is good news for first-time buyers, there are probably individuals out there who have questions as to whether they qualify for one (or both) of the above initiatives. We’ve attempted to assist by answering some of the more pressing questions below.
The government guidance confirms that a first-time buyer is defined as “an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world, and who intends to occupy the property as their main residence.”
Hammond bestows gifts and favours on those he deems most worthy, whilst threatening lumps of coal for those he does not. In previous years the Budget has been heavily focused on the housing market and this year has been no exception. The headlines for the 2017 budget is are;
Although details are still sketchy so soon after the announcement, we can expect that the plans are aimed at continuing the government’s objectives on addressing the shortage of affordable homes for the young and the first time buyers, whilst also making the acquisition of a buy-to-let portfolio significantly more unappealing to your average investor. We’ll reserve judgement on whether the Chancellor’s plans will achieve this ambition (and we’ll leave the discussion as to if this the correct course in any event until further details are available). One thing that we can be certain of is that if the Chancellor’s proposals have half the impact of these previous initiatives, it may be a good time to obtain some specialist legal advice if you are planning a home purchase.
Talking locally about the news that stamp duty will be exempt for first-time buyers on properties with a value of £300,000 and under, Property Solicitor Richard Collins states:
“The government has yet to provide guidance on the areas that will qualify for the assistance on properties sold for over £300,000.00. If the model reflects the current Help to Buy designations not all of Essex will qualify but Havering could be included. We are currently waiting for the government to provide guidance on the specifics of the plan and will keep all our buyers updated as new information becomes available.”