So, they’ve done it again! Cut the base rate! Looks like more to come too this year. We could be at 3% by 2026 (if my own back of a packet calculations are anything to go by). This could do wonders for my house price.

The truth at this point is it doesn’t really directly affect me all that much. I’m one of those smug a*******s who locked in low for long back in 2022. 

But my renewal is up in 2027 and things are certainly moving the right way for that. But there is something else about my house that this news will be good for – how much its worth. 

Low rates, high prices

Here’s how things work (at least in theory). When rates are high(er) there is less money in the system looking for a home. More of it is locked up in savings, or spent paying down expensive debts.

But when rates are low – as was the norm from around 2009 to 2022 – then savers struggle to find a good place to park their cash so as to beat inflation. This leads to an asset price boom.

One of those assets which did particularly well is property – housing.

But for those of us who bought just as this boom was ending, i.e. when rates were soaring upwards, this hasn’t been the story.

House prices, broadly, have barely moved. I can’t be the only homeowner who gets the monthly Zoopla email telling me how much my house is currently worth.

Although how online data is able to tell me that with significant accuracy (Zoopla if you’re reading this please drop me a line!), my home’s value has bobbled up and down around what we paid for it for around three years now.

LISTEN: Mouthy Money podcast on why the bank rate is falling

Property market bonanza

Are we about to have a property market bonanza? Perhaps not. The economy is near enough in the bin. This isn’t making it easier for people to cobble together deposits, moving costs, stamp duty fees and everything else.

But the FCA is looking at easing mortgage criteria which should bring more buyers onto the market.  And the more rates get cut the cheaper mortgages will be and the better this will support house price rises. 

We’ve also actually experienced something of an affordability reversal as workers have seen their wages rises substantially in the past two years, while property prices have stood still.

For my part, we’re not going anywhere for now so the value of the house is sort of irrelevant. The least I can ever hope for is not to be in negative equity. 

Are the heady days of soaring house prices coming back for homeowners? Time will tell. 

The post Base rate cut: excited to see my house price go up appeared first on Mouthy Money.

Paying off your mortgage early is an enticing idea. For most homeowners, becoming mortgage-free is the ultimate milestone – and they dream of how to spend the extra cash once their debt is gone.

If you’ve built up a healthy savings pot, it might be tempting to clear your mortgage early and live the rest of your life debt-free. 

But is it always the right move? What should you consider before making that decision? And how do you actually go about it?

Mouthy Money answers those questions – and more – below.

The benefits of paying off your mortgage early

There are plenty of upsides to clearing your mortgage ahead of schedule.

For starters, there’s the peace of mind that comes with knowing your home is fully yours, no matter what life throws at you. If you lose your job or fall ill, you’ll always have a roof over your head.

It also frees up a load of cash that you can put towards other things, such as home improvements, retirement savings or even that holiday you’ve always dreamed of.

Depending on how much you have left on your loan, it could also save you thousands of pounds in interest over the long-term.

For example, let’s say you have a £250,000 mortgage at a 4.5% interest rate over 25 years. That means your monthly repayments would be around £1,390.

If you increase your repayments by just £100 a month (to £1,490) you’d save £21,871 in interest and clear your loan two years and 10 months early.

If you increase your repayments by £200 a month, you’d save £38,458 in interest and shave five years and one month off your mortgage.

Some people prefer to make lump-sum payments, rather than increase their monthly outgoings. But the same principles apply.

Let’s say you received a £10,000 bonus or inheritance and put that money towards the same £250,000 mortgage. In this case, you’d save £19,584 in interest and pay off your loan one year and nine months early.

Great, so I should just go ahead and pay off my loan early?

Not quite. While there are clear advantages to paying off your mortgage, it may not be the best option for everyone.

First, check that your lender allows overpayments and if there are any charges or penalties for doing so.

If you’re on a tracker mortgage linked to Bank of England Base Rate, you can usually overpay as much as you want without charges – but check with your lender first.

However, if you’re locked into a fixed-rate deal, you’ll typically be limited to overpaying 10% of your outstanding balance per year.

So, if you owe £250,000, you can pay off up to £25,000. But if you go over that, you’ll probably have to pay an early repayment charge (ERC) – and they’re not cheap.

On a five-year fixed rate, typically ERCs are 5% of your outstanding balance in year one, 4% in year two, 3% in year three all the way down to 1% in the final year.

So, if you owe £250,000, that’s a whopping £12,500 in year one, £10,000 in year two, tapering down to £2,500 in the final year of your five-year fixed rate.

Therefore, you need to do the sums to work out whether it’s worth your while repaying your loan early.

I don’t have to pay ERCs – should I press ahead?

Even if you don’t have to pay ERCs and have the cash, you need to ask yourself a few additional questions before diving in.

Firstly, do you have enough savings to cover emergencies, such as losing your job or unexpected car or home repairs?

Experts recommend that you have at least three to six months’ worth of living expenses in an easy-access account to cover unexpected expenses. You should prioritise this safety net before overpaying on your mortgage.

Next, ask yourself: am I carrying high-interest debt such as personal loans or credit cards?

If the answer is yes, it usually makes sense to clear those first, as they tend to charge higher rates of interest than your mortgage.

After that, you need to ask yourself whether your money could be working harder elsewhere.

Compare the rate on your mortgage with the rate available on high-interest savings accounts or investing.

As a rule of thumb, if your mortgage rate is higher than the interest you can earn in a savings account, overpaying your mortgage may make sense.

Let’s return to the example above, where you have a £250,000 mortgage on 4.5% over 25 years, and you want to pay £10,000 off your loan in a lump-sum.

For the sake of this example, let’s also assume that you’re a basic rate taxpayer and the best savings account on the market pays 5%.

Paying an extra £10,000 off your mortgage would save you £19,450 in interest and shave one year and nine months off your term.

However, you would still be £3,080 worse off paying £10,000 off your loan than if you’d put it in a 5% savings account, even though your mortgage would be cleared in just 23 years and 3 months.

That’s because over that time your savings would be worth £31,360, which would be more than enough to repay the remaining £28,280 left on your mortgage balance – and leaving you £3,080 spare.

If you’re unsure whether you’d be better off repaying your mortgage or saving your money instead, moneysavingexpert.com has a handy calculator you can use.

Investing in the stock market could also offer better long-term gains – typically 5-7% a year after inflation – but it carries risk, and returns aren’t guaranteed.

Whatever your choice, it’s worth speaking with a mortgage broker or financial adviser to get tailored advice. 

LISTEN to the Mouthy Money podcast

I’m going ahead with it. How do I do that?

Most lenders make overpayments pretty straightforward. You can either ask them to increase your monthly direct debit or make one-off payments via your online account or over the phone.

If you prefer a more flexible approach, making lump-sum payments when you get a bonus or extra income might work better for you.

Are there any clever ways I can build up my cash savings to pay off my mortgage early?

There are ways you can increase your monthly repayments without feeling the squeeze.

For example, every time you get a pay rise, put the extra cash straight towards your mortgage. You won’t miss the money – after all, you never had it to begin with.

But as outlined above, you need to ask yourself whether you’d be better saving that money or paying down other debts instead.

There are also apps to help you overpay your mortgage. Accelerate My Mortgage and Sprive, for example, combine cashback and Artificial Intelligence to give you the tools to pay off your mortgage earlier.

Disclaimer: Mouthy Money has not tried either of these apps, so make sure you do your homework before you sign up to anything.

Alternatively, banks like Monzo and Starling offer ‘round-up’ features. If you buy a coffee for £2.60, the app rounds it up to £3 and squirrels away the 40p difference in a separate savings pot. Over time, these small amounts can add up and be used towards overpayments.

The best part is you barely notice it happening – but your mortgage balance certainly will.

Mortgage-free life

Paying off your mortgage early can feel like an incredible achievement, but it’s not a one-size-fits-all decision.

Make sure you’ve got an emergency fund, cleared any expensive debts and considered your long-term goals. Then speak to a mortgage broker to help weigh up your options.

And if you do decide to go for it, congratulations – you’re one step closer to financial freedom.

Photo by RDNE Stock project

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Tourism in many parts of the UK is booming right now. 

As we exit the pandemic some people are venturing abroad again. But many others (perhaps partly due to the cost-of-living crisis) are discovering – or rediscovering – what this country has to offer.

This in turn has led to a growing demand for holiday rentals. That is only likely to increase as overseas visitor numbers return to pre-pandemic levels as well.

There is undoubtedly money to be made from holiday lets, so today I shall look at this subject in more detail.

How much can you make?

Being a holiday-let landlord has many attractions, including significantly higher returns than are achievable from residential buy-to-lets.

An apartment in a popular tourist area, for example, can generate £1,000 a week or more (in peak season at least).

A recent report in Which? found that the average annual yield on a holiday let was just over 10%. This compares favourably with residential buy-to-lets, where around 7% a year is typical. The Which? article mentioned above forecasts holiday-let yields rising in future to 14% or more.

According to Sykes Holiday Cottages, the average holiday let owner is earning approximately £28,000 per year. You can also enjoy cheap holidays staying at the property yourself.

And there are tax advantages too, as running a furnished holiday let (FHL) is considered a trade rather than an investment. This means you can offset mortgage interest costs against your income, as well as council tax and other bills.

On the downside, being a holiday-let landlord is likely to be more hands-on. New tenants will move in every few days and the property will need to be cleaned, tidied and restocked on a regular basis. Covid precautions added an extra dimension to this (though rules are now easing).

There will be more admin dealing with a steady stream of enquiries and visitors. You will need to budget for advertising too, or risk ‘voids’ when your property is empty and you are losing rather than making money.  And finally, any garden at the property will need tending as well.

You can of course outsource some (or all) of this work to a management agency, but naturally there will be a cost to this, impacting your bottom line.

Setting and location

You won’t be surprised to hear that setting and location are two key considerations for would-be holiday-let landlords.

A recent survey by Suffolk Building Society found that for potential holiday-let buyers the setting of a property was more important than other factors such as renovation potential or proximity to amenities.

According to the SBS survey, key aspects for would-be landlords when considering buying a holiday let were:

• A property that is in or near beautiful scenery (31%)
• A property that is near the beach or coast (30%)
• A property that is easy to manage and doesn’t require much upkeep (28%)
• A property that is in an area that the landlord already personally knows or loves (27%)
• A property that is in a popular tourist or holiday destination (23%)

A further consideration – though not one mentioned in the SBS survey – is whether free and convenient parking is available for visitors. In many popular tourist areas car parking can be problematic. So if a holiday let has its own parking spot (preferably off road) that will make it more attractive for potential visitors.

As regards location, the SBS survey ranked the popularity of different areas of the UK as follows: (1) Devon (2) Cornwall (3) Lake District (4) Peak District (5) Yorkshire Dales (6) Kent (7) Dorset (8) Somerset (9) Essex (10) Snowdonia (Wales).

Buying a holiday let with a mortgage 

If you’re planning to buy a holiday-let property with a mortgage (as most people do), it’s important to realise that this differs in some significant ways from buying a home to live in or even a traditional buy-to-let.

In particular, many holiday-let mortgages require a potential landlord to own their main residential property already (with or without a mortgage). Some lenders also have age restrictions for first-time landlords.

Affordability assessments for holiday-let properties are usually calculated on the property’s rental potential rather than personal income and outgoings, but the lender will still want to understand your financial position.

You should also check the amount of personal use allowed by the mortgage company so as not to breach their terms and conditions. Companies will always allow the owner a certain amount of personal use, but this can vary.

Suffolk Building Society – with whom I have worked myself in the past – specialise in holiday-let mortgages, but there are of course many other potential lenders you can try as well. 

Tips for maximising your holiday let income

• Allowing visitors to book short stays from 1 to 4 nights will open up many more bookings than if you limit stays to a week or longer. Short breaks in the UK are very popular with people who may take their main holidays overseas.

• Offering luxuries such as a log fire in winter or a hot tub in the summer can significantly increase the attractiveness of your holiday let to visitors and allow you to charge higher rates.

• An attractive garden will also boost the appeal of your property. Obviously a garden will need tending during the summer months. But according to Sykes Holiday Cottages, an attractive garden can boost your property’s income potential by up to 15 percent.

• Nowadays wifi is regarded not as a luxury but an essential. You will need to ensure that a reliable wifi connection (password protected) is available for all  visitors to your holiday let. Comfortable beds and mattresses are another must-have, so don’t try to cut corners on this.

• You will need a website to advertise your property and may also want to promote it via sites such as Airbnb and Booking.com. These sites are hugely popular and can attract a steady stream of enquiries and bookings. But of course they charge fees, so you will need to allow for that. 

• Visitors can also review your property on these websites, so it’s important to be available quickly and easily if a problem arises and resolve it to your guests’ satisfaction. Again, good reviews will boost your holiday let’s popularity and allow you to charge higher rentals.

Good luck, and I look forward to booking a break at your holiday let soon!

Nick Daws writes for Pounds and Sense, a UK personal finance blog aimed especially (though not exclusively) at over-fifties.

Photo Credits: Unsplash

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Question: How do I complain if there’s damp in my rental property? Can I hold back rent if the problem isn’t fixed? 

Answer: Shelter’s data shows that over 25% of renters in Britain are affected by damp and mouldy homes, which can cause health problems.  

The UK has some of the oldest houses in Europe, so it’s not surprising that this is a big concern for some. 

There are many factors to consider when you’re considering who is at fault if there is damp in a property. 

For example, if a problem with damp or mould is caused by your lifestyle, your landlord may be able to retain part of your deposit to cover the cost of repairing any damage.  

This could include someone regularly drying their clothes inside a home without sufficient heating and ventilation which can lead to condensation and mould.  

However, if a damp problem is caused by something in the property that needs fixing – such as a burst pipe, faulty gutters, or another structural issue – your landlord will need to make the necessary repairs.   

If this is the case, you’ll need to let your landlord or letting agent know in writing about the issue as soon as you notice it. In your email, or letter, make sure you outline what needs repairing, how your health is being affected, and if it’s also caused any damage to your belongings.  

Your landlord or agent will then have to inspect the property, and make sure that they repair the issue in a “reasonable” amount of time.  

If that doesn’t fix the problem and you still have issues with damp and mould, the landlord or agent may then need to carry out improvements to your home. That could mean damp proofing the building – or could even mean something as simple as giving you a dehumidifier.  

If you’re in touch with your landlord directly and they don’t fix the issue or respond to your queries, you may need to contact your local council to ask for help. The environmental health department at the council should be able to give you advice. There are also organisations including Shelter which can offer guidance. 

If you have a letting agent and they don’t respond or come and fix the issue, you should get in touch with their redress scheme, if they have one, and they’ll be able to advise you on the next steps. 

In all cases, you’ll need to keep evidence of the problem, to make sure that you can answer any questions and back it up with proof. This includes any communications you have between a landlord or letting agent. 

However, what you shouldn’t do is stop paying your rent as this could lead to your landlord making a claim for rent arrears – which could be a potential reason for them to evict you from the property. 

Speaking with your landlord first, then following the official route of a redress scheme or your council while keeping a note of everything is therefore the best solution. 

Rik Smith is Director of Tenancy Services at the UK’s leading RentTech platform, Goodlord. He focuses on making the renting experience better for tenants. He previously worked as an energy market specialist for uSwitch.com. 

Photo Credits: Pexels

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Along with energy bills and mortgages, for many people council tax is their largest single item of monthly expenditure.

Councils do of course need this money to help pay for services, from police to refuse collection, parks and libraries to schools. Nonetheless, in the current cost-of-living crisis it’s an expense that growing numbers of people are struggling to afford. 

As if that wasn’t enough, from April millions will see their council tax bills rise by 5%, the maximum allowed by the government. Along with all the other price rises, it’s no surprise many are wondering how on earth they will make ends meet in the months (and years) ahead.

Fortunately, however, there are various ways you may be able to reduce your council tax bill, in some cases to nothing. There are three main methods: household-based, income-based and property-based. I’ll look at each of these in turn.

Household-based

First and foremost, if you’re a single-person household, you will qualify for a 25% discount on your council tax. 

As a matter of interest, this is the only reduction I qualify for myself. My local council applied it automatically after I notified them of my partner’s death a few years ago.

You will also qualify for the 25% discount if the only people you live with are under 18 or aren’t liable for council tax for some other reason (e.g. they are full-time students). 

To claim the discount, go to https://www.gov.uk/apply-for-council-tax-discount and enter your postcode. You should then be forwarded to the web page for the council in question, where you can apply.

There are other household-based discounts as well. For example, people with a ‘severe mental impairment’ (SMI) may be eligible for a discount of up to 100%. This could include Alzheimer’s, Parkinson’s, MND, severe learning difficulties or someone who has had a disabling stroke.

To qualify, the person will need to be both medically certified as having an SMI and be in receipt of at least one of certain state benefits (e.g. Attendance Allowance).

People with a live-in carer may qualify for up to 50% discount, as live-in carers are exempt from paying council tax. To qualify the carer will need to look after a person with a disability – who is not their partner, spouse or under 18 – for at least 35 hours a week.

Caring for your mother, father, brother, sister, niece, nephew, friend, uncle or aunt does count. The carer must live with the person concerned, and again that person must receive one of a range of benefits.

Finally, people receiving pension credit may qualify for a discount of up to 100%. I talked about pension credit a while ago in this article for Mouthy Money. I highly recommend that anyone of pensionable age who may be eligible applies for it.

Even if you are only awarded a few pounds a week you may qualify for a council tax reduction, and you should also be eligible for further government ‘cost of living’ payments in the months ahead. Receiving pension credit also makes you eligible for other benefits, including free TV licences for over-75s.

You can check if you might be able to get pension credit using this online calculator.

Income-based

If you’re on a low income and/or claim benefits such as universal credit, you may also qualify for a council tax reduction. This applies both to people who own their home and those who rent. It doesn’t matter whether you’re employed or not. 

Every council runs its own scheme and eligibility requirements vary, as do the discounts on offer. Councils typically take into account your household income, number of children and adults, benefits, residency status, and so on. They will also take into consideration your pensions and savings, and housing costs such as rent or a mortgage.

To apply for an income-based reduction in your council tax, again go to https://www.gov.uk/apply-for-council-tax-discount and enter your postcode. You should then be forwarded to the web page for your local council, where you can apply.

Property-based

You may also be able to get a reduction in your council tax bill due to the property itself.

For example, if your home has been adapted for a person with a disability, you may be eligible to drop a council tax band.

As you may know, every property in the UK is allocated a council tax band based on its value, from Band A (lowest) to Band H (highest). The actual amount you pay in each band will depend on the council concerned, so the benefit of dropping a band will vary from council to council. It will generally be worth somewhere between £100 and £400 a year (more for larger properties).

The types of adaptation might include an extra bathroom or kitchen for the person who is disabled to use, or a room adapted specifically to their needs, e.g. with extra space for a wheelchair or a stairlift to get up to the bedroom.

Finally, if you think your property has been allocated to the wrong council tax band, you can apply for it to be reassessed. This is quite a complex matter and I can’t go into detail about it here. But if your house is in a higher tax band than similar neighbouring houses, you may have a case. 

The popular Moneysavingexpert website has an excellent step-by-step guide to checking whether it’s worth asking for a reassessment and, if so, how to apply.

Do just bear in mind that reassessment means exactly what it says, and it’s possible your council tax band could be raised rather than lowered. So it really is vital to ensure you have a good case before proceeding.

As always, if you have any comments or questions about this article, please do post them below.

Nick Daws writes for Pounds and Sense, a UK personal finance blog aimed especially (though not exclusively) at over-fifties.

Photo Credits: Unsplash

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Mouthy Money Your Questions Answered panelist Laura Suter answers a reader’s question about where to keep money for a house deposit and the value of Premium Bonds. 

Question: I’ve got £50,000 in Premium Bonds which my Granny gave to me. I’m planning on using the money to buy my first home in the next few years. Should I move them somewhere else or is it safest to leave them where they are?

Answer: A big thanks to your granny, that’s an amazing gift to be given and will go such a long way towards a first home. 

Let’s tackle Premium Bonds first. They are a fun option to gift someone, as you have the chance of making them a millionaire, but they aren’t the best for getting a decent return on your money.

Based on the average amount of luck you would get a 2.2% return, but lots of people win nothing. If you want to risk it you could keep your money there and hope for a decent pay out, but if you want a guaranteed return on your money you’ll need to look elsewhere.

People like Premium Bonds because they are safe and Government-backed, but as your savings are below the FSCS compensation limit of £85,000 you’ll be covered by a very similar guarantee. You just need to check that any other provider you move it to is covered by the scheme.

Your next option is a cash savings account. If you go down that route you’ll want to hunt out the top-paying account. According to Moneyfacts this is currently 2.85% for an easy-access savings account from Earl Shilton Building Society. That means in the next year your money will earn £1,425 in interest.

An alternative is locking your money up in a fixed-rate account, as you say that you don’t plan to use it in the next few years.

A two-year fixed rate account will pay 4.75% at the moment, boosting your annual return to £2,375. Or a one-year account will pay slightly less at 4.35%.

The downside of locking your money up is that you won’t benefit from any future interest rate rises from the Bank of England. You could split the money between easy-access and fixed-rate accounts to hedge your bets.

The third option is investing it. It depends when you think you’ll buy a property as to whether this is a viable option.

Generally, we say that investing should be for a minimum of five years, so if you want to buy before then it might not be for you. If you do decide to go down this route you could boost your returns, but just make sure you research the options and feel comfortable with the risk you’re taking. 

It’s a boring topic, but we need to talk about tax. Even with the interest you’ll earn on the easy-access account above, you’ll end up paying tax on your savings.

Basic-rate taxpayers can earn £1,000 from their savings tax free and higher-rate payers can earn £500. After that you pay your usual rate of income tax on your savings.

So, if you took the two-year fixed rate account above you’d lose £275 a year to tax if you’re a basic-rate taxpayer or £750 if you’re a higher-rate taxpayer. You will have avoided this issue until now as prizes from Premium Bonds are tax free.

The way to protect your money from tax is to put it into an ISA, either a cash one or an investment ISA, as money in these accounts is free of tax. Everyone has a £20,000 a year ISA allowance, so it will take you three years to move the money into an ISA, but it’s a good idea to start now if you haven’t used up this year’s allowance.

A great option if you plan to use this money for a house deposit is to put the money in a Lifetime ISA. This is a savings account intended for first-time buyers that gives a government bonus to any money you pay in.

You can put in up to £4,000 a year and the government will top it up by 25%. So if you pay in £4,000 you’ll get £1,000 – it’s an unbeatable return. There are cash and investment Lifetime ISAs, so you can pick whichever works for you.

Just be aware that there are some restrictions on the account. The big ones are that you must be 18 to 40 years old to open the account, you can only buy a property worth up to £450,000 and you must have it open for a year before you use it for a deposit.

You also shouldn’t withdraw the money for any other reason, aside from using it as a deposit or as retirement savings, as you’ll face an exit fee for doing so.

I think a good option is to do a mixture of all of these. Some in a Lifetime ISA, some in a standard cash ISA, some in a fixed-rate account and the remainder in an easy-access cash account (unless you go down the investing route).

If you end up with multiple accounts just make a note of when the interest rates on them are due to fall so you can hunt around for the next best deal to ensure your money is still working as hard as possible for you.

Laura Suter is head of personal finance at AJ Bell.

Laura Suter is head of personal finance at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor.

Mouthy Money Your Question Answered compiled by Rebecca Goodman

Have you got a money question? Find out how to get your query answered

Photo by Dillon Kydd on Unsplash

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If you’re not a property owner or have no interest in getting on the property ladder, this article may not be for you.

However, if you want to become a homeowner one day, you’ll want to familiarise yourself with the content of today’s article.

Your debt-to-income ratio (DTI) is an important term to understand when considering purchasing a home. Your DTI can make it easier or harder for you to qualify for a mortgage, so knowing your DTI can help you better understand how easy, or difficult it’ll be for you to get on the property ladder.

Put simply, your DTI compares how much of your monthly income goes towards debt, including housing costs, personal loans and credit card payments, versus your monthly gross income. It gives lenders an idea of how much money you have to put toward your mortgage and the amount of debt you can handle.

For example, if your mortgage is £1,400 a month, you have a car loan for £200 and your credit card debt and other loans equal £400, your total monthly debt payment is £2,000 (£1,400 + £200 + £400 = £2,000). If your gross monthly income is £6,000, then your debt-to-income ratio is 33% (£2,000 is 33% of £6,000).

What is considered a good debt-to-income ratio?

The lower your DTI, the better. A DTI below 36% is preferable and will help you secure a better rate on your new mortgage because you’ll be perceived as a low-risk borrower able to manage their debts well.

However, as long as your DTI is below 43%, you should still be able to secure a mortgage, providing there are no other weaknesses in your application, such as a bad credit rating or too many credit applications in recent months.

If your DTI is above 50%, lenders may be concerned about your ability to manage multiple repayments and will therefore approach your application cautiously.

How to lower your debt-to-income ratio

If you’ve calculated your DTI and it’s close to or above the 36% optimal DTI, don’t be alarmed; there are things you can do to reduce that percentage.

It won’t happen overnight, but it is absolutely possible with consistent effort over time. Here are a few things you can do to lower your DTI:

1. Increase the amount you pay monthly toward your debt. In the short-term, you may see your DTI increase, however in the long-term it will go down. Also, these extra payments will help lower your overall debt faster and save you money on interest payments.
2. Keep track of your DTI monthly; this helps you see your progress, and watching your DTI fall month-on-month can help you stay motivated to keep paying down your debts.
3. Avoid any unnecessary new debt. If you’re trying to reduce your DTI, taking on new debt will not help. If you were planning on making big purchases on credit, pause until you’ve secured your new mortgage.
4. Alternatively, you could extend the duration of your loans.‍ Doing this will reduce your monthly loan payments on the debt. However, it’s important to note that doing this may mean paying a higher interest rate to compensate.
5. Addressing your debt is one way to improve your DTI; the other thing to consider is increasing your income. You can do this by securing a higher-paying role or starting a side hustle.

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Mouthy Money’s Your Questions Answered panellist Natasha Heron answers a reader’s question on whether they will have a higher rate of tax on their rental property in Wales while living somewhere else.

rental property in Wales

Question: I own a home (paying the mortgage) in Wales which is currently being rented to tenants.

In 2023 my wife and I will look to buy a home together. We currently live in a flat which is owned by my wife’s sisters.

If we were to buy a property in Wales, would I be stung with a higher rate of tax because I already own a property which is being rented?

The new property will be my main residence and, preferably, I’d like to keep hold of the property I am letting out.

Answer: This is one of the main areas which causes confusion as the SDLT surcharge on second homes includes a special exemption when a purchaser is replacing their main residence.

The test is a two-tier approach.

Firstly, do you hold more than a £40,000 interest in any worldwide residential property? If yes, then you fall into the surcharge for second homes.

Next, we look at each buyer separately to see whether they qualify for an exemption. It is important to remember that each buyer must qualify and if one does not, they will ‘taint’ the entire purchase.

Secondly, have you (or are you) making a disposal of a main residence? The main residence exemption safeguards buyers who are simply selling their main residence to replace it with another to ensure they are not unfairly landed with the surcharge.

Usually, a main residence is sold in conjunction with purchasing a new one. However, the rules do permit for a main residence to be sold within three years of the purchase. This means the surcharge applies but it is refundable provided conditions are met.

If we use the two-step approach above, ask:

1. Do you own more than a £40k interest in a residential property? Yes, you have a BTL.

2. Main residence exemption:

a. Have you sold a main residence in the past three years?

b. Are you selling a main residence?

As you are married, we can consider whether you can rely on your wife’s situation. Unmarried, joint purchasers cannot rely on one another’s situation, but spouses and civil partners can.

If your wife has sold a main residence within three years preceding the purchase and she also lived in her property as a main residence in that time frame, you can potentially rely on her sale.

Assuming the answers to the above are “no”, the surcharge will apply to your new purchase.

Your only option to avoid the surcharge is to sell the BTL before purchasing your new property. If it is sold afterwards, you cannot reclaim the surcharge as you have not occupied the BTL as your main residence.

This is a tricky tax and you must seek advice at the earliest opportunity.

Natasha Heron is a tax manager at the accountants Hillier Hopkins, and host of the Tax Able With Tash podcast.

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Mouthy Money Your Questions Answered panellist Sam Mitchell considers whether the Government’s levelling up agenda will drive up Northern house prices.

Question: What impact will the levelling up agenda, such as introducing contactless pay-as-you-go rail fares across the North, have on property prices in the Midlands and the North? Will Northern house prices rise faster there than in other areas of the country?

Answer: The levelling up agenda pledges some punchy and promising missions that could certainly continue the upward property price trend in those areas.

When somewhere stands to benefit from a large-scale investment in transport, property prices tend to go up. The roll out of contactless pay-as-you-go ticketing across 400 stations in the North over the next three years could mean a big change for commuters.

But it’s important to recognise that while this reform, finally, focuses on improving passengers’ experience and local connectivity (vs. an improvement in transport links to London), it is unlikely to have a dramatic impact on house prices.

However, even if we don’t see any spikes related directly to this reform, you can be sure that improved daily commutes, simplifying journeys and ensuring passengers are charged at the best price unlocks housing opportunities. The potential for these areas to become an economic power base to rival London and the South East is an exciting prospect for potential buyers.

The Pride in Place mission in particular – which pledges to undertake ambitious regeneration projects similar to Kings Cross in London, an increase in cultural spending and task forces to transform town centre high streets – is where I think we could really see the market being boosted.

Research has been done previously on this by real estate firm CBRE (The Regeneration Effect) which found that homes near regeneration zones attract an average 3.6% more price growth per year than properties in the wider local authority area. Some areas will naturally increase more than others but, generally, it’s safe to say that the towns earmarked for this investment should see a rise in property values.

House prices in the East Midlands have grown faster than in many parts of the country over the past 12 months, rising 13.5% in the year to march, according to Nationwide. Average house prices in the region now stand at £227,275. Many buyers continue to migrate away from cities post pandemic, bringing with them a larger budget which can filter through to higher purchase prices.

Encouraging jobs, infrastructure and investment outside of the capital will of course entice and accelerate demand in Midlands and the North, though higher inflation and rising mortgage rates are factors likely to weigh on buyer demand as the year progresses.

Sam Mitchell, chief executive officer of online estate agent Strike

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Start an ISA: opening a Lifetime ISA, with a tax-free wrapper, lets you save up to £4,000 every year with the government adding a 25% bonus of £1,000 on top of what you save.

What is the deal exactly?

A Lifetime ISA (LISA) could be a game-changer to your savings. This account offers the chance to save money in a tax-free wrapper and receive a 25% bonus from the government.

For example, if you save £4,000, in a tax year (6 April to 5 April) the government will give you £1,000.

Start an ISA whilst you can

However, you need to be between the ages of 18 – 39 to open an account, and saving for a house or retirement as the money isn’t ‘easy access.’

If you’re nearing 40, make sure you open a LISA before you hit the cut-off age. You can continue to put money into the account until the day before your 50th birthday.

You can open two kinds of LISA – cash or stocks and shares. If you’re looking to buy a house in the near future (less than five years), cash is generally best as you won’t be affected by short-term stock market fluctuations.

If you’re using the LISA to save for the long-term, then stocks and shares are better as you’re in with a better chance of growing your money above inflation over the long-term.

Stock market returns aren’t guaranteed but broadly over long time horizons do rise and will grow your money.

Why should I care?

With the end of the tax year approaching in April, there’s no better time to choose an ISA to get a 25% bonus each tax year on up to £4,000.

This is especially true if you have savings languishing in a cash account earning very little interest and losing value against inflation.

If you want to save money for your retirement or house, a 25% bonus each year could help a long way to accomplishing those goals.

What’s the catch?

There are quite a few conditions when opening a LISA.

You can only deposit a limited amount in a LISA – the maximum you can save is £4,000 per year, meaning that you’ll only get £1,000 from the government.

LISAs can only be used to buy a house or for retirement – and there are more limits set within those two options.  

Currently, the LISA’s limit stands at a purchase of up to £450,000 in London. If you go over the limit, money can’t be withdrawn from your LISA, or you could lose the bonus and face a 5% government withdrawal charge.

You’ll pay a penalty if you withdraw the cash and don’t use it for a first home or retirement. If you do cash out the money for something else rather than a property or pension, then you’re charged 25% of the amount withdrawn.

What other options do I have?

Help to Buy ISAs were the precursor to the LISA, until they stopped being available after 30 November 2019.

However, if you’ve opened a Help to Buy ISA before that date, then you’d be able to save £200 every month towards your first home, with a 25% bonus from the government. You’d then be able to claim your bonus by 1 December 2030.

The alternative to a LISA includes regular cash ISAs or stocks and shares ISAs. As mentioned above, you should be using stocks and shares and investing if your time horizon for saving is longer than around five years.

Where can I find out more?

There are a few banks that offer LISAs, including AJ Bell, Moneybox, Hargreaves Lansdown and more.

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