04 April 2019

What is mortgage affordability?

One of the most frequent questions to start a mortgage interview tends to be around ‘How much can I borrow?’.   Only a few years ago, that could easily have been up to 8 x income with the minimal of fuss.  Oh, how things have changed, and rightly so!  Those were times with little control and the lengthy recession bore testament!

Today it is so much more intense!  For example, a lender will require to know your monthly budget spend figures, right down to every direct debit on your bank statements, including council tax, insurances, mobile phones, lottery payments and gym membership!  From these monthly outgoings, the lender will look at affordability and decide from there what mortgage amount might be available to you.  However, on the other side, not only can it be restrictive depending on your monthly outgoings, but it can also be very generous depending on what little outgoings you have!   The lender has a duty to make sure you can afford your mortgage today, as well as when rates rise and specifically to it being considered affordable over a 5 year period.

But this also means that what was once an affordable mortgage may suddenly become unaffordable due to the perception the lender has on consumer spending habits, both historically and projected for the future.  

We have seen the phasing out of income multiples and the introduction of affordability models.   So, no more straight forward 4 or 5 x income discussions.  The amount you can borrow will depend on your monthly net income against expenditure and living costs.  However, this also works positively for the right loan to value, right affordability and right customer, as lenders are willing to offer a little bit more. 

With the increase in requirements, the time taken in research prior to recommendation for a suitable mortgage product has also increased, as have the lenders own underwriting procedures.  So, beware if you are in a rush!    

28 March 2019

Coming to the end of your mortgage deal? What next?

Some lenders are distributing letters to those coming to the end of their product term offering them new rates, but indicating a deadline in which to switch.  We had one customer recently who was four months out from their current rate changing from a fixed rate to the lenders Standard Variable Rate.  They were offered some great new rates to stay with the lender, but had an effective deadline of just two weeks in which to accept, even though their product wasn’t changing for four months!  This is not acceptable, no one should be pressured to accept a deal and we have passed this example on to the industry trade body to review and take on.  However, some customers might accept this and go with the deal. This might be understandable but what if rates were to decrease in the next three months? There would be every good reason to be annoyed!  Always read the small print, do not panic and seek expert advice.

With this in mind, do you look at your financial budgets frequently?  A report from a well-known credit referencing agency has suggested that over 78% of mortgage people surveyed are not currently budgeting for a rate rise.  We all know rates will rise at some point, probably a while after Brexit, but nobody knows when exactly this will happen!  Many of those questioned did not know how much a rate rise would cost them on a monthly basis, despite many respondents believing rates would rise over the next twelve months!  A 1% rise on a £100,000 mortgage can increase the monthly payment by as much as £83.  As we go in to some months of uncertainty, and especially with regards to the cost of funding within the mortgage market, do make sure you are ready for all eventualities.

Whether you require the security of fixing your payments for an amount of time, or whether you are a bit of a risk taker and might look at a short to a medium term tracker, right now, there are some potentially great products in the market.

However, always shop around.  The initial rate may look good, but there might be hidden fees, large lender fees and early exit fees too!  There may be better options available to you elsewhere.

21 March 2019

Another lender closes it's doors citing 'cost of funding'. Should we be worried?

I mentioned last week that the mortgage market is buoyant.  And it is.  However, there have been some ‘ripples’ in this with three well known lenders (in the specialist sector) closing their doors, or revisiting their funding options in the first quarter of the year.

Sadly, last week there was another casualty of the uncertainty of funding lines (and Brexit) that is facing us all as Magellan Homeloans shut their doors.  Being a local specialist lender, based in Leatherhead, this is a real shame as they considered mortgages for those with a credit blip, help to buy schemes and specialist buy to let.
The Lender’s CEO stated ‘The competitive landscape has continued to shift, mortgage loan interest rates are reducing when the cost of funding is rising, and some lenders are taking on more credit risk despite the volatile economic backdrop. Magellan has prided itself on maintaining excellent credit standards whilst helping customers who have been disenfranchised by high street lenders. However, we do not wish to compete in a market which we view as unsustainable.”

We obviously wish all their team well for the future.

Is this the start of further lenders pulling out of the market…..who knows?  But we are set for a long period of uncertainty and if you are looking to review your mortgage finances, maybe you shouldn’t hang around. 

Conversely, with some lenders recently reducing rates and chasing completion volumes, we are seeing more people being declined.  Not necessarily due to adverse credit, but because their credit score is not as high as they thought, and they don't meet the lenders requirements as a result.

Credit scoring is one of the most widely used means to assess a customer’s ability to obtain a mortgage.  All credit scores include a credit search – this is a review your financial history, payments to utility suppliers, mobile phones, etc.  The high street lenders, in the main, use credit scoring.  However, do your homework as many smaller lenders will offer just as attractive rates, but they will manually assess your ability to obtain a mortgage and use a human to assess your credit profile, rather than a computer aided credit score decision making system.  And make sure you deal with someone who has access to the whole market, so you get the best possible options for your requirements. 

14 March 2019

Some lenders incurring delays due to some amazing deals being available!

The good news is that the mortgage market is really buoyant with good business volumes and mortgage product choice at its highest for some years.  There are some fantastic rates and opportunities for clients, especially pre Brexit.

The bad news is that this is causing a number of lenders major servicing problems as they do not have the staff to handle application numbers.  One we know of is working on applications submitted two weeks ago and once agreed, taking a further week to send out the mortgage offer!  We also have had delays on valuations with some surveyors taking up to two weeks to book an appointment. Unfortunately, lenders have agreements with certain surveyor companies, and they have to undertake the valuation, no matter what the delay in actually carrying out the appointment.  There is no shame in being open about these delays as they should be taken in to account whether buying or selling a property and this helps everyone manage expectations. 
In addition, an increasing number of valuations are coming back down valued.  This can cause immense problems and stress for the consumer as it could affect the overall loan borrowed.  Do your homework on the valuation before getting to application stage to ensure there’s no disappointment later on. 

Lenders and their valuers do not tend to accommodate a challenge to their valuation amount on the property.  Normally, the only times that a change to their original valuation amount occur, are when they have been supplied proof by the applicant of a recent sale (within a few months) and the property being located within a few hundred metres of the subject property!  Difficult indeed.

Finally, we are looking to recruit again.  Are you in the mortgage market, or have experience and fancy a new challenge?  If so, we would like to have a chat.  Pop in to the Carfax office, or please have a look at the job descriptions on our website to find out more.

07 March 2019

Not all mortgage options and information is easily accessible

There’s a world of information and product availability in the mortgage sector.  But not all of it is as easily accessible to the consumer as it should be.

Did you know you can borrow 100% of the security property value?  Yes, you might need Mum & Dads help, or another guarantor who may put their property up as collateral or require their income to be used in the mortgage affordability calculation. But it can be done.

Did you know you can borrow up to 85% loan to value on a buy to let?  There are now a number of lenders in this space looking to assist those with maximising their mortgage on an investment property.

Did you know we now have lenders in the market with no maximum age limit?   Many people think that Equity Release (or interest roll up with no monthly payments) is the only way forward over a certain age.  Not so!  Lenders will take on board your circumstances, income, assets and liabilities and look to provide a normal mortgage, and possibly interest only, for the right scenario.  Terms and conditions obviously apply.

And there are so many more opportunities, if you know where to look for them.

We have had many mortgage customers approach us who have become frustrated in recent times due to local banks or building societies who are unable to see mortgage customers for a matter of weeks.  That could mean you lose your dream home in this ’difficult to come by’ property market as agents won’t wait.  Or the agent may insist that you see their ‘internal mortgage adviser’ who may only have access to a handful of lenders.  Therefore, you may not be offered all the wider market products available to you. 

This is where independent and whole of market brokerages come into their own.  They will be able to offer you access to a wide selection of lenders, including the high street names, 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.  If I can also ‘plug’ a little, we also have access to a number of limited access lenders and exclusive products not readily available to the wider mortgage market!  Shop around, seek all your options and make sure your mortgage has the right ‘impact’...  

28 February 2019

More changes for Buy to Let - take professional advice

Have you looked at your mortgage requirements recently?  Do you own investment properties?  Do you know about the upcoming changes to EPCs?  Are you prepared for the changes to mortgage interest tax relief?

The Buy to Let sector has been through some interesting times and it always seems to be this area that is targeted when it comes to tax and regulatory changes.  That is why I always stipulate that any property investor should have a good set of experienced property professionals around them when it comes to advice and recommendations.

For the tax year 2019/2020, landlords will only be able to offset 25% of their mortgage interest for tax purposes.  In 2020/2021, all of a landlord’s gross rental income will be taxable and they will instead be given a reduction in their tax liability equivalent to 20% of their mortgage interest.

This has led to an increase in landlords transferring their portfolios in to a limited company structure with all future purchases being bought in the limited company name.  This should be carefully considered, and professional tax advice taken.

In addition, minimum energy efficiency standards (MEES) were introduced in April 2018.  The standards affected all new lets and tenancy renewals in the private rented sector to have a minimum energy performance rating of E.  From April 2020, this will also cover existing tenancies.   Landlords will be unable to rent properties until any works are done and the minimum rating is achieved.   It will be illegal to rent out a failing property and landlords can be fined up to £4,000 (unless the property is a listed building or holiday accommodation rented out for less than 4 months a year or let under a licence to occupy).

On the upside, the availability of Buy to Let mortgages is at it’s highest for some time with loans available up to 85% of the property value and five year fixed rate deals, with only three year redemption penalties recently being launched.  Terms and conditions obviously apply.

Taking in to account all of the above, it is more important than ever, to seek specialist Buy to Let mortgage advice along with the relevant tax advice from a property tax adviser.  This really is an area you can’t afford to get wrong as it could be very costly to rectify later on. 

21 February 2019

Over 65? No problem!

Just because you’re over 65, it doesn’t mean you can’t have a mortgage!  But sometimes it can be harder to get a mortgage that is right and affordable, due to age restrictive terms, once you reach a certain milestone with the high street lenders.

Often, retired people have managed their finances successfully over the years and enter retirement mortgage free.  At the same time, many, whilst having no mortgage, also suffer from reduced income.  Others may wish to continue their mortgage past normal lender retirement age, whilst they may still be working.  There are schemes where equity can be turned into a mortgage (not necessarily equity release) and where off-spring may be able to assist with the repayments in order to secure and protect their inheritance whilst also ensuring a comfortable retirement for their parents.  This is not right for everyone, but it is certainly worth talking to a qualified adviser to review all possibilities.

According to some lender reports, there are an estimated 600,000 people due to come to maturity on their interest only mortgage by 2020, aged over 60.  Many will probably have no way of repaying their interest only mortgage.  Some will have endowments that didn’t meet expectations, or maybe the house has not increased in price as much as hoped.  Stricter mortgage rules and lending criteria has made it harder for those over 65 wanting to re-mortgage.  However, despite the high street being almost a closed entity, there are plenty of other options (not that your current lender is likely to advise them - they just want their money back!).

The lender has the right to request repayment of their loan at end of the mortgage term.  If the customer has no way of repaying this and has just continued to pay the interest over the last twenty-five years or so, they face the possibility of having their home repossessed or being forced to move out.  On the high street, the end of the loan term will normally hit those aged between 65 to 70.  This is not new news but does highlight that many people are still burying their head in the sand and hoping this will go away or the lender may be lenient.

There are a number of lenders that recognise that 'normal retirement' age is no longer set in stone and people continue to work long in to later life. These are not high street names and as such, rates may be slightly higher than the big super tanker, large volume producing household names that we are used to.  But at least they will consider helping out and could keep you in your family home!