The Budget introduced - Help to Buy ISA

Being so close to an election, last week's budget was always going to be aimed at voters and this has not disappointed.  What we have also seen is an interesting new innovation and the Help to Buy ISA is warmly welcomed. 

The day to day reality is that First Time Buyers are struggling to get on the property ladder.  The biggest stumbling block is normally around lender affordability, closely followed by the deposit required.  Of the limited details available at the time of writing, for every £200 saved in to the Help to Buy ISA, the Government will add an additional £50 in an attempt to 'work hand in hand' to help consumers purchase their first property (to a max of £3k).  Accounts will be available through banks and building societies from Autumn 2015 and the bonus payment is paid when you actually buy your first home. Having seen some budget figures, it is suggested that this will create a rather large £835m spend in the Governments figures by 2019/20, so it will be interesting to see what deadline they put on purchasing a property after the scheme ends in four years time.  The bigger question is where are these houses?  Already there is a large shortfall of houses across the country, especially with new builds, and an increase in demand is probably not going to help.

The Chancellor stated at the outset of his speech that this would be a "budget for the homebuyer, the self employed and business owner", all of whom have struggled over the years to easily obtain mortgage finance.  More recently, with increased competition across the market, we have seen some lenders beginning to relax criteria to assist these particular types of customer.  Flexibility was also given to 5m pensioners who may access their annuity pots from April 2016.  This, in addition to the new pension rules coming in next month, will create an increase in demand for property sales.  But before you go withdrawing your life savings, seek independent professional financial advice.  If funds are to be withdrawn to put towards property purchase, be aware that not all lenders will look to lend to those already enjoying retirement.

Credit Scoring - most lenders do it!

I haven't mentioned it for a while, but it certainly is causing a lot of customers an issue.  Credit scoring!  This is an assessment on all available financial information and calculates a 'score' for the lender.  It also includes a search on your overall credit history covering, in the main, all of your financial transactions over the last six years.

Most lenders credit score applications to try and assess your ability to repay any loans.  This will take in to account many factors including the amount of credit you have, whether you are on the electoral role, your recent payment profile on any existing credit and the number of recent credit searches you have on file.  Nearly all financial institutions will register a credit search against you.  So, if you have recently updated your car insurance, home insurance, taken out a mobile contract and just got a new credit/debit card, that’s probably four searches in a short amount of time! Be wary that some 'comparison sites' may have also searched you just whilst seeking a new insurance quote.

If the lenders computer says ‘no’, you will tend to find most high street lenders doors shut to you.  But fear not, if you have a reasonable deposit and can prove all income, there are lenders who do not credit score, but will manually review and underwrite affordable applications on an individual basis. 

I always suggest that you speak to an independent mortgage broker with access to whole of market mortgages.  Banks may only advise on their product range. Estate Agents ‘in-house’ mortgage advisers may only be able to offer mortgages from a select panel of lenders. Therefore, in order to get best advice, make sure you do your homework, speak to a whole of market mortgage broker who can advise on the most appropriate mortgage in the market to meet your requirements, whether this be with a credit score or just a credit search.

First Time Buyers, Contractors and New Lenders!

A fantastic product has been launched aimed at First Time Buyers.  The 95% loan to value product has a discounted rate for two years from the lenders variable rate and no lender arrangement fees on completion.  Comparing this to an average range  mortgage, this is a saving of around £1k.  The lender has no early redemption penalties so the customer can move away at any time and it has a £500 cash back.  This is a good entry product for those looking to get on the ladder with just a 5% deposit and great to see lenders are seriously looking to assist first time buyers positively.

Contractors have also been targeted.  For those working on fixed term contracts, who have a minimum of 6 months left on the current contract and a good history, it is possible to get up to 90% of the property value.  In the main, the lenders will work on daily rate, multiplied by five days and forty eight weeks to work out income.  This is then used in the lenders affordability calculations.  Some lenders have no early redemption penalties so the customer can move away at any time.

The newly launched Foundation Home Loans have already made some changes following their launch criteria on their Buy to Let offerings.  The specialist lender will now allow applications from customers who are in rented accommodation (but own other properties), have income from various sources (i.e. pensions, investments, etc) and deposits are now allowed to be gifted from immediate family members. All positive enhancements.

And, finally...having spent a fantastic day at the inaugural British Specialist Lending Senate at Brooklands Hotel last week, attended by over forty lenders, brokers and specialist mortgage packagers/distributors, I can safely say that this area of the market is set for huge growth over the coming months.  As volumes increase on the high street, more customers will be turned away and thus need the assistance of a specialist party to achieve their financial needs.  The computer says 'no' scenario is not a normal phrase within this sector as many lenders credit search rather than credit score.  Therefore human acceptance is the key to decision making on each case's merits rather than ticking a box on a computer screen.  This can only be a good thing for the end consumer and reiterates that there is life after the high street.

MMR - transitional provisions!

It's been nearly a year since the Mortgage Market Review (MMR) was implemented across the industry, to enhance consumer protection.  Many of these rulings have been embedded nicely and, quite rightly, everyone who speaks with a customer must hold the relevant mortgage qualification.  However, the one ruling that seems to be taking a little longer to implement affects the subject of Transitional Provisions.  So what does this mean?  In short, there are provisions in the MMR that allow lenders to provide a new mortgage or deal to customers with existing loans who may not meet the new MMR requirements for the loan.  The borrowing is not normally able to exceed the amount of their current loan (this decision remains with the lender).  Transitional Provision was designed to help customers who think they have become 'mortgage prisoners' due to a change in lending criteria since MMR. This includes items including strict income multiples, or interest only customers for example.  Each lender should now be offering the ability to assist existing customers, or attract new customers without the requirement to meet all of the new and slightly tighter MMR rules, including waiving affordability checks for customers who have a good payment history and no material changes.  What you are not seeing just yet is lenders advertising this ability.  Always ask!

Nationwide House Price index suggest that UK house prices fell by 0.1% in February, compared to a 0.3% increase in January.  The average house price now sits at £187,964 (up from £177k in 2014).

And finally.....a huge thank you!  In the recent Mortgage Strategy Awards 2015, the mortgage Oscars of our industry, AToM was voted a fantastic 3rd in the Best Specialist Mortgage Broker/Distributor.  For such a small company in a huge national industry, this was a great achievement and credit to the superb team we have at AToM!