Category Archives: Mortgages

Many of us dream of living in our home mortgage-free. Suddenly, our biggest overhead would be gone, and we’d have money to save, make home improvements, take that dream holiday – all of it! But we often hear mixed advice on whether or not it’s a good idea to pay off your mortgage early. Today, we’ll guide you through all the pros and cons of making overpayments on your mortgage so you can decide which is best for you.

When is it a good idea to overpay my mortgage? 6 Reasons to Overpay

1. If Your Mortgage is Your Only Debt

If your mortgage is your only debt, it makes a lot of sense to make overpayments to pay off your mortgage early. You have the opportunity to be debt-free in a way few people achieve. You have no other debt, so if you’re on top of all your utility payments and have a savings buffer for if something comes up, then go ahead and start overpaying your mortgage.

2. If a Major Life Goal is to be Mortgage-Free

If you have little-to-no other debt and you dream of the day you can say you are mortgage-free, then make a plan of action and start making those overpayments. Just be sure to check what your lender allows you to do before they start penalising you for your efforts and make sure you have a comfortable savings buffer.

3. If You Plan to Own Your Home for Decades to Come

Alongside becoming mortgage-free as soon as possible, it is worth making mortgage overpayments if you are planning to own your home for many, many years. After paying off your mortgage, it gives you the opportunity to live in your home debt-free so that you can focus on the important things in life. Paying off your mortgage in a home you plan to live in for many years – or even for the rest of your life – can allow you to take semi-retirement, early retirement, or even embrace a self-sustaining way of living.

4. If You Have a Substantial Emergency Fund

Don’t start overpaying your mortgage if you don’t have a substantial savings buffer. In an ideal world, you would have 3 months’ expenses in an easy-to-reach savings account, and another 9 months’ in a high-yield savings account.

At minimum, have six months’ worth of living expenses in the bank before you start overpaying your mortgage, and eliminate all high-interest debt.

5. If The Maths Works in Your Favour or You Are Outside Your Introductory Offer

Generally, most mortgage lenders won’t allow you to pay more than 10% of your mortgage balance (not the overall amount) per year, if you’re still in your “offer” period – i.e. the fixed, tracker, or discount period you chose.

After that, however, you can often pay off as much as you like. Typically, your interest rate will increase after this period, and so you really have two options: remortgage or start paying off your mortgage in a serious way.

Always read your fine print to see what rules apply to you. Some lenders will punish you for overpayments or paying it off early, so if you find your current mortgage is too restrictive, it may be worth remortgaging to a less-constrictive mortgage so you can start paying it off in earnest.

6. If You Get a Windfall

Windfalls usually come in the wake of tragedy, but whether you’ve lost a parent or won a significant amount of money, using it to pay off your mortgage is always a good idea. If you inherit or win enough money to pay off your mortgage as a lump sum it will always be worth doing. Having the security of owning your home outright will lift a weight from your shoulders you didn’t know was there.

If your windfall won’t cover your mortgage entirely, put 6 months’ expenses aside in a savings account, pay off any high-interest debt, and then make a lump sum payment toward your mortgage. Just double check you won’t be charged for paying more than 10%.

When is it a bad idea to overpay my mortgage? 4 Reasons Not To

1. If You Have Any Other (More Expensive) Debt

When you start to think about paying off your mortgage, the first thing you should do is look at your other debt. If you have (almost) any other debt with a higher interest rate than your mortgage, focus on paying off that first.

If you have a personal loan that has a lower interest rate than your mortgage (which is relatively unlikely), it’s still worth thinking about paying it off first, just so you can focus on paying off one major debt at a time.

The only debt you may wish to overlook is:

• 0% interest offers you’ve got set up to pay off before the period ends
• Your car lease if you plan to give the vehicle back at the end of your contract to get another
• Credit card debt you pay off in full each month

If you have other debt to pay off, consider using the debt avalanche or debt snowball method to gain momentum as you build toward paying off your mortgage.

(Also, don’t forget your emergency fund – always have at least three months’ expenses in the bank before you start paying off debt.)

2. If You Will Have to Pay a Fee to Make Further Overpayments

Most lenders will only allow you to overpay 10% of your total mortgage balance each year during your fixed/variable/discount term.

If you have already overpaid part of your mortgage, you may be subject to a fee if you wish to make further overpayments, depending on your mortgage agreement. Some mortgage providers will only allow you to overpay 10% of your total mortgage balance every year, and if you want to pay more than that you may incur a penalty.

If this is the case, simply put that extra money aside for the future.

3. If it Would be Cheaper to Remortgage Than Overpay

When you come to the end of your introductory offer with your mortgage, it’s usually best to remortgage. Not remortgaging will give you the freedom to overpay at will, but this won’t make sense for everyone.

If you aren’t sure you’ll be able to overpay a significant amount, then the higher level of interest may actually lead you to pay more for your mortgage than if you simply remortgaged.

You also may be able to secure a mortgage that doesn’t penalise you for overpayments over that 10% threshold, which would offer you the best of both worlds. If you’re not sure what would be best for you, our team is available to help talk you through your options and help you make the best decision for you.

4. If You May Find Yourself Dipping into Your Emergency Fund (or Worse, Using Credit Cards)

Don’t make overpayments if you can’t realistically afford them. If you start overpaying and realise you have to dip into your emergency fund at the end of the month to cover your expenses, or worse, put those expenses on credit cards, cut back your overpayments.

It’s understandable to be enthusiastic about paying off your mortgage, but don’t do it at the sacrifice of your financial stability. Remember, even just overpaying by £10 a month over 20 years could save you over £1,000 in interest.

If you’re thinking of making overpayments but aren’t sure whether or not it’s a wise decision, or whether you should remortgage first, we’re here to help. We’ll talk you through your options and, if necessary, search through all available mortgages to present you with the best one for you. To find out more about how Red Star Financial Services can help with your mortgage and to get your mortgage quote, click here.

What do gold, tech stocks, and Britain’s housing market have in common? Even though there is a global pandemic and the UK is experiencing its deepest recession ever, all three are on the rise.

The gold price always inflates when there is financial uncertainty, and stock market investors continue to be infatuated by the big tech companies, but why is the housing market buoyant? More to the point, is now a good time to buy?

Second-quarter performance of the British economy was woeful, down by a fifth, yet house prices were about 1.7% higher than the same time last year. And, although no official data is available yet, according to the Royal Institute of Chartered Surveyors, July showed a spike in both houses coming to market and enquiries from prospective buyers. So, what’s going on?

The COVID-19 Effect

Some of this growth is no doubt the effect of the bottleneck caused by COVID-19. At the start of lockdown the housing market was effectively frozen, and for seven weeks nothing happened. When the government allowed the reopening in mid-May, it was like the cork coming out of the bottle. This might be expected, all those sales that had been put on hold were now free to move ahead. But why the continued growth? What is fuelling it?

Stamp Duty, What Stamp Duty?

The move by Chancellor Rishi Sunak to give everyone an eight month break from stamp duty until the end of March 2021, certainly helped. No stamp duty on homes costing less than £500,000 could save the average home buyer over £2,000, not to be sneezed at in a cash-strapped economic situation. No one likes paying tax and that counts double when times are hard. This will cost the government something to the tune of £1.3 billion, an amount the Treasury obviously thinks is worth it if the economy can be boosted by the move.

Property website Zoopla’s Richard Donnell, their Research & Insight Director, said, ‘Stamp duty holidays are a tried-and-tested way to support housing market activity. [This] will ensure almost nine in ten sales will be free of the tax, compared to just 16 per cent now.’ So, it’s a big deal.

It isn’t likely it will help first time buyers as any house they buy that is £300,000 or less is already exempt from stamp duty, but they should benefit from a shift in the willingness of vendors to sell, knowing they have a chance to save on their next property.

The Market is on the Rise

The pause on the market, combined with the stamp duty savings and the additional time spent at home, is likely to be the cause of the rise in the market. According to Rightmove, prices are up 2.4% since the lockdown began and the average asking price of a house offered for sale is a staggering £320,265.

The fact that people are having to spend so much time at home – and the additional time freedom of no commuting or social life, is likely to be another boost to the market, as people realise that they need more space or would be happier elsewhere in the world.

Many people also want to take advantage of their additional time to move when it is easiest to coordinate. With so many people working from home and home schooling, it’s much easier to work around a move or take less time off to do it.

The pandemic has also forced many people to reflect on their passions and whether or not they’re happy in their daily lives, and many who have found the answer is “no” are moving to find greener pastures.

How Long Will the Boom Last?

So, it looks like the market will continue to bubble through the summer. How long it will afterwards is not clear – as with any boom, there will be an end to the explosive growth. The effect of any COVID-19 second wave is a threat, as is the ending of Whitehall’s furlough scheme in October.

Lucian Cook is the Director of Residential Research at Savills, and while he agrees house sales are vibrant at the moment, he thinks this won’t lead to dramatic price increases: ‘We expect the market to remain price sensitive over the rest of this year and the early part of next.’ This will be reassuring for anyone who is thinking of moving later this year and early 2021.

Is it a Good Time to Buy?

If you were thinking about moving and want to take advantage of the stamp duty to not only buy your next property, but sell your current property, then it’s definitely worth setting the wheels in motion, especially if you’re in a financially strong position. Mortgage interest rates are good, so you could get into a good position by moving sooner rather than later.

If you’re looking to get the best deal possible on your mortgage, Red Star Financial Services are ready to help. We can make the whole process of finding a mortgage painless and stress-free. Once we have your details, we will work with our panel of lenders to ensure you get the mortgage you need. We offer a quick online tool that takes minutes to complete and then you will have a good idea of what is available. When you’re ready, click here to find out more.

Just a few days ago, the UK chancellor of the exchequer, Rishi Sunak, announced a temporary stamp duty holiday on the first £500k of all home sales in Northern Ireland and England. The changes are effective immediately and will run through to March of 2021 and it’s a move that’s been made in an attempt to boost the property market impacted by Covid-19 and make it easier for buyers to complete their purchases.

It’s also a move that also benefits the buy-to-let market, but it’s one that comes at a considerable cost to the taxpayer, as it’s believed it will, in total, cost the exchequer around £3.8bn, which is equivalent to about 2% of the government’s total annual tax intake. In this blog, we look more closely at the rule changes and what they really mean for home buyers.

The stamp duty holiday does present certain opportunities, so it’s important to know what they are so you can take advantage of them before the holiday ends next year. However, before we get into that, we’re going to briefly explain what stamp duty is for those new to the subject.

So, What Exactly is Stamp Duty?

For the uninitiated, Stamp Duty Land Tax (SDLT) is paid by anyone in England and Northern Ireland who’s buying a home that’s over a certain value. Similar rules apply in Wales and Scotland, but the tax goes by a different name, (the Welsh Government name it ‘Land Transaction Tax’ and Scotland call it ‘Land and Buildings Transaction Tax‘) and it has a different set of taxation rules.

The specifics surround exactly how much you’ll pay out in stamp duty in the UK will vary depending on the price of the property and where in the country it’s situated. It’s a tax that’s only paid by the buyer on the amount that exceeds each stamp duty threshold. Before the change on July 8th 2020, the tiered thresholds and percentages read like this:

● 0% on properties valued up to £125k
● 2% on the value between £125k and £250k
● 5% on the value between £250,001 and £925k
● 10% on the value between £925,001 and £1.5m
● 12% on values above £150,001

So, if you bought a home for £300k prior to July 8th, you would pay 2% on the value between £125k and £250k (£2,500) and 5% of the value between £250,001 and £925k (£2,500), making a total payable amount of £5,000.

What The Changes Mean

As we mentioned earlier, the government’s changes have raised the 0% stamp duty threshold to £500k in England and Northern Ireland, which means the theoretical house purchase in the last paragraph would incur no stamp duty at all. Depending on the value of the property in question, this could save home seekers as much as £15,000 on the cost of their home.

House prices are known to have fallen for successive months since the outbreak of the coronavirus and the removal of this large expense is hoped to inject some life into the UK’s housing market. Social distancing is just one of the aspects of the current crisis that have taken their toll on the buoyancy of the market, so many will see it as a welcome move.

Does it Apply if I Was Mid-Way Through a Sale?

First and foremost it’s really important at this stage to mention that the temporary rules only apply to house purchases in England and Northern Ireland, but it’s good news if you are currently going through the motions of buying a property. That’s because it applies to all sales that complete after July 8th, meaning that if you are in the midst of buying a home, you will be able to benefit.

Completion is the point of the house buying process, so if you’ve not got to that stage, you are likely to save thousands of pounds. Unfortunately, if you completed very recently, but before July 8th, it won’t apply to you.

How it Could Help The Housing Market

Most first time buyers are not likely to benefit much from the changes, as the average property price in the UK is around £247,000, meaning that most first time buyer purchases don’t incur stamp duty (the stamp duty threshold for first time buyers £300k). Directly, there doesn’t seem to be an advantage to this group, but indirectly, even first time buyers could gain indirectly by having more homes to choose from.

The changes will benefit those aiming to move home and the market will also benefit from an influx of new sellers who see the stamp duty holiday as a good reason to proceed with listing their property on the market. It’s by no means guaranteed that the changes will have the desired effect, but it should certainly help encourage more people from both sides of the equation to take the plunge.

Red Star Financial Services – We’ve Got Your Back

There’s no denying that the UK’s housing market is going through something of a slump thanks mainly to Covid-19, however, there’s no reason to get too despondent just yet. The government is doing its best to prop things up with tax breaks like this one and with a little luck, as the world returns to normality, we could see the light at the end of the tunnel soon.

At Red Star Financial Services, we make the job of planning for your future a simpler and less stressful process and we bring you blogs like this one to keep you up to date with relevant goings on in the world of finance. If you’d like to know more about what it is we do, why not take a look at our website www.redstarfs.com.

Alternatively, if you’d like to speak to a friendly member of our FCA-regulated team, you can do so by calling us now on 0161 823 1733. They’re ready and waiting to help you secure your long-term financial prosperity.

Buying your first home is a huge moment in anyone’s life, and that initial step onto the property ladder can seem overwhelming. Looking for a house or flat is exciting, but looking for a mortgage less so! Tying yourself into a loan that is going to take 25 or more years to pay back is a daunting task that might cause even the most worldly-wise person anxiety. Where do you begin? Bank? Building Society? Fixed-rate, interest-only, standard variable rate? It feels like you are walking through a minefield, and you certainly don’t want to take a misstep.

You can go it alone, but you really are going to get the best results (not to mention peace of mind!) by working with an expert. In the mortgage world, working with an independent mortgage broker is that expert, and they can help guide you to the mortgage product you need, not to mention help you get the best deal. So, if you’re not sure if you should work with a mortgage broker, or what’s involved, keep reading and we’ll cover some of our most frequently heard questions.

What is an independent mortgage broker?

If you approach a lender directly, you will be dealt with by a mortgage advisor who will try to make certain you get the right mortgage for your circumstances but only from the range of products from their bank or building society. An independent mortgage broker is not employed by just one lender and so can guide you through a wider range of options making the search for the ideal mortgage easier and more straightforward.

Are all mortgage brokers independent?

The short answer is no. Some mortgage brokers are tied to a panel of lenders or even a particular lender. They will only be able to offer mortgages from this group and not the same wide choice as a truly independent broker. This may mean you miss out on the best deals the market has to offer.
You should be aware that even the most independent of mortgage brokers won’t have access to the entire market, but most of it. They also often have access to products you can’t or won’t see when researching mortgages yourself.

How do you select a mortgage broker?

As we have seen, not all mortgage brokers are actually independent. While those tied to an individual lender or panel of lenders might get you a good deal, it is unlikely that they can match the suggestions of a genuinely independent mortgage broker.

You also need to ascertain whether they are regulated by the Financial Conduct Authority. The FCA will make sure that a certain level of service is provided and that you have recourse to the Financial Ombudsman should problems arise. Mortgage brokers will display this regulation on their website and elsewhere in their promotional materials.

What does a mortgage broker bring to the table?

The big plus of using an independent mortgage broker is that he or she knows the market. The world of mortgages is a big one and constantly changing with new offers and products becoming available, with varying interest rates and special offers. As a first-time buyer, it can be bewildering, and this is where the mortgage broker comes in. They will know what is available and be able to match the products with your situation, your budget and your earnings. They will also advise you on what to prepare so they can ensure you get the mortgage you agree upon with them.

They will also know the differences between lenders and be able to suggest which may be most suitable for you and which are most likely to accept your application. Not all lenders have the same criteria, especially when it comes to first-time buyers, so they will be able to tell you about any suitable products that are tailored to your circumstances.

They will also give you an accurate idea of just how much you will be able to borrow, so bringing a mortgage broker on board at an early stage is a good idea. Further down the line, a mortgage broker will also help with advice for things like home insurance and the like that are all part of the home buying process. (This is essential for your mortgage and to protect you, so don’t shy away from additional home insurance products and income protection insurance they may talk to you about.)

A good broker will then lead you through the application process and act as your go-between with the lender, smoothing the path and making sure there are no hic-cups. A mortgage broker should make the whole rigmarole of applying and securing a mortgage quicker and so much less stressful.

What is this advice going to cost?

Your mortgage broker will give you detailed information about how they get paid and how much. Many receive a commission from the lenders while others charge the home buyer a fee. This ‘Key Facts Illustration’ has to be provided and should answer all your questions about the costs involved.

Find out at the start how your mortgage broker is to be paid, whether it will be commission from the lender, a fee or a mixture of the two. Also, make sure that no fee will be charged if a mortgage deal doesn’t go through. Don’t shy away from “free” mortgage brokers – if they have access to a wide range of mortgages and are FCA regulated, they won’t be biased toward any one lender. (It’s always a good idea to look for reviews and recommendations when choosing a broker to work with.)

Commission rates vary, but around 0.35% of the loan is the norm. So on a £200,000 mortgage, the broker would receive £700. You can always ask them what their rate is for each product they suggest, and they should be open with you.

Should I Work with a Mortgage Broker?

Whether you’re a first-time homebuyer or not, working with a mortgage broker is always a good idea. Mortgages aren’t like buying car insurance or even taking out a personal loan. Get it wrong, you may struggle to make your monthly payments if interest rates change, and remember that they can repossess your home if you don’t keep up. A mortgage broker will help you find a suitable mortgage at a low rate and advise you on what insurance to buy to keep you secure in your homeownership for good.

If you’re ready to work with a mortgage broker, we’re here to help. Click here to learn more.