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Lenders begin stretching mortgage terms up to 40 years

Traditionally, mortgages would tend to last around 25 years, but the demand for longer deals has grown drastically. With people working and living longer, it comes as no surprise that there’s a higher demand for longer-term deals. Recent research has highlighted that 36% of first-time buyers now opt for a term 30 years and above compared to just 17% 10 years ago.

By taking the mortgage term over a longer period, you are in effect reducing your mortgage payments. This to some degree is beneficial since the longer the term, the easier it is to pass lenders affordability rules; but you will pay more interest in total as the loan will be in place for a longer period. Nevertheless, this option is particularly useful in parts of the country such as the Chilterns where house prices have remained high and homebuyers need to acquire larger loans.

The increased demand for long term deals can also be attributed to the slow growth in wages and increased standard of living. With more purchases being made later in life and families having to juggle multiple financial commitments, there is a real demand in borrowers wanting to stretch their terms to make their monthly payments more affordable along with borrowing later into life. It could also be said that many of the younger generations have a ‘buy now save later’ mentality which could be also attributed to why they’d rather stretch the mortgage term and spend elsewhere.

Research has also indicated that the average age of first-time buyers is rising, and this has led to home buyers wishing to take their mortgage over the age of 70 purely to meet affordability. It’s also been suggested that since the average age has risen, first-time buyers are driven to buying larger homes as opposed to buying starter homes or flats.

But is it a Good Idea?

This can work in one of two ways. By stretching the mortgage term borrowers are, in effect, reducing outgoings and this can make the qualification for a larger loan possible.

As previously stated, this does cost more. By extending the term you will pay more interest over the full term and less of the capital per month, for example:

A £250,000 mortgage over 25 years with an interest rate of 2% cost £1,059.64 per month which consists of paying roughly £640 in capital initially. In total, over the 25-year term, a borrower would pay £67,890 in interest.

However, if we extended the same loan over 40 years, payments would drop to a highly attractive £757.06 per month but only £340.39 is the initial capital reduction. The result is (assuming interest rates never change), in total, a borrower would pay £133,648 in interest nearly twice as much as the 25-year version.

It’s easy to understand why taking the longer-term option may be the best option for some but it’s best to know all the facts related to this choice before going ahead. Speak to one of our independent advisers as they can help you decide what term is the most suitable for your situation.

Contact us directly on 01494 778899 or via email: info@pffinancial.co.uk

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Dispelling 5 Myths about Equity Release

The popularity of equity release has grown significantly in recent years and for good reasons.  It has changed in recent years is proving to be a financial solution for many people so industry experts suggest it will continue to grow. However, despite the appeal to some, there continues to be misconceptions amongst the public around how equity release works. Not realising changes have taken place, many people do not give equity release any consideration even though it could prove to be a beneficial option for them to either boost their retirement funds, be a solution to a debt or home improvement issue or just provide the funds they are looking for.

Before we explore these myths, it’s worth explaining what equity release is.

Equity Release is only aimed at those aged over 55’s and, in simple terms, allows them to release money or ‘equity’ from their home without having to move. There are 2 types of products that allow this:

Lifetime Mortgages – a tax-free amount secured against your home similar to a generic mortgage with interest being added to the debt if you choose not to pay it.  Payments can be made if required but they do not have to be in which case the loan will increase over time.

Home Reversion Plan – where you sell part or all of your home in retain for a tax-free lump sum.  These are less common option but they can allow you to release more than you would with a lifetime mortgage.

Myth 1: I’ll have to give away ownership of my home

As stated above, the most common form of equity release is a lifetime mortgage. It works in a similar way to a generic mortgage in that a charge is placed on the property, but you will retain ownership of the property for as long as you live there. This is due to the ‘loan’ not becoming repayable until death or when you vacate the property (sell or go into care). No monthly payments towards a Lifetime Mortgage are necessary but they can be made either partially or in full on some mortgage if required. Doing so ensures a higher proportion of a property’s equity is retained.

Home Reversion Plans are very different and do involve selling part or all of your home. The percentage released remains constant no matter what the property’s future value is when it is eventually vacated. The main reason people may opt for Home Reversion is because they can sometimes release a required higher amount than a Lifetime Mortgage. Even in this case, you can remain in the property until death or when you sell or go into long term care.  You always retain the initial portion/percentage of the property not sold to the lender.

Myth 2: The interest rates are very high

Yes, interest rates are generally higher than some residential products but they at the time of writing (Sept 2019) they are lower than we’ve ever seen. With more lenders entering the market and higher demand, rates in recent times have been continuously dropping and can be obtained as low as 3.50%. They are often fixed for the life of the mortgage too so unaffected by future external factors such as Bank of England base rate changes. In fact, in light of the lower rates, it’s very worthwhile reviewing any existing Lifetime Mortgage as we have often been able to switch an old one to a new one with a much lower rate!

Myth 3: I’ll owe more than the value of my home

To adhere to the Equity Release Council (ERC) Statement of Principles, all members most offer a ‘No Negative Equity Guarantee’. This means that neither you nor your beneficiaries will have to repay more than your property is worth upon death or moving into long term care.

Myth 4: I can’t make repayments on a Lifetime Mortgage

As stated in Myth 1, many lenders have useful flexible features on their products which include allowing you to make full or partial interest payments every month. The benefit of this is the initial debt will remain lower throughout the course of the loan allowing either further withdrawals later and/or providing beneficiaries with some inheritance.

Myth 5: I can’t use Equity Release for a purchase

Lenders always allow Equity Release products to be used to purchase a new property providing the property meets their lending criteria. In addition, you can move your existing equity release loan on your property to a new one if you move, again providing it fits within the lenders’ requirements.

If you are considering equity release as an option to help you fund your retirement, it’s important you speak to a specialist adviser and involve your loved ones when making your decision.

At PF Financial we offer a FREE guidance and advice service and are available for home visits at your request. Why not give us a call?

Learn more about our Equity Release services here

Or contact us directly on 01494 778899 or via email: info@pffinancial.co.uk

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Is an Offset Mortgage right for me?

If you usually have a reasonable amount of cash sitting in a savings account earning a low interest rate but have an outstanding mortgage balance, then an Offset mortgage could be right for you! An Offset mortgage links your mortgage account to a savings account and offsets – hence the name- the balance of one against the other. For example, if you have a £300,000 mortgage and generally around £70,000 in savings, you would only pay mortgage interest on the net debt, so £230,000.

So why would you do this? Some people would argue you should just make a lump sum payment of the mortgage and granted, this is an option.  The problem is, you would lose access to your savings which you may require either for a future plan or just to provide security.  Whatever the reason, an Offset means you retain that access and are able to make use of your savings.

Flexibility is a key benefit to the Offset. As well as being able to withdraw and deposit funds if and when required, it gives you peace of mind that should you need emergency funds relatively fast, you have total access to your savings without any penalty.

Moreover, Offset mortgages can also be utilised as an efficient way of making tax savings. Even with the new introduction of the savings allowance, interest earned on savings accounts with higher balances is still taxed; however, by offsetting you effectively remove all tax implications. In most instances, the interest you are charged on your mortgage will be higher then what you can earn in a normal savings account. Therefore, you will be better off as you would be making a tax-free saving at the higher mortgage rate. In addition, for higher rate taxpayers, it works especially well, as the savings made on the mortgage will not be tax deductible.

Why doesn’t everyone do it then? Well, a slight drawback of an Offset is that the mortgage interest rate can be slightly higher than some mainstream products. Therefore, if you don’t have much savings to put in the offset, it might not be the most cost-effective use of your money. However, for those with a decent sum of money in savings who want to retain access to it, I would suggest optimising an offset facility if you have 20% of more of the mortgage balance in savings.

If you are think an Offset mortgage might be right for you, it is important to contact a broker who can talk you through all your options and ensure you find the best possible deal. Give us a call on 01494 778899, email us at info@pffinancial.co.uk or use the link below to get in touch.

Learn more about our mortgage services here

Or contact us directly on 01494 778899 or via email: info@pffinancial.co.uk

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Brexit vs Mortgage Rates

Unsurprisingly, one of the questions we’ve been asked the most over the last few months is

What will happen to mortgage rates post-Brexit?

Like everyone else, we can’t give definitive answers, but we can give you an idea of what we think is likely based on our years of experience as mortgage brokers and analysing the housing market.

Remember though, that everyone’s circumstances are different, so if you want a free chat about your own personal situation, just give us a call or chat online.

Interest rates:  Will they rise? 

Last November was a bit of a shock for many homeowners when interest rates rose for the first time in a decade. Well, we may all be in for a shock again. Just last month, Mark Carney, Governor of the Bank of England said that an interest rate rise is ‘likely’ this year, but any increases will be gradual. Many experts believe that there will be a 0.25% rate rise later this month, although Carney has said it’s by no means a foregone conclusion. Watch this space.

So, what does this mean for mortgage rates? 

Mortgage rates are now at the lowest we have ever seen them, with some deals below 1%.  Given interest rates could be on the rise, now would be a good time to fix your rates and lock in your monthly repayments.  Some 5 year deals are extremely low, so it would probably be worth taking advantage of them to avoid any future rate rises from Brexit. We don’t know for sure if mortgage rates will go up, but if you can give yourself peace-of-mind for the next 5 years and you won’t be moving property, why wouldn’t you?

What’s going to happen to house prices? Should I buy or put my plans on hold?

We’ve all heard the horror stories of buyers pulling out because they are worried about the “Brexit Effect”, but have they got the right idea? We’re not so sure.

While it’s true that the annual rate of house price growth is at its lowest level for almost five years [Halifax], and house prices in London have fallen by as much as 15% over the past year [Your Move], other areas of the country, especially the North West are flourishing. And even though house prices across Buckinghamshire, Hertfordshire, Berkshire and Bedfordshire are experiencing some of the slowest growth in the country, experts believe that prices won’t go down, but will either stop going up in 2018, or go up by no more than 1%.

For most homeowners, house prices are relevant to each other so if the one you are selling loses a little of its value, so has the one you are buying.  Falling prices may have more of an effect on first-time buyers than any other purchaser and they could be in danger of losing money if prices fall.  But we think buying your own home is more of a lifestyle choice than an investment choice so, if you want or need to buy, then we suggest you should.  In fact, the way house price growth has slowed, could work in your favour as it might make sellers more willing to accept offers well under the asking price.  The good news for first-time buyers is that currently, if you buy a property for £300,000 or less, you won’t have to pay any stamp duty.

Brexit has been a bit of a shock for many and nobody can be 100% of its impact on the housing market and mortgage rates. If you would like to talk through your own personal situation, to get a clearer idea of how it might affect you, please give us a call. Most of our clients come from across the Northern Home Counties of Buckinghamshire, Hertfordshire, Bedfordshire and Berkshire but if you live further afield we are also more than happy to help.

Learn more about our mortgage services here

Or contact us directly on 01494 778899 or via email: info@pffinancial.co.uk