This week we look at the effect the Stamp Duty amnesty has had on first time buyer activity. We cover the news that lloyds TSB have tightened their interest only mortgage criteria.
Withdrawal of Stamp Duty amnesty
The Stamp Duty amnesty for first time buyers buying a property worth up to £250,000 will be withdrawn on 24th March.
For the past two years first time buyers have not had to pay Stamp Duty on properties worth between £125,000 and £250,000; saving between £1,250 and £2,500. But will we see a rush of activity before the deadline as first time buyers attempt to complete their purchase before Stamp Duty is reintroduced?
The Council of Mortgage Lenders (CML), which represents banks and building societies offering mortgages in the UK, certainly believe that the number of first time buyers is rising.
Figures released by the CML show that the number of mortgages advanced to first time buyers has risen by 7% and 10% compared to December and November of last year. According to the CML in November the average purchase price for a first time buyer was £130,000 with an average deposit of £26,000.
Paul Smee, the Director General of the CML, said: “We have been expecting a flow of first-time buyers on to the market as the stamp duty exemption ends in March and December’s figures appear to show this has now begun.”
Figures from the Communities and Local Government Department show that the average price paid by first time buyers has risen by 1.6% compared to this time last year.
Both sets of figures certainly give credence to the view expressed by the CML and also the Royal Institution of Chartered Surveyors (Rics) that the Stamp Duty amnesty has caused a rise in first time buyer activity.
However, other property experts believe that the Stamp Duty amnesty has had little effect, pointing out that an extra £1,250 – £2,500 is unlikely to make the difference between the decision to purchase or not, especially when the amount of deposit needed is so large.
Many experts believe that the rise in first time buyer mortgage approvals is due to the greater availability of 95% mortgages.
Whatever happens we won’t have to wait long until we find out whether the Stamp Duty amnesty really was the main driver in first time buyer activity. Figures for the number of first time buyer mortgage approvals after March will show the effect that the Stamp Duty amnesty really had.
Mortgage approvals fall
Despite the rise in the number of mortgage approvals for first time buyers the overall figure fell by 2% in January compared to December.
However, the CML figures confirmed that there was an overall increase in lending last year, the first time this has happened since the credit crunch struck in 2007.
Mortgage lenders tighten interest only criteria
Santander recently changed their mortgage lending criteria to insist on a 50% deposit from borrowers who wanted an interest only mortgage. This week saw Lloyds TSB follow suit and tighten their own interest only lending rules.
Lloyds TSB have introduced the changes across all its brands, including Cheltenham & Gloucester, Halifax as well as Lloyds TSB branches.
The changes will include:
- A maximum loan to value of 75% for interest only mortgages
- Cash savings will no longer be allowed as a mortgage repayment vehicle
- Repayment vehicles must already have a minimum value of £50,000 and the bank requires a 20% margin in the valuation of assets such as shares, ISAs or property which are being used to repay a mortgage
- If borrowers intend to use the tax free lump sum from a pension to repay their mortgage the pension must already be worth at least £1 million
Mortgage experts are disappointed by the news, although it was expected by many, especially after Santander’s move.
Ray Boulger, of John Charcol said that there was “no logic” in the valuing of assets
He went on to say: “The FSA has said it wants to consult further on interest-only mortgages but the current draft MMR puts so much responsibility on lenders to make sure any investment plan will produce sufficient funds to pay off the mortgage that lenders are not prepared to take the risk of being sued by borrowers for any shortfall.”
Boulger continued: “The FSA admits that interest-only mortgages are suitable for a significant minority of borrowers but its current proposals will deny many of these borrowers this option. The FSA either needs to come clean and say it wants to ban interest-only mortgages by stealth or needs to make major changes to its current proposals.”
Rents rise in January
Figures released by LSL Property Services, which owns some of the UK’s largest letting agents, show that the average rent rose by 0.1% in January, compared to December of last year. The average rent is now £712 per month.
The rise, although small, is the first time that LSL have seen an increase in the month of January.
Rents rose fastest in the West Midlands and South West, with falls in Wales and the South East. London continues to be the most expensive market with the average monthly rent £1,032, the North East is the cheapest at £512.
David Newnes, director of LSL Property Services, said: “The rental market burst back into life unseasonably early in January, with tenants on the move trying to take advantage of what is usually a quieter period for the rental market.”
“The depth of the underlying demand sustained a higher level of competition for rental property during the Christmas period, preventing more severe falls in rents than we’d normally see during the period.”
Your property may be repossessed if you do not keep up repayments on your mortgage.
For providing mortgage advice we will charge an application fee of £299 and we may also be paid a fee from the lender, any fee paid by the lender will be disclosed to you. Alternatively we will charge an arrangement fee of 0.5% of the loan and refund to you any payment received by us from the lender.