States proposal to waive document duty on bonds hailed as a victory for mortgage holders
Proposals would see the Document Duty paid on registration of a bond abolished from 2019
FOR IMMEDIATE RELEASE The proposed abolition of document duty on bonds will open up the market and allow mortgage holders to truly find the most competitive deals. That’s according to the local businessman who spearheaded the campaign to waive the 0.5% document duty paid on registration of a bond.
Paul Welch – Founder and CEO of largemortgageloans.com – has been canvassing the public and lobbying opinion leaders for the past six months to abolish the charges, which mean islanders pay the States a fee amounting to 0.5% of the mortgaged value of a home to register a bond at the Greffe.
An unnecessary tax on mortgage holders
Welch’s campaign outlined that, not only is this an additional expense when buying a house, it is anti-competitive. 28% of households in Guernsey are owner occupied with a mortgage[1]. Currently, once islanders have signed up to a mortgage provider, they can’t move lender without paying a hefty fee. The States 2019 budget released today (Tuesday, 9th October 2018) outlines proposals to scrap these fees, acknowledging:
“There have been concerns expressed that the duty on bonds discourages changing mortgage provider and thus ‘trapping’ people into paying higher interest rates than available elsewhere. It is claimed that the document duty charged on the registration of bonds is a significant impediment to borrowers re-financing, consequently limiting competition and driving up borrower costs.[2]”
Responding to demand in the market
Earlier this year, a survey[3] of islanders conducted by largemortgageloans.com found that 8 out of 10 (82%) homeowners would consider moving their mortgage if they didn’t have to pay bond registration fees. Paul Welch says, “I’m delighted this feedback has been taken on board. This decision will allow for real competition in the mortgage market for the first time, which is an incredible step forward.”
Treating customers fairly
According to Welch, the outcome will benefit all current and prospective mortgage holders. He explains, “In other jurisdictions, consumers sign up to a specific mortgage deal for a fixed period of time – most commonly between 2 and 5 years. Towards the end of the period, they can shop around to ensure they’re getting the lowest rates available and most appropriate deal. This often means switching lender. However, the current system in Guernsey makes that process virtually impossible.”
Welch continues, “Currently, if you change mortgage provider, you need to consent to a new bond which is registered at the Greffe and pay another 0.5% of the mortgage value to the States. This cost makes it prohibitively expensive to switch between lenders, meaning you’re effectively locked in. Even if your circumstances or needs change, your mortgage will stay with that lender unless you pay a large fee to place your mortgage elsewhere.”
Biggest benefits will be seen in certain pockets of society
Welch believes that the changes will have a wide-ranging effect on reducing the cost of borrowing across the board, from first time buyers to young families and older people looking to downsize. However, it will have a tangible and positive impact on Guernsey’s ageing population.
“I’m increasingly approached by people over the age of 65” says Welch, “who are looking to fund their retirement, pay care fees or help younger generations get on the property ladder. Often their best route is to refinance their home through a specialist later life lender, as that frees up capital without having to go through the upheaval of moving. Previously, the associated costs would have been considerable; however removing duty on bonds significantly reduces these costs. This is a vital step in the right direction for this demographic.”
More money will flow through the economy
Based upon research conducted by largemortgageloans.com earlier this year, scrapping duty on bonds will have a positive impact on the economy. 40% said that – if they had not had to pay bond fees – they would have spent the money employing a local tradesperson to carry out internal home improvements. More than a third (36%) would have renewed or replaced fixtures and fittings such as a kitchen or bathroom and the same number (36%) would have spent the money on DIY home improvements.
By contrast, just 11% of homeowners said, freed of bond registration fees, they would save the money, and only 4% would have splurged the money on something else entirely such as a holiday, clothes or luxury items.
States set out an alternative solution
If agreed by the States, the money raised through document duty on bonds (approximately £1.6-1.9million per annum) will instead be collected through increased document duty rates on conveyances, which will rise by 0.25% on the bandings covering up to £400,000 and 0.5% thereafter up to £2 million. After £2 million, it will rise by 1.5%. Welch says, “It’s disappointing that these costs couldn’t be abolished wholesale, but we understand that the States need to balance the books in order to bring about this change.”
Welch continues, “Swathes of existing homeowners who have no plans to move house could secure a better deal on their mortgage. For those buying a new property, anyone buying up to £1 million with a mortgage of at least 80% will be better off as a result of this change. That’s a significant step forward.”
More changes needed to lending legislation
Far from resting on his laurels, Welch says this is the first in a wider campaign surrounding treating customers fairly. His next challenge is to look at how intermediaries (i.e. mortgage brokers and professional advisers) are remunerated and bring regulation to the industry to ensure they’re transparent with customers about the commissions they receive from lenders. Meantime, he’s urging islanders to query the advice they receive to be sure that they’re being recommended the lowest rates and most appropriate deals.
Also in his sights is legislation that would allow interest on loans to be rolled up – which means that it’s not payable until the loan comes to the end of its term. Welch says this would allow for equity release, which is a product he is increasingly being asked to offer by islanders who want to remain in their homes, but release capital for their latter years.
“I’m delighted to see change” says Welch, “and it spurs me on to incite more. Having a safe and secure home to call your own is so very important, and there’s absolutely no reason why we shouldn’t be able to offer products tailored to all life stages and situations. We won’t rest until we get there.”
-Ends-
Notes to Editors
Facts about home buying in Guernsey:
- Bonds are registered at the Greffe by any home buyer taking out a mortgage. The bond ensures that the bank or building society lending against the house has the ‘first charge’, meaning they can take control of the property if the mortgage repayments aren’t kept up.
- Document Duty to register a bond currently costs 0.5% of the mortgaged value of a property.
- Fees to register a bond are payable every time your mortgage changes, including every time you move house, remortgage or change mortgage provider.
- The 2018 Budget proposes that duty is abolished, effective January 2019.
- At the point of purchase, home buyers in Guernsey also pay Document Duty on the value of the property, payable to the States of Guernsey. In order to make up the shortfall in revenue lost through abolishing bond registration fees, the States are proposing to raise Document Duty rates. The revised conveyancing document duty rates would be (current rates in brackets):
- 2.25% (2%) on up to £250,000 of the transaction value;
- 3.5% (3.25%) on the next £150,000 (i.e. the portion from £250,000 to £400,000);
- 4% (3.5%) on the next £350,000 (i.e. the portion from £400,000 to £750,000);
- 4.25% (3.75%) on the next £250,000 (i.e. the portion from £750,000 to £1,000,000);
- 4.5% (4%) on the next £1,000,000 (i.e. the portion from £1,000,000 to £2,000,000);
- 5.5% (4%) on any amount above £2,000,000.
- Additionally, the home buyer needs to pay the costs to register the bond with the Greffe, Court costs and the legal fees of the bank with whom they have secured a mortgage.
Example calculations
Based on new purchases:
£400,000 is the average price of a home in Guernsey[4]. With a 10% deposit a homeowner would be borrowing £360,000.
Registering a bond for that amount would incur Document Duty of £1,800.
Under the changes they would pay total conveyancing document duty of £10,750 which is £1,000 more than they currently do.
Based on the above scenario, they will be £800 better off.
At a purchase price of £750,000 a homeowner with a 10% deposit would be borrowing £675,000. Registering a bond for that amount would incur Document Duty of £3,375.
Under the changes they would pay total conveyancing document duty of £24,875 which is £2,750 more than they currently do.
Based on the above scenario, they will be £625 better off.
For more information or to arrange an interview, contact lindseyfreemanpr@gmail.com or 07839 192 880
Notes for Editors
largemortgageloans.com is a market leader in the UK mortgage industry and the UK’s first mortgage broker to specialise in arranging mortgages above £500,000. Founded by Paul Welch in 2006, largemortgageloans.com is at the forefront of the industry as a result of providing innovative funding solutions, million plus mortgage advice and access to sources of capital not generally available.
Having built up an unprecedented global network of 200 finance providers to date, largemortgageloans.com uses this expertise to strengthen partnerships between financial services companies and high net worth individuals, all underpinned by absolute discretion and integrity.
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[1] States 2015 Household Income Report
[2] States Budget 2019
[3] Survey results gathered between 2nd May and 28th May 2018. 280 survey respondents, representing more than 1% of Guernsey households.
[4] Guernsey Quarterly Residential Property Prices Bulletin – 10th August, 2018
