Weekly Q&A with Ed Mead and Andrew Montlake - Week 13

Weekly Q&A

Weekly Q&A with Ed Mead and Andrew Montlake - Week 13

A weekly questions and answers session with Ed Mead and Andrew Montlake

  • With the average pension pot at just over £20k in the UK you have been saying many will put this into property. Doesn't seem likely and how easy would it be to add to buying power with a mortgage?
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  • For Monty I guess. I've been told that there new mortgage regulations coming in that will mean my existing AIP where no full application has already been submitted will be cancelled by the lender. Is this true?
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  • @Ellen: There seems to be two schools of thought as to what the changes could mean.
    On one hand, does the fact that pensions are no longer prescriptive where taking an annuity is concerned mean that many will return to the pension rather than looking at buy-to-let property early on? This would certainly make first time buyers, battling away with cash ready investors, feel more positive.
    On the other, as we head towards a generation of baby boomers eyeing retirement, does this freeing up of oodles of cash mean that demand for buy-to-let investment properties as an alternative, or a companion to other investments, is about to shoot through the roof?
    This does feel the more likely response. After all, the British obsession with bricks and mortar is well documented, whilst having an investment you can see and touch rather than something that ultimately others control on paper, is very appealing.
    You are right that actually the average pension pot is relatively low, but for many this could form part of a deposit for a BTL property that helps to support a 75% mortgage on a property. In London this may not go far but elsewhere it will go further.
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  • @Ellen: Interesting. Of course that's an average and certainly for many it would be an option. Pensions have been a bit of a closed book for many but this might pique their interest. There are a lot of options, you can buy a 2 bed flat in South Gosforth in Newcastle for less than £100k which will let well to students, or of course you can buy as much as your pension pot will allow. Bear in mind you have to pay tax on 75% of it if you take it all out and it might be a good idea to do that before the next Gov't decides you shld pay tax on the whole lot. Not sure about the mortgage angle but IO mortgages might make a comeback as of course you can now use your PP as a way of paying off the lump sum. One last thing, you can leave your Buy to Let property to the next generation unlike your annuity which goes into the provider's pocket.
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  • @SarahBrown: A Monty one really but it is worrying that just as credit cycle appears to be starting again it appears that a new raft of tightening measures for eligibility will stymie demand a little. I'm sure it's all very sensible but latitude is necessary. Maybe this just gives brokers the set of ruloes they need and I'm worrying unnecessarily.
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  • @SarahBrown: You are unfortunately, absolutely correct there. The Mortgage Market Review officially comes in to effect on 26th April but many lenders are becoming MMR compliant before this. Some from 7th April, more from 14th April and the rest by 26th.
    What this means is that any Agreement in Principle that has not moved on and been submitted as a full application will in effect be worthless. You would need to obtain a new Agreement from the lender under the new MMR rules which may well take into account different aspects of your affordability and return a different maximum loan amount.
    Lenders have told me that they estimate only 5% of borrowers will be worse off under the MMR rules and many may well actually find they can borrow a little more, as affordability is more flexible than just sticking to income multiples.
    Another important point is that even for those who have submitted an application, where there is a material change, for example in the loan amount, income change or property price, this would potentially mean a new underwrite under MMR rules will be required.
    As with any new process there will undoubtedly be some teething problems and things are likely to move a little slower than usual for the first few weeks until new systems are bedded in.
    For more information I did write the following blog

    The Mortgage Market Review – It Will Affect You, But Will It Cause A Mortgage Drought? | Coreco

    When you start to see the headline “Mortgage Drought” appearing in the weekend press once more it is enough to make anyone in the property market shiver. Thi
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  • So even if I was over 60 I'd still be able to put my pension pot in and get a mortgage on top?
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  • @Ellen: Yep - Some do have a maximum age at application of 65, but many lenders will allow a mortgage up to age 75. Some will allow a mortgage up to the age of 90 on a BTL basis.
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  • I'm building an extension on my house but the builder has not been good at keeping paperwork with reference to Council permissions. If I want to remortgage what paperwork would a mortgage co need to see?
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  • @MichaelO: I'll be interested to see what Monty says but of course you need to remember that when you come to sell the buyer's solicitor will want to see that any extensions comply with regulations. Sometimes solicitors can be a little umm.pedantic about this sort of stuff but they have a right to be. Sometimes if the issue is relatively small you could cover a buyer's concerns with an indemnity policy on the basis that you MIGHT not wish to risk going to the Council for retrospective permission as they MIGHT tell you to remove or reinstate. Your call but mortgage co may have a different view. Monty may reveal more..........
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  • @MichaelO: Maybe a question to ask a solicitor really but I would suspect that the lender would ask the solicitor to confirm that the necessary permissions for the extension were in place before completion of the mortgage. I am sure you should be able to obtain copies from the council.
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  • @MichaelO: further point is we have had instances before where the absence of proof of permission has caused issues and delays with a mortgage. Ultimately the lack of permission affects the lenders security so it is best to have this readily available.
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  • There's a lot of talk about new build and given what prices are doing I'm wondering if I'm better to spend £500k putting deposits on 5 flats and selling them on or buying one and keeping. Also given completion dates are two years away how do I get a mortgage or do I have to apply nearer the completion date?
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  • @JessieH: Mortgage wise that is an easy answer - there is nothing you can do now. It is worth speaking to an adviser just to get a guide that "all things being equal" you can obtain finance, but the reality is the market will change and you can only really get a mortgage around 6 months before you want to complete.
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  • @JessieH: Sounds quite risky unless you have the completion monies for the 5 flats? Certainly the new build boom in the 80s caused some to do what you're proposing and many got badly burned, and ruined, in the crash at the end of that decade, so I'd advise caution. No reason not to buy more than one but be aware of CGT changes and possible envelope taxes and levies IF you don't buy in your own name or are not using as principle residence. Be careful with location and prices, just because something is newly built doesn't mean it's gilded. Usual rules apply.
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  • I'm just setting out to buy a property and am confident I will get a mortgage and feel it's a good time to buy. Please, what is the maximum my income of £45,500 will enable me to borrow and do you advice fixed or variable, and interest only or repayment. It would be good to get an idea. I am 32.
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  • @Milosh: Unfortunately I cannot advise you on here as would need to speak to you directly about your full circumstances and requirements. What is right for you may not be right for others so would prefer to give you the right advice privately. In terms of borrowing capacity this is also becoming tricky as the Mortgage Market Review now means that all lenders will work on an affordability basis rather than income multiples. This depends on your net income, any outgoings you have, (i.e. loans, credit cards, other monthly commitments), plus your credit score. Generally this comes out between 4 to 5 times your income but this is only a rough guide. If you want more information feel free to inquire on the following link and we will give you much more detail that is relevant to you
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