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. 

We are probably looking at a tough few months ahead, across all markets and sectors.

Despite Sainsburys Bank, Bluestone, Hinckley and Rugby Building Society, Kensington Mortgages and Secure Trust Bank all reducing rates on their mortgage products last week, things are still ‘interesting’ out there.

We have seen numerous retail outlets and banks recently confirm they will reduce their store or branch numbers as the ‘online v shop front’ takes another hit.   Wonga collapsed, and we’ve seen Countrywide, the UKs biggest estate agent, raising £140m in emergency cash.

As we move in to the final third of the year, I’d say we are probably looking at a tough few months ahead, across all markets and sectors. 

On the plus side, it is encouraging lenders to become more innovative and think about more innovative ways to attract new business. 

Magellan Homeloans has entered the Buy to Let sector with offerings for portfolio landlords, as well as limited company and refurbishment options.  However, the really interesting piece is that they will allow first time landlords to purchase a buy to let, with a professional landlord acting as a guarantor.  This includes Houses of Multiple Occupations and Multi-Units.  We all need advice when it comes to property, so this is a positive move.

Kensington have also launched a 5% deposit product that caters for individuals who may have had a credit blip in the past.  Their rates start from 4.64% for a two year deal and allows defaults over 36 months old and two missed payments to unsecured credit in the last 12 months.  Terms and conditions obviously apply, so seek advice!

With rates so low we have also seen a vast increase in customers looking to consolidate debt and add these to their current mortgage. This can sometimes cause issues. If you consolidate unsecured finance in to your mortgage, whilst your monthly payments may be lower, you may be paying more for your debt over a longer term. 

At AToM, we are independent, and we will happily go through the pros and cons of changing any of your financial details before proceeding to conduct any credit searches or decision in principles. You need to be clear that it’s the right deal for you. If your current deal is still the best option for you, we will suggest you stay where you are.

New lender launches whilst others restrict lending

I start this week with both good news and bad. The good news is that the mortgage market is really buoyant with business volumes running high. 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. This was evidenced last week in an announcement from Cambridge Building Society who advised they would only accept business from their local community for the foreseeable future. Another, Buckinghamshire based Building Society has closed the doors to new business for one month whilst they catch up on their current pipeline. We are aware of other bank lending institutions who are anything up to 14 days behind but who will not go public to the frustration of those customers and their intermediaries looking to work closely with them. So here is a plea to all lenders asking them to come clean with their current position. There is no shame in being open about it and letting us all know what the real delays are helps everyone manage expectations! That said, there is more good news than bad and there are lenders still actively seeking business. We were visited last week by the CEO of one Building Society who asked if we would be able to introduce £10 million of new business during the remainder of the financial year. Their products are good and rates are quite competitive too.

More good news with a new lender hitting the mortgage market today, the first true new entrant for some time! Magellan offers a new service designed for borrowers who have experienced a one-off life event which has resulted in an adverse credit record. Providing applicants can explain and document the reasons for their financial difficulties and can demonstrate they have had a clean credit history for the last 12 months, Magellan Homeloans will consider their application. This fills a gap in the mortgage market and will, I expect, attract a deal of interest. Their products are only available through a limited number of distributors and AToM are pleased to be numbered amongst them.

Finally, it seems that house prices are continuing to rise, particularly in the South east corner of UK. If you are thinking of moving it is probably a very good time to look.