Two days till MMR! Time to use a broker..

I don’t think I can talk about anything else this week apart from the launch of MMR.   The Mortgage Market Review comes in to effect on April 26^th and will fundamentally change the way a lender looks at a mortgage application.   Amongst a number of new rulings, one area being reviewed is affordability, a key element when arranging a mortgage.  The MMR takes this a step further in also requiring a lender to predict affordability into the future.  For example, will any material changes occur in the next five years; how much will you spend on seasonal commitments this year; will you need to consider an increase in property size to meet family requirements?  These are just some of the more intrusive questions that are to be explored when budgeting for a mortgage.

As lenders new systems are released, we are also noticing the phasing out of income multiples and the introduction of affordability models.   So, no more “4 x income” conversations!  The amount you can borrow will depend on your monthly net income against expenditure and living costs and the lender will be the judge of what they think you can afford! 

One thing is for sure in that the time taken up in research and recommendation for a suitable mortgage product might just start to increase as each lender advises their differing requirements!   

As such, we’re hearing that mortgage appointments with local banks or building societies are now taking well in excess of an hour (some up to three hours!).  Sadly, if for whatever reason, that lender cannot not offer the customer what they want, the customer may have to approach another lender and sit through another hour or so possibly to find that they too cannot help, and so on.  This raises the spectre of a large commitment to time for the consumer without a satisfactory solution.  This is where independent and whole of market brokerages come into their own.  They will be able to offer you access to a number of lenders, including the high street names, if appropriate, and you only need to have one conversation with the same person.  In addition, they should have access to lenders who will manually assess your needs rather than a ‘computer says no’ type scenario, if required.  Independents, like us, have access to a number of limited distribution lenders and exclusive products not readily available to the wider mortgage market!

A new 'Retirement Mortgage' for the over 50s

The Buckinghamshire Building Society has launched a new mortgage aimed at borrowers aged 50 and over who have an interest only mortgage but do not wish to sell their property when their current mortgage term expires. 

The Retirement Planning Mortgage has no maximum age and will allow customers to borrow up to 70% of the property value, 40% of which can be on an interest only basis.

Interest rates are calculated based on the borrower’s individual circumstances but are variable in all cases and start from 5.24%.  A minimum property value of £300,000 applies and this product is only available through a handful of distributors, including AToM.   Terms and conditions apply.

We’re hearing that a number of lenders are struggling to get enough qualified mortgage advisers into their branches in time for MMR (Mortgage Market Review) which comes in to effect on 26^th April.  This means that with such shortages on advisers, some borrowers are having to wait as long as a month to see an in-house mortgage adviser.  Remember that ‘whole of market’ mortgage brokerages could possibly offer these lenders products, and quickly, so review your options.
The number of house purchase loans shot up by 33% on an annual basis in February, according to the Council of Mortgage Lenders.  The value of purchase loans in February reached £7.8bn, an increase of 47% from the same time in 2013.   A total of £3.5bn was advanced to remortgage borrowers in the month, up 29.6% from a year earlier.

Finally, The Newcastle Building Society has launched two new 95% loan to value products with no reservation or booking fees.  With rates starting from 5.39% (and a five year fixed at 5.49%), they will not set the world alight, but do present another option to a consumer needing a manual assessment, rather than a tick box high street lender.  At the same time the Mansfield Building society has reduced its 95% loan to value products by 0.5% down to 4.49% but only for those who live in their designated postcode areas.  Slightly restrictive lending!

Have a great Easter break!

The new world of MMR - calculating affordability in to the future

I have mentioned in recent weeks the advent of Mortgage Market Review (MMR) and the impact it will have on lenders approach to submitted applications. At the risk of being boring, I feel strongly that this is a subject  worth continuing as the impact on acceptance of mortgage applications could be considered as seismic.  MMR places far more responsibility on the lender for making fully informed decisions on new applications and with a particular emphasis on affordability. Not just for now but taking into account the foreseeable future too! Lenders will require the applicant and their advisor to assess what may happen financially in the next five to ten years and their underwriting decisions will be based around this. So, the message is ensure that when you start the application process you have a full schedule of income and expenditure to hand. Advisors and lenders worth their salt will require this.

That said, business remains brisk and lenders are keen to move their mortgage funds quickly and have targets to hit in the remainder of the year.  So, if everything about your application makes sense then there should be a lender and product ready to fit your requirements. With this in mind a very important part of the application process is the completion of a Fact Find. No self respecting mortgage broker will be without one! This is a data capture document which examines everything about the applicant in a financial sense ensuring that the advisor has as full a picture about you as possible before  providing formal advice and recommendation. At that time, your advisor will also require a great deal of supporting documentation as part of the process. This will include the need to prove identity and residency, usually by way of a passport and utility bill. Other required documents will include proof of income by way of pay-slips or accounts and three months personal and business statements. The list is not exhaustive and will be determined by individual lender requirements and these can vary quite widely. Don't be surprised as the lenders are entitled to gather sufficient information about you to make a reasoned and sensible lending decision.   

I regularly close with the suggestion that you talk to a qualified advisor before you start the application process. This has never been more important than now given the new world of MMR

Buy to Lets and long term fixeds!

Long term fixed rates are currently very popular across the mortgage range as customers look to fix monthly budgets for the coming years.   These rates are attractive across the residential sector, but there have not been many long term fixeds in the Buy to Let mortgage arena.  So it is with open arms that a recent launch by Saffron Building Society, offering five year fixed rates on Buy to Lets, is welcomed to their already popular suite of products.   This lender manually assesses cases, so no credit scoring, and they have the ability to think outside the box on more complex applications.  Hopefully, other lenders will follow suit.

Most second properties that are rented out as Buy to Lets will be valued on their bricks and mortar worth, but more importantly on the rental income achievable.  In nearly all cases, the lenders will calculate the mortgage loan amounts based on the rental income achievable and confirmed by their valuer.  This rental figure will need to be over and above the monthly mortgage payment.  A normal calculation suggests that the rental must be 125% of the mortgage payment, based on an average interest rate of 5%.  Any less and the lender will reduce the mortgage loan according to the reduced rental income.  For example, if you wanted to borrow £100k, a reasonable test would be to multiply this by 5% (a fairly average calculation) and divide by 12 to get the monthly cost. This needs to be multiplied by 125% to determine the required monthly rental!  In this example, £521 per month will need to be confirmed as reasonable by the valuer in order to achieve the full £100k loan from the lender.  Please note that this is an example only and that varying lenders will have alternative calculations.   Also, that in most cases the actual rate paid to the lender will be less than the rental stress test calculation mentioned above.

The moral of the story is to ensure that you do your homework before embarking on an investment property to let out.  Always have a discussion with a local and reputable letting agent who can advise on the probable rental achievable from the outset, do the calculations and make sure the deal works before spending out on valuation / survey fees.