'How much can I borrow?'

‘How much can I borrow’ tends to be the most asked question of anyone at AToM!  Only a few years ago, that could easily have been up to 8 x income with the minimal of fuss subject of course to loan to value and certainty of income! Oh, how things have changed, and rightly so!  Those were times with little control and the lengthy recession subsequently 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 of care 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 set 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 if you fit their specific affordability model.  Some we’ve seen have been well in excess of 6 x income.

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!    

Finally, the holiday period is fast approaching and do take time to dig out that paperwork and come and have a chat.  With rates so low, now might be a good time to be exploring these options and it could be a very beneficial exercise right before Christmas!

What's available for your first property purchase?

Looking at purchasing your first property?  First Time Buyers will usually require a minimum 5% deposit, but product availability increases with a 10%+ deposit.  Some lenders will allow a 5% builders deposit, but this must be confirmed as a gift and non-repayable. Some lenders will allow the deposit to come as a gift from the Bank of Mum and Dad, or an immediate family member.  This can include step family, aunts and uncles and is acceptable for first time and subsequent buyers.  The money must be a transparent gift that has originated in the EU and can be easily traced back to the originating source.  A letter from the family member will usually be required and needs to advise the gift amount, relationship the person gifting the monies is to the applicant, confirmation that it is a gift and not a loan and therefore is not repayable, confirmation that they do not currently own the property being sold and that they will not live in the property or have any interest in the property post completion. 

Some lenders may allow a loan of up to 100% of the property value if parents or another immediate family member will act as guarantor or provide additional security. Those guaranteeing, in the main, will need to show evidence of affordability for both their current residential mortgage and the one they are intending to guarantor and possibly allow a charge to be taken on their own home.

All positive indeed and that’s not even touching on the number of Help to Buy, Right to Buy and Shared Ownership schemes available.

Rates have reduced lately in a bid to assist this under-served market segment and criteria is definitely more accommodating.  Income multiples tend to be between 3.75 to 5 x joint income and terms and conditions always apply!  However, Lenders are showing a willingness to assist First Time Buyers and in the current market, that can only be a good thing.

Looking at a property project? Refurb to Let...

Looking for a property project?  Just because a property is run down or even classed as 'uninhabitable', does not mean you cannot get a mortgage on it.  Or, if you are intending to purchase a property to let out, but it's currently in an 'unlettable' condition.  Lenders will cater for these scenarios (dependant on the exact type of works required!).  In the main, the work required needs to be cosmetic - a redecoration, maybe a new kitchen or bathroom.  Many now offer 'refurbishment' loans where the work must be carried out within a period of time after purchasing the property (normally three months). 

Our good friends at Precise Mortgages have recently launched a product called the ‘refurb to let’.  This gives the flexibility of a bridging loan to carry out the works, and the certainty that the property will then go on to a buy to let mortgage once works are finished.  They will look at 75% of the property value at the outset and allow a re-mortgage up to 80% of the end value, once works have been completed.  The nice thing with this product is you have one processor to cover both parts of the underwriting, as well as just one surveyor to review the upfront property value and then again once the works are done. No mortgage repayments are required whilst the works are being completed, subject to terms and conditions of course!

There are a raft of reasons why this type of product might be taken. These could include properties needing work to meet minimum Buy to Let EPC ratings.  Or properties purchased at auction, that need work, or where they’ve been bought under value.  Or it could simply be a landlord choosing to refurbish the property to maximise the rental yield available.

Seek out a local architect to assist you with plans and costs and always make sure you set out your budgets from the outset.

Lenders will cater for all types of scenarios (dependent on the exact type of works required!).  Each lender will work on the surveyors comments once they have visited the property and adjust their offerings accordingly.  Just because the high street or your current lender says no, does not mean that it can't be done..

Complex scenarios are common in the mortgage market.

The high street lenders tend to only deal with pretty straight forward scenarios.  So, you will need to fit their standard credit score requirements, meet their standard income multiples and, in the main, simply be easy to deal with.  However, we all know that not everyone fits this ‘ideal client’ picture.

Complex scenarios are on the increase.  We had one recently where the clients had built a number of properties but could not sell them for the desired price, siting Brexit as a major factor in this.  Having financed the build with development funding, this can be quite expensive if you run over the agreed timescales.  In addition, this company was running at a loss for this project, as all the building costs had been put through the accounts without the counterbalance of the properties selling to recoup funds.   Therefore, this was not a case many lenders would look at!  However, we found a lender who was willing to assist due to the fact that the clients had previously completed many projects like this, had a number of shareholders and, as they were converting the properties in to Buy to Lets, this would be a long-term venture.   All in all, the clients interest rate changed from over 10% on the development finance, to less than 5% on the buy to let rates.  They also managed to recoup their funds and rent out the properties. 

These are just some of the benefits of using an independent mortgage brokerage and especially if they are ‘whole of market’ and have the ability to deal with any lender and are not restricted to a small panel of lenders.

Other examples include applicants with no credit: too much credit: a desire to pay up front or add additional security in the form of another property thus increasing their ability to borrow more.

AToM has a vast number of lenders on its Complex Prime panel already looking at these types of difficult scenarios. These lenders may not be household names, but you’ll probably find they are extremely helpful and will look at most scenarios, manually, with no credit scoring and have an appetite to lend! Most importantly, their interest rates are mostly very competitive too!

Another budget over and some good news for First Time Buyers!

Well that was not the most of exciting of Budgets, although it could have been a lot worse.  It does seem like the spending taps have been turned slightly on, rather than off!

On the up side, Stamp Duty Relief has been extended to first time buyers purchasing shared ownership homes valued up to £500k.  Shared ownership meaning that you buy a percentage share of the property and rent the remaining amount from the housing association, normally with the option to ‘staircase’ (buy more of a share) at a later date.  This can be a good way to get onto that first step onto the property ladder, although you do need to cater for the additional rent payments and normally there are ground rents and service charges relating to the property to also take in to consideration.

The Government backed Help to Buy scheme, which was due to expire in 2021, is to be extended to 2023 for First Time Buyers.

Landlords took another hit as private residence relief on Capital Gains Tax is now only available if the landlord lives in the property with the tenant!  Landlords and tenants sharing properties is something currently not well catered for by mortgage lenders!

In other news, Virgin Money have scrapped their guarantor mortgage citing lack of use and that many lenders now prefer parents to be joint borrowers on the mortgage itself.  A number of lenders now offer joint borrower, sole proprietor mortgages.

Finally, there have been a number of changes over the last few days with some rates increasing and some decreasing.  TSB, Secure Trust Bank, Precise Mortgages, Nationwide, Family Building Society, Together Money, Kensington Mortgages, Coventry and Accord Mortgages have all issued product updates.  It is a volatile market currently and the uncertainty of Brexit is making an impact across the whole market.  Therefore, if you are looking to review your mortgage and have been offered a respectable and appropriate deal, do your homework, review all options, but don’t hang around!