It all revolves around affordability

The world of mortgage advisers has taken a seismic turn following the launch of Mortgage Market Review (MMR) on April 26th this year. This date will be forever etched in the memory of all involved in this hugely important sector. As I have mentioned before, the largest impact of MMR has been the need for lenders to consider the affordability of a mortgage. Both for now and also considering potential future rate rises! Where is Mystic Meg when you need her?

This is all well and good, but in truth, no adviser worth his salt would seek to encourage borrowers to take a mortgage they cannot afford and, yes, we are capable of looking out into the future and assessing the impact that rates rises might have.

We have experienced a recent example of how this initiative has caused problems by not allowing a level of common sense to prevail and the brief details are as follows. The client is approaching the end of a five year fixed rate. When it was taken out the rate was 5%. Payments have been made on time, all of the time and the client now wishes to take another five year fixed rate but this time the rate will be 1.3% lower and therefore much cheaper than before. His job is the same as five years ago and his income has increased, albeit marginally. Yet the new lender has decided that the client cannot afford the mortgage despite the fact that he has paid at the higher rate for five years!

This is not an isolated case and it causes me to question the sensibility of those in charge of these decisions as, whilst there is no doubt that affordability is crucial, so is a credible sense check to understand the applicants overall ability to pay. In many cases accurately completed budget planners, mandatory in any climate, will give a picture of the applicants disposable income and most lenders should use this to determine what amount can be  apportioned to the mortgage. This is known as 'Debt to Income Ratio' and is another key factor in the underwriting process. The danger here is that some lenders use the Office of National Statistics figures which are an average and which often bear no relation to reality yet cause declines to happen as they may point to a reduction in perceived affordability.

The market is seeing a 'rate price war'!

It's always good to see a lender reduce their rates.  Over the past few days, a number of lenders have taken action and cut a number of rate offerings.  Some examples include Accord Mortgages who reduced some rates on selected fixed rates by up to 0.40%, Woolwich sliced a life time tracker rate by a huge 0.76% and other selected rates by up to 0.50%, the Halifax took 0.3% off some rates and the Coventry Building Society reduced some fixed rates by 0.20%.   All good news for the end consumer and might be a good time to look around if you are considering making changes to your mortgage.

The Ex Pat market is awash with enquiries from those living overseas looking to purchase back in the UK, in the main for a property to rent out.  Although it is a restricted market in terms of lender appetite, there are a number of specialist lenders who will consider, depending on the country of residence and nature of employment, with loans of up to 80% of the property value.   Normally a minimum valuation amount will be required, circa £150k and a minimum loan of £100k.   Most lenders will also require customers to be property owners in the UK or have had a mortgage within the last three years.

Finally, August has been a flurry of activity and caught many of us out, which is a pleasant and great surprise!  Of those approaching AToM, many are seeking straight forward simple human assistance having become confused by the huge amount of information currently available on the internet, or they've been turned away from the normal high street lender for no apparent reason, apart from maybe being told 'credit score'.  The majority are after the superb low rates currently available and also speed.  Many high street lender products are available through mortgage brokers and can often be dealt with much more quickly than with the lender directly.  But do also remember that lenders are incurring huge delays with processing and underwriting at the back end.  In addition, August’s great business volumes won’t have helped clear the back logs! 

SWAP rates decrease, delays still wide spread and Shared Ownership in demand.

We've seen a large increase in enquiries for customers looking at Shared Ownership schemes.  Shared Ownership schemes are provided in conjunction with housing associations. You buy a share of your home, between 25% and 75% of the property value, and pay rent on the remaining share to the housing association. You usually have the opportunity to purchase a bigger share of the property later on (known as ‘staircasing’).  Local housing associations must confirm your eligibility in order to join these types of schemes.  There are many schemes available and a good supply of properties, so do review all the options available.   By buying a smaller share, it does give an opportunity to obtain a property for many who may struggle otherwise with normal lending criteria.  

Delays are still wide spread across the market.  An existing customer phoned their lenders mortgage sales team and was advised that they could not have a discussion about a new mortgage for over two weeks!  Another customer requested a homebuyers valuation on their property (more investigative than a standard mortgage valuation) and although the surveyor could carry out the normal mortgage valuation within days, the enhanced homebuyers report could not be carried out for a month!!  You need to be aware of these delays as many property sales are sold subject to contract and this normally carries a 28 day exchange period. 

Finally, we have seen some surprising product interest rate decreases over the last few days.  SWAP rates (the mechanism through which lenders can acquire a fixed price for funding over a specific period of time) have reduced over the last week or so, and as such some lenders have passed on the reduction through their interest rate offerings.   This is great going in to the holiday period and should encourage anyone considering reviewing mortgage options in the not too distant future, to maybe consider it sooner as these may not remain low for too long.  Always seek advice!