Posted on 15 January 2015 by
2014 saw two key events at either end of the year that had a profound and lasting impact on the mortgage industry. The first was the Mortgage Market Review, and the second was the revision in stamp duty legislation. Going into 2015 these two changes will drive both lending and the housing market, and hopefully lead to a fairer and more sustainable industry for all parties.
The Mortgage Market Review (MMR) was a culmination of a Governmental report into the collapse of the mortgage industry in 2008 – a post mortem into what went wrong and how to fix it. A wide range of recommendations were made, but the key finding was that lenders needed to look more closely at their client’s ability to afford their repayments, both now and in the future. Effectively this meant that lenders would ask more questions about a client’s lifestyle and outgoings, and then ‘stress test’ a mortgage at a higher interest rate to see if the client’s could still afford the borrowing if rates went up.
This was implemented in April 2014 and there were teething problems to start with - banks and building societies were wary of interpreting the new rules incorrectly and proceeded with caution, which meant that processing times slowed down and lending reduced across the board in April. However, as time went on the lenders and brokers began to understand what was required of them and we saw administration timescales reduce and lending begin to increase. The key outcome though, due to the emphasis on affordability ‘now, and in the future’, was that clients generally could borrow less. Clearly this has impacted some people adversely, but on reflection I feel that this has pushed the industry into a good place where clients are not overstretched and lending is generally responsible.
The changes in stamp duty have made the tax system fairer and more progressive – those buying property priced above £937,000 will now pay more than they did under the old ‘slab system.’ Everyone else below this level will either pay the same or less. Previously, when you edged into a new band on stamp duty, the higher percentage then applied to the entire purchase price, if you bought at £260,000 (just £10,000 into the 3% bracket), you would pay 3% on the full amount, - £7,800.
Under the new scheme it is incremental, rather like income tax, so you pay in bands. Therefore at £260,000, the first £125,000 has no tax, then on £125,001 to £250,000 you will pay 2%, and then 5% between £250,001 and £260,000. Under the new rules the tax to be paid would be £3,000, which is a saving of £4,800.
I believe it’s possible that this will help to stimulate the market at the lower levels, with more people buying for the first and second time. This will help to free up more properties and generally push the market along.
So, although clients can generally borrow less at the start of 2015 compared to 2014, hopefully a refreshed property market will offer more choice and more sensible house pricing, making it fairer for more people. However, as the system becomes more complex the more you will need a mortgage broker to lead you through the lending maze.
If you want to discuss your mortgage requirements then please contact myself or one of my expert colleagues.
Call our team to discuss your options: 0344 346 3672
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.