Govt Backs Help To Build Equity Loan Scheme – Forbes Advisor UK
New First Direct Fixed Rate Offers ‘Long-Term Peace Of Mind’ – Forbes Advisor UK

8 July: First Direct Launches 10-Year Fixed Rate With Unlimited Overpayments

First direct has, today, launched a new 10-year fixed rate mortgage in response to growing demand for greater security around household finances.

Borrowers are permitted to make an unlimited number of overpayments during the fixed-rate term with no penalty. Usually, lenders limit overpayments on fixed rate deals to 10% of the outstanding loan each year. 

Interest rates on the mortgage – which is capped at a maximum loan size of £550,000 – are priced between 3.34% and 3.69% depending on the size of your deposit. 

As an example, borrowers with the minimum 20% deposit will pay 3.59% with a £490 product fee, or the slightly higher rate of 3.69% for the fee-free option.

The mortgage is available to first-time buyers, homemovers, remortgagers, and those looking for additional borrowing, while borrowing terms can extend to up to 40 years.

First Direct joins a number of other lenders to offer 10-year fixed rate mortgages including Halifax, TSB and Lloyds, as demand grows for long-term financial certainty.

The cost of living is soaring with annual inflation at 9.1% in the year to May, while the Bank of England’s Base rate has risen five times since December from 0.1% to its current 1.25%.

Chris Pitt, chief executive of First Direct, said: “The cost of living crisis in particular has forced homeowners and prospective buyers to rejig their monthly incomings and outgoings, of which mortgage payments tend to take up the lion’s share. 

“After a string of base rate hikes in 2022, the launch of this product is to give homeowners and buyers long-term peace of mind while external volatility – such as soaring house prices and rising utility bills – shows no signs of abating.”

First direct also offers two-year and five-year fixed rate mortgages. In April this year, it also launched a 5% deposit mortgage.

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Trussle is a 5-star Trustpilot rated online mortgage adviser that can help you find the right mortgage – and do all the hard work with the lender to secure it. *Your home may be repossessed if you do not keep up repayments on your mortgage.


24 June: First Mortgage Deals Launched Under Help To Build Equity Loan Scheme

Today sees the launch of a government-backed scheme designed to help buyers with small deposits onto the property ladder with homes tailored to their exact requirements.

Help to Build, which is available in England only, offers self or custom (building on an existing shell or structure) home-builders an equity loan of between 5% and 20% (up to 40% in London), so long as they can put down a deposit of at least 5%.

The remaining 95% must be funded with a self-build mortgage from a lender registered with the scheme, which is offered by Homes England.

Darlington Building Society is the first lender to launch a Help to Build mortgage, which it is offering in conjunction with BuildLoan. It has two deals available, both three-year discounted rates priced at either 5.39% or 5.99%.

This, and other mortgages under the scheme, are offered on an interest-only basis for the duration of the build – which must take no longer than three years – but will switch to a repayment deal when the work is complete.

Darlington says it will release funds in advance of each stage of the building work required.

According to Housing Minister Stuart Andrew, Help to Build will, “break down the barriers to homeownership, as well as create new jobs, support the construction industry and kickstart a self and custom-build revolution.”

However, borrowers cannot use the government’s equity loan towards the cost of the build itself as the funds are paid directly to the lender only once the home is completed. The purpose of the equity loan is therefore to reduce the amount that’s being borrowed on the mortgage.

Repayments on the equity loan, which begin at the same time as the mortgage repayments, work in the same way as the government’s Help to Buy equity loan scheme, which closes in March 2023.

This means that for the first five years, repayments are interest-free. In year six, interest is charged at 1.75%. Repayments then increase every April based on the cost of the Consumer Prices Index measure of inflation (as measured in the previous September) plus a further 2%. CPI currently stands at a 40-year high of 9.1%.

Borrowers can pay back the equity loan at any time after the build is finished but it must be repaid in full by the end of the mortgage term or when the home is sold, whichever happens sooner.

Because it’s an equity loan, the amount you owe grows relative to the property value. This means if house prices go up, you will pay back more than you initially borrowed.

The Help to Build equity loan is not exclusively for first-time buyers, but you must live in the newly-built home as your only property to be eligible. It is not available to upgrade a home you already live in. Finally, you will need outline planning permission for the land you want to build on before you can apply.


23 June: Cost-Of-Living Crisis Means Fifth Of Homeowners Struggling To Pay Mortgage 

One fifth (20%) of UK homeowners say they are unsure how they will afford their next mortgage payment, according to a recent survey by our online mortgage broker partner, Trussle.

The online survey gathered responses from 2,000 homeowners across the UK in May 2022. It also found that 38% of respondents were worried about their mortgage payments in the midst of the cost-of-living crisis. 

Amanda Aumonier, head of mortgage operations at Trussle, says homeowners should consider remortgaging. According to Trussle research, this could save households up to £4,000 a year compared with a standard variable rate (SVR) mortgage.

Trussle says around 800,000 UK homeowners are currently on an SVR mortgage, and only 10% of homeowners have checked whether they are able to remortgage. 

Ms Aumonier said: “Homeowners are facing a perfect storm of challenges that is pushing their finances to breaking point. This has left many feeling deeply worried as to how they can keep paying their monthly bills and make ends meet.

“However, we would urge people not to simply put their heads in the sand when it comes to their household finances. There is a range of measures from remortgaging to locking in a long term deal that can help give you greater stability and certainty.”

Although interest rates have risen, fixed mortgage rates remain competitive and the gap is closing between the cost of short and longer-term deals. Trussle has found a difference of just 0.45% between the average two-year and 10-year fixed mortgage interest rates as of June 2022.

Free Mortgage Advice

Trussle is a 5-star Trustpilot rated online mortgage adviser that can help you find the right mortgage – and do all the hard work with the lender to secure it. *Your home may be repossessed if you do not keep up repayments on your mortgage.


20 June: Would-Be Borrowers To Face Less Onerous Scrutiny

The Bank of England (BoE) is withdrawing its mortgage affordability test from 1 August. 

The affordability test was introduced in 2014 and revised in 2017. It specifies a ‘stress interest rate’ to be used to calculate whether prospective borrowers would be able to meet their payments if their rate reached 3 percentage points higher than the original during the first five years of the mortgage.

However, actual interest rates increased by a maximum of only 0.5 percentage points from 2017 to 2021, prompting concerns that this 3% stress rate uplift was too high. Lenders will instead base their ‘stress test’ on forecast interest rates, although this must include a minimum ‘stress buffer’ of at least 1 percentage point above the original mortgage rate.

The move has been welcomed by Lawrence Bowles, director of research at estate agent Savills: “Removing the current stress testing could mitigate some of the impact of higher interest rates. In theory, at least, it should open up a little more capacity for house price growth.” 

The removal of the test should make it less onerous for prospective borrowers to prove their ability to meet future mortgage repayments. However, rising house prices and interest rates are likely to continue to prove a hurdle for mortgage applicants.

The latest Rightmove price index showed a continued, albeit more modest, rise in property prices last month. According to Mr Bowles, the BoE’s announcement should provide “welcome relief to some would-be-buyers struggling to keep up with current criteria because of significant price growth of the past two years”.

Lenders will now be required to assess affordability by making reference to the market’s established ‘responsible lending’ rules, which include setting a maximum loan according to a multiple of the applicant’s income and analysing existing outgoings. Lenders will continue to be limited by the number of mortgages they are able to offer at loan-to-income ratios of 4.5 and above.

The announcement comes against a backdrop of rising interest rates, with the BoE increasing interest rates for the fifth consecutive time last week. Further interest rate hikes are predicted to tackle the soaring inflation rate in the UK, which will have a knock-on impact on both mortgage rates and the affordability of new mortgages.

Mr Bowles also added that “improved capacity for growth would also be dependent on how far lenders are prepared to push loan-to-income multiples under responsible lending rules”. However, he believes it is “unlikely to open up the mortgage-credit floodgates”.


16 June: Rate Rise To 1.25% Adds To Cost Of Living Woes

Our mortgages expert, Laura Howard, says today’s decision by the Bank of England to raise the UK Bank Rate to 1.25% will be unwelcome news for the nation’s homeowners and potential buyers. 

“While it was widely expected, this latest rise is worrying news for the nation’s millions of mortgage holders who are already grappling – or even unable to meet – the relentless rising cost of essentials such as energy bills, fuel, and even grocery shopping.

“Anyone paying their mortgage lender’s standard variable rate (SVR), or who is on any mortgage deal that’s linked to the Bank Rate, will be forced to absorb an almost immediate impact of today’s hike into the cost of their monthly payments.

“As an example, the latest 0.25 percentage point rise will add around £26 onto the monthly cost of a £200,000 variable rate mortgage priced at 2.5%. But cumulative hikes since December 2021 – when Bank Rate stood at a much leaner 0.1% – will have added over £100 a month onto the same mortgage. That’s over £1,200 a year.

“First-time buyers and those looking to remortgage are likely to find that today’s hike, and those that have gone before it, have already been factored into the cost of new mortgages, while homeowners who are part-way through a fixed-rate mortgage will be sheltered from rate rises for now.

“But when their fixed deal ends they will be facing much higher mortgage costs.

“In light of this, it might be worth considering reserving your next mortgage deal on your current home, which you can typically do between three and six months in advance of it starting. This essentially means securing rates as they are today and taking advantage later in the year if they have since gone up.

“There is no obligation to take the deal so there’s nothing to lose if you change your mind.”


14 June: Supply Squeeze Doubles ‘Down-Valuation’ Mortgage Rejections 

The number of mortgage applications rejected because a lender thought a property wasn’t worth the amount the applicant wanted to borrow has doubled since the Covid-19 pandemic.

‘Down valuations’, where there’s a mismatch between the agreed sale price of a property and the valuation carried out on behalf of a mortgage lender, can cause serious problems with mortgage applications.

For example, a borrower might agree a sale price of £350,000 with a property owner, only to find their mortgage lender values the property at just £300,000 and rejects their application.

With demand outstripping supply in the housing market, buyers are increasingly willing to pay over the odds for properties, leading to the increase in down valuations, according to an online mortgage broker Mojo Mortgages.

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Trussle is a 5-star Trustpilot rated online mortgage adviser that can help you find the right mortgage – and do all the hard work with the lender to secure it. *Your home may be repossessed if you do not keep up repayments on your mortgage.

‘Sellers are trying their luck’

Its research shows the rate of down valuations was at 12.8% in April, up from 10.4% a year earlier and double its mid-pandemic rate of 6.4% in December 2020.

Down valuations on remortgages was higher in April, at 15.4%.

Richard Hayes, co-founder and chief executive of Mojo Mortgages, said: “The property market has seen unprecedented demand over the last couple of years, with month after month of record price rises. 

“This level of demand means that, in my opinion, some sellers are trying their luck and setting a selling price higher than estate agents recommend. With some properties, like three-bed homes, in such high demand, sellers are trying to see what they can achieve. 

“With supply of new homes onto the market still well below demand, buyers are also willing to pay more for a property because of the lack of similar alternatives.”

Dealing with a down valuation

Buyers faced with down valuations may be able to renegotiate the sale price with sellers, especially if the sellers themselves are in the market for a new property and are relying on the sale to fund their next purchase.

Some lenders also allow appeals on down valuation decisions, but require strong evidence about the sale prices of other properties in the same area in order to change their decision.

Also, it may be that a valuation has been carried out remotely by someone at their desk. It may be worth asking for an in-person valuation to reevaluate anything you think they might have missed.

Each lender handles down valuations differently. It’s possible that a different lender, using a different surveyor, will return a valuation that’s closer to your agreed sale price. 

Or if you’re able to increase your deposit, you could close the gap between the lender’s valuation and the sale price. 

Alternatively, you could speak to your lender about a higher loan-to-value (LTV) ratio – that is, the amount you want to borrow in relation to the value of the property. Be aware, however, that higher LTVs typically mean higher rates of interest and more expensive monthly repayments.

Figures from Halifax earlier this week showed average house prices grew by 10.5% in the year to May, up to £289,099. Prices grew by 1% compared to April marking the 11th consecutive month of price rises, partially caused by the imbalance of supply and demand in the housing market.


April 27: First Direct Launches Debut 95% Mortgage

First Direct has launched its first ever 95% loan to value (LTV) mortgage for first-time buyers and people moving home. 

Borrowers with a 5% deposit can choose from a two-year or five-year fixed rate, priced at 2.79% and 2.94% respectively. Both options are fee-free. The deal is available on loans of up to £550,000, meaning that buyers are able to borrow up to £522,500 if they have a deposit of £27,500.

It is not available to remortgagers.

Free Mortgage Advice

Trussle is a 5-star Trustpilot rated online mortgage adviser that can help you find the right mortgage – and do all the hard work with the lender to secure it. *Your home may be repossessed if you do not keep up repayments on your mortgage.

First-rung boost

In further bid to ease affordability constraints, First Direct’s 95% mortgage is available over a repayment term of up to 40 years. However, it also permits unlimited overpayments which can be made at any time, enabling borrowers to essentially reduce this term penalty-free.

Chris Pitt, chief executive of First Direct, said: “While the property market continues to speed along in the fast lane, first-time buyers have been left behind. While house prices continue to outpace deposits, we see this as a viable way of helping people onto the ladder.”

The mortgages also come with a six-month Agreement in Principle (AIP) compared to an industry average of two to three months.

Which other lenders offer 95% mortgages?

There are currently 56 mortgages available at 95% LTV, according to online mortgage broker Trussle. This is a considerable uplift from 2020, as the deals all but disappeared from the market during the pandemic over concerns around affordability.

In March 2021 the government launched a new Mortgage Guarantee Scheme to encourage lenders to start offering high LTV mortgages again. 

Lenders that offer 95% LTV mortgages include Barclays, Santander, HSBC, NatWest, Skipton Building Society and Clydesdale Bank.

How do the First Direct deals compare?

First Direct’s offerings stack up well against other 95% deals which – due to the higher lending risk – come with higher rates than mortgages with lower LTVs. 

Barclays has a two-year fixed rate mortgage priced at 2.67% with no fee – slightly cheaper than First Direct’s two-year deal of 2.79%. However, as part of the government’s Mortgage Guarantee Scheme, Barclays’ offering comes with associated restrictions, such as it cannot be used to buy new-build homes. 

HSBC, First Direct’s parent bank, offers the choice of a two-year fixed rate of 2.69% with a £999 fee, or an equivalent 2.79% with no fee, while Newcastle Building Society charges 3.15% with no fee and £500 cashback.

Looking at five-year fixed rate 95% mortgages, Barclays offers the same rate as First Direct’s 2.94%, while HSBC’s offering is slightly higher at 2.99%. Both deals are also fee-free.

However, all deals with the exception of First Direct’s, limit penalty-free overpayments to 10% a year.

For up-to-date mortgage rates, input your criteria into our mortgage tables below.

Choosing a deal

It’s important to factor in all considerations when choosing a mortgage, including fees versus headline rate, tie-ins and early repayment charges. 

Look also at the follow-on rate, which is what the deal will revert to at the end of the term. That said, many homeowners look to remortgage to another rate once their initial fixed rate period ends.

A fee-free independent mortgage broker such as our partner Trussle, will crunch the numbers on your behalf and advise on the best deals for your circumstances. 

Amanda Aumonier, head of mortgage operations Trussle, said: “High loan-to-value mortgages can play a crucial role in ensuring the market remains accessible to all, by slashing the size of deposits needed to secure a home. We hope to see this trend continue so that everyone can aspire to own their own home.”

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