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This month we ask Peter McGahan, MD of highly regarded World Wide Financial Planning independent financial advisors, (IFAs) to give his solutions and ideas to Tiscali users whose money questions we selected to be answered:
1. My husband and I currently rent a 2 bed property. When we moved in, the landlord didn't want a deposit as he wanted to let it quickly. The problem is now he wants us out because he needs to move back in, so we're going to have to rent another property, we have until May to get the cash for a deposit for another place. Besides getting a loan what can we do.We desperately don't want to take out more credit, we're not entitled to a council property either. What help is there for us?
Answer: When you first moved in, did you sign an 'Assured Shorthold Tenancy Agreement' or some form of tenancy agreement?
If so you may have some statutory rights which may mean you could extend your stay beyond May giving you more time to get the deposit together.
Unfortunately most landlords will want at least 1 months rent for deposit. My thoughts would be to try and negotiate with any prospective new landlord eg. Pay the deposit over the course of your first 3 months.
The only other options I could see would be if your were looking to buy a property. Currently the government is supporting first time buyers by providing interest free loans to act as a deposit on a new house. This is known as the government 'homebuy direct scheme'.
If you are entitled to apply for one of these loans speak with an independent mortgage broker to see what mortgage options would be available to you.
2. Is this a good plan to buy a house first time? I'm a first time buyer, I currently have £12k in the bank and have a job with a salary of just over £18k. I want to have a deposit of about £10k to put towards a house that will cost me around £100k.
I am looking at buying towards the end of next year when hopefully getting a mortgage will be easier. Does this sound like a good plan and is it plausible?
Answer: If you could gather together a larger deposit within the next year this will make things much easier for you. Putting down the £10K would mean you are borrowing 90% of the value of the property, also know as 90% LTV.
Currently lenders offer more competitive mortgage rates to customers applying for Lower LTV purchases.
Also on the figures you have currently provided, you would be looking to borrow £90K on a salary of just over £18K. This means you will be borrowing just under 5 times your salary.
Mortgage lenders in today's climate would class this as quite a stretch and although you have stated you intend to wait a year - 5 times you salary is a very high income multiple which many lenders will not facilitate. Therefore the more deposit you can raise, the less you will need to borrow, meaning more lenders will be happy to consider your application.
Waiting for at least a year should hopefully work to your advantage, as it would be expected that property prices will continue to fall meaning you may not need to spend £100,000 to obtain the property you desire.
I would recommend you speak with an independent mortgage broker who can discuss all your options and borrowing capacity in more detail.
3. Do I have to get a buy-to-let mortgage? We're going to be moving away to another part of the UK for a couple of years. We're not going to be able to sell our property so we'd like to rent it out. Buy-to-let mortgages are so expensive that I'd like to change it to an interest only. We're not going to be buying in the new town, we'll be renting so we'll still only own one property. Can we get away with not getting a Buy-to-let?
Answer: In your case it can be possible to avoid having to get a Buy-to-let mortgage.
Many residential mortgage lenders will grant you what is known as 'consent to let' if you make them aware of your scenario and generally they will allow you to keep your current mortgage rate.
My advice would be to speak with your existing lender and see how they feel about your proposition. You will need to make them aware that you will no longer be living in the property anyhow, as if you let it out without telling them you could be contravening your existing mortgage conditions, which is a very serious matter.
In the event that they will not grant you 'consent to let' or will not allow you to keep your existing terms, speak with an independent mortgage broker who will be able to check what else is available on the market for you and assess whether you should remain with your existing lender or not.
4. What is 'share of freehold'?? I'm a bit confused with these terms. What I want to do is buy a relatively cheap UK property that I will own 100%. I understand that freehold properties (and not leasehold ones) can offer that. But what about those that are offered as a 'share' of freehold? How much of the flat or house will I own?
Answer: Even if a property is 'leasehold' you will essentially still own it. For example, if you were to buy a flat in a block that contained 4 flats in total on a leasehold basis, this means you have bought and are responsible for your flat only.
The whole block is owned by the freeholder and the communal areas and grounds etc will be their responsibility to maintain and look after. It becomes quite common in these cases that instead of having a freeholder and 4 separate leaseholders, each leaseholder owns a quarter of the freehold.
This means that all of the owners of the flats will share the responsibilities of the maintenance and running of the whole building, however you will still own 100% of your flat.
Nowadays the leaseholder will hold a lease with the freeholder which will generally start at 999 years and which can be renewed if it runs down.
If you are looking to buy a leasehold property just check how long is remaining on the lease. If it is less than say 50 years ask your solicitor how much it will cost and what the terms are for extending it.
5. My fixed rate is about to expire with the Chelsea. I am not sure what my house has fallen to? Perhaps £270,000 on a mortgage of £227,000. As this is only really 15% equity and there is a shortage of mortgages, do you have any advice on what type of mortgage I can get?
Answer: The best advice for you in this instance may be to just 'do nothing'. If you remain with Chelsea after your fixed rate expires you will revert to their Standard Variable Rate (SVR).
Whilst the Bank of England base rate (BOER) was at 3%, Chelsea had their SVR @ 5.79%. Since then the BOER has reduced to 1.0% so Chelsea may actually reduce their SVR further.
You have mentioned that you have around 15% equity in the property - If you look at what new re-mortgages are available on the market at this Loan to Value you will be struggling to do better than 5.79% without paying large fees hidden inside the mortgage deal.
Bearing this in mind it may be better to remain with Chelsea and move to their SVR, which means you will not incur any fees whatsoever, have a competitive rate and also have no early repayment charges which will enable you to re-assess at any time you wish.
All of the above is a very quick assessment and it would be essential to speak with an independent mortgage broker to fully assess your circumstances and recommend your most suitable options.
6. My son and his partner have split up. They had a joint mortgage. His partner doesn't want to continue paying the mortgage but doesn't want to sell now as houses have fallen so much and they are in negative equity. My son is trying to rent a room out to help with the mortgage as he doesn't want to lose the property. Are there any other options? Sheila M.
Answer: Hi Sheila, there are quite a few issues within what you have said. If your son's partner remains on the mortgage they will continue to have an interest in the property, whether contributing to the mortgage payments or not.
This has consequences for both your son and his partner eg - if he fails to meet the payments his partner will be classed as missing the mortgage payments which will also have an impact on their credit rating. If he continues to make the payments until he can sell the property for a profit, his partner may try to argue they want part of this profit.
The first step here is for both of them to take legal advice as how they should protect their interest moving forward.
In order to cope with the mortgage payments your son could look to see if his mortgage is on a Capital Repayment basis. If this is the case he could convert it to 'interest only' for the time being to lower the monthly payment.
If he can rent a room out he could take advantage of the government 'rent a room scheme' where he is allowed to earn up to £4,250 pa tax free.
It would be worthwhile for your son to speak with an independent mortgage broker to see if there are any other options available with his existing lender.
7. What are the best mortgage deals on the market at the moment?
My current 2yr fixed rate deal runs out in March 09 so what would be the best mortgage to go for in the current climate? I'm looking for around about 65% of the property's' value. Also, how soon can I have my new deal in place before my previous one expires so that I don't pay twice in one month?
Answer: The term 'best' deal is extremely important and one which your mortgage broker should explain to you in detail. Of the various rates which are available on the market it is necessary to look at all the various aspects of the mortgage deals to work out which is the best.
In order to do this a homeowner must look at the overall cost of the mortgage deal for example. When comparing 2 year fixed rates, it is necessary to total the monthly payments up over 24 months and then add back in the associated arrangement fees. Also bear in mind certain products will have 'incentives' such as free valuation and free legals, which need to be factored into the overall cost.
It would be impossible to assess what would be the best mortgage deal for you at the moment without knowing all of your personal circumstances. Also, in the current climate it may be best for you to remain on your lenders Standard Variable Rate (SVR). With many lenders reducing their SVR, in certain instances this can be cheaper than any new mortgage deal on the market.
In order to assess what the best mortgage deal for you, take advice from an independent mortgage broker.
8. How often can a landlord increase rent on their tenants?
Answer: Under an Assured Shorthold Tenancy (AST) a landlord cannot increase the rent during the first 12 months. After that they can do it once a year - it has to commence on a rent payment day and they have to give the tenants one months notice
9. Can anyone explain CGT to me please? I have lived in my property for 12 years and paid off the mortgage in full. I then married and moved into another house, with both names on the mortgage and it is still mortgaged. Basically the profit from my first home from purchase price to sale price will be approx £75k if I sell (not taking into account fees). I have decided to rent the 1st home for 12 months, maybe 2 years maximum. I have minimal rental income from this that is under the threshold for income tax at the end of the financial year. However, I didn't realise I would pay CGT on profit from the sale because it has been rented... is this correct? Will I have to pay CGT on the whole profit from the sale or just part of the profit from date of rental to sale date?? Hope you can understand what I'm trying to ask. Please help!!
Answer: This question is extremely in depth and it would be necessary to seek the advice of an accountant to ensure an accurate calculation be given however the following should apply. Within the Principal private residence relief rules, the 1st house would have a 36 month exemption period on its sale.
This essentially means upon its sale, whatever its status in the previous 3 years, either being rented or lived in, is discounted.
Therefore, as long as you sell the property within 3 years from moving out of it, there would be no CGT liability at all.
10. I'm a foreign resident and want to buy a house in the UK. What do I have to do? Who should I contact? What are the procedures?
What salary should I have? Will I get mortgage? All information please
Answer: It has become a little more difficult for a foreigner to purchase in the UK as most lenders have altered their lending policies in recent months. It will be necessary to know if you have permanent right to reside in the UK?, if you are here on a visa the length of time remaining on the visa will be crucial for a lender to ascertain your eligibility for a loan. Aside from these points you will subject to the lenders normal underwriting procedure.
The salary you require will be dependent upon the loan amount you require and whether or not you will get a mortgage will be dependent upon factors such as your credit score, deposit, valuation of property etc. My advice would be to contact an independent mortgage broker to run you through the process in more detail.
11. Is it possible to get a mortgage without having a deposit?
Answer: In the old days of easy credit there were several lenders who would lend you 100% of the value of your property. As things began to tighten up, the 100% mortgage only became available to first time buyers with a parent as a guarantor. This was via schemes such as the 'first start' scheme by Bristol & West. As the credit crunch worsened these options disappeared as well and you could no longer obtain a 100% mortgagee.
However there is a big difference between a 100% mortgage and purchasing a property without a deposit. Although a mortgage lender will no longer lend you the full value of the property, there are several government schemes aimed at assisting first time buyers with stepping onto the property ladder. Via these schemes you can purchase your first home without having a deposit.
There are lots of schemes out there and your best bet is to contact an independent mortgage broker who will be able to talk you through your options and what your next steps should be. These schemes include for example, the 'My Choice Homebuy' option, whereby you can obtain an equity loan from the government for between 15% and 50% of the value of the property you which to purchase. This loan can be used as your deposit and comes with a very low interest rate (less than 2%). You are then free to obtain a mortgage for the rest of the purchase price and can then find a property of your choice to purchase.
There are some restrictions with these schemes. With this one for example there is a maximum purchase price you can go up to which will vary depending on your location. These schemes do mean that individuals without a deposit still have options and can still purchase a home. As mentioned above, the best option is to contact an independent mortgage broker who will be able to discuss your options with you.
Peter McGahan, independent financial adviser
