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Buy to let – Rental yields reach three year high

During the first quarter of 2021 average rental yields have increased to 6.0%, the highest recorded in three years, research from Paragon Bank has revealed.

Rental yields have climbed by 0.2% from 5.8% in Q4 2020 to 6.0% in Q1 2021. This represents a year-on-year increase of 0.7% after landlords said they were able to generate average yields of 5.3% in Q1 2020.

As part of a survey of just under 900 landlords, carried out by BVA BDRC on behalf of Paragon Bank, landlords were asked what rental yield they currently receive, taking into account rental income as well as any mortgage, maintenance and other costs associated with running their letting portfolio.

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The highest average rental yields are currently achieved by those managing lettings businesses in the South West (6.7%) and North East (6.6%). Landlords with property in Central London continue to achieve the lowest yields at 5.4%, due to higher average property prices in the capital.

Correlation between typical yields generated and portfolio sizes were also identified after single property landlords recorded average yields of 5.7%, while landlords who operate portfolios containing 20 or more properties responded saying they are able to generate average yields of 7.1%.

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Richard Rowntree, managing director for nortgages at Paragon said: “Rental yields are a key measure for landlords so it’s encouraging to see them indicate being able to generate average yields of 6.0%.

“The fact that this is a 3-year high and is being reported alongside continued high levels of tenant demand suggests that the private rented sector has bounced back well from the Covid-19 pandemic and is actually stronger as a result of providing stable homes for tenants during the challenges of the past year or so.”

Source: Mortgage Introducer

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BTL Mortgage Offers Available To Landlords Climb Back Up

There are now 2,333 BTL mortgage deals available to landlords, the highest number since March 2020, when there were 2,897 deals available. While this has resulted in more choice for landlords, average rates have also risen.

The average five year fixed rate now stands at 3.41 per cent; its highest since September 2019 when it reached 3.44 per cent.

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The average two year fixed rate currently stands at 3.05 per cent, again the highest in nearly two years. In June 2019 it also stood at 3.05 per cent.

‘It is important to note that these are averages, and therefore while representative of the market as a whole, there are some very competitively priced products available, with some – depending on LTV and criteria – available at below 2 per cent’, said Moneyfacts’ Eleanor Williams.

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‘Therefore, those who are hoping to refinance or take on a new deal would do well to shop around’.

One other reason is that some deals offer incentives, such as free valuations or ‘no legal fees’. Williams said these are becoming scarcer ‘although interestingly, the proportion of the market where cashback is available has increased, not only year-on-year, but by 8 per cent over the last month’.

Source: Landlord Knowledge

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The buy-to-let boom is far from over, research has revealed

A year ago there were warnings that the buy-to-let market was looking increasingly bleak and that landlords were deterred from entering the sector, or quitting it altogether as a result of tax changes.

But despite scaremongering that there will be a ‘mass exodus’ of landlords, new data suggests that buy-to-let landlords are taking a far more pragmatic approach.

New data from Hamptons shows that last year 131,900 properties were sold by landlords in Great Britain, the smallest sell-off since 2013, when 105,830 properties were sold.

The research also reveals that the average landlord who sold up last year in England and Wales sold their buy-to-let for £82,450 or 42% more than they paid for it, having owned the property for 9.1 years on average.

The average landlord gross gain increased by £3,390 or 4% to £82,000 compared to 2019 – £79,060 – marking the first annual rise in more than five years.

Landlords in London made the biggest gains. The average London landlord sold their buy-to-let for £302,200 or 71% more than they originally paid for it, having owned the property for 9.8 years on average.

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Last year reversed the fall in a London landlord’s gross profit.  Despite the increase, typically landlords who sold in the capital last year made a smaller gross profit than those who sold in 2016 when they made an average gain of £364,960. 2016 marked the high point for landlord profit when many investors, having bought at the bottom of the market following the 2008 financial crash, decided to sell up.

The top 10 local authorities where landlords made the biggest gains were all in London.

Kensington and Chelsea topped the list. Last year the average Kensington & Chelsea landlord sold their buy-to-let for £784,980 more than they paid for it 10.6 years earlier.  The gain they made was 9.5 times greater than the average in England & Wales.  Camden, City of Westminster and Hammersmith & Fulham ranked second and third on the list, with the average landlord gain exceeding £500,000.

Landlords in the North East continued to make the smallest gains. The average landlord who sold up in the North East made £11,310 or 16% capital gain having owned for 8.0 years. Some 36% of investors in the region sold their buy-to-let at a loss, compared to just 12% in England & Wales overall.

This means that 37% of investors who sold in the North East last year would have paid capital gains tax (CGT) due to the sum being covered by their £12,300 annual allowance.  Across England & Wales, 77% of landlords would have paid CGT on their profit.  London landlords, who made the biggest gains, are most likely to have a tax bill to pay with 91% of investors making a gross gain surpassing the annual CGT allowance.  Investors can offset costs such as stamp duty and renovation expenses from their capital gains tax bill.

The North East also had the highest share of landlords selling up.  Last year 24% of homes sold in the region were sold by a landlord.  This equates to around 9,730 homes.

Meanwhile, 17% or 15,540 homes sold in London were previously rented, down from 19% or 18,920 homes in 2020.

Some 9% of rental homes sold in Great Britain last year had been owned by a limited company landlord.  Last year,12,400 buy-to-let companies were dissolved. While the average buy-to-let company had operated for 6.2 years, 75% operated for less than five years.

Rental growth

In March, the average rent on a newly let home stood 4.4% higher across Great Britain than at the same time last year.  Regions outside London continued to see the highest rates of rental growth with rents increasing by 6.8% annually, the third consecutive month that annual rental growth outside the capital exceeded 5%. And apart from London, last month every English region recorded rental growth of at least 4%.

Rental growth in London continues to follow a different path, with rents falling 2.1%.  This marked the second month in a row that rents have fallen after turning positive between October 2020 and January 2021.  Once again, the fall has been led by Inner London where rents dropped 17.1%, the 13th consecutive month that rents have decreased.  While in Outer London, rents were 2.6% higher than at the same time last year, with tenants in Zones 3-6 viewing 48% more homes than in March 2020.

Aneisha Beveridge, head of research at Hamptons, said: “Last year, the number of homes sold by landlords reached a seven-year low.  A pause in the housing market during the first Covid-induced lockdown, which suppressed overall transactions, combined with an eviction ban throughout the remainder of 2020, limited the opportunity for landlords to sell up.

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“Landlord sales have been relatively high over the last few years due to tax and regulatory changes that have reduced the profitability for some investors.  But given tax relief on mortgage interest will be fully phased out from the 20/21 tax year, it seems as though most landlords who would be hit hardest by these changes have already left the sector.

“Over the last few years, the average capital gain made by a landlord has been shrinking.  But despite the pandemic, stronger house price growth seems to have reversed this trend.  Landlords who have been in the game for the longest period of time have reaped the largest rewards.  The average landlord who owned their buy-to-let for more than 15 years made more than three times more than a landlord who had owned their property for less than five years.  Many of whom would have renovated and invested further in their property to add value.”

“Despite the gradual easing of lockdown, the London vs rest of the country rental growth divide remains entrenched.  Outside the capital would-be tenants are scrabbling over stock before it hits the portals, while in Central London landlords are chasing tenants just as relentlessly.  There are however signs of a return to Zone 1, with viewings up 64% year-on-year in March.  But record high stock levels mean rents are unlikely to start recovering to pre-pandemic levels until later in the year.”

Average landlord seller gain by region

RegionAverage Landlord GainYoY Change £Average % gainAverage length of ownership (years)
London£                      302,200 £         3,76071%9.8
South East£                      102,200-£         5,38045%9.2
East of England£                        90,590-£         2,63048%8.9
South West£                        68,250 £         2,16040%8.6
West Midlands£                        50,240 £         5,22042%9.0
East Midlands£                        44,560 £         2,96041%9.1
Wales£                        37,120 £         1,17038%9.6
North West£                        34,780 £            17036%9.0
Yorkshire & the Humber£                        30,800 £            94034%9.6
North East£                        11,310-£         3,50016%8.0
England & Wales£                        82,450 £         3,39042%9.1
Source: Hamptons & Land Registry

Top 10 local authorities where landlords made the biggest gains

Local AuthorityRegionAverage landlord gainAverage length of ownership (years)
KENSINGTON AND CHELSEALondon£784,98010.6
CAMDENLondon£735,2309.8
CITY OF WESTMINSTERLondon£627,04010.2
HAMMERSMITH AND FULHAMLondon£506,8009.5
ISLINGTONLondon£473,86010.2
HACKNEYLondon£392,69010.2
WANDSWORTHLondon£365,2209.4
BRENTLondon£355,2609.6
HARINGEYLondon£354,09010.2
HOUNSLOWLondon£347,79010.9
Source: Hamptons & Land Registry

Annual rental growth

Mar-20Mar-21YoY
Greater London£1,699£1,663-2.1%
     Inner London£2,570£2,131-17.1%
     Outer London£1,534£1,5742.6%
East of England£967£1,0215.5%
South East£1,050£1,1327.8%
South West£832£9089.1%
Midlands£694£7325.4%
North£644£6886.8%
Wales£654£7006.9%
Scotland£673£6963.5%
Great Britain£982£1,0264.4%
Great Britain (Excluding London)£832£8896.8%
Source: Hamptons

By MARC DA SILVA

Source: Property Industry Eye

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Accord Mortgages restarts lending to first-time landlords

Accord Mortgages have resumed lending to first-time landlords up to 75% LTV.

Lending was paused in May due to the pandemic.

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Nicola Alvarez, corporate account manager, propositions at Accord Mortgages, said: “We’re pleased to once again offer our support to borrowers wanting to enter the buy-to-let market.

“We know brokers have been limited over the last few months, but with our recent product refresh, we now have a comprehensive range of options now available to suit both new and established landlords.”

BY RYAN BEMBRIDGE

Source: Property Wire

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Paragon: Rise in BTL remortgages shows landlords raising capital

Landlords raising capital has contributed to an increase in the number of buy-to-let (BTL) remortgages in the second quarter of the year, according to research by Paragon Bank.

Mortgage intermediaries indicated that remortgages accounted for 60% of BTL cases in the second quarter, up from 48% in the previous quarter, as new lending for house purchase fell as a result of the lockdown.

The ability to secure a better interest rate (54%) was the most common reason for remortgaging; however, 30% of landlords said that they remortgaged to raise capital, making this the second most common driver, accounting for double the remaining reasons combined.

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Landlords who own four or more properties accounted for the highest proportion of buy-to-let mortgage business, rising from 25% in quarter one to 28% over the last three months.

Moray Hulme, director for mortgage sales at Paragon, said: “These findings are encouraging for the sector because they show that landlords have not only been resilient during the recent challenges but have been planning for the future.

“The data also supports the idea that there is a shift towards a professionalisation of the private rented sector.

“This is positive because a higher number of professional landlords has been shown to correlate with higher standards in the sector.”

By Jessica Bird

Source: Mortgage Introducer

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Stamp Duty holiday and falling mortgage costs provide timely buy-to-let boost

After years of cracking down on landlords, the chancellor’s Stamp Duty holiday is a shot in the arm for the industry.

It’s not been an easy few years for the nation’s landlords.

A succession of decisions by the Government has chipped away at just how attractive it is for people to invest in property, particularly if they want to do so on a small scale and have maybe one or two buy-to-lets in a portfolio.

But a couple of recent changes may have made the prospect far more enticing.

Say goodbye to Stamp Duty (for now)

It was no great surprise when the Chancellor stood up in the House of Commons to announce a Stamp Duty holiday.

The nil rate threshold is temporarily being hiked from £125,000 to £500,000, meaning that nine out of every 10 buyers in England and Northern Ireland won’t have to pay any.

The surprise came in the revelation that this is being applied to landlords as well as those buying a property they intend to live in themselves.

Just a few years ago a higher rate of Stamp Duty was introduced for those buying a second home, in a bid to make buy-to-let less appealing (or more profitable for the Government, depending on your point of view).

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While this 3% surcharge still applies ‒ landlords can’t avoid Stamp Duty entirely ‒ it does mean they will enjoy smaller Stamp Duty bills as a result.

For example, before the changes, if I wanted to buy a £250,000 investment property I would pay 3% on the first £125,000 and then 5% on the remainder, meaning a total tax bill of £10,000.

That tax bill will now drop to £7,500, a tidy saving, especially if you’re looking to buy more than one investment property.

Falling mortgage costs

Another significant source of optimism for all would-be property investors has been the shifting state of the buy-to-let mortgage market.

Perhaps unsurprisingly, the number of buy-to-let mortgages on offer has dropped significantly as a result of the Covid-19 crisis.

According to data from financial information site Moneyfacts, the number of buy-to-let deals stood at 2,897 in March, but had crashed to just 1,455 in May.

The reopening of the housing market has led to a rise in the number of products on the market though, with product numbers jumping to 1,738 in July.

Still a long way down on the pre-pandemic, but a clear move in a more positive direction.

It’s not just the numbers of products that are likely to give landlords hope though, but the rates being charged on them too.

Moneyfacts data shows the average rate on two-year fixed rate buy-to-let deals in March stood at 2.77%, while on five-year deals it was 3.24%.

By July, this had fallen to 2.61% and 2.97% respectively.

Part of this will be down to the fact that lenders are far warier about lending at higher loan-to-values currently.

But equally, now that the market is moving again, lenders will want what business there is. And that competition will likely feed into some decent deals for landlords.

Jenny don’t be hasty

That said, there’s no doubt that moving into buy-to-let at the moment could be a nervy move.

Yes, there remains healthy demand for rental properties ‒ the shortage of housing hasn’t disappeared, and while people will struggle to purchase their own home, they will have to rely on rental properties.

But taking on any tenant is a big gamble at the moment. With significant unemployment seemingly on the way, how confident can you truly be that they will be able to maintain their rental payments?

There’s only so much due diligence you can do on a tenant ‒ you can’t really have a chat with their boss to find out what the chances of them getting the boot in the next year are.

Fortune favours the brave

Landlords are often painted as the pantomime villains of the housing market, a little unfairly in my view.

But the truth is that the Stamp Duty holiday is a real boon for investors, who could also benefit from lender competition and enjoy cheaper funding when purchasing their next buy-to-let property.

The big test will be just how robustly they run the rule over prospective tenants, to ensure they don’t end up with costly void periods. It doesn’t matter how much you saved on your Stamp Duty bill or mortgage, if you end up with an empty rental property.

By John Fitzsimons

Source: Love Money

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Buy-to-let benefits from increased choice and competitive rates

Landlords are benefiting from an increased choice of buy-to-let products as more mortgages return to the market following the dip caused by the pandemic.

Data from Moneyfacts.co.uk showed, having plunged to a total of 1,455 products in May, the buy-to-let mortgage market has received a boost of 283 more products as lenders increase their ranges.

The two-year fixed rate market now has 134 more products and there are an additional 164 options in the five-year fixed rate sector than compared to the start of May.

However, things are still not as buoyant as they were before the Covid-19 crisis began in March, when there were 2,897 buy-to-let mortgages available.

Eleanor Williams, finance expert at Moneyfacts, said its latest research revealed the buy-to-let sector had adapted well to conditions caused by the pandemic and there were indications landlords may have cause for positivity.

“The latest Rental Index research from lettings platform Goodlord indicates that in June, new tenancy applications remained at 90% above 2019 levels,” Williams added.

“Subsequently, they have recorded increases in rental costs and also void periods reducing, as tenant demand for new properties remains strong now that the market has reopened.

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“This news should be a boost to landlords, who after a difficult few months can see that choice is beginning to return to their sector.”

Vote of confidence

Kevin Roberts, director, Legal & General Mortgage Club said the news more choice was returning to the market was a vote of confidence in the buy-to-let sector and a sure sign that it remained open for business.

He added: “At Legal & General Mortgage Club, our data even shows that despite the pandemic landlords still have a positive view of the buy-to-let sector.

“Nearly three in every five landlords (57%) told us that the crisis has had no impact on their plans to stay in the market and more than one in ten (16%) even have plans to buy more property over the coming months.”

Competitive rates

Moneyfacts data also showed rates were currently competitive, especially when compared to January.

The average rate for two-year fixed rate mortgages on 1 July was 0.21% less than at the start of the year, while the five-year fixed rate has fallen by 0.22% over the same time period.

Buy-to-let mortgage market analysis
Product numbersJan-20Mar-20Apr-20May-20Jul-20
BTL product count – fixed and variable rates2,5832,8971,8871,4551,738
Two-year fixed rates BTL – all LTVs823914610491625
Two-year fixed rates BTL – 80% LTV11914157931
Two-year fixed rates BTL – 60% LTV126124129148144
Five-year fixed rates BTL – all LTVs8791,000695480644
Five-year fixed rates BTL – 80% LTV11015069619
Five-year fixed rates BTL – 60% LTV128133140155146
Average RatesJan-20Mar-20Apr-20May-20Jul-20
BTL two-year fixed – all LTVs2.82%2.77%2.71%2.51%2.61%
 BTL two-year fixed – 80% LTV3.64%3.56%3.80%3.61%3.18%
 BTL two-year fixed – 60% LTV1.92%1.89%2.24%2.39%2.28%
BTL five-year fixed – all LTVs3.19%3.24%3.16%2.94%2.97%
 BTL five-year fixed – 80% LTV4.03%3.98%4.18%4.32%3.82%
 BTL five-year fixed – 60% LTV2.32%2.31%2.62%2.76%2.65%
Data shown is as at first working day of month, unless otherwise stated. Source: Moneyfacts.co.uk

By Kate Saines

Source: Mortgage Finance Gazette

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Foundation Home Loans returns range to pre-lockdown structure

Foundation Home Loans has returned its buy-to-let (BTL) product range to its pre-lockdown structure with the reintroduction of large loan, early remortgage and short-term let products.

The lender has also introduced a number of rate reductions of up to 40bps across its 5-year BTL products for both individuals and limited company borrowers, with rates now available from 3.29%.

Advisers can now access a number of returning BTL products, including: large loan mortgage – a 3.29% 5-year fixed-rate available for F1 borrowers at 65% loan-to-value (LTV); early remortgage – a 3.65% 5-year fixed-rate available for F1 borrowers with a maximum 75% LTV; short-term let mortgages – both 2-year (3.99%) and 5-year (4.64%) fixed-rates available for F1 borrowers up to a maximum of 75% LTV.

These rate cuts and product returns follow last month’s introduction of additional products, which included a 5-year fixed fee product for F1 borrowers.

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Those rates have also seen reductions and are now offered at 3.74% up to 65% LTV or 3.99% up to 75% LTV, and come with a fixed fee of £1,995.

Foundation also introduced a number of criteria changes across the buy-to-let range in June including the reintroduction of a 125% interest cover ratio (ICR) for limited company borrowers and basic-rate taxpayers, while it is also offering products for first-time landlords again.

Jeff Knight, director of marketing at Foundation Home Loans, said: “It’s fair to say that the buy-to-let market is in a different place to where it was at the start of the year, but with each week we are marking that return to a ‘new normal’ and we are offering our adviser partners access to a wide range of products for their clients.

“We’ve seen a strong demand from intermediaries who say there are many landlords who want to make the most of the opportunity, refinancing in order to fund future purchases, and looking at diversification of their portfolios.

“These products will allow them to do that, and we are particularly pleased to be back in the short-term let space as we believe there will be a growing demand to utilise these properties, particularly in the holiday sector.

“Our sales team are available to support all advisers and help them place these cases, we have a strong appetite to lend and we are very positive about the buy-to-let market throughout the rest of 2020 and beyond.”

By Jessica Bird

Source: Mortgage Introducer

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Swansea responds to demand for holiday let mortgage with rate cuts

Swansea Building Society has announced it is cutting rates on holiday let mortgages and is offering more flexible borrowing terms to customers wishing to take out these products.

The society said it was changing the calculation used to stress test the mortgage payment for buy-to-let and holiday lets to reflect the tax status of the main applicant.

It would also consider income from Airbnb lettings and it would accept projected income. What’s more, Swansea said it would look at lending on unusual properties on both buy-to-let and holiday let cases.

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Borrowers will now also be able to take advantage of the newly-reduced rates. Swansea revealed it had cut rates to 3.55% variable (previously 4.25% variable) on mortgages with a loan-to-value (LTV) ratio of up to 60% and to 3.95% variable (previously 4.75% variable) on mortgages with an LTV of up to 70%.

The move comes after Swansea reported a big increase in enquiries for holiday let mortgages in recent months. This appears to be a response to ongoing restrictions on overseas travel due to the Coronavirus.

Alun Williams, chief executive of Swansea Building Society, said: “We are proud that we have remained open for both our savings and mortgage customers through the crisis, supporting our members in every way we can.

“As lockdown now eases, we are seeing an uptake in enquiry levels especially around the more specialist mortgage areas such as holiday let and self-build and we are delighted to be able to lower our rates on buy-to-let and holiday let mortgages in particular.”

By Kate Saines

Source: Mortgage Finance Gazette

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Skipton reintroduces 85% LTV products

The Skipton Building Society is reintroducing lending at 85% LTV for its standard residential, new build and shared ownership range and also reducing rates on a range of mortgage products.

A series of new products has been introduced to Skipton’s repriced mortgage range as it resumes lending standard residential lending at 80/85% LTV, with rate decreases across the HTB range, and has reduced rates on its interest-only product range; however, Skipton’s new residential range is not available on interest-only.

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Highlights of Skipton’s new mortgage range include:

  • For purchase and remortgage, 2-year fixes at 1.37% to 60% LTV (fee free) and 1.59% to 85% LTV (£995 fee); 5-year fixes at 1.35% to 60% LTV (£1,995 fee) and 1.76% to 75% LTV (fee free);
  • For Help to Buy, (purchase and remortgage) a fee free 2-year fix at 1.89% to 75% LTV;
  • 2-year fee free shared ownership fix at 2.69% to 85% LTV;
  • Buy-to-let (purchase and remortgage) fee free 2-year fixes at 1.99% to 60% LTV and 2.34% to 75% LTV, and 5-year fixes at 1.79% to 60% LTV (£1,995 fee) and 2.19% to 70% LTV (£995 fee).

Skipton recently announced that under a revised affordability approach, it will accept cases from applicants who have been furloughed. However, affordability will be assessed on the new, furloughed income, including any top up contributions made by the employer. The maximum LTV where any applicant is relying on furloughed income is 60%. Product transfers are excluded from these restrictions, unless the applicant is also seeking additional funds.

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Alex Beavis (pictured), Skipton’s head of mortgages, said: “We’re delighted to reintroduce lending at 85% loan to value and reduce rates on many products giving borrowers more choice and better value. As a mutual, we strive to help people buy their own homes and through this difficult time we have maintained high levels of service to ensure our customers get the best experience when buying or remortgaging.

“Our reintroduction of 85% LTV deals for new build, shared ownership and residential purchases and support for furloughed workers demonstrates this commitment.

“In order to help us continue to support our customers, I encourage anyone who needs to speak to us to make use of our online FAQ pages, webchat and email services in order to avoid longer telephone wait times in our contact centre.”

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By Kevin Rose

Source: Best Advice