Earlier this week, a new sub-1% mortgage was launched for new build buyers.
Own New’s Rate Reducer
As of Monday, Virgin Money and Halifax are offering mortgages with rates potentially below 1% for those with high deposits or equity who are buying new build homes.
These new low rates come from Own New, who teamed up with housebuilder, Barratt Developments to introduce their ‘Rate Reducer’ scheme.
More housebuilders are due to join the scheme this coming Monday, with more mortgage providers also set to offer mortgages through Own New.
How Does it Work?
The Rate Reducer works by using incentive budgets offered by housebuilders to customers to reduce their monthly mortgage payments over a fixed term. Buyers can choose to spread the incentive over the first 2 or 5 years of the mortgage term depending on their lender’s criteria.
These mortgages will still require lenders to carry out affordability assessments to ensure that borrowers will still be able to meet repayments once this fixed term benefit ends and they face higher interest rates.
-Map from ‘Own New’ showing properties eligible for a Rate Reducer mortgage
What Have People Had to Say?
There appear to be mixed opinions when it comes to these new low rates, with some commentators noting that the Rate Reducer will help make mortgages more affordable, stepping in to fill the gap left by Help to Buy… whilst others believe that it could lead to rises in house prices and could leave homebuyers worse off.
“Our ethos is to make home ownership and mortgage lending in this country open to more people and we are confident that the launch of the Own New Rate Reducer will achieve that” – Elliot Darcy, founder of One New
“This will help target one of the key barriers for many and give buyers more breathing space in their monthly payments” – David Hollingworth, associate director at L&C Mortgages
“This product gives customers more choice in the way they can benefit from builder incentives and is especially helpful to those who want to see a lower initial mortgage payment as they get set up in their new home.” – Amanda Bryden, head of Halifax Intermediaries
“Since the demise of Help to Buy, the market has been crying out for a scheme to help get people onto the property ladder.” – Terry Higgins, managing director at The New Homes Group
“this is a dangerous scheme in that buyers will get used to the lower payments and when that initial product ends they will be faced with a large increase in their payments.
Ultimately, though, like the Help to Buy scheme that preceded it, this scheme will see developers just increasing their house prices leaving the potential buyers no better off at all, whilst also sacrificing the other incentives they would have been able to secure” – Stephen Perkins, MD at Yellow Brick Mortgages
“Without a doubt developers will use these affordable mortgages to increase house prices, meaning a premium will be paid for own new stock, and the payment shock at the end of the product will be enormous.
Will the buyer be advised correctly? Doubtful. This has disaster written all over it” – Matthew Jackson, director at Mint FS
When moving house, there are a lot of costs involved that might not immediately come to mind. Let’s have a look at these now to make sure you’re aware of the true cost of moving to a new home…
Not Just a Mortgage…
There are a range of fees involved when it comes to moving house; it’s not just your deposit and mortgage fees you need to think about.
Barclays found that the average cost of moving home in the UK is £11,777, but this amount can vary a lot from person to person depending on where you live.
Property Survey
When moving home, you may wish to conduct a property survey, where an expert inspects the home you’re looking to buy to check for any structural problems or areas in need of repair.
This is different to a valuation, which is a basic check arranged by your mortgage lender to check that the proposed property price is realistic. Many lenders don’t charge for these valuations.
You don’t have to get a property survey, and it will cost money to get one. However, carrying out a property survey may actually save you money in the long run if any serious problems are found within the home which you would not otherwise be aware of.
Legal Fees
A solicitor or conveyancer will be in charge of dealing with paperwork to ensure you move into your new home on time, giving you legal advice, conducting property searches, transferring funds, and registering your property ownership.
As you can probably imagine, this costs money, so you should expect to pay for legal fees when buying a new property.
Estate Agent Fees
If you are selling your current home, you will also need to factor in estate agent fees for those helping to sell the property. These fees are calculated as a percentage of the sale price or as a flat fee.
Before picking your estate agent, make sure you are fully aware of all of the costs involved and whether VAT is included in the agreed upon cost.
Stamp Duty Land Tax
If the property you’re buying is over £250,000 (or £425,000 for first time buyers), you will also have to pay Stamp Duty Land Tax.
You can use the Stamp Duty Land Tax calculator for free on the government website to see how much stamp duty you will have to pay for your desired property.
Home Insurance
Mortgage lenders tend to insist that you have appropriate buildings insurance for your mortgage terms. This covers damage to the home’s structure, such as its roof, walls, windows, doors and fixtures.
It’s strongly advised to get buildings insurance as a homeowner, as you need to consider how else you would afford to rebuild or repair your house if it was destroyed or damaged.
Contents insurance covers damage to the things inside your home, such as appliances, carpets, furniture, artwork, clothes, and so on. You can buy buildings and contents insurance separately or as a combined policy.
Other Costs…
Aside from those already discussed, there are a variety of other costs you might have to pay when buying a new home, such as:
Decorating and home improvement costs
Moving fees, e.g, hiring removal vans, paying for shipping costs, or paying for storage facilities if there is a gap between moving out of your current home and into the next
Professional cleaning- some people choose to get their current home professionally cleaned before moving out so that it’s in good condition for the new owners
Council tax
Top tip: make sure you change all of your household bill payments and direct debits for things like water, gas, council tax, and wifi when moving home.
by Red Star Wealth
Due to the success of open banking, it’s likely that we will see the development of open finance in the near future.
Open Banking: A Success Story
Open banking involves granting a third party access to your bank account. With your consent, this third party can access your payment account data and ask your banking provider to make transactions on your behalf.
The October 2021 Open Banking Impact Report found that 55% of Open Banking consumers agreed these services had helped them reduce their fees and costs and that 83% were willing to expand their use of these kinds of services.
On the whole, open banking seems to have been largely successful, and this has now opened the door to expansion into open finance.
Open Banking to Open Finance
Both open banking and open finance operate on the idea that individuals should be in control over who can access and use their financial data.
Open finance is simply an extension of open banking; it would enable wider sharing of this consumer data to more financial products and services, rather than it being confined to banking. So, rather than this data sharing solely involving things like payments, under open finance, it would also be applied to things like investments, insurances and mortgages.
The FCA’s Definition of Open Finance
Encouraged by the success of open banking, the FCA, government, and financial services industry have been considering the potential benefits of open finance… but what exactly is it?
[Open finance] is based on the principle that financial services customers own and control both the data they supply and which is created on their behalf. Re-use of this data by other providers would take place in a safe and ethical environment with informed consumer consent. This would mean that a financial services customer who consents to a third party accessing their financial data, could be offered tailored products and services as a result. Access would be provided by that customer’s current financial services provider under a clear framework of consent
How Might this Work in Practice?
Open finance would work on the foundation already established by online banking. It would work in a similar way, through data sharing to third parties, but it would simply cover a wider breadth of circumstances by collaborating across various financial services. According to UK Finance, this could potentially, “reduce fraud, improve financial wellbeing, widen access to credit, deliver greater choice in payments and help enable reusable digital identities.”
So, let’s have a look at a few examples of how this may look in practice for its consumers…
With open banking, consumers can see all of their account balances on one singular dashboard. With open finance, more financial products could be incorporated, so that the consumer could see their ISA, pension, mortgage, investments, and so on, all in one place.
Open finance also allows for even more personalisation. One example of this is lenders being able to offer mortgages based on the customers’ exact needs. Their service to the consumer would be personally tailored to them as an individual through data analysis of their accounts and finances.
Whilst open banking allows its users to authorise third parties making payments on their behalf, open finance could go even further, allowing consumers to link automatic transfers between different financial products, such as establishing recurring payments to pay off their mortgage.
by Red Star Wealth
If you are unable to afford all of the deposit and mortgage payments for a home that meets your needs, you may be able to get shared ownership…
Shared Ownership Explained
Shared ownership is when you buy a share of a property and pay rent to a landlord on the remaining portion of ownership.
The share you can buy is usually between 25% and 75%, though you can buy some homes with just a 10% share. You can pay for this share with your savings or take out a mortgage for the amount. You will also have to pay a deposit, which tends to be 5-10% of the share you’re buying.
Some people using shared ownership do something called ‘staircasing,’ where they buy more shares in their home in the future. Therefore, they slowly increase their ownership of the property. This corresponds with lower rent payments, as rent is based on the landlord’s share- the more you own, the less the landlord owns, so the less rent you owe.
What Home can I Buy with Shared Ownership?
A new build home
An existing home via a shared ownership resale scheme
A home that meets your specific needs, such as a ground floor flat if you’re disabled
Eligibility
To qualify for shared ownership you must:
Have an annual household income below £80,000 (or £90,000 if in London)
Be unable to afford deposit and mortgage payments for a home that meets your needs
One of the following must also apply:
You’re a first-time buyer
You used to own a home but can no longer afford to
You are forming a new household (e.g, after divorce)
You are an existing shared owner and want to move to a different property
You own a home and want to move but cannot afford a new home that meets your needs (e.g, wheelchair friendly)
The Process of Ownership
When buying a shared ownership home, you must have formally accepted an offer for the sale of your current home. This is referred to as Sold Subject to Contract (STC).
You should have written confirmation of the sale agreed (called memorandum of sale). This should include the price and your intention to sell.
You must have completed the sale of your current home on or before the date that you complete the process of buying your shared ownership home.
Older People’s Shared Ownership (OPSO)
OPSO is a form of shared ownership available to those age 55 and over. You can buy an initial share in an OPSO home between 10-75% of its market value.
The concept is the same as with the general shared ownership scheme. However, with the OPSO scheme, you can only buy up to 75% of the home. Once you own this 75%, you do not pay rent on the remaining 25% share.
Just like with the general shared ownership scheme, you must have a household income of £80,000 or less (or £90,000 or less if in London) and one of the following must apply to you:
You’re a first-time buyer
You used to own a home but can no longer afford to
You are an existing shared owner and want to move properties
by Red Star Wealth
For many of us, our mortgage is our biggest monthly expense. Therefore, the question of whether we could still afford to meet our mortgage repayments if we were out of work is an important one… and this is where mortgage payment protection insurance comes into play.
What is Mortgage Payment Protection Insurance (MPPI)?
MPPI covers your monthly mortgage payments if you’re made redundant or are unable to work due to serious illness or injury. There are three main types of policy cover:
Unemployment
Accident and sickness
Combined
MPPI can help prevent you from defaulting on your mortgage and risking repossession of your home if you’re left without your ordinary income to make mortgage payments.
How it Works
You begin receiving payments after you’ve been out of work for a specified waiting period, which is usually set between 30 and 60 days but can reach up to 180 days. Therefore, it is still always important to consider having an emergency fund, as you still need to cover costs during the waiting period.
There is usually an exclusion period, which is the time elapsing between the start of your policy and the time you are actually eligible to make a claim on the insurance. This exclusion period is usually set between 30 and 180 days.
You will then receive set monthly payments, usually for up to a maximum of 2 years.
Depending on your MPPI provider, you may be able to get a policy where your bills are also covered, in which case you will receive 125% of your mortgage costs.
Your job may affect the amount you have to pay for your MPPI policy, because most insurers categorise jobs according to different risk categories. The higher risk of injury, illness or redundancy you are seen to be at, the higher your premium will be.
Other Insurances to Consider
You may wish to consider a decreasing life insurance policy, which covers the cost of your mortgage payments for your dependents when you die. This is by no means an alternative to MPPI, as cover only starts in the event of your death. However, it may be something you want to consider in addition to MPPI, so that you dependents are financially protected.
As an alternative to MPPI, you may choose to take out income protection insurance. This covers a portion of your salary, making it more comprehensive than MPPI, as the payments you receive can be used for anything, including the mortgage payments themselves. Additionally, income protection insurance often pays you instalments for longer than the MPPI 2-year limit.
Critical illness cover is an alternative worth considering if you were thinking of taking out an accident and sickness MPPI. Critical illness cover pays you a lump sum if you are diagnosed with a serious illness which makes you unable to work, but it does not provide you with a regular income through instalments.
Check whether your employment contract includes an arrangement for the company to continue to pay you your salary, or a portion of it, for a set period if you are off work due to illness. Some employers may even offer income protection insurance as an employee benefit.
Whether you get MPPI is your choice, but as with any financial decision, it’s a good idea to look at all of your options.
by Red Star Wealth
Separation and divorce can be difficult enough without also having to worry about the effect on your finances.
Does Divorce Affect my Credit Score?
In isolation, being divorced does not affect your credit score. Your credit report does not take into account the legal status of your relationship.
However, divorce can massively disrupt people’s finances, which in turn can affect their credit scores if they start failing to make payments for bills and loans.
Additionally, many people have financial agreements in both spouse’s names when married, whether it be a utility bill or a mortgage. If you take out shared finance with someone else you are now financially associated, which does show up on your credit report.
Joint Accounts
As long as a joint account stays open with both names on it, both parties are legally responsible for it, including responsibility for any payments of bills and subscriptions.
If you break up with your partner or spouse and agreed they will make these payments and they fail to, you will also be held responsible for the missed payments.
Therefore, it is important that you close any shared accounts, or convert them into individual accounts. When divorcing, you will have to sort out the division of assets before doing this, which you can use a divorce mediator or solicitor to help with.
When you do close any joint accounts, make sure you make note of any direct deposits so that you can contact the parties involved to change the transactions to your account.
What is a Financial Association?
If you have joint finances or a joint credit account with another person, you are financially associated.
Financial association is not bound to marriage or cohabitation. Marrying someone or living with someone does not automatically make you financially associated. Because of this, when a relationship or marriage ends, the financial association does not automatically end with it.
Financial Associations and your Credit Report
Financial associations can have a big impact on your finances. This is because lenders can take into account the credit reports of your financial associations as well as yours. Any negative information against your financial associations’ names can therefore hurt your credit applications.
Financial associations will stay on your credit report indefinitely unless you request for them to be removed. If you break-up with someone or get divorced, your credit report won’t automatically update itself and remove your ex as a financial associate.
It’s important to note that financial associations cannot harm your credit score. Your credit score is personal and belongs completely to you to reflect your own creditworthiness. So, financial associations cannot affect your credit score itself, just the outcome of any credit applications you make.
Once you remove someone as a financial associate, their credit history doesn’t have a permanent mark on your finances where they’ve been able to lower your credit score.
Out with the Old and in with the New
Check all of your accounts even if you think they are solely in your name. If your ex is listed as an authorised user, ring the relevant account provider to remove them.
You can check your credit report to see if you want any financial associations removing. If you do, you should submit a disassociation request to the relevant credit agency.
The credit reference agency then has 28 days to respond. Therefore, it is best to remove associations as soon as you divorce or separate, rather than waiting until you are trying to apply for credit.
