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Nearly a third of key workers and self-employed have been rejected for a mortgage

Around 30 per cent of key workers had been turned down for a mortgage and 28 per cent of self-employed people had been rejected, according to a report.

According to a survey by LendInvest, which was carried out by Opinium with around 1,000 adults who were non-salaried, key workers or had missed a payment, this compares to 14 per cent of the general population.

Nearly a third, 32 per cent, said a barrier to applying for a mortgage was the fear of being rejected and around 29 per cent said they had felt discriminated against by a high street mortgage lender or bank due to their employment status or income streams.

This rises to 39 per cent of those with poor credit and 59 per cent of those who had been rejected for a mortgage.

Over a third said that mortgage products available discourage them from applying.

The most important factors when looking at a lender was offering low interest rates at 59 per cent, followed by good customer service and support at 48 per cent and variety of products at 42 per cent.

Around 41 per cent said that being turned down for a mortgage had left them feeling frustrated, 29 per cent said they were stressed and 28 per cent said they were embarrassed.

Approximately 20 per cent said that they felt hopelessness after being rejected for a mortgage.

However, 19 per cent said they were more determined and 14 per cent said they felt more positive.

Around 77 per cent said they had a negative feeling about the outcome and that rose to 80 per cent for those with poor credit.

Nearly half said they had been negatively impacted by the mortgage application process, with the biggest impact being on finances, followed by mental health and confidence.

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Nearly a quarter think they will never apply for mortgage

Over half said that they had gone to “great lengths” to up their chance of getting a mortgage.

This includes a fifth saying that they stayed in jobs they didn’t like, 14 per cent pushed back retirement plans, 13 per cent opted for a higher salary over their dream jobs and 11 per cent delayed or cancelled plans to become self-employed or freelance.

Nearly three quarters of those that had been turned down at least once had taken action, with over a quarter pushing back retirement plans and 20 per cent delaying plans to become self-employed or freelance.

Around 22 per cent believed that they will never be able to apply for a mortgage and 43 per cent said they thought they were less able to become a homeowner due to the cost of living crisis.

More than half of those with poor credit said the cost of living crisis had impacted on their ability to apply.

However, around 41 per cent of those who don’t own said that a fall in house prices would encourage them to buyer a property.

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New avenues needed for a new breed of borrower

LendInvest called for lenders to offer more flexible underwriting criteria, develop specialist mortgage products, use alternative credit assessments, enhance documentation guidelines, offer in-house expert support, give customers educational resources and guidance and offer a strong customer service.

Esther Morley, managing director, residential mortgages at LendInvest, said: “The research confirms our long-held belief that the traditional high street mortgage model is not fit for purpose for a large proportion of the UK population and is failing to keep pace with the increasingly complex needs of prospective homeowners.

“An increasing number of people across the UK have different income streams that do not conform with outdated legacy platforms and processes, leading all too often to dispiriting ‘Computer Says No’-style responses. Many are left navigating a needlessly complicated, intrusive and stressful process, resulting in hardworking people being denied the dream of owning their own home and suffering unnecessary mental anguish.”

Rod Lockhart, chief executive officer of LendInvest, added: “These results shed more light on the difficulties facing those with more complex cases applying for a mortgage and the general sentiment regarding the mortgage process during what is a difficult time for potential homeowners. It’s especially upsetting to see the emotional toll on a worryingly large number of people.

“Our residential mortgage products are designed to address the evolving needs of aspiring UK homeowners. With proprietary technology that streamlines applications and makes even the most complex cases simpler and faster, our aim is to improve the overall mortgage experience.”

By Anna Sagar

Source: Mortgage Solutions

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Skipton launches deposit-free mortgage aimed at renters

A deposit-free mortgage specifically aimed at people currently renting has been launched by a UK building society.

While a handful of other no-deposit deals are available, they all need the financial backing of family or friends.

Skipton Building Society says while its deal requires 12 months of on-time rental payments and a good credit history, it does not need a guarantor.

However, at 5.49% the interest rate is more expensive than the average five-year fix of 5%.

Generation Rent, which campaigns on behalf of private renters, says the shortage of affordable properties within the budget of first-time buyers is still the main stumbling block for those struggling to get on the property ladder.

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“It’s not necessarily going to help all the people who are looking to buy a first-time home if there aren’t more houses available to buy,” says Will Barber Taylor from Generation Rent.

Currently there are 15 other zero-deposit products on the market, according to financial data firm Moneyfacts, accounting for just under 0.3% of the UK market.

First-time buyers are facing an uphill battle. Rapidly rising rents have made saving for a deposit increasingly difficult, at the same time that the government’s flagship Help to Buy scheme, aimed at helping first-time buyers, is no longer open

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The Skipton, which is the UK’s fourth biggest building society, says it recognised a “gap in the market”.

Stuart Haire, the society’s chief executive, told the BBC that “until now there has been no solution for them [renters] to buy a property due to a lack of savings or access to family wealth”.

David is renting with his partner and new baby in North Yorkshire. “It’s getting that deposit together that’s really difficult with rent prices,” admits David.

“If I can prove I’ve been paying rent for the last 10 years of my life why can’t I have a mortgage.”

The government’s Help to Buy scheme saw the Treasury lending homebuyers between 5% and 20% of the cost of a newly-built home, and up to 40% in London.

The scheme closed to new applicants in October 2022, but there are rumours that something along similar lines could be re-introduced.

But a rise in zero-deposit mortgages may not be welcomed by everyone, as riskier mortgages with a high loan to value were a root cause of the 2008 financial crash.

Mortgage expert Andrew Montlake says then lenders were just interested in volume rather than quality.

“The world is very different now,” he says, and adds that his opinion has changed over the past 15 years, as long as the 100% loan value mortgages are “underwritten sensibly”.

By Colletta Smith & Nicky Hudson

Source: BBC News

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Annual house price growth slows but market ‘resilient’ – ONS

Figures from the Office for National Statistics (ONS) show that average UK house prices have risen 5.5 per cent since this time last year.

The annual percentage change for average UK house prices was 5.5 per cent in the 12 months to February 2023.

The average UK house price was £288,000 in February 2023, which is £16,000 higher than 12 months ago.

Average house prices increased over the 12 months to £308,000 (6 per cent) in England, to £215,000 in Wales (6.4 per cent), to £180,000 in Scotland (1 per cent), and to £175,000 in Northern Ireland (10.2 per cent).

However, the average UK house price decreased by 1 per cent between January 2023 and February 2023. This caused the UK annual inflation rate to slow this month.

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Regional differences

In England, the February data shows that, on average, house prices have fallen 0.8 per cent since January 2023. The annual price rise of 6 per cent takes the average property value to £308,365.

The West Midlands experienced the greatest annual price rise, up by 8.6 per cent, while London saw the lowest annual price growth, with an increase of 2.9 per cent. Prices in the capital have fallen 1.1 per cent since January 2023.

Wales shows, on average, house prices have fallen by 0.6 per cent since January 2023. An annual price rise of 6.4 per cent takes the average property value to £215,343.

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‘The housing market is proving to be resilient’

Jeremy Leaf, north London estate agent, said: “Despite another small fall in prices month-on-month, the housing market is proving to be resilient. These are the most comprehensive of all housing surveys but the figures are a little dated, inevitably reporting on activity from a few months earlier when the market was in the doldrums.

“Since then, confidence has slowly improved in response to more choice and stabilising mortgage, if not base, rates. However, worries about inflation persist and buyers want to see value so are flexing their muscles before making decisions.”

Nick Leeming, chairman of Jackson-Stops, noted that a stability may be returning to the market.

He said: “The property market has turned into a marathon from a sprint. While there is still a long way to go, the market has cleared the first jump relatively unscathed. Today’s figures show a soft repricing, which marks a more stable period for house price values following the supersonic heights reached this time last year.

“Even in the last two months, the economic picture is becoming much more stable. Mortgage deals are also returning to the market after a short hiatus in the immediate aftermath of Trussenomics.

“Market conditions and an under reliance on outside funding has left cash buyers in a fortunate position, able to push ahead with quick completions and benefit from the increasing number of properties entering the market.”

Tomer Aboody, director of property lender MT Finance, was alos optimistic that the market could get ‘back on track’ in the coming months.

He said: “Fewer properties for sale tends to result in higher property prices, which seems to have been the case over the past year or so, with demand in the regions and for houses particularly strong.

“With mortgage rates fluctuating, particularly towards the end of last year, many buyers stalled, which meant a reduction in the number of transactions.

“Hopefully, as inflation falls and rates continue to stabilise, we will see more sales proceeding as buyers return and get their purchases back on track.”

By Emma Lunn

Source: Mortgage Solutions

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Mortgages – how is the current economy impacting dentists?

As the cost of living and interest rates rise, how does this impact self-employed dentists and their mortgages? asks Vinay Rathod of VR Financial Solutions.

Self employed dentists and those operating under a LTD Company have often faced difficulties when applying for a mortgage.

Recent increases in the cost of living and the Bank of England Base Rate (BBR) have had considerable impacts to how lenders view applicants, especially those who are not employed with PAYE income.

For many years, self employed dentists have faced scrutiny of their accounts, often requiring two to three years of accounts before being able to maximise borrowing potential and get the most competitive rates.

If you have changed from being self employed to trading under a LTD Company you may have found it difficult until you have two full years of accounts under the new company.

Even then, many will have found borrowing limited by their relatively low salary and dividend drawings. I should highlight that there are options to overcome all of the aforementioned obstacles.

This has become even more difficult as a result of the pandemic, and even worse still following Kwarteng and Truss’s mini budget on 23 September 2022.

Huge uncertainty

Following the budget, the financial sector was aghast with announcements that were contrary to anything expected by even the outliers.

Huge uncertainty was quickly followed by huge volatility as financial institutions desperately tried to protect themselves from what might happen – and for once, nobody had any idea what that might be.

The announcements were so contrary to anything expected, and to anything experts all agreed was in desperate need.

When uncertainty exists, people and businesses seek to protect themselves – we enter a state of defensiveness because, human nature is to seek consistency, certainty and avoid the unknown. Financial markets are no different – they crave stability and predictability.

When this is not present, banks and lending institutions favour over cautiousness to growth and profits.

It wasn’t until Rishi Sunak was confirmed to replace Liz Truss that there was any relief felt in the financial sector.

I will try to remain politically impartial in this article, however Sunak’s background working for investment bank Goldman Sachs and various hedge funds, as well as his education in economics, offered some hope of recovery of our fragile economy.

Sunak had even been recorded predicting what we witnessed, months before when debating Truss.

If anybody touted as our future PM could give us back some stability, the financial sector believed Sunak was our man.

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How do banks price mortgage products?

Firstly, we must understand where the money actually comes from. Banks do not lend their own money They lend a combination of their customers money, and money borrowed from wholesale financial markets in the form of various complicated financial products.

It was not until the financial crisis of 2007/8 that there were any real rules governing how much capital a bank must possess versus the money they lend.

It was a poor ratio of this very measure that contributed heavily to the 2007-2008 financial crisis. Even now, capital adequacy rules are far from requiring banks to have an equal amount of capital vs. their credit risk exposure.

So then how do banks decide what interest rate to charge to you? Many believe that the interest rates that we pay, are linked somehow to the Bank of England’s Base Rate (BBR).

Historically, you can even see that this has largely been an assumption that you will see to be true.

It is in fact however, the LIBOR (London Interbank Offered Rate) that has historically been the measure used to price many financial products, the most widely recognised being mortgages.

Even this has largely been phased out due to its contribution to the 2008 financial crisis and more recent manipulation of the LIBOR rate by some banks, and replaced by SONIA (Sterling Overnight Index Average).

Financial markets

Back to 23 September last year. The financial market’s concerns resulted in the worry of huge increases in the LIBOR/SONIA rate.

This prediction of future LIBOR/SONIA changes is measured by ‘swap rates’. The swap rate determines the markets estimates of future changes in this rate.

Following the mini budget you can see a step away from the normal and desired slight changes we normally see.

Banks did not know what it would cost them to lend money. They feared they could make losses on mortgages if they didn’t overcautiously raise rates quickly.

This was more than 6% for many, and smaller building societies and money lenders pulled from the market entirely, taking on no new applications.

Lenders ramped up their stress testing – worrying even more because of the rising cost of energy soon being fully exposed to the public when the domestic price cap ends (more doom and gloom I know).

They reduced income multiples and those banks willing to be flexible and negotiate bespoke terms for certain applicants (dentists) started saying no.

This meant more difficulty maximising your borrowing ability, smaller maximum loans, budgets for new homes forced to be reduced and remortgaging made more difficult.

Fast forward to 25 October 2022 and we welcome Rishi Sunak as Liz Truss steps down. Financial markets feel hopeful of recovery under the control of a fellow financial expert.

The man to make unpopular decisions was brought in to reverse almost all of Kwarteng’s measures. Never before was I relieved to know Hunt would be making difficult decisions – a person who clearly doesn’t care about being popular.

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Life after Trussonomics

Confidence brought us stability. Stability meant more certainty. Certainty gave us cheaper mortgages.

We now understand that, despite the Bank of England continuing to increase interest rates in the hope to grasp some control of the runaway train that is inflation, mortgage rates have been consistently coming down.

We have a long way to go. In fact, we are likely never to see the kind of interest rates offered to borrowers a year ago – rates fixed at well below 2%.

But thankfully we are far from the 6% and are back in the less worrying 4 and 5% range – and even for those with a hefty deposit / equity – sub 4%. I am optimistic that we will see more rates in the threes again in the not too distant future.

Rarely has a day passed since October where I don’t have at least one lender email us regarding an incoming rate reduction. Yes, they are slight, but a little does add up to a lot given time.

Those lenders who stopped lending have largely returned – maybe not quite back to business as usual, but they’re already planning for it!

This is something they couldn’t think about just three to four months ago.

Overcome troubles

The lenders who will allow negotiation are coming back to their seats at the table, and we are hearing that delightful word more – yes!

Maximum loans are still impacted due to the cost of living expected still to rise. Those remortgaging will almost certainly have to tighten their belts a little for a couple of years.

But within dentistry we remain fortunate, for the majority income exceeds committed outgoings with some to spare. Tightening belts is not something too uncomfortable for most.

For those whose businesses have boomed during the pandemic, you may now just have a little less to put away than you used to.

But we have long been spoilt with rock bottom interest rates to borrow money. We have long been too easily able to raise low cost finance resulting in being maybe slightly unrealistic of how much money costs to borrow.

I think we should get used to money being less easily available, and not quite so cheap to borrow. The days of mortgage rates in the one percent range are likely long behind us.

VR Financial solutions have a considerable amount of expertise in arranging mortgages for dentists, having consulted lenders and assisted in lending policy being established and improved for self-employed dentists.

We work closely with many lenders and have established close relationships to allow us to negotiate and overcome many of the troubles being self employed result in.

At an uncertain time like this, it’s more important than ever to take professional advice.

By Vinay Rathod

Source: Dentistry

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Despite interest rates rising to 4%, mortgage opportunities abound for contractors

It’s always darkest before the dawn, or so historian Thomas Fuller would have us believe. Despite him coining that phrase in 1650, it’s so apt for the mortgage market right now, in 2023!

Yes, the Bank of England recently raised the base rate to 4% (from 3.5%) in its fight to bring inflation under control. But in contrast, strong competition among lenders to attract new business early in 2023 implies positive indicators of recovery.

Why the focus on variable rates has skewed our focus

To date, commentators have placed too much emphasis on lenders’ standard variable rates (SVRs) reaching 6-7%. SVRs have traditionally been short-term solutions, with many borrowers typically sitting on them until better rates become available.

But the majority of borrowers in the UK aren’t on SVRs! They’re on fixed-rate mortgages and need only really concern themselves with SVRs when they need to remortgage.

To that end, increasing numbers of options provided by keenly-priced products are appearing for borrowers. We’re now seeing lenders offer fixed interest rates at under 4 %, and they’re still coming down!

How has the mortgage market reacted to the BoE interest rate rise?

From what we’re seeing, the market has hardly flinched since the bank’s decision on February 2nd to raise the base rate by half a per cent.

The market wholly expected this most recent rise to 4% — being the tenth in succession. But from that most recent vote, there are signs of opinion changing on the bank’s Monetary Policy Committee (MPC).

Two members now believe the base rate is too high. One MPC member, Silvana Tenreyro, reportedly told the Treasury Committee:

“It took time for changes to the bank base rate to feed through to the real economy and so far, just a fifth of the impact has been felt”.

Tenreyro now believes that monetary policy is doing enough to meet the BoE’s aim of bringing inflation down to its target rate of two per cent, hence her vote against the latest rise.

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Interest rates may rise further yet — but one bump, or two?

Many mortgage brokers support Tenreyro’s stance, including me. Monetary policy was doing enough to meet the aim of bringing inflation significantly down. Unless another big global shock happens, many chief economists believe a fall in inflation is guaranteed. Eventually.

Even so, two out of nine is still a minority (on the MPC). As such, the financial markets’ expectations are that the BoE base rate may yet rise to 4.5 per cent, but maybe as a result of 2 0.25% increases, rather than a single .50% rise.

What’s actually happening on the ground?

Even before the BoE announced the latest raise, lenders had already taken strides to factor it into their rates.

The Feb 2nd decision will, however, see the cost of borrowing increase for borrowers on SVRs and tracker mortgages across the UK. But fixed-rate mortgages will remain, to a greater extent, unaffected.

There are already signs that the worst is past. The market has picked up again; buyers and sellers who delayed remortgaging when rates were highest are jumping on current rates.

What we’ve seen over the past few weeks is a raging price war between lenders with fixed rates falling daily. And this week, we saw the first re-introduction of sub-4% fixed rate deals appear (since September 2022).

Mortgage rates were already on a downward path late last year following the turmoil of September’s mini-Budget. This trend has continued since and has trickled into February.

One reason for the trend is that medium-to-long-term swap rates, which factor heavily in determining mortgage rates, have continued to improve. This movement has given lenders greater confidence, and has resulted in the more competitive fixed-rate mortgage products our contractor clients are now taking advantage of.

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

A new norm…

For those of you wondering if now’s the right time to pounce on your property of choice, let me just reiterate what I said last month. We are categorically not going to see fixed-rate mortgages priced at sub-2%.

In truth, we’ll be lucky to see sub-3 % rates return, even if inflation reaches its 2% target. The general consensus among brokers is a gentle optimism that mortgage interest rates will settle between 3.5% to 4.5%.

It’s a similar story with house prices. It was obvious we’d see a correction following the turbulence and uncertainty late last year. But much of this has already happened, and we’re not (and never were) going to see the 20% crash in housing stock that many ‘experts’ predicted.

All this means that if we’re not at the ‘new normal’ already, we’re not far away from it (failing another global disaster landing).

Neither house prices nor mortgage rates look likely to drop off a cliff any time soon, so contractors – you can proceed with a level of impunity we’ve not seen in a while.

Final thought

The caveat is, as always, what’s best for you will be determined by where your current rate and fixed-term mortgage are now. For specific advice, talk to your specialist broker about your aspirations, and take it from there. We’re happy to have that conversation with you.

By John Yerou

Source: Contractor UK

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Mortgage Approvals Down but Sunnier Days Ahead for The Property Market in 2023

Recent uncertainty in the property market during the closing stages of 2022 has led to the number of mortgage approvals declining by -20% in the past year, while the number of remortgaging approvals has soared as existing homeowners stay put and look to stabilise their financial foundations by borrowing more.

The cost of living crisis and increasing price of borrowing has had a significant effect on the mortgage sector.

In 2021, there were a total of 944,704 house purchase mortgage approvals in the UK. In 2022, this dropped to 753,946 approvals, marking an annual decline of -20.2%.

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Financial concerns induced by the cost of living crisis clearly caused many potential buyers to postpone their plans in 2022, not least due to the fact that mortgage prices shot up seemingly overnight following the shambolic mini budget unveiled by the government in September of last year.

At the same time, the number of remortgaging approvals increased from 460,462 to 539,528 between 2021 and 2022, an annual rise of 17.2%.

This serves as further evidence of public concern brought on by recent economic uncertainties, with more homeowners trying to reduce their mortgage rates or release some equity to fund soaring costs elsewhere in their lives.

These market trends are further supported when analysing the overall monetary value of mortgage approvals.

In 2021, the total value of property purchase approvals was £208bn. In 2022, this dropped to £176bn, a decline of -15.3%.

At the same time, the overall value of remortgaging approvals increased from £92bn to £113bn, marking a 22.6% rise.

However, while the total value of homebuyer mortgages has fallen, the average value of each individual approval has actually increased by 6.2%, from £219,899 in 2021, to £233,510 in 2022.

This shows that while the number of buyers entering the market has fallen, the amount each is borrowing has grown, as they tried to contend with house price highs that were driven by the pandemic market boom and, as of yet, have shown little signs of reducing.

The average value of a remortgaging approval has also increased, rising by 4.6% between 2021 and 2022.

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“Despite house prices continuing to climb in 2022, the immediate economic uncertainty that rattled the mortgage sector following September’s mini budget has had a notable impact when it comes to the number of mortgage approvals attributed to new house purchases in 2022.

At the same time, there has been a notable uplift in homeowners deciding to play it safe and stick with their current home, opting to remortgage in order to improve both their home and their financial stability.

However, mortgage rates are already on the decline so far this year, dropping by -14% in January alone.

On top of that, the wider economic outlook for 2023 is looking far brighter than many people feared towards the end of last year.

All in all, we expect spring and summer to bring sunnier days to the property market and a rejuvenated level of buyer activity to sweep the market.”

Source: Property Notify

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Britain’s biggest homebuilder hoping better mortgage deals could stimulate UK housing market

The average selling price of a Barratt home was up 13.6 per cent to £372,000 in the second half of 2022.

Britain’s biggest housebuilder said better mortgage deals could lead a recovery in the market this year.

Barratt Developments said things could start easing, after reservations dropped 57 per cent in the final months of 2022 – following the disastrous Liz Truss/Kwasi Kwarteng mini-Budget which caused a meltdown in the markets and higher interest rates.

The Leicestershire-based housebuilder has adopted a cautious approach to the year ahead despite a 16 per cent rise in pre-tax profits in the second half of 2022 to £501.6 million (compared to the second half of 2021).

Total sales for the half year were up almost a quarter at almost £2.8 billion – thanks to a “significant step-up” in the average selling price – with the average selling price of a Barratt home up 13.6 per cent to £372,000. The number of new home sales completed was up 7 per cent at 8,626.

The group – which is based in Coalville and includes Barratt Homes, David Wilson Homes and Barratt London as well as the Wilson Bowden commercial property arm – said it had seen a “modest uplift” in reservations this month, though they were still down 46 per cent lower on this time last year.

In recent months mortgage costs have gradually fallen back following actions to stabilise markets – including a new Prime Minister and Chancellor – and signs that wider interest rates may soon be peaking. Five-year fixed-rate mortgages are now available at below 4 per cent.

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Chief executive David Thomas said the “tremendous efforts” of its employees, sub-contractors and supply chain partners had helped it deliver a strong performance in the second half of 2022.

He said: “However, the economic backdrop has clearly been challenging and consumer confidence weakened significantly during the half, which meant we saw lower reservation rates for future sales – particularly in the second quarter.

“Whilst we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing.

“Our business remains fundamentally strong, both operationally and financially, with an experienced leadership team, a strong net cash position and a resilient and flexible business model.

“We are well-placed to navigate the challenges ahead and are focused on driving revenue whilst taking a decisive and disciplined approach to costs. As always, our priority is delivering excellent quality and service for our customers.”

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

Barratt said if the recovery in demand continues, it expects to deliver total home completions of between 16,500 to 17,000 in 2022-23, down from 17,908 in the previous year.

But house prices are still under pressure with figures on Tuesday showing annual growth slowed to its lowest level in three years last month.

Halifax said the average house price is now more than £12,000 below a peak seen in August last year.

By Tom Pegden

Source: Business Live

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How interest rate rise will affect property market and mortgages

The Bank of England’s decision to hike interest rates to a 15-year high is set to see mortgage payments rise for millions of homeowners.

On Thursday, the Bank confirmed UK rates will rise for the tenth time in a row, to 4 per cent from 3.5, in a bid to control inflation after it reached a record 11.1 per cent in October.

The Bank has faced a tough call over what approach to take, as higher mortgage costs saw the housing market suffer five successive months of falls in property prices.

The IMF reported this week the UK would be the only G7 member to see their economy go backwards this year, with a likely 0.6 per cent contraction. While this would usually lead to calls for interest rates to be cut, the current inflation rate of just over 10 per cent is pushing the Bank to act on its mandate to bring it back towards its 2 per cent target.

Below we look at how the latest interest rate increase could impact the housing market for buyers and borrowers alike.

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HOUSE PRICES

After big increases in 2022, the price of the average property in January was £258,297 – down 0.6 per cent on December, and well below the £281,000 figure from last year.

House prices stalled in September, followed by monthly falls of 1.0 per cent in October, 1.2 per cent in November and 0.3 per cent in December.

Further falls are likely now the Bank of England has approved an interest rate rise for the tenth time in a row, as it will likely push mortgage rates up further.

Higher mortgage rates tend to push house prices down as people are less willing to borrow money.

On Thursday, high street lender Santander warned house prices are set to tumble back to 2021 levels, and has set aside more cash for loan losses as it braces itself for a possible rise in the number of borrowers falling behind with repayments.

The Spanish-owned group is forecasting a 10 per cent fall in house prices this year as interest rate hikes dampen demand.

MORTGAGES

Mortgage rates offered by lenders jumped following the mini-Budget last year and borrowing costs have also been increasing as the Bank of England base rate has risen.

This has resulted in a plunge in the number of mortgages being approved. The Bank reported on Tuesday that 35,000 were given the green light in December compared to 46,000 in November, the UK’s lowest since 2009.

UK Finance estimates that some 715,000 borrowers on tracker mortgages will feel the pinch as interest rates rise again. It estimates householders will be paying around £588 more a year on average as a result of the Bank’s announcement.

In addition, the Office for National Statistics has predicted more than 1.4 million households are facing the prospect of interest rate rises when they renew their fixed-rate mortgages this year.

A string of base rate hikes have taken place over the past year, but borrowers on fixed-rate mortgages were cushioned from their immediate impact. Analysts have said some may get a shock when they come to renew.

Labour has said homeowners could face mortgage hikes of up to £14,000 a year as they come off low fixed-rate deals, adding to the squeeze on living standards.

Analysis by the party shows predicted annual increases in costs for a median house purchase at 80 per cent mortgage in every constituency in the UK.

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WHAT DOES THE GOVERNMENT SAY?

Downing Street acknowledged the interest rate hike could be “difficult” for mortgage holders.

The Prime Minister’s official spokesman said: “Inflation is the biggest threat to living standards in a generation, so we support the Bank’s action today to help us succeed in halving inflation this year.

“We will continue to take the difficult decisions needed to do everything we can to reduce inflation, including not funding additional spending or tax cuts through borrowing, which only serve to fuel inflation further and prolong the pain for everyone.”

The spokesman added: “This is a difficult time for mortgage holders in the UK. As the Chancellor has said, sound money and a stable economy are the best way to deliver lower mortgage rates and keep down the costs of mortgage payments.

“That’s why we are taking the necessary and responsible action to halve inflation, reduce our debt and get the economy growing.”

WHAT DO THE EXPERTS SAY?

Robert Gardner, Nationwide’s chief economist, said: “There are some encouraging signs that mortgage rates are normalising, but it is too early to tell whether activity in the housing market has started to recover.

“The fall in house purchase approvals in December reported by the Bank of England largely reflects the sharp decline in mortgage applications following the mini-Budget.

“It will be hard for the market to regain much momentum in the near term as economic headwinds are set to remain strong, with real earnings likely to fall further and the labour market widely projected to weaken as the economy shrinks.”

Jeremy Leaf, a north London estate agent, added: “The fizz has certainly left the market, leaving behind more serious needs-driven as opposed to discretionary buyers, coming to terms with more stable mortgage rates and greater balance between supply and demand.

“Looking forward, the outlook for house prices remains fairly steady with no expectation of any dramatic change.”

By William Mata

Source: Independent

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Singletons punished by rising mortgage rates as couples now dominate housing market

Singletons are being punished by rising rates leading to 63 per cent of first-time mortgages now being taken out in joint names.

Higher mortgage rates and squeezed budgets mean just 37 per cent of first-time buyers taking out a mortgage are purchasing solo, according to data from the country’s biggest lender, Halifax.

This is a huge change compared to 2014, the earliest year when the data was available, when just 43 per cent of first-time borrowers took out a mortgage jointly while 57 per cent bought on their own.

The increase in costs experienced in the past year has meant that banks are willing to lend less as people’s rising energy and food bills reduce how much they can afford to pay for their home loans each month. Similarly, the higher mortgage rates have also meant people can’t always borrow the same amounts they did when rates were low and pass banks’ affordability tests, particularly if this is based on one salary.

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Although property prices are expected to go down this year, by as much as 10 per cent, they have risen significantly in previous years.

The overall number of first-time buyers is still higher than pre-pandemic levels but down 11 per cent on 2021’s record high of 405,320, sitting at 362,461 in 2022.

Prices were unusually high in 2021 thanks to the “race for space” – pent up demand from the pandemic and Government measures to ease stamp duty costs, leading to a record number of first-time buyers getting the keys to their first home.

This is now easing somewhat, but affordability is still a problem with average property values for first-time buyers now around 7.6 times the average UK salary.

Separate data from the Office of National Statistics last year showed house prices grew faster than earnings in 91 per cent of local authority districts, leading to a reduction in housing affordability in these areas.

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Kim Kinnaird, mortgages director at Halifax, said: “Today, getting your own place for the first time will likely mean paying over £300,000 for that new home, and putting down, on average, a £62,000 deposit.

“The length of time needed and cost of raising a deposit are likely having an impact on the profile of the average first-time buyer over time. Today, those starting out on the housing ladder are 32 years old on average – two years older than a decade ago – and almost two thirds of people are now getting their first mortgage in joint names.”

The average two-year fixed-rate mortgage interest rate is 5.49 per cent, compared with 2.38 per cent last January, according to Moneyfacts, while a five-year deal is at 5.26 per cent, compared with 2.66 per cent 12 months earlier.

By Grace Gausden

Source: i News

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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