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Average asking price of UK homes down by 2.1% in a month, says Rightmove

The average asking price of homes being put on the UK market has fallen by 2.1% over the last month, according to Rightmove, which said it had seen the largest pre-Christmas dip of the last four years.

The UK’s biggest property website said the average asking price was £359,137 in early December – about £7,862 less than a month previously. The fall in asking prices followed a 1.1% decrease in November’s prices, and will be seen as further evidence that the property market is rapidly cooling.

Kwasi Kwarteng’s infamous mini-budget, which sent mortgage rates rocketing, looks to be the point at which property prices peaked – for now at least.

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Last week Halifax said prices in the UK fell by 2.3% in November, the largest monthly drop on its index since the start of the 2008 financial crisis.

Terraced properties on the high street, Henley-in-Arden, Warwickshire, England
UK house prices fall at fastest rate in 14 years, says Halifax
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At the start of the month, Nationwide said UK house prices were falling at the fastest pace in almost two and a half years, as the turmoil of September’s mini-budget affected the sector.

Despite this, Rightmove said that at the end of 2022, average asking prices were 5.6% higher than at this time a year ago, only slightly below the 6.3% growth recorded in 2021.

However, it predicted a 2% fall in prices next year as a multispeed, hyperlocal market emerges, with “some locations, property types and sectors faring much better than others”.

The number of views of homes for sale on Rightmove was up 11% compared with this time last year, a sign that there are many potential movers who are weighing up their options, it said.

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“After two and a half years of frenetic activity it’s easy to forget that having multiple bidders immediately lining up to buy your home was the exception rather than the norm in pre-pandemic years, and there will be a period of readjustment for home-movers as properties take longer to find the right buyer,” said Rightmove’s Tim Bannister.

“We’re heading towards a more even balance between supply and demand next year, but we don’t expect a surge in forced sales, which would cause a glut of properties for sale and contribute to more significant price falls in 2023,” he added.

By Miles Brignall

Source: The Guardian

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Taking on the challenge of a self employed mortgage

Self-employed people still face an uphill struggle in mortgage applications, but help is at hand. Though some lenders have tightened their criteria, others are working with mortgage brokers to encourage buyers with complex incomes. Article by Nick Green.

If you run your own business, work as a contractor or earn through freelancing, then you’re disproportionately more like to have your mortgage application refused. Despite an extensive raft of measures from the government to help first-time buyers, from the stamp duty holiday to 95% mortgages, self-employed people are still relatively lacking in support. However, some lenders such as Bluestone are now taking a more proactive stance to encourage the self-employed, and many mortgage brokers remain very happy to take these customers on.

It has always been more difficult to get a mortgage when self-employed. Lenders prefer the reassurance, predictability and ease of calculation that comes from a regular income, rather than the more erratic, complex incomes (generally) associated with self-employment. The pandemic and lockdown have only amplified these differences, especially as many self-employed people and business owners have been less well-supported by grants and furlough schemes. As a result many lenders further tightened their lending criteria, at least initially. But there are a signs of a shift in the other direction.

A poll in April by Mortgage Solutions found that six out of ten mortgage brokers believe that product availability is narrowing for self-employed borrowers, while criteria are growing more stringent. However, nearly a third thought the opposite, suggesting that opportunities are still out there for those who persist. There are also indications that some lenders are being forced to relax their criteria, to avoid losing their customer base.

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Why the self-employed get a ‘raw deal’ on mortgages

What’s not in dispute is that the search for a mortgage has become a lot harder for the self-employed. Research by Mortgage Broker Tools (a platform used by mortgage advisers) suggests that almost a third of self-employed mortgages are now effectively ‘unaffordable’, and that the maximum amount such customers can borrow has dropped by 3% since August.

The research also found that over a third of self-employed applicants had suffered at least one mortgage rejection. A comparable study by mortgage broker Haysto found this figure to be smaller, at one in six, but still significant. Paul Coss, co-founder of Haysto, feels that the self-employed get a raw deal, given that often they can boast higher incomes in real terms than people on salaries can. He says, ‘Mortgage lenders tend to prefer people in full-time employment, because it’s easy and simple to understand their income. Being self-employed, your income isn’t as straightforward, [but] people shouldn’t be penalised for that.’ His view is that most mortgage lenders just aren’t willing to handle the extra effort of dealing with complex incomes.

Kaan Emin, a broker at Apply Mortgages, warns that self-employed people who use the government support scheme SEISS (the equivalent of furloughing themselves) may inadvertently harm their mortgage prospects. He says, ‘Most self-employed people of which have taken help from the Government during the pandemic are being disadvantaged by lenders. [They] have to return off furlough and evidence three months of business bank statements to evidence the same level of income they earned prior to the pandemic.’ He suggests that self-employed people should only use schemes like SEISS if absolutely necessary.

But David Baird, a mortgage adviser with Aventur Wealth, offers a more optimistic viewpoint. Although he concedes that Covid has had ‘a huge impact on self-employed mortgages’ and led to increased discrepancy, he says, ‘Personally I have not seen a decline in acceptance rates. Instead it has caused an increase in time taken on my part in researching the right lender for the right applicant.’ In other words, self-employed buyers still have a fighting chance if they can find a diligent mortgage broker who will search the whole of the market for them.

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New opportunities for self-employed homebuyers

Fortunately, some lenders do recognise the difficulties created by Covid, and are adjusting their requirements to reflect this. Leading the way is Bluestone Mortgages, which has updated its credit policy for self-employed applicants. Those who have experienced a drop of 10% or more in business income, but have since restored their earnings to their former levels, can use their 2019/20 as the yardstick both for affordability and maximum loan size. So long as borrowers can provide three months’ evidence of the restored income, it will be treated as the equivalent of a full year for mortgage purposes.

‘We are acutely aware of the hardships that the self-employed community has faced during the COVID-19 pandemic,’ says Reece Beddall of Bluestone, ‘and we remain committed to providing these borrowers with a lending solution that will better meet their needs.’

Shared ownership remains a possible route for those whose home ownership ambitions have taken a knock. This is most commonly offered by housing associations, but private companies are also creating opportunities. One of these is Wayhome, whose CEO Nigel Purves observed that the stamp duty holiday had still left a lot of people behind. He says, ‘Even with the Stamp Duty extension for an extra three months spurring on hopeful home buyers, there are many who find themselves overlooked and ignored due to their household income not meeting a mortgage lender’s criteria. This is despite them already having a deposit saved and being able to afford the equivalent of mortgage repayments in rent each month. More needs to be done to level the playing field and provide people with alternative routes into home ownership.’

Guarantor mortgages are another potential way to persuade a lender to take you on, though it requires having parents or other relatives willing to share the risk. Another, more radical option for self-employed first-time buyers may be to try and ‘weaponise’ the very thing that is keeping them off the housing ladder: namely, the over-inflated housing market. How? Such a move would likewise need the help of willing parents, who fully own their home mortgage-free and are willing to release equity from it to raise money for a deposit. The parents use equity release to take a chunk of money from their own home’s value, which becomes all or part of the deposit for their offspring’s home. So effectively it is an ‘equity transfer’.

Bob Hunt, chief executive of Paradigm Mortgage Services, says he is now seeing ‘a much closer alignment between the equity release sector and that of the first-time buyer.’ At one level the strategy makes a lot of sense – if the problem is down to rising house prices, then rising house prices can be part of the solution. The downside of course is that a lot of value is eroded during the equity release process, so by gifting a child a deposit made of released equity, parents would be reducing that child’s eventual inheritance by a much greater amount. Still, some families may consider it a price worth paying for the reward of home ownership.

Being self-employed does have many advantages, but ease of obtaining a mortgage isn’t one of them. Nevertheless, in the post-Covid market new opportunities are gradually emerging, and mortgage brokers are ready to help contractors, freelancers and business owners take advantage of them, while advising on the best options to choose.

By Nick Green

Source: Unbiased

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House prices: What happens when they fall?

Annual house price growth has slowed, and the latest monthly figures show a fall, according to Nationwide.

It follows the Bank of England’s decision to increase interest rates to 3%, meaning higher mortgage costs for many. Further rate rises are expected.

What is happening to house prices?
In the last two years, prices rose steeply – by about a quarter – across most of the UK.

That pace of growth was much faster than that seen after the 2008 global financial crisis, where houses lost about a sixth of their value and it took five years, on average, for prices to recover.

However, they have now started to slow.

Nationwide’s figures show prices fell by 1.4% between October and November – the sharpest monthly drop since the middle of 2020.

On an annual basis, it found prices grew by 4.4% compared to 7.2% in October.

The building society said the housing market looked set to “remain subdued” in the coming months.

Will house prices fall in the UK?
Monthly changes can be blips, but the UK’s largest lender, Lloyds, is planning for an 8% price fall next year.

In November, the Office of Budget Responsibility (OBR), which advises the government on the health of the economy – predicted that house prices will drop by 9% over the next two years.

Big jumps in interest rates put pressure on the amount people can afford to offer for houses, and that means less demand.

Mortgage affordability also depends on wider cost-of-living pressures like energy bills, wages and job security. The future of house prices depends on the economy as a whole.

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What happens when house prices fall?
Falling house prices have the biggest immediate effect on people who want to move.

Some sellers may decide to delay putting their homes on the market. Homeowners who are considering moving may find they have less money to spend.

There were fewer property sales this year than in the 12 months leading up to last summer’s surge in prices before the temporary stamp duty reduction ended.

But if interest rates stay high, an increasing number of people will come off fixed-price mortgages (about 100,000 each month) to new, higher rates.

Some homeowners will find higher these monthly payments unaffordable, making them more likely to sell.

First-time buyers may find properties are more affordable, allowing them to get a foot on the ladder – assuming they can get a mortgage.

But a drop in prices can also send shudders through the finances of those homeowners who are staying put.

At the most extreme, homeowners can end up in negative equity – where the amount they have borrowed is greater than the current value of their property.

With about a third of household wealth tied up in home values, falling prices can make people feel less financially secure, mean they save more than they spend.

Less spending can make an economic slowdown even worse.

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Are people struggling to pay their mortgage?
The number of people in arrears peaked during the 2008 financial crisis, but did not rise significantly during the pandemic, helped by lenders granting payment holidays.

In the worst case, payment difficulties can lead to banks and building societies repossessing houses, although lenders try to avoid this.

More than 200,000 properties were repossessed in the five years after the financial crash.

As a result of the Covid pandemic, repossessions were suspended between March 2020 and April 2021. In the year after they restarted, there were fewer than 4,000.

Does a drop mean a house price crash is inevitable?
When the Bank of England raised interest rates by 0.75 percentage points to 3% on 3 November, it was the biggest single rise in the cost of borrowing since 1989.

After the mini-budget, financial markets were forecasting that the Bank of England’s interest rate would rise above 6% in 2023.

However, traders now expect the peak to be under 5%. You can use the mortgage calculator above to see how big an effect those kinds of changes can have on monthly repayments.

In the early 2000s property boom, 100% mortgages and cashback offers were not uncommon.

But after the 2008 financial crash, mortgage lending rules were tightened.

As a result, loans should leave more room for prices to fall before borrowers are stuck with negative equity.

Most recent borrowers have also had their ability to pay checked against interest rates even higher than the ones we’re seeing at the moment.

By Robert Cuffe & Christine Jeavans

Source: BBC News

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House price growth set to drop into negative territory

The UK’s current house price inflation has slowed to 7.8%, the slowest rate of growth recorded since November 2021, according to Zoopla.

Following October’s mini budget which then saw the property market stall, the property portal says that the housing market is transitioning from an unsustainably strong market to one more balanced, albeit with affordability challenges for homebuyers most reliant on mortgage finance and a weaker economic outlook for 2023.

Buyer demand has dropped 44% year-on-year with a slower decline seen in sales at -28%, which are now back to pre-pandemic levels.

New sales have fallen by up to 50% in the previous market hotspots and high-value areas where higher mortgage rates will hit buying power hardest such as the mid to upper price bands in Southern England (excluding London), East Midlands and Wales. Sales have fallen less in more affordable areas and London where market conditions have been weaker.

Agents will welcome the fact that more homes are coming to the market for sale with the total stock of homes available up 40% vs 2021 – but still almost 20% below pre-pandemic levels and rising supply will boost choice for consumers.

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House price inflation is losing momentum fast, with more recent trends over the last quarter growth rates running at less than a third of the last year. However, Zoopla’s data is yet to record price falls over the last three months across UK countries, regions or major UK cities.

The property website expects price growth to dip into negative territory in H1 2023 as the market adjusts to weaker buying power and concerns over the economic outlook.

It adds that sellers now have to accept discounts to asking prices in order to achieve a sale – a trend that has become more apparent in recent weeks.

The average price achieved in recent weeks has been 3% below asking price when for much of 2021 and the first half of 2022 it has been 0%. Zoopla expects discounts to widen further in 2023.

The portals says that history shows that when discounts reach 5-6% this points to flat to falling prices., it is important sellers who want to achieve a sale are realistic on selling prices and speak to agents for the right advice for their home.

Falling demand and sales mean new and current sellers are being forced to set asking prices at more realistic levels to help secure buyer interest. 1 in 10 homes (11%) have recorded a price reduction of 5%+ (although this remains below 2018 levels) and 1 in 4 (25%) have experienced a price reduction of any size since 1 September 2022.

Asking price reductions are greatest in Southern England, where sales volumes have fallen the most with almost 1 in 3 homes in the South East and East of England reducing asking prices to attract more demand.

The outlook for mortgage rates is the most important factor for home buyers and those planning to move in 2023.

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Looking ahead, Zoopla expects sales volumes to drop back to 1 million over 2023 (from 1.3m in 2022) with house price falls of up to 5%, concentrated in the high-value markets most sensitive to higher borrowing costs

Richard Donnell, executive director at Zoopla, said: “The housing market is adjusting to a reset in the level of mortgage rates but the likelihood of double-digit house price falls at a UK level remains low.

“While the outlook for house prices is weak, we see a shift to more needs driven motivations to move in 2023 and beyond which will support sales volumes. Ongoing pandemic impacts, increased labour market flexibility plus more retirement will continue to encourage moves. Cost of living pressures will compound these trends encouraging homeowners to consider their next move. The rapid growth in rents, which shows little signs of slowing, will add to cost-of-living pressures and add continued impetus to first time buyer demand.

“Sharing advice for sellers looking to list their home for sale, Polly Ogden Duffy, Managing Director at John D Wood & Co. comments: “Tidy up, freshen up, and clean up! Presentation is everything when it comes to selling a home in a competitive market. As well as setting realistic expectations on the price you will achieve. If your property comes with a compromise, such as having a small garden, it’s on a busy road, or it requires a replacement kitchen or bathroom – you need to price accordingly. Competing with other properties at the same price point that come without these drawbacks, will only mean that yours will be last to sell. A combination of waiting too long to adjust your price, and more property coming to the market in the New Year will only provide even more choice for buyers.”

By Marc Da Silva

Source: Property Industry Eye

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Where does the housing market stand with a 3% base rate?

With constant increases in the Bank of England base rate, mortgage rates have been hitting the headlines with regularity.

While rates have risen, housing market sentiment has fallen. A record half (52 per cent) of adults across Britain disagreed it was a good time to buy a property, according to a September survey by the Building Societies Association.

So where does this leave first-time buyers, and those looking to remortgage?

Mark Harris, chief executive of SPF Private Clients, says that for first-time buyers it is arguably as good a time as any to buy, if they have found a home they want to purchase, are happy with the price they are paying, can afford to pay it and are prepared to stay put for a few years.

“Buyers will be aware that there is talk of property prices falling and potential negative equity for first-time buyers in particular because they tend to take on higher loan-to-value mortgages.

“But such issues are only really a problem if the buyer intends to sell again in the short term. Over time, prices tend to appreciate in value and usually recover even if they dip initially.”

Richard Howes, director of mortgages at Paradigm Mortgage Services, says first-time buyers could take advantage of any fall in house prices, but adds: “It’s the issue of affordability coupled with the cost of living increases that could really impinge on their ability to buy.”

With falling house prices widely predicted across the market, Simon Gammon, managing partner of Knight Frank Finance, says it is reasonable to expect lenders to be hesitant about offering competitive high LTV mortgages.

“We have already seen a reduction in the number of 90 per cent and 95 per cent mortgages available, and those that are still available come at a significant premium in terms of rate. We can therefore expect it to be harder for first-time buyers to get onto the property ladder in the foreseeable future.”

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Just Mortgages national director Carl Parker says it is without doubt becoming more challenging for both first-time buyers and those looking to remortgage after a low fixed rate.

“This is just because rates have risen so quickly, making it hard for people to adjust. However, swap rates are starting to fall back and therefore mortgage rates are dropping a little too. However, they are unlikely to ever return to the historic lows of the past 10 years.”

Vikki Jefferies, proposition director at Primis Mortgage Network, also points to fixed rates stabilising despite the 0.75 percentage point increase in bank rate. But she agrees that borrowers reaching the end of a fixed rate will be faced with higher rates than they are used to.

“This may come as quite a shock for some, especially with house prices falling and reductions in loan-to-value ratios. As a result, product transfer could prove to be a better option for some as customer loyalty can be considered, which sometimes includes preferential rates.

“With fixed rate mortgages currently seeing higher rates than standard variable rate mortgages, talking through the options available to clients is now more important than ever.”

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Indeed, Harris at SPF Private Clients says many clients are seeking variable or tracker rates with no early repayment charges to remortgage. “These are comparatively so much cheaper, at least initially than a fixed rate.

“[Clients] plan to move onto a fixed rate, once pricing of these falls. Meanwhile, if interest rates don’t rise as fast or as far as previously predicted, a variable rate mortgage may turn out to be a good option.”

When it comes to house prices meanwhile, Howes at Paradigm Mortgage Services cites expectations of price growth to slow, rather than prices to fall. “With the recent surge in prices since Covid, most homeowners will have equity they can utilise.

“Indeed, the average LTV of the top five lenders is 60 per cent and they cover around 72 per cent of all lending in the UK, so the average person looking to remortgage should be okay.

“What is of concern though is that remortgage affordability could be an issue, and of course the conveyancing market with its delays and current timescales makes it less attractive than perhaps doing a further advance and product transfer.

“This area could be an issue for advisers, where the DIY product transfer could come into play, at a time when advisers are needed more than ever.”

Parker at Just Mortgages agrees that the need for mortgage advice is at its peak. “The daily fluctuation in mortgage rates has made the role of brokers absolutely vital to help borrowers assess their affordability against changing criteria, and navigate options in this mortgage landscape.

“It is also essential that brokers make the time to reach out to existing clients, to see what help and advice they need, and help to put their minds at rest during this changing interest rate environment.”

By Chloe Cheung

Source: FT Adviser

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Vendors told to ignore estate agency calling for a 10% cut to asking prices

Following the recent drop in buyer demand, vendors have been advised to slash their asking price by 10% as rising mortgage rates make homes unaffordable for many buyers.

Sellers need to be “realistic” in a cooling property market, Leeds-based estate agency HOP warned last week, as economic uncertainty takes its toll on the housing market.

Luke Gidney, managing director of HOP, told the press: “You need to be really realistic as a seller, if you want to sell your property you need to be realistic and consider a 10% reduction on what you would have done six months ago.”

The estate agent’s advice follows months of economic uncertainty, which looks set to continue after the Bank of England said that the country faced one of its longest-ever recessions, and interest rates were hiked to 3%. Economists at Capital Economics predicted the day before the rate rise that house prices would drop by 12% by 2024.

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“The problem we’ve got right now is the interest rates are making these properties unaffordable,” Gidney added. “There’s still interest out there, but people are genuinely worried. I think the combination of the fuel crisis, the cost of food, inflation and mortgage rates, I think people are extremely worried about it, and they are putting off these big decisions and maybe sitting on their hands for a bit.”

He said the sentiment among some first-time buyers was “why buy now when prices next year might be 10, 20, or 30% lower?”

He added that he knew of multiple buyers dropping out after an agreement because they were rethinking their decision.

But Tom Cranenburgh, who runs GetanOffer, said sellers should hold their nerve.

He commented: “We’ve certainly seen buyer enquiries drop off lately, but I’ve got a feeling this is just temporary. There are still lots of people who’d love to buy a home. If things get more stable soon, big price reductions shouldn’t be needed.

“There’s a simple reason why some are suggesting doing this and that’s overpricing. Some, in fact many agents, have at one time or another been guilty of overpricing property either with the owner’s blessing or worse, to get the property on the books. Many estate agents wrongly think it’s better to get a seller on the market [usually with a fixed term contract] and bring the price down later, than it is to be honest about price and lose the business to someone who isn’t.

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“With the possible exception of a handful of sellers who are truly desperate, or who have discovered a defect with the house that necessitates a big drop, sellers chopping 10% off were never going to get their price, whatever the market conditions.”

Jonathan Rolande, the founder of property firm House Buy Fast, agrees. He added: “There’s no doubt the property market is under immense pressure right now and the time of year doesn’t help either, dark afternoons and Christmas are ahead of us.

“But if your agent is suggesting you knock 10% off the price of your most expensive asset, ask them why.

“Why, when the market is down less than 1% is this necessary? If they were the agent that suggested the price in the first place, I’d suggest you always get a second and third opinion first.”

By Marc Da Silva

Source: Property Industry Eye

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UK records steepest house price fall in nearly two years, Halifax figures show

The UK has recorded the biggest monthly fall in house prices since early 2021, according to an index.

The average property’s value fell by 0.4% in October, marking the third month-on-month drop seen in the past four months, Halifax said.

October’s month-on-month decrease follows monthly falls of 0.1% in both July and September and a 0.3% increase in August.

Meanwhile, annual house price growth slowed to 8.3% in October, from 9.8% growth recorded in September.

Across the UK, the average house price in October was £292,598, which was the lowest figure since May this year, although typical prices remained near record highs, according to the lender.

Elsewhere, annual price growth among home movers fell to 8.9% in October, from 10.3% in September.

The price growth slowdown for first-time buyers was more notable, slowing from 10.1% in September to 7.5% in October.

Given the greater challenges for first-time buyers in deposit-raising, plus tighter requirements for higher loan-to-value mortgages, the faster slowdown in prices is not surprising, the bank said.

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Kim Kinnaird, director of Halifax Mortgages, said: “Though the recent period of rapid house price inflation may now be at an end, it’s important to keep this in context, with average property prices rising more than £22,000 in the past 12 months, and by almost £60,000 [25.7%] over the last three years, which is significant.

“While a post-pandemic slowdown was expected, there’s no doubt the housing market received a significant shock as a result of the mini budget, which saw a sudden acceleration in mortgage rate increases.

“While it is likely that those rates have peaked for now – following the reversal of previously announced fiscal measures – it appears that recent events have encouraged those with existing mortgages to look at their options, and some would-be homebuyers to take a pause.

“Understandably we have also seen consumer caution grow as industry data shows mortgage approvals and demand for borrowing declining.”

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Last week, the Bank of England (BoE) increased the base rate to 3%, from 2.25% previously.

This was the latest in a string of base rate increases, meaning that since December last year the average monthly tracker mortgage payment will have increased by £284.17 in total, according to figures from trade association UK Finance.

Andrew Simmonds, director at Bristol-based Parker’s Estate Agents, said: “Since the summer, I’ve been telling vendors that their house is worth what it was worth 12 months ago. I’ve lost instructions because they’ve said ‘nah’.”

He added: “Plenty have since come back to me saying: ‘You were right’.”

Source: ITV News

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Mortgages difficult for self-employed say advisors

A new survey of mortgage advisors has found that the majority of them think that lenders are making it more difficult for self-employed people to get a mortgage, despite growing numbers opting for self-employment.

United Trust Bank carried out this survey and nine of every 10 advisors that responded to it said that the eligibility criteria for people who are self-employed has been made much stricter by mortgage lenders. In total, 91% of the advisors who took part in the survey told the bank that it is now harder than ever for the self-employed to secure a loan.

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This survey was part of a new report published by the bank that has been titled ‘Growing opportunities for brokers in the specialist mortgage market.’ The premise is that lenders outside of the big-name ones might offer a way for those with complicated financial and employment situations to get onto the property ladder.

According to Mortgage Strategy, this report goes on to argue that such people:

“Are a group which will continue to grow and that having lenders sufficiently skilled-up and with an appetite to cater for these customers is vital.”

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This is supported by the available evidence, which shows that self-employed numbers in the UK had reached 4.2 million by March of this year. These figures are provided by the Office for National Statistics.

Many mortgage advisors who have CeMAP training are already aware of the need to look to specialist lenders to meet the mortgage needs of self-employed clients and others with complex circumstances.

Source: Beacon Financial Training

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How to understand what’s going on with UK mortgage rates

The UK mortgage market has tightened as confidence in the economy has faltered in recent weeks. Lenders withdrew more than 1,600 homeloan products after the (then) chancellor Kwasi Kwarteng’s September mini-budget sent the UK economy into a tailspin.

Rates on the mortgage products that are still available have risen to record levels – average two-year and five-year fixed rates have now passed 6% for the first time since 2008 and 2010 respectively.

The Bank of England has intervened to try to calm the situation. But this help currently has an end date of Friday 14 October, after which it’s unclear what will happen in the financial markets that influence people’s mortgage rates.

This is a crucial issue for a lot of people: 28% of all dwellings are owned with a loan, with mortgage payments eating up about a sixth of household income, on average.

Looking at how the market has developed over time can help to explain how we got here and where we are going – which is basically headfirst into a period of high interest rates, low loan approvals and plateauing house prices.

All financial markets are driven by information, confidence and cash. Investors absorb new information which feeds confidence or drives uncertainty, and then they choose how to invest money. As the economy falters, confidence erodes and the interest rates that banks must pay to access funding in financial markets – which influence mortgage rates for borrowers – become unpredictable.

Banks do not like such uncertainty and they do not like people defaulting on their loans. Rising interest rates and uncertainty increase their risk, reduce the volume of mortgage sales and place downward pressure on their profits.

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How banks think about risk
Once you understand this, predicting bank behaviour in the mortgage market becomes a lot easier. Take the period before the global financial crisis of 2008 as an example. In the early 1990s, controls over mortgage lending were relaxed so that, by the early 2000s, mortgage product innovation was a firm trend.

This led to mortgages being offered for 125% of a property’s value, and banks lending people four times their annual salary (or more) to buy a home and allowing self-employed borrowers to “self-certify” their incomes.

The risks were low at this time for two reasons. First, as mortgage criteria became more liberal, it brought more money into the market. This additional money was chasing the same supply of houses, which increased house prices. In this environment, even if people defaulted, banks could easily sell on repossessed houses and so default risks were less of a concern.

Second, banks began to offload their mortgages into the financial markets at this time, passing on the risk of default to investors. This freed up more money for them to lend out as mortgages.

The Bank of England’s base rate also dropped throughout this period from a high of 7.5% in June 1998 to a low of 3.5% in July 2003. People desired housing, mortgage products were many and varied, and house prices were rising – perfect conditions for a booming housing market. Until, of course, the global financial crisis hit in 2008.

The authorities reacted to the financial crisis by firming up the mortgage rules and going back to basics. This meant increasing the capital – or protection – that banks had to hold against the mortgages they had on their books, and strengthening the rules around mortgage products. In essence: goodbye self-certification and 125% loans, hello lower income multiples and bulked-up bank balance sheets.

The upshot of these changes was fewer people could qualify to borrow to buy a home, so average UK house prices dropped from more than £188,000 in July 2007 to around £157,000 in January 2009. The damage was so deep that they had only partially recovered some of these losses to reach £167,000 by January 2013.

Get in touch with us today to speak with a specialist Contractor Mortgage Advisor.

New constraints
Of course, prices have boomed again more recently. This is partly because banks had slowly started to relax, although with less flexibility and more regulation than before the global financial crisis. This reduction in flexibility cut product choice, but low interest rates and low monthly payments have encouraged individuals to take on more debt and banks to grant more mortgages.

Availability of loans fuels house prices so the cycle starts again, although within a more regulated market this time. But the result has been largely the same: average house prices have risen to just shy of £300,000 and the total value of gross mortgage lending in the UK has grown from £148 billion in 2009 to £316 billion by 2021.

But when new information hit the markets – starting with Russia’s invasion of Ukraine earlier this year – everything changed and confidence tanked. The resulting supply-side constraints and spiking fuel prices have stoked inflation. And the very predictable response of the Bank of England has been to increase interest rates.

Why? Because increasing interest rates is supposed to stop people spending and encourage them to save instead, taking the heat out of the economy. However, this rise in interest rates, and therefore monthly mortgage payments, is happening at a time when people’s disposable income is already being drastically reduced by rising fuel prices.

Mortgage market outlook
So what of the mortgage markets going forward? The present economic situation, while completely different from that of the 2008 financial crisis, is borne of the same factor: confidence. The political and economic environment – the policies of the Truss administration, Brexit, the war in Ukraine, rising fuel costs and inflation – has shredded investor confidence and increased risk for banks.

In this environment, banks will continue to protect themselves by tightening product ranges while increasing mortgage rates, deposit sizes (or loan-to-values) and the admin fees they charge. Loan approvals are already falling and cheap mortgages have rapidly disappeared.

Demand for homeloans will also keeping falling as would-be borrowers are faced with a reduced product range as well as rising loan costs and monthly payments. Few people make big financial decisions when uncertainty is so high and confidence in the government is so low.

Optimistically, the current situation will cause UK house prices to plateau, but given the continued uncertainty arising from government policy, it’s realistic to expect falls in certain areas as financial market volatility continues.

Source: The Conversation

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The hard truth about IR35 reform’s repeal and advice for contractors

The dust hasn’t even yet settled on chancellor Kwasi Kwarteng’s announcement that IR35 reform of 2017 and 2021 is to be repealed, but the scaremongering has already begun.

There’s also the speculators, the cynics, and the so-called ‘experts’ – those with vested interests, and those bitter from being left out of the conversation. And they are on top of the odd article unhelpfully and boldly claiming to contain no less than “everything” IT contractors need to know about the reform’s repeal. If only it was that simple, writes former HM Treasury secondee and ex-tax inspector Kate Cottrell, the co-founder of IR35 specialists Bauer & Cottrell.

Get in touch with us today to speak with the UK’s Best Contractor Mortgage Broker.

As of October 2022; what are we seeing?

The initial euphoria, expressed by many following the chancellor’s announcement that the Off-Payroll Working (OPW) rules are to be repealed from April 6th 2023 has died down.  There are three main reasons for this:

  1. Is it really going to happen? Nothing has changed yet and we have a Budget coming up in November, preceded by a government already doing a U-turn on its 45p tax rate plan. The possibility of further U-turns therefore seems significant. Fingers crossed that this promised repeal of the OPW rules goes ahead. But it’s not certain.
  2. End-clients (both public and private sectors), agencies, umbrella companies, accountants and IR35/OPW advisers are all taking stock and wondering how this could affect their business. And yes, that goes for me too!
  3. Contractors are realising that unless they have always been outside IR35 and working for ‘small’ companies (not affected by the OPW rules), that their own circumstances are complicated.  Notably where the contractor is:
  • currently with an umbrella, or
  • holding an SDS where the client has stated ‘inside IR35’, or;
  • regularly jumping between their PSC and an umbrella company depending on the IR35/OPW assessment.

Get in touch with us today to speak with a specialist Contractor Mortgage Advisor.

Beware scaremongering

At this stage (Q4 2022), nobody knows how the repeal of the OPW rules will work. That’s the unpopular, hard truth. So — many commentators are reaching for their crystal balls, with some suggesting that there will be new rules for contractors added onto the IR35 rules of old (2000), such as requiring contractors to complete Status Determination Statements. There’s even the odd whisper that end-clients will continue to determine IR35 status; that blanket bans on using PSCs will continue indefinitely, and that HMRC will declare some sort of ‘amnesty’ on prior SDSs with ‘inside’ results. As interesting as they are, these really are only opinions at this stage and should be taken as nothing more.

It is impossible to make concrete plans, yet

Until we see the detail of the IR35 reform repeal in black and white via the Finance Act, it is only possible to try to plan, and consider risks based upon scenarios that may be realistic. That’s where we can have some sympathy for the genuine, qualified, advisers in this space trying to look into the future.

Fortunately, HMRC has promised further guidance for contractors unfamiliar with the IR35 regime. But it is likely (in my view!) that this guidance will be in the form of a referral to the guidance already in place. My expectation is for a straightforward repeal of the OPW rules, with no add-ons, changes, and nothing new that has not already been in place since April 2000.

What can you do in the next six months?

Every part of the contracting chain needs to use this time to analyse the effects on their own businesses and it is vital that all get up to speed with IR35 version one (2000). 

We have seen many “IR35 experts” born since the advent of the OPW rules, and I’d caution contractors to be very careful as a result. These so-called ‘experts’ are, perversely, actually very well-positioned if it pans out that the only thing that changes post-April 6th 2023 is who makes the IR35 decision, and who is liable for getting that decision wrong. For our part, our advisory will continue to work with the same case law precedent, and keep a keen eye on the cases going through the tribunals and courts.

What is the best advice for contractors over the next six months?

  • Keep watching the contractor press for developments (the contractor ‘press’ that doesn’t just stick a press release up!).
  • Decide what you want to do — if you could.
  • Collect and keep all evidence including SDS outcomes, online IR35 status tool outputs, end-client correspondence, contract review results, and working practices changes/opinions.
  • Find out about your personal situation now, to see what the options and (above all else) the risks are, and if a change in your status is feasible.
  • Speak to your client and find out what their position may be come April 6th 2023, especially if you are contracting with an organisation that has banned PSCs.
  • Take advice from only those that, as impartially as possible, understand all the rules (from 2000 onwards), and ideally those with hands-on experience of successfully defending IR35 HMRC investigations.

Final thought

In short, make good use of the next six months so you are ready for April 6th 2023!