The Call of Duty

You make think that Christmas is long gone but the mortgage market still has the tree up, and it’s busy putting some tastefully wrapped boxes under it in the form of a number of new lenders.

It really is an exciting time as we have some banks coming back into the market after a long time out, and this can only be a good thing for clients. However, as I sat down to write this last year the biggest gift has been brought along by the Chancellor, with his reform of the old Slab Stamp Duty Land Tax. We’ll come back to the new lenders in a bit, but lets have a closer look at the new SDLT format.

Instead of the entire value of the house being taxed at a given percentage, so for example a property at £650,000 attracting tax of 4% on the whole amount, the new duty is on an incremental basis in the same way we pay income tax. So instead of the buyer being charged £26,000 on the £650,000 flat in Parsons Green, it’s broken down with the new amount being based on no tax between £1-£125,000; 2% between £125,000 and £250,000; 5% between £250,000 and £925,000; 10% for £925,000 to £1,500,000 and then a whopping 12% on anything above that.

“The break even point appears to be £937,000...”

So on our £650,000 property you would now be paying £22,500, saving a tidy £3,500. The break even point (apart from an anomaly at around £1,200,000) appears to be £937,000. Below this you are either better off or you break even compared to the old scheme – above this then you will lose out. Bearing in mind the housing stock in Southwest London you would think that a large percentage would fill into the category above £937,000. →

However, because the lower end becomes cheaper I would expect the housing market to start to move again. At £260,000 you will save £4,800 under the new rules – that kind of sum could make the difference between someone buying or not. And with movement at the cheaper end of the market this should feed through up the food chain. So although you may end up paying more tax for your next purchase, you may also end up selling your current home for more. I see it as swings and roundabouts. And not to get all Socialist on you, surely its fair that those with higher incomes and greater wealth pay higher taxes?

Anyhow, back to the lenders, and the other reason to be cheerful in 2015. The Post Office (backed by Bank of Ireland) have started using Intermediaries again, and TSB are launching shortly. In the buy to let world, Fleet Mortgages are gearing up to re-enter the fray once more. There are also some new entrants as well, notably Harrods Private Bank, plus Tesco Bank are moving towards a move into the broker world. Even HSBC, the one UK mortgage provider that has stood alone in being direct only, has started to consider accepting business from intermediaries.

So why is this? Well partly it’s due to the Mortgage Market Review (MMR) where the regulator now expects that advice be given in the vast majority of applications, and it’s certainly easier for a lender to accept advised business from a mortgage broker as opposed to having to recommend a deal themselves. On the back of this the broking industry is expected to take a 75% market share within 5 years and lenders want to tap into this as quickly as possible. →

“There are also some new entrants as well, notably Harrods Private Bank, plus Tesco Bank are moving towards a move into the broker world.”
For clients this offers great choice and more competition, both in terms of rates and fees and also criteria. I do not expect many of the new entrants to have weird and wonderful lending policies – they will almost certainly be “vanilla” lenders on the whole; however you often find that they will have a little quirk or something unusual that can help a specific client out. And the longer these lenders are in the intermediary market, and the more they see applications come they may well start to change their criteria to reflect the market. This is exactly what we need, with brokers providing useful feedback and lender’s adapting slowing to the demands of our clients.

So if you’re looking for a mortgage it could be a great time to see what’s still under the tree, even if Christmas is long over you’ll be surprised what you
might find.