August 3, 2018
This week, we’re looking at the impact Stamp Duty cuts and shared ownership schemes have on first-time buyers, the cost of not insuring straight after exchange, “mortgage prisoners” being offered a better deal, Connells’ strong performance despite a drop in sales and how the average monthly London rent price has hit £2,000.
The Bank of England raises UK interest rates
The Bank of England has risen UK interest rates from 0.5% to 0.75% – the highest it’s been since 2009, and just the second time the rate has been raised in the past decade.
This news has had mixed responses; on one hand it’s beneficial for savers, but for the 3.5m people with variable or tracker mortgages who will have to pay more, the decision hasn’t been popular.
The rise was set to happen in May, experts say, but due to the economy experiencing a weak patch (partly due to harsh weather conditions in Winter), the decision was put on hold. Once the Bank felt confident that the economy will recover, the decision was back on.
And we can expect this to keep happening, too. The Bank’s governor, Mark Carney, says that there would be further “limited and gradual” rate rises to come.
Business groups have criticised the decision to raise interest rate now ahead of the UK agreeing a Brexit deal with the EU, and the Institute of Directors argued that the Bank had “jumped the gun” by raising the rate now, saying: “The rise threatens to dampen consumer and business confidence at an already fragile time.”
Lenders aim to offer better deals to “mortgage prisoners”
Lenders are writing to thousands of homeowners classed as “mortgage prisoners”; those trapped in a mortgage deal where they’re paying high interest rates – it’s said that there are 10,000 homeowners in this position. The majority of these people took out their mortgages before 2014, prior to stricter rules on affordability being enforced.
The Financial Conduct Authority (FCA) published an interim report in May which investigated the mortgage market. This found that after their existing mortgages switched to the more expensive standard variable rate, many homeowners were unable to move to a better deal due to stricter affordability checks or a change in circumstances after the original deal was agreed.
The FCA has identified around 150,000 customers that fit into this category, and just 30,000 of these were with authorised mortgage lenders while the other 120,000 had mortgages held by non-regulated firms. Roughly 10,000 of these are with lenders who are still actively operating in the mortgage market, and these are the individuals who will receive letters.
While the rules set by the regulator mean they’ll essentially still be blocked from searching the market for better deals, as long as they are currently keeping up with the repayments they will receive a letter from their existing lender which will outline similar yet cheaper deals available for them. This has been organised by UK Finance and the communications will arrive by the end of the year.
One couple face a £50,000 bill after their house flooded – before they even owned it
A family from Brighton found out the hard way how important it is to sort insurance out as soon as you “exchange”. This is the moment you’ve officially put down your deposit, signed and exchanged contracts and are legally bound to buying the home. While you may not move in for another 2-3 weeks, you’re now liable for any damage or issues with the property.
The couple had exchanged contracts but hadn’t been given the keys to move in yet, which is why they were so shocked when they were told that their new home had been flooded, and it was their responsibility to pay up.
A water pipe located in their loft had frozen and cracked back in January this year which caused the flooding, and since the existing owners were away, the floods went unnoticed and the damage grew. James and Daisy Callaghan are now facing a £50,000 bill to cover repairs and for a temporary home where they and their two-year-old will have to live for 6 months. The choice was to cough up or lose their £50,000 deposit.
The Callaghans urge for other homebuyers to make sure they sort out insurance cover as soon as they exchange to avoid anybody else having the same experience as them. They say that they weren’t explicitly told by their conveyancing solicitor that they needed to insure straight away, claiming that the requirement was buried in a 40-page document sent to be signed via email.
“In general too few people are aware of the requirement to insure – both among the conveyancers and the insurance industry,” says Colin Bickers of specialist insurer Exchange2completion. “The problem is that very few standard buildings policies will cover the period from exchange to completion because the holder is not living in the house they are insuring – it’s as low as 20% of policies.”
How can shared ownership schemes affect first-time buyers?
The government eased eligibility rules in April this year, meaning that households earning less £80,000 and £90,000 in London can acquire property via shared ownership schemes. But how much do people really know about shared ownership? And what impact can it have on both first-time buyers and conveyancers?
Credit experts TotallyMoney have recently conducted a report presented as an infographic, and it investigates the ambiguity of shared ownership schemes and whether they could be the solution to help first-time buyers onto the property ladder.
After surveying 1,000 members of the British public, they found that only 6% of first-time buyers have used the Government’s shared ownership scheme, while 40% rely on financial support from friends and family. 38% of first-timers would not consider using it and 33% of 18-24-year-olds claimed to have never even heard of it. 75.5% of these 18-24-year-olds had an incorrect idea of the minimum share of a house they can buy through the scheme.
“It can enable you to get on to the property ladder more quickly than you might if you wanted to buy a home outright; it may be cheaper than renting; and you can sell a shared ownership property at any time and will benefit from any increase in value it’s seen since you bought,” says consumer group, Which.
Many believe that a better understanding of the scheme could encourage more to use it as its ambiguity seems to be putting a lot of people off. TotallyMoney list common deterrents of the scheme according to their respondents: not owning the whole property, the fear the hidden costs and additional fees on the share of the property you don’t own, only being able to purchase a leasehold property and having a limited choice due to the fact you must go through a housing association.
Could shared ownership schemes be the future for first-time buyers? Possibly, but first, the terms and conditions should be made clearer so the public have a better understanding of what the scheme entails so that any concerns can be put to rest.
Click here to see TotallyMoney’s full infographic.
Stamp Duty cuts prove beneficial to over 121,000 first-time buyers
Since November last year, first-time buyers purchasing homes worth under £500,000 pay no Stamp Duty on the first £300,000. According to figures by HMRC, this tax relief has benefited 121,500 first-time buyers in the first 7 months since it was enforced.
The data found that these 121,500 first-time buyers saved a total of £284m thanks to the cut. The Treasury predicted that over 1 million first-time buyers will get on to the property ladder over the next five years because of the tax relief.
Financial secretary to the Treasury, Mel Stride, commented: “Once again, we can see that our cut to Stamp Duty for first-time buyers is helping to make the dream of home ownership a reality for a new generation – exactly as we intended.”
Connells experiences strong revenues and profits despite a drop in sales
This week, Connells Group announced its interim results for the first half of the year to the end of June. While it saw a drop in sales by 3.8%, it experienced strong growth in revenues and profits, leading it to describe itself as the UK’s largest estate agency, a title long claimed by Countrywide, and one that Purplebricks has recently laid claim.
Connells’ earnings before tax and interest stood at £37m compared to £38.1m last year, and its pre-tax profits were £28.9m down from £31.5m in 2017.
However, compared to the first half of 2017, its total income rose by 1.1% in the first half of this year. This was caused by a 14% growth in mortgage services revenue, lettings income rising by 6.5% and C surveying services increasing by 4.3% within the same period.
Average monthly London rent prices hit £2,000 for the first time
Everybody knows that London has the highest average house prices across the country, but Rightmove’s latest reveal still sends shockwaves across renters in the capital.
High demand for homes and a lack of properties to provide means that rent prices have risen by 3.4% year on year. For the first time, the average monthly rent price in London has hit the £2,000 mark.
One in three tenants have experienced an increase in their rent over the past year according to figures from the Association of Residential Letting Agents (ARLA). Outside of the capital, rents have reportedly risen by 0.7% to an average of £796 per month during the same period.
Shipside blames the increasing shortage of property on the Government’s decision to scrap landlords’ tax breaks and increase Stamp Duty on buying an investment property.
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