How you can bridge the mortgage generation gap

DATE: Jun, 6   COMMENTS: 0   AUTHOR: Allan Azarola

Laura Whateley lists the latest best buy deals for first-time buyers and older borrowers

Mortgate rates may be at record lows but two groups of people have been missing out on the best deals. Millennials from “Generation Rent” are finding that the best rates are available only to those with a deposit of at least 40 per cent, while baby boomers suffer because many lenders are reluctant to extend mortgages into retirement.

Things are looking up, however; banks and building societies battling in a competitive mortgage market are appealing directly to first-time buyers and the over-55s. “Many of the banks and building societies have constantly been improving their first-time buyer mortgages as part of the drive to ramp up the lending figures,” says Aaron Strutt, of Trinity Financial. “With a 10 per cent deposit you can lock into a sub-2 per cent fix.”

He says that while you will probably need to take the mortgage on full capital repayment rather than interest-only, you can opt for a term of up to 40 years to make repayments affordable.

David Hollingworth, of L&C Mortgages, says: “If you have a deposit of 5 per cent, you are still going to pay probably double in interest [what] you would if you are borrowing with a deposit of 40 per cent, but I think there is a lot more choice and competition than there once was.” As for older borrowers, a new product aimed at over-55s is expected to shake up what brokers say is an underserved sector of the market. So what are the best deals?

First-time buyers
The low-deposit mortgage price war is still on and lenders are targeting first-time buyers, Mr Strutt says. “Many of them know that when they get a borrower there is a good chance they will keep them. One of the banks recently told us it keeps more than 85 per cent of its mortgage customers.”

You will get the lowest monthly repayments by taking out a short-term fixed rate, but it is worth asking your bank what happens when the rate runs out and if it has a good retention policy.

Mr Strutt recommends HSBC’s “incredibly cheap” 1.99 per cent two-year fix, with a £1,499 fee, available to borrowers with a 10 per cent deposit. The Post Office has also launched a 2.67 per cent three-year fix, with a fee of £1,495, for those with the same deposit, which Mr Strutt says offers slightly longer-term payment security.

If first-time buyers have a 15 per cent deposit, they could opt for Chelsea’s 1.58 per cent two-year fix with a £1,675 arrangement fee. For those with a 5 per cent deposit, Mr Hollingworth recommends Nottingham Building Society’s two-year fixed rate for first-time buyers, at 3.29 per cent for up to 95 per cent loan to value (LTV) plus a £999 fee.

Lots of first-time buyers will be calling on the Bank of Mum and Dad for help, and in response lenders are becoming more creative, says Adrian Anderson, the director of Anderson Harris, the mortgage broker.

To avoid second-home stamp-duty levies you can get a joint borrower, sole proprietor mortgage such as Barclays’ Family Affordability Plan. Parents are not on the property deeds but are jointly liable for the mortgage. A borrower can also remortgage to remove their parents from the loan if they can show Barclays that they can afford the repayments.

Barclays Family Springboard mortgage lets borrowers take out a loan in their own name with a 5 per cent deposit. The rate is lower than normal, however, because the borrower’s family members open a Helpful Start bank account into which they put 10 per cent of the property price. After three years this is closed and parents get their money back plus interest.

“If parents have equity in their home they can use this to assist their child without remortgaging,” Mr Anderson says. “The National Counties building society’s Family Mortgage will take wider assets into account as security so that a child with a 5 per cent deposit, for example, can benefit from a better mortgage rate.” This mortgage offers a three-year fix at 3.34 per cent, or a five-year fix at 3.64 per cent, lower rates than would normally be the case for someone requiring 95 per cent LTV.

Over-55s
Many lenders have improved their maximum age policies over recent months, acknowledging that we live in an ageing society where many work beyond 65.

“For borrowers in their late fifties there is still a good level of competition with some of the larger lenders who will go to age 75,” says Simon Collins, of John Charcol, the broker.

This week Halifax announced that it will offer mortgages for borrowers with standard non-pension income up to age 70. Mr Collins says: “However, once you hit 60, a reduced term starts to hammer affordability. As we’re living longer, [and therefore] having to work longer, we’re likely to want to borrow for longer, too.”

That’s where a Hodge Lifetime 55-plus mortgage comes in. An interest-only loan aimed at older borrowers, the maximum term takes the loan up to the youngest borrower’s 95th birthday. There are three options, a two-year discount rate at 3.3 per cent, a two-year fixed rate at 3.49 per cent and a five-year fixed rate at 3.95 per cent. Hodge will accept investment and rental income as well as pension income and you can apply for the loans up to the age of 85.

Marsden Building Society has an older borrowers loan, with rates between 2.49 per cent and 3.29 per cent, but it will lend only up to the age of 85 and takes only pension income into account after retirement. Market Harborough will also lend on an interest-only basis to the age of 85, but only if borrowers have a minimum of £250,000 equity in the property.

Mr Anderson recommends Metro Bank, which has introduced more flexible criteria for older borrowers.

Case study: ‘It was surprisingly easy’
Jayne McNally and Emmanuel Néret, both 26, work in the ad tech
industry in Soho, London.

The couple managed to secure a mortgage rate of 1.99 per cent on
the first property that they bought together in FABRICA’s canalside City Wharf development in Hackney.

They had been renting in neighbouring Hoxton for nearly three years and realised they could buy in an area that they loved by using the Help to Buy scheme. They would have been unable to afford the flat without the boost to their deposit.

Under the scheme, the government will lend those with a minimum 5 per cent deposit up to 20 per cent of the price of a property. The rest is borrowed from a mortgage lender.

Jayne says: “We decided to look at a few new-build developments, came across City Wharf. The whole process was surprisingly simple. We viewed the property on Friday and made an offer on the following Monday, which was accepted that same day.

“Thanks to Help to Buy, we only had to pay a reservation fee of £500, instead of the usual £2,000.”

The couple say they have recommended the scheme to their friends. Their one-bedroom, first-floor apartment costs £570,000 and the sales team for the development recommended a financial adviser who was able to secure a cheap mortgage rate for them.
Laura Whateley

WHY STAMP DUTY CAN TRAP YOUNG AND OLD
The new stamp-duty levy intended to help people on to the property ladder could hit a range of unsuspecting property owners.

From this month anyone buying a second home has been hit with a 3 per cent stamp-duty levy.

The law is designed to put people off owning multiple properties so that there is more housing available for people wanting to buy their own home, but thousands of non-landlords will face hefty tax bills.

“One has to conclude that the Treasury considers other purchasers, including some first-time buyers [who the chancellor claimed the 3 per cent surcharge was designed to help], are what the government would call collateral damage,” says Ray Boulger, the senior technical manager at John Charcol, the broker.

As Times Money reported last week, parents wishing to help their children to buy their first home will be hit with the levy if they become joint signatories on the mortgage.

People who want to buy or help to pay for a property for their elderly parents will also be affected.

In these cases, the only way to get round the 3 per cent charge is to take out a loan with one of the few lenders offering mortgages on a “joint borrower, sole proprietor” basis. This is where the mortgage is in joint names, so two incomes are taken into account for affordability purposes but only one name goes on the deeds. This allows any party who already owns a property to keep their name off the deeds.

Only Woolwich, Metro Bank and a few small building societies offer this option, so it may pay to use a mortgage broker who knows which lenders to approach.

First-time buyers will also be hit by the 3 per cent levy if they have inherited a share in another property along with other relatives, for example.

Although the home they are buying may be their only residence, it will still be classed as a second home.

Divorcing couples should also take care. Any partner moving out to buy somewhere new will have to pay the levy if their name is still on the deeds of the family home.

“It does seem unfair that those who are separated or getting divorced could be penalised if one of them is buying a new home to start a new life,” says Patrick Connolly, of Chase de Vere, the financial planners.

“There will also be instances where those with a property abroad have to pay the additional charge even though they might be buying their first property in the UK.”

The government has amended the stamp-duty rules to exclude most people buying homes with self-contained “granny flats” after widespread criticism.

If you think you are going to be unfairly charged, seek professional advice.

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