We were reminded this week of how problematic these cases can be with a very 'normal' case we've been working on; a young couple who had set their sights on buying a Shared Ownership property of which they intended to buy a 35% share and had a deposit equivalent to 5%. On the face of it their income was good and even though one of the clients was still on maternity leave she was due to return to work in just over a month, so the lenders were happy to use her return to work income. The Affordability Calculators initially suggested they had lots of wiggle-room on the amount they needed to proceed, so initially things were looking good for them. Unfortunately when they supplied us with all of their documentary requirements (including their latest credit report) we discovered the total amount of their credit commitments was more than their combined annual income, which suddenly created a bit of a problem. Like many young buyers they needed transport to work and had got themselves a car each on finance. Being in rented accommodation their disposable income was theirs to do with as they wanted and their spending patterns had reflected that- why shouldn't they enjoy their income and build up a bit of credit card debt in preparation of their first born?
Applying for a mortgage is one of those events where our financial background is scrutinised in detail, and although the recognised Credit Profile reports produce a 'score', it's based on the most recent, rolling 12 month period which can be quite misleading, as the lenders will typically look much further back than that and take much more detail into account. Having some historic credit can help an application- oddly the situation is often worse if a client has no credit history or footprint to show a track record of being able to maintain regular payments on a credit agreement- but usually where the credit amount is small, kept well within the credit limits and ideally cleared within the set timeframe (or ideally earlier in the case of credit card debt).So if you know that in the next year or two you might be planning on buying your own property try to 'prep' as best you can to put yourselves in the most favourable light. If you need to get a car to get to work and have to rely on finance to get it, perhaps consider not going for the most expensive one you can afford at the time, or at least try to make sure you're not locked into a finance deal that refuses to let you out or amend without huge personal cost to you. If you have HP, credit card debts or similar then do your best to overpay these and reduce the outstanding balance as much as possible before you commit to your house search. It might lead to some restrictions on your social life but those are likely to be for a reasonably short time in comparison to the many years you'll be enjoying your own property (and paying for it!) Above all else make sure you make any credit payments on time as late or missed payments will affect your profile significantly and AVOID pay day loans; most lenders will run a mile when they see a PDL entry on your credit report or bank statements!
The H2B websites are useful too- use those or the internet to look for the H2B calculators- they generally work for both H2B and Shared Ownership in the same or similar way. You can complete your income and outgoings, the likely rental amount on the equity loan or share and confirm in advance whether your potential plan is looking feasible. This might help to identify which areas of your spending you need to change, curb or limit before they start to work against you. In most cases, even if you've agreed a purchase price on a property via an agent or a site representative and have a Mortgage Certificate from an Adviser confirming you're good to go, you will still need to pass a comprehensive Affordability check through the Housing Association. This check is usually much more detailed than the 'standard' checks done by lenders but by using the H2B calculators you should get a more accurate idea of how the Housing Association will view your application.
Our final tip is to try your best to get as large a deposit as you can. It's an obvious statement and one that's very easy for companies like us to churn out, but it can make a massive difference to whether your case is agreed or not. In the case of our young couple mentioned earlier, we couldn't find a home for them with their 5% deposit anywhere, but they were fortunate enough to be able to ask the family for a 'gift' of a further 5% of their share and that was the one detail that tipped the scales back in their favour. Planning ahead is key, most Independent Advisers will be able to help and advise you way before you intend on handing over your deposit to secure a new build property, so take advantage of this kind of service and avoid any last minute (nasty!) surprises....
Some of the Mortgage Business team recently attended an industry expo at Old Billingsgate, London; this type of event is a great way for us to connect with new lenders to see what they may have to offer our clients, to explore new technology developments and to keep ourselves up to speed with the latest news emerging from the mortgage and protection market.
But this particular Expo was extra special for us as a company as it was followed by a gathering under the banner of the National Mortgage Adviser Awards. That name probably doesn't mean much to our clients or anyone outside of the mortgage industry, but to us as a small, local business it means a lot to be recognised by National organisations for exceeding expectations in our field. We love what we do, we try hard to be better at it than our peers and competitors, and we particularly enjoy when a client sees that and lets us know that they appreciate it. But an award from an organisation like the NMAA is a pat on the back that gives us that little bit of extra reassurance that we're doing a good job. We like to think that it's also helpful for any clients that have not used us before- many of us do our online research now on companies before we choose whether or not to speak to them, so anyone looking at our website can see that we have been fortunate enough to have won, or been finalists, in some pretty heavyweight industry awards over a number of years now. Our existing clients are familiar with our brand of advice and service, but we hope that by continuing to add awards any potential clients will also feel reassured that we are reliable, honest, professional, helpful and consistent and choose us to help with the mortgage and protection advice! Congrats to the MB team for being recognised by the NMAA as the Best Advisers in the East of England!
The HMO market is growing in popularity within the Buy to Let (BTL) market as it is potentially more financially rewarding than standard BTLs under the revised income tax regime. So, for anyone who already owns BTL property, or is thinking about investing in it, here is a brief explanation of the main points of change in case you need to take any prompt action......
Licensing requirements may vary between local authority areas but it will be illegal to operate or manage an HMO if you don't have the appropriate license, with the possibility that fines of up to £30,000 can be imposed.
If you need to apply for a license you will need to supply additional information with the application, such as;
What are the changes?
One of the most important changes is that the property no longer has to be 3 storeys or above to qualify, meaning that flats, bungalows and standard 2 storey properties will now be included in that category. So whether you own a house, flat or single storey dwelling, it is likely to be considered an HMO if:
Please note there may be some exceptions to this, and if you have any doubts regarding the status of a property you own then you should take specialist advice and/or check with the Local Authority immediately. Unfortunately, some Authorities (including Brentwood Borough Council) have yet to update the information on their websites (at the time of writing), but a really helpful point of reference can be found at www.colchester.gov.uk
A minimum room size requirement will be imposed depending on whether it is considered a single or double room. In order to qualify as suitable for occupation you would need to make sure any rooms in your property meet these minimum standards. Again, these may vary across geographic areas so please check this immediately with your local authority to avoid any complications.
What are the consequences?
Apart from the potential to be fined heavily, if the property is mortgaged with a Lender that does not support HMO lending then you could be in breach of your mortgage conditions and may need to switch to an alternative lender. HMOs often have different criteria to standard BTL mortgages and may be underwritten differently, which may affect the eligibility of the property. You may also incur some cost in switching.
Any change in the property may affect the amount of rent you can charge, for example, if you are letting a single room that is smaller than the minimum room size standard then you would no longer be able to let that out. This could potentially reduce the amount of rent you can charge and again, possibly result in a breach of your mortgage conditions.
A Landlord without a valid license cannot evict a tenant and in certain cases, rent from housing benefit or paid by tenants themselves can be reclaimed if a landlord is found to be operating a licensable HMO without a license.
What do I do know?
Don't panic, but if you suspect your property may be newly categorized as an HMO under the new legislation you need to act very quickly to verify that with the relevant local authority and make an application for a license immediately, if required. If you need to review your mortgage or have any questions please don't hesitate to contact us for assistance!
The checkouts will confirm the user’s age by using a smartphone app called Yoti, which scans the shopper’s face to confirm their identity. It is hoped the technology can remove a key bottleneck at self-service tills - the requirement that assistants must still check identification when buying age-restricted goods
The Yoti app is set up by taking a photo and scanning a person’s driving licence or passport, at which point the two are tied together. The app is then able to confirm its owner’s identity at any time by them taking a selfie. The company is working with NCR who make self-service supermarket tills and have confirmed two of the big four supermarkets have received approval to pilot the technology early next year.
Using Yoti at a self service till would involve scanning a QR code showing up on the checkout screen. The Yoti app would then scan the shopper's face to confirm their identity, and would then connect to the till over the internet to verify the purchase.
Yoti says almost 100,000 people in the UK have downloaded its app during a beta test. It says the technology could also be used to fight ticket touts and cut down on online fraud. We're hoping that it will also extend to satisfying the archaic Anti-Money Laundering requirements that we carry out for every client. It really is crazy that in this technological age we are still having to photocopy clients' passports, drivers licences and proof of address when an app like Yoti could confirm that in a much more data secure way!
As mortgage advisers we have certain important responsibilities, one of which is verifying the clients applying for funds are who they say they are. Buying property is a great way for anyone with questionable intentions to launder money, so it’s REALLY important that the possibility of any of our clients being involved in that kind of criminal activity is thoroughly checked out!
But the process of validating an individual's identity and address hasn’t really evolved at all in the last 25 years, particularly when you consider the technology explosion that has happened over the same timescale. Yes, there have been some slight improvements in information accessibility over that time but in the main we’re still asking clients for their passports and utility bills in the same way we were back in the 90s.
Until now, perhaps.
Cue a UK technology company called Yoti, who are aiming to become the World’s Trusted identity system for individuals and businesses by creating a free smartphone app that lets anyone create a digital identity with their smartphone and a government issued document. According to their website, www.Yoti.com anyone can set themselves up in 90 seconds although the validation of their Government documents may take a few minutes longer.
Data security is key, of course, but one of the unique details with this biometric identity is that your data can only be decrypted by the key on your smartphone. Data is not stored in the Cloud or any other vulnerable ‘hackers delight’ system. The information that passes between the individual and Yoti is subject to multiple layers of encryption, controlled by a user key only held on that phone. The Directors of the company have their roots in one of the largest and most successful online gambling groups in the UK, so their methods of data security have already been tried and tested in other sectors that have to stand up to seriously close scrutiny. You can be comfortable that your personal details are not going to end up on a data spreadsheet somewhere waiting for an advertising company to buy them and bombard you with unwanted offers for stair lifts and holiday villas!
Once you get your head around the idea that you possess a securely verified e-identity on your phone, avoiding the need to carry around important, original documents that you really DON'T want to risk losing, you realise the possibilities for its use are almost endless. Yoti anticipate the system proving popular in a number of sectors, healthcare, recruitment, property management, online dating, online marketplaces, financial services, retail & nightclubs, are just a few. And it's not just about proving you're over 18, the theory is that this could be the best way to guarantee a safe online chat-room environment for our children.
For us, we’re hugely excited to be running a trial alongside our standard Anti-Money Laundering processes to see if this could be the evolution we’ve been waiting 20 years for. If we’re successful and it means clients no longer have to come in with their passport and Council Tax bill then it would be a major improvement for all concerned and we’ll be proud to have played our part in dragging our industry one step further into the technological revolution!
Any changes to the Tax Regime?
Landlords will be glad they have not been dealt any new blows in the Spring Budget - but unfortunately the Chancellor will not be reversing the additional stamp duty charge or the mortgage interest tax relief changes expected to come into effect in April.
Currently landlords are able to deduct all their mortgage interest (and other property costs like estate agents fees) from their rental income before they calculate their tax bill. But as of 6th April relief will be set at 75% and will gradually reduce until it is replaced with a flat 20% tax relief in 2020. If you have a large buy to let mortgage it's important you speak to your accountant and mortgage adviser, digest the new mortgage interest changes and make sure you've accounted for them. If you don't have a mortgage or you're a lower rate tax payer then good news; you will not be affected at all.
Think again about setting up a limited company
As a result of the imminent mortgage tax relief changes, a number of landlords have been setting up - or considering setting up - a limited company to pay less tax. This is because, unlike individuals, limited companies can still benefit from the full mortgage interest deduction as mentioned above. But the Chancellor has clearly hinted that he doesn't want landlords forming companies to dodge the tax hit, announcing in the Budget that the tax free dividend allowance for company directors will be slashed from £5,000 to £2,000 from April 2018. The dividend allowance cut will cost basic-rate taxpayers £225, higher-rate taxpayers £975 and additional-rate taxpayers £1,143.
Tax rise for the self-employed
The Chancellor also made it crystal clear he's determined to make the taxation system more equal for employed individuals, company directors and the self-employed, announcing a 1% rise in Class 4 National Insurance contributions from April 2018 and a further 1% hike from April 2019. Many are arguing that this is sensible budgeting from a Government and the differences between self-employed and employed benefits are less defined than ever before, indeed, he plans to announce more changes to reduce the gap even further, but all of that points towards thinking very carefully about whether setting up a Limited Company is the best move for you.
As an alternative, consider whether you are able to reduce your interest costs by re-mortgaging and getting an up to date rental valuation on your property. Despite the recent stress test changes in BTL calculations if you haven't done this for a while then a higher property value may result in a lower Loan to Value calculation and a better pay rate than you may have been facing.
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An administration fee of £99 is payable on application, there may also be a fee for mortgage advice. We will typically charge £500 for mortgage loans of £99,999 or under. We will also be paid commission from the lender. The FCA do not regulate some forms of mortgage.