Consultation on Stamp Duty for Additional Properties Launched

The Chancellor announced in the Autumn Statement that the purchase of additional properties would attract an additional surcharge of 3% on the applicable Stamp Duty rates from April 2016.  The reason given was to give first time buyers a greater chance of competing against those buying an additional property such as a second home or a property to let. 

The Treasury has now published its consultation document which gives more detail on the proposed implementation.  Below we outline some of the key elements, although it must be stressed that the full rules will only be confirmed following the consultation.

When will the higher charges apply?

The new surcharge will apply to the purchase of any additional properties that complete on or after 1st April 2016.  It proposes that if contracts were exchanged on or before 25th November 2015 but the purchase completes on or after 1st April, the higher rates will not be applied.  That could apply to a situation such as the purchase of a new build property where contracts were exchanged long before completion. 

What if I am buying a new main residence?

The use of the property is not generally the determining factor but if a homebuyer is purchasing a replacement for their main residence they may not be liable to the higher rates, even when they will own more than one property following the purchase.  

For example, let’s say a buyer owns a couple of Buy to Let properties and their own home but is planning to buy a new main residence.  If they sell their current main residence when they purchase the new home, it’s proposed that higher rates will not apply as they are replacing their main residence.  

If they don’t sell their current home, for example a let to buy situation, then the main residence is not replaced and the new purchase would be subject to the higher charges.

What if I can’t sell my home at the same time as I buy?

The consultation proposes that where a purchase and sale are not simultaneous the higher rate will be charged.  However, if the original property is subsequently sold within 18 months then the stamp duty surcharge may be reclaimed.

Treatment of Couples

The consultation suggests that married couples and those in civil partnership will treated as one unit.  As a result, if the main home is owned in one name only and an additional property is purchased by the other, the higher rate will still apply as together they will own more than one property. 

Buying for a Child

If a parent helps their child to buy a property and is a joint owner then the higher rates would apply.  That would be avoided if the parent acted as a guarantor and was therefore not a joint owner.

Bulk Purchase

The consultation seeks opinions on how large scale investors, who can have a positive impact on housing supply, should be treated.  For example the consultation asks whether those making a bulk purchase of 15 properties or more should avoid the higher rates.

Purchase by a company 

It’s proposed that even the first purchase by a company or collective investment vehicle will pay the higher rates.  This is designed to prevent the use of companies to avoid tax that would otherwise be payable.

It’s clear that while the new stamp duty regime will hit landlords first and foremost there could also be consequences for others.  However, it’s important to underline that all of this is still under consultation so there could be further changes to come yet.  

Guild Mortgage Service, Provided by London & Country Mortgages

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

The FCA does not regulate most Buy to let mortgages.

Base rate to stay low longer. Again.

Over recent months expectations of a rise in Bank of England Base Rate had started to grow, with many commentators forecasting a rise this summer, and some suggesting it could come rather earlier.

This would be the first move in Base Rate since it fell to 0.50% in March 2009, and the first increase in 9 years.  As many noted, that could be a disturbing prospect for many thousands of new homeowners who’ve never experienced an interest rate rise.

The good news for those people is that in a recent speech, the Bank’s Governor Mark Carney has again suggested that first rate rise is still some way off.

He was at pains to stress that the Monetary Policy Committee’s (which sets interest rates) primary concern is to control inflation.

With Base Rate at just 0.50% the expectation is that, as inflation starts to grow, interest rates can be increased gently to stop it running too high (if we have to pay more for our mortgages, we’ll have less to spend on other things and retailers can’t hike prices as they otherwise would!).

The problem, as far as returning rates to a more “normal” level is concerned, is that inflation has remained stubbornly low and largely for reasons well outside the Bank of England’s control.

In recent years it’s been Europe, and specifically Greece, causing uncertainty. With the European crisis apparently over, or at least dormant, a recovery under way at home and America finally confident enough to increase rates to 0.50%, it felt like the time was approaching when we could contemplate a similar move.

That has all turned on its head in a remarkably short time. The combination of drastically falling oil prices and the slowdown in China (with its knock-on effects in commodities, industrial goods, and our own steel industry) has returned us to an uncertain world with a weaker outlook. 

As Governor Carney said, with a nice turn of phrase, “Last summer I said that the decision as to when to start raising Bank Rate would likely come into sharper relief around the turn of this year. Well the year has turned, and, in my view, the decision proved straightforward: now is not yet the time to raise interest rates.”

The first rate rise seems deferred again, but it will come sooner or later. Homeowners have a little longer to prepare and hopefully put the petrol-pump savings to good use.

Guild Mortgage Service, Provided by London & Country Mortgages

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

The FCA does not regulate most Buy to let mortgages.

Remortgage – time to review

As we enter Autumn, lender focus turns to the end of year and building pipeline business for the New Year.  Those that have perhaps not managed as large a volume of business as they would like will be eyeing their year end target nervously.

Not all lenders’ financial year will be the calendar year but those that are eager to get more business on the books before Christmas need to act now.  As a result it’s not unusual to see lenders make a final push to attract customers. 

There is often particular attention on remortgage business as that can typically be quicker to reach completion than new purchases.  This year is showing no signs of bucking that trend and many lenders have been repricing their mortgage rates recently.

The market remains very competitive and cutting rates is a good way to grab the attention of borrower’s.  That has also been helped by a calming in funding costs as the threat of an imminent rate hike has eased.  As a result rates have dropped back after having nudged up a little in recent months.

It’s therefore a very good time for borrowers to review their mortgage and see if there could be an opportunity to cut their monthly cost.  The headline interest rate is only part of the picture though and borrowers need to be sure to consider overall value.

Some of the lowest rates can carry big set up fees which can quickly erode the savings.  However, most lenders will offer a variety of options with different rate/fee combinations. 

In addition, many deals will come with incentives such as free valuation and legal work or a cashback to help deal with switching costs.  It can therefore pay to opt for a product with a slightly higher interest rate but low set up fees.

What certainly doesn’t pay is apathy and failing to review your deal could be costly.

Guild Mortgage Service, Provided by London & Country Mortgages

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

The Buy to Let Punchbowl

Buy to Let lending seems to be back at the top of everyone’s agenda again. Recent figures from the Council of Mortgage Lenders suggest buy to let has been one of the key drivers of the market recovery since the credit crunch, and claim it accounts for an astonishing “more than 70% of the overall growth in mortgage balances outstanding” in the last five years 

Certainly lenders seem keen to get in on the action, be it new entrants such as specialist Fleet Mortgages or Indian giants Axis Bank and State Bank of India, challengers like TSB and Metro Bank coming into the sector or established names like Santander, Natwest, Virgin Money and Leeds BS substantially improving their offering.

More new lenders are said to be on the horizon and competition is increasing all the time. Even the big specialists Birmingham Midshires (part of Lloyds group) and The Mortgage Works (Nationwide) have upped their respective games and most recently Paragon subsidiary Mortgage Trust slashed rates by as much as 0.60%.

Why is buy to let booming so much? Ever since the credit crunch lenders recognised there was low risk business to be had in this sector, with better returns than they could get from homeowners.

At the same time, restrictions first on availability of loans for first time buyers, and more recently in affordability assessments, along with continued undersupply of new homes, have made for a thriving rental market – giving confidence to landlords and lenders alike.

With that backdrop, it’s little surprise that the Bank of England and Treasury have been watching the buy to let sector closely. The Bank’s Financial Policy Committee – charged with monitoring the stability of the economy and  where possible heading off potential threats – has been raising the topic for quite some time.

At a recent session of the Treasury Select Committee, Chancellor George Osborne signalled the Bank of England would likely be given powers to intervene in the buy to let market. While there’s no guarantee any intervention would immediately follow, the direction of travel seems clear.

So it looks like buy to let is at something of a crossroads and it could be we’re seeing the last hoorah for a while, before the brakes are gently applied. Or, to borrow the former BoE Governor Mervyn King’s metaphor, the punchbowl can’t be topped up that much further before it gets taken away.

Guild Mortgage Service, Provided by London & Country Mortgages

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Most Buy-to-let mortgages are not regulated by the FCA

Securing a deposit

Despite a climate of record low interest rates and ever improved deals for borrowers over the last 12 months, First Time Buyers still face a range of challenges when it comes to getting onto the property ladder, the biggest of which is building up a large enough deposit.

Figures from the Office of National Statistics, published in The Times this month, showed that the average price of a First Time home is now around £215,000, so even those aiming for the minimum 5% deposit will need a significant level of savings.

The launch of the new Help to Buy ISA on 1^st December should provide a useful option for those looking to save. It allows for an initial deposit of £1,000 plus £200 per month thereafter. The Government then provides a 25% uplift on the money saved, to a maximum of £3,000.  While hitting the required amount for a deposit may still seem out of reach, this type of account provides a welcome boost for potential buyers.

For many First Time Buyers however, using their own savings will not be enough, and it is for this reason that cash gifts are still the most common way that the ‘Bank of Mum and Dad’ can help. Most lenders are happy with this as a source of deposit, as long as it can be confirmed in writing by the parent. Bumping up the deposit from 5% to 10% also opens up a much wider range of mortgage deals with lower interest rates.

Further options exist for parents who want to help without physically parting with their savings. Some lenders allow money to be held in a separate savings account, allowing parents to keep their savings in their name, while still providing the additional security needed and often securing a better rate.

While getting a deposit together can feel like an uphill struggle at times there are options available, and with some financial discipline and planning, stepping on to the property ladder for the first time could become a reality.

Guild Mortgage Service, Provided by London & Country Mortgages

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE