Which mortgage calculator do you use?

There is a wide range of mortgage calculators and affordability calculations available which will help you to find out ‘How much can you borrow?’.  However, the only true response will be from the lender and normally only once they have carried out a credit search and reviewed your credit score.  Only a few years ago, the loan offered could easily have been up to 8 x income with the minimal of fuss.  Times 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, and possibly 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. It maybe 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!   

Specialist lenders can also offer Help to Buy

In the eyes of many industry commentators and members of the opposition, the Help to Buy scheme sits somewhere between being the Governments greatest achievement within the housing market, and a potential reason why many house builders and the new build sector could crumble like a house of cards in the future.

I’m focusing on the more dramatic end of the opinion spectrum here and with the end of the scheme inching ever closer, I expect it to generate even more views and headlines before it is gradually phased out.

The latest figures from the Ministry of Housing, Communities and Local Government showed that:

•     - Over the period since the launch of the Help to Buy: Equity Loan scheme (1 April 2013 to 31 December 2018), 210,964 properties were bought with an equity loan.

•     - The total value of these equity loans was £11.71 billion, with the value of the properties sold under the scheme totalling £54.48 billion.

•     - Most of the home purchases in the Help to Buy: Equity Loan scheme were made by first-time buyers, accounting for 171,053 (81 per cent) of total purchases.

•     - The mean purchase price of a property bought under the scheme was £258,223, with buyers using a mean equity loan of £55,498.

These figures highlight how invaluable this initiative has been for many home buyers since its introduction, and how the take-up is unlikely to slow-down anytime soon.

Help to Buy has benefitted from an increased profile in recent times and this has helped more FTBs recognise its attributes – which is a good thing - although it’s prudent to point out that it should not be considered an all in-compassing solution. And, on the flip side, despite this rise in lending prominence there are still pockets within the market where it can prove valuable for a certain type of borrower which often goes overlooked.

I believe this type of product is seen by most borrowers, as being one which sits squarely in the domain of mainstream or high-street lenders. Meaning the role of specialist lenders can often go ignored, which is a shame. There are specialist lenders who can provide Help to Buy solutions for borrowers with an adverse credit history, IVA’s or even bankruptcy issues, and this is an important part of the scheme which we tend to hear very little noise around (T&Cs obviously apply!).

The specialists might not be applicable for everyone, and still form a small proportion of the overall lending figures, but they should be playing a bigger role in supporting more credit impaired borrowers get a foot on the property ladder for the first time or even back onto it after falling off.

Be aware of the technology around your mortgage application

There’s been a lot of talk recently about new technology, especially regarding the new ‘open banking’ opportunities and how your private transactions will come under scrutiny by lenders decision making computers, after you’ve given permission of course!

The idea is that the lender can review your incomes, outgoings and all other financial items just from delving in to your account, via open banking.  ‘Big Brother’ indeed.  The aim is to speed up the financial transaction and allow institutions to access your data at the touch of a button, as well as providing more competition and innovation to financial services.

The downside is that whatever is in your bank statements, lenders must take it into account when deciding whether to lend to you, or not.  There’s no hiding and now no apparent limit on time to be reviewed.  Currently lenders tend to look at just the last 3 months bank statements, but with open banking data at their fingertips, this could be unlimited moving forward.

Not all lenders have signed up to this as yet, but it’s only a matter of time.  Therefore, be mortgage ready.  If you accounts are all over the place, tidy them up!

With this in mind and so many recent rate and criteria changes, lenders will look closely at an individual’s recent payment profile, how many recent credit searches have been incurred by financial institutions and more.  Don’t give them any excuses not to lend to you!  The more credit searches you have on your profile, over a recent amount of time, the more likely your credit score will be lower as a result.  Try and ensure there’s no missed or late payments as these will also decrease your credit score.  In short, your credit search/score are the basis on which most lenders will initially decide whether to lend to you or not.  The best rates will almost definitely go to those with the best credit scores.  

Finally, many customers forget to disclose an old student loan, or a 0% interest car HP agreement, or even the monthly payment out to a pension.   The lender sees all debts and any monthly payments must be taken into account when it comes to affordability.

So, plan ahead.  Work out your budgets, what your monthly payments are and everything that you need to disclose, before you go and see your local and independent mortgage adviser.  It’s time well spent and will stop any unnecessary delays, or possible declines, later on.

Tesco Bank and Which? Mortgage Advisers gone. Yet others launch new products.

Market conditions continue to cause huge uncertainty and as such, we’ve seen some lenders pull out of the market until more stable conditions return and others completely stop lending.  The most recent being Tesco Bank.  They announced that hey have ceased all new mortgage lending and are actively looking to sell their existing mortgage portfolio, to concentrate on serving a broader range of customers in more specific areas outside of mortgages. 

Whilst this is a slight negative for the mortgage market, as their lending book amounted to over £3.7bn, others continue looking for ways in which to help attract new business.

We’ve seen some great new product additions and just in the last few days, our friends at Masthaven Bank have launched some fantastic products aimed at the Buy to Let sector.

This includes the launch of a new ‘Specialist Property’ product to cater for a wider variety of property types including:

- Multiple unit freehold

- Larger Houses of Multiple Occupation (7-10 rooms) on single or multiple Assured Shorthold Tenancy (AST) agreement

- Flats on floors 10-20

- Retirement accommodation

- Modular Housing

They’ve also launched a new ‘Specialist Landlord/Tenant’ product to cater for a wider variety of landlord and tenant types including Holiday lets, Airbnb lets, DWP/Asylum tenants and Houses of Multiple Occupation/Student accommodation (6 or fewer rooms on a single or multiple AST).  Great news. 

Further assistance for the Buy to Let sector was also launched recently by another lender who now allows for ‘Top Slicing’.  Basically, rental income is used to calculate the loan amount. If there is an excess, this may be used to assist other properties where the rental income falls short. Or if the rental income is not quite enough to reach the loan required, the customers income may be taken into account to ‘top up’.

Finally, Help to Buy (HTB) schemes have also been given a boost.  We have a lender who offers free standard valuations on all HTB products available in England and Wales.  They will also consider schemes with 5% Builders incentives and allow the mortgage offer to be valid for 6 months with extensions possible.

Obviously with all the above, terms and conditions apply and it’s down to the lenders standard underwriting and affordability checks.  But these are signs that despite the uncertainty, there are active and proactive lenders looking to help all types of customers.

Buy, Sell, Renovate, Rent? So many opportunities.

There have been a number of remortgage applications recently for those looking to raise funds to purchase other properties or to make improvements to their current homes.  Just around the local area, I have seen an amazing amount of building work and renovations / extensions being carried out.  Many home owners appear to be improving their current residence rather than taking the big leap of selling and moving up (or down) the ladder.  This appears consistent with the general view that there is a shortage of properties up for sale.

Other consumers might be making the next step but are then renting out their current property on a Buy to Let basis rather than selling it.  Nice if you are in that lucky position!  The rental market is certainly buoyant and showing no signs of slowing down over the coming months. So a Buy to Let might provide you with a modest return for your investment and may be the start of building a little portfolio nest egg for later on life. We have noticed that this is a growing desire for many who fear that their pension arrangements may not be sufficient, and that rental income may be a suitable supplement.  Many new lenders have also launched into this sector over recent months and re-mortgaging away from your current lender should not be looked upon negatively. 

Many lenders will cover the cost of surveying your property, as well as covering the legal fees in transferring your mortgage from one lender to another.  But most of all, you should think of number one as this could save you money against your current provider. This can only be a good thing.

Finally, once you have more than four properties, the regulators/lenders class you as a ‘portfolio landlord’. Although each lender’s requirements are different, in the main, this entails a more in-depth investigation and underwrite of your situation.  Common requirements are now a Business Plan, a Cashflow and forecast, Assets and Liabilities statements and full details on the whole portfolio including current mortgage, value, rent achieved, etc.  Be aware if you are in a rush as this underwrite can take a little longer than a standard mortgage process.  

Cryptocurrency still not widely accepted in the mortgage world.

There’s been a lot of hype around the rise of ‘Cryptocurrency’.  Specifically, relating to Bitcoin and other similar electronic currencies.  Currently they are not regulated and their price can fluctuate immensely day by day.  However, there have been a number of success stories and thus providing funds which could possibly be used as a deposit for a property.  Normally, lenders will want to see a build up of savings, or proof of where the funds have come from, inheritance etc.  With no formal category for this type of return, and no formal guidance from the regulators, some lenders may class it as gambling and not allow it as a form of deposit.  Some of the major high street names have already confirmed they will not accept deposits derived from cryptocurrency. With technology thriving as it is and some cryptocurrencies now worth billions worldwide, this could be deemed quite an ignorant view.  I suspect, as they become more widely known and used, only time will move this forward.

In the meantime, and especially in the current climates, you should do your homework and speak to a ‘whole of market’ mortgage adviser.  They might have an avenue for such a transaction.

However, if the person you are speaking to is not offering ‘whole of market’ advice, i.e. they just review a panel of selected lenders, you may not be getting the best product for your needs and/or requirements.  For some of the larger brokers, lenders may even put one of their own underwriters in-house, so that your application can be processed within their offices.  This helps with speed, instructing valuations and dealing with queries quickly.   And remember, you can place your mortgage with whoever you like. You are under no obligation to anyone, despite what some may say! If you don’t like their stance, or they’re ‘forcing’ you to use a specific adviser, walk away….

Finally, we are delighted that Impact Specialist Finance has been nominated for Best Product Innovation; Best Use of Technology; Bridging Distributor of the Year, Best Buy to Let Broker and Specialist Finance Business of the Year at the 2019 Specialist Finance Introducer Awards.  Brought to you by Mortgage Introducer, the SFI Awards celebrate all that is great in the specialist mortgage sector.

To help us, we need YOUR vote please!  You can nominate at https://sfiawards.co.uk/voting/.  Thank you in advance!

United Trust Bank launch a market friendly mortgage offering. But be quick!

Let’s not beat around the bush, it’s tough out there!  We have seen numerous local and national retail outlets and banks recently confirm they are to reduce their store or branch numbers as the ‘online versus shop front’ takes further casualties.  

In addition, the finance sector is also finding it tough.  Despite already losing some lenders with funding issues, other lenders are delayed with processing mortgage cases.  One we know is at least two full weeks behind and then a further week to produce the mortgage offer!  Certainly something to check before you proceed with a lender, especially if you’re in a rush to buy that ‘dream home’.

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

Our friends at United Trust Bank have launched a very limited distribution remortgage range that allows each application to be assessed on its merits and does not aspire to the ‘one-size-fits’ all mentality.  This includes:

-        No requirement for a minimum credit score.

-        No restriction on property construction types

-        No loan to value restrictions on any flats

-        No borrower legal representation required

-        No penalties on five-year fixed rate products.

-        Free valuation up to a property value of £250k.

Obviously, terms and conditions apply, but this shows that lenders are thinking about unique angles to assist clients, especially with regards to remortgages and speeding up the process.

With this in mind, I feel the need to reiterate that whatever is spent on credit cards has to repaid!  If you are looking to review your mortgage in the next few months and have loaded the credit card balance up during the Easter holiday period, remember that lenders will use the balance and offset against your income, before working out what you can borrow. That includes interest free credit cards, loans, Car HP/PCP agreements and student loans. They are all taken in to account.

Finally, we have also seen a vast increase in customers looking to consolidate debt and add these amounts to their current mortgage. This can sometimes cause issues. If you consolidate unsecured finance into your mortgage, whilst your monthly payments may be lower, you may be paying more for your debt over a longer term.  Always seek professional advice, read the small print and don’t rush in to things. 

The word to sum up these last three months is 'uncertainty'

With the first quarter of 2019 now over, we can safely say that the word to sum up these three months is uncertainty. Already we’ve seen three lenders stop lending or pull all of their products due to ‘costs of funding’ and ‘uncertain times ahead’.  This is all a bit ‘de ja vu’ compared to back in 2007/8 before the big ‘crash’.  However, this time we’re not on the verge of a global recession (hopefully) and once we know what lies ahead for Brexit, things should return to some normality, whatever that may be. 

Lenders usually want to start the new financial year with a flurry and so as expected we have seen a number of lenders launch limited edition products. These are short term offers and therefore if you are looking to secure your ‘uncertainty’ for the next three to five years, there are some great deals to be had currently.

It always surprises me how few people actually know what rate they are on, the type of mortgage, i.e., fixed rate, tracker rate, etc, and whether they are paying interest only, or capital repayment. Unsurprisingly, almost everyone knows what it costs per month to the nearest penny!  They will haggle for a £10 discount on a new washing machine or sky TV, whilst letting ‘sleeping dogs lay’ when it comes to the mortgage!

It’s very easy when the promotional rate period comes to an end to keep your mortgage with the same lender, ‘brush it under the carpet’, and deal with it ‘tomorrow’.  But we all know tomorrow never comes.  A review of what’s on offer from other lenders, especially if you’re currently on a Standard Variable Rate, or equivalent is wise. These types of rates tend to be a lot higher than what’s available in the market place.

Many lenders are offering superb remortgage opportunities with minimal costs to change, including free standard valuations and some with legal costs.  Rates are competitively low and mortgage product choice is at its highest for some time.

If there’s ever a time to review all options and give yourself a piece of certainty, now might be a good time, as after Brexit, who knows where we will be..

Confusion regarding Buy to Lets and how lenders look at affordability.

Last weekend, we exhibited at the Property Investor and Homebuyers show at the London ExCel.  It was a great opportunity to talk to professional landlords, as well as those looking to take their first steps onto the Buy to Let sector ladder. 

With many changes and increases in taxation on profits being recently introduced along with licence requirements for houses of multiple occupation, minimum size requirements on rooms, etc, the Buy to Let sector has taken quite a beating!  Yet with interest rates so low and demand for rented properties increasing, and no clearly defined solution to help first time buyers, I can't see these changes killing off the sector just yet!

In fact, the exhibition showed how many people were genuinely interested in looking at renting out property as a long-term investment and project.  Including a number of first time buyers looking to buy a property to rent, rather than to live in. 

However, there’s a lot of confusion still regarding Buy to Lets and how lenders look at affordability.

So, to try and clarify - Since the Prudential Regulation Authority stress test rules came in to effect in 2017, lenders have to work out affordability based on the rental income achievable from the property and stress the product term over a five year period, often at 145% of a nominal rate of 5.5%.

Lenders interpret the rules differently and differentiate between a Buy to Let in a personal name compared to a property brought in a limited company name.

  

However, if the lender offers a fixed rate over a five year period, the actual pay rate can often be used, instead of the nominal rate of 5.5%.

Therefore, by way of example - A standard buy to let in a personal name, achieving a rent of £950 per month, with the calculations of 145% of 5.5%, would equate to a loan of £142,947

If we used the same example, but in a limited company name, and on a five-year fixed rate, the changes in loan achievable become very apparent: 

125% of 3.49% (Limited Co & 5 year fixed) - a rent of £950 pm = £261,318

Please note that these are examples only and every case is looked at and underwritten on its own merits

With all of the recent tax changes on Buy to Lets, you should now seek professional mortgage advice, along with in-depth tax advice from an accountant who understands property, limited companies and all the new rules surrounding landlords and, where applicable, portfolio landlords.

Self Employed? Not a problem..

A large myth suggests that because you are self employed, you will find it harder to get a mortgage. 

Maybe that was so a few years ago, but not today. 

Yes, the financial crash took its toll on the self employed and quite rightly killed off the ‘self certification’ type deals (no proof of income).  But today lenders are quite happy to lend to those who are self employed and have a good track record.  The majority of lenders require two years accounts and will tend to average your last two years figures.  However, there are also some lenders who will look to assist you even if you are in your first year.  Some will also consider just last year’s figures, even if you have been self employed for longer.

Generally, the longer you’ve been self employed and the more years accounts you have, the larger number of lenders you will have who are willing to assist.

Some lenders do not require to see your full accounts, but will require an accountants certificate to be completed.  This differs lender to lender. Some will require a full set of accounts and/or an accountants certificate! Some will require this and/or SA302s, tax year overviews and more.  All can be requested via HMRC. 

They may also require to review business bank statements to review day to day cashflows and possible projections for future income, including potential contracts, etc.

This can also change depending on the make up of your self employment, whether a sole trader, partnership, Ltd company director and so on.

Deposit requirements can range lender to lender, but the bigger deposit you have, the greater the number of deals will be available to you.

Finally, plan ahead.  Six months ahead of your mortgage requirements, make sure you have your house in order.  Check your bank statements are in good order, check you have the right accounts and relevant paperwork from your accountant.  Don’t have too many credit searches in a short amount of time as this could affect your credit score.  Ensure you are on the electoral role and have decent breathing space on card limits and loans.  All of this should put you in a good position before the lender even looks at their ability to lend to you! 

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!    

'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!

Affordability is the key to you achieving the right loan.

The lenders main area in deciding whether to lend to you, or not, is on your ability to pay the mortgage both today and also in the future.  It's difficult to detail when I have a limited word count, but in the main, lenders will stress test all mortgages against a possible rate rise and underwrite the applicants based on their ability to pay at the higher rates. 

The regulators want lenders to ensure the customer can afford their mortgage for at least the next five years.  So, for example, a shorter term deal may be stress tested at a pay rate of, lets say, 3% plus 3 percentage points higher than the prevailing rate at origination, so in this case 6%.  However, a five year (or longer) deal may be stress tested against the pay rate, which might only be 3% in current climates.  This can make quite a difference when it comes to calculating the affordable loan amount over the first five years of the loan, subject to the lenders terms and conditions.  Longer term fixed rates can also be good for the end consumer as they should get the loan they want, but also the monthly payments remain fixed for the next five or more years.

Whilst in the 'planning' frame of mind, and with so much talk about rates increasing, have you reviewed your current financial arrangements to ensure sure you are on the best deal available?  

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 a number of attractive five year deals, and also some ten year deals currently available.  Potentially great value if you know your plans for the longer term and prefer to fix your monthly payments.

Finally, when you come to the end of your product term, your current lender may write to you offering you some products to stay with them.  However, STILL do your homework and shop around.  These may look good, but there might be better options available to you elsewhere!

Lenders will look at your bank statements.

When applying for a mortgage, there’s no shying away from the fact that lenders look at bank statements!  Whether it be paper based or via the new ‘open banking’ technology, your private transactions will come under scrutiny.

I’ve mentioned it many times over the years in my columns and highlighted that whatever is in your last three months bank statements, lenders have to take it into account when deciding whether to lend to you, or not.

Sadly, in the last two weeks alone, we have had to turn away 18 cases, yes 18 cases, due to the customers bank statements (even though we can do All Types of Mortgages!).

So, why would this happen?  It could be that the client forgot to disclose they had a payday loan (short term funding until payday arrives).  These types of loans work for some people, but most of the lenders treat them as an adverse entry.  Despite what the ‘bar room adviser’ says, they don’t help towards your credit score!

Or it could be that the client forgot they exceeded their overdraft limit last month.  Just a little bit, only for one day, but it’s registered.  And that can mean disaster for the mortgage enquiry as it’s perceived you can’t manage your monthly finances.

What about transferring money from accounts resulting in a direct debit bouncing and being paid late?   Unfortunately, this is also looked upon negatively.

And there are numerous others, which include forgetting to disclose the student loan, or a 0% interest car loan, or even the monthly payment out to your pension.   Whether via bank statements, or via a credit search, the lender sees all debts and any monthly payments must be taken into account when it comes to affordability.

So, plan ahead.  Work out your budgets, what your monthly payments are and anything else that you need to disclose, before you go and see your local and independent mortgage adviser.  It’s time well spent and will stop any unnecessary delays, or possible declines, later on.

Income multiples and affordability calculators.

Gone are the days when a lender used to simply calculate the mortgage loan available by multiplying your income by 4 or 5 times.  Today it's 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 once rates rise and specifically being affordable over a 5 year period. 

As loans become more and more competitive, this has seen some lenders lending well in excess of an equivalent 5 x income and some even up to 7 times!   For the right loan to value, right affordability and right customer, lenders are willing to offer a little bit more.  And with rates so low, now's a good time to be exploring these options.

What I do believe is that 2017 will be a very competitive year.  There's been a lot of talk about rates increasing, but so far this year, they've actually only decreased.  With a further twenty or more applications in with the regulator for lending licences, this can only mean greater competition and good news for the end consumer.  Don't panic just yet!

However, a lot of people put changing their mortgage to the bottom of the pile or the 'to do tomorrow' list.  Of course, this keeps getting delayed behind the 'save £20 a month on broadband' or 'update the pet insurance' chores.  Yet the mortgage is the biggest debt you'll ever have and probably one of the easiest to save on.  So don't put it to the bottom of the pile.  Rates may be low now, but there's no guarantee they will stay that way. 

Big month for Divorces and many rates have dropped..

Happy New Year!  I hope it is a successful and enjoyable one for you all.

Over the Christmas period, we have seen a number of rates drop as lenders seek to attract new business. One example is from the nice people at Virgin Money who have reduced rates on their first time buyer products to under 4.30% for a two year fixed rate.  This is aimed at those with just a 5% deposit and includes a £1,500 cash back to help pay the stamp duty costs on a property up to a value of £200k.  Positive thinking. Let's hope others follow suit.

I do think we will see some fierce lender competition in the opening quarter of the year.  Lenders are preparing for new regulations that will hit the market in late March, and with only a small amount of stock currently available to purchase, the remortgage market especially will be singled out as a quick source of business. 

Sadly, with January often proving the biggest month of the year for divorces, re-mortgaging can be a key part of the separation process.  It is a difficult time for all parties, especially when children are involved, but the need to pay the joint mortgage is imperative.  If the payments are not made, you may find it difficult, if not impossible, to obtain a mortgage in sole names.  For the newly single, many lenders will take in to account child maintenance, working tax credits and so on.   Affordability is key and any lender will base their decision to lend around this.

The bank of Mum and Dad, or even Grandma and Grandad, can also be bought in to consideration.  There are various ways in which the older generation are helping their children.  Some are gifting deposits, to help them get onto the property ladder.  With most products, the larger the deposit, the lower the interest rate. Others have agreed to the placement of a collateral charge on the parents or grandparents property.  This gives a lender more security and maybe a better credit risk rational to the deal, than originally might have been the case.

Whichever way, always explore the options and have a conversation with a professional as there may just be an alternative way to do the deal.

Stress tests can make quite a difference on your affordability

The election is now fading into the distance and we can concentrate on the future!  I am pleased there is to remain a level of continuity for our sector as it has been a very positive few months in our market and we need that to continue.  Funding is on the increase, competition is rife and rates are at their lowest for some time, with no immediate sign of any increase.  The remortgage market is buoyant and many are taking advantage of the lenders need to attract new business with many lenders offering free valuations and free legal costs. 

However, the main issue is still that demand for new houses outweighs the numbers being built and this will be the Governments biggest and immediate headache, along with possible lack of materials and manpower.  Time will tell.

The other issues tend to be around lender affordability.  Difficult to detail when I have minimal words, but in the main, lenders will stress test all mortgages against a possible rate rise and underwrite the customers based on their ability to pay at the higher rates.  The regulators want lenders to ensure the customer can afford their mortgage for at least the next five years.  So, for example, a shorter term deal may be stress tested at a pay rate of 3% plus 3 percentage points higher than the prevailing rate at origination, so in this case 6%.  Whereas a five year (or longer) deal may be stress tested against the pay rate, which might only be 3 or 4% in current climates.  This can make quite a difference when it comes to calculating the affordable loan amount over the first five years of the loan, subject to the lenders terms and conditions. 

Longer term fixed rates can be good for the end consumer as they should get the loan they want, but also the monthly payments remain fixed for the next five or more years.

There are a number of attractive five year deals, some six and also ten year deals currently available.  Potentially great value if you know your plans for the longer term and prefer to fix your monthly payments.

More rate fluctuations and lenders dislike payday loans!

Rate fluctuations seem to have been rife over the last few days as lenders continue to compete for business.  Barclays have cut some Help to Buy rates by up to 0.7%, Accord Mortgages cut their five year fixed rates by up to 0.2%, both Skipton Building Society and Santander launched their lowest ever two year fixed rate deals whilst The Mortgage Works (the Buy to Let arm of Nationwide) has launched the first ten year fixed rate mortgage for Buy to Let customers.  This is all good news for the end consumer but also shows how comfortable lenders are in promoting fixed rate monies over variable rates.  To me, this is in line with the general market consensus that the Bank of England base rate is probably not going to change for some time yet.  

Affordability plays a huge part in a lenders decision to assist customers with mortgage finance.  All lenders will look at the customers ability to repay any loan both now and stress tested to higher rates in the future.  As a result, some lenders have restricted the maximum they will lend to customers depending on their deposit.

This week, we have see Woolwich cap their income multiples for all loans over 80% of the property value.  For anyone with less than a 20% deposit, income calculations will now be a maximum of 4.5 x income (previously this was up to 5.5).  This is possibly as a result of recent Bank of England stipulations that only 15% of a lenders mortgage book may be loans with more than 4.5 x income calculations.

And finally, the news streams are saying this week is one of the busiest for customers looking to take out payday loans to pay off post Christmas debts.  I can't advise you either way, but I will say that if you are looking to take out a mortgage in the next twelve months, and you have had payday loans, be aware that lenders are likely not to assist you.  Payday loans are treated much like adverse credit but lenders are more likely to accept someone with historic adverse than someone who has taken out payday loans.  Homework is therefore crucial! 

People over 40 yrs old should be able to get a mortgage!

It was interesting to see many of the national press last week covering stories on how difficult it now is to get a mortgage if you are aged over 40.  The articles suggested that many first time buyers are now not able to purchase their first home until they are 40 years old, or even up to 50 years old, report some lenders.  However, this can then limit the availability of mortgage finance, as many lenders want loans to be paid off by normal retirement age (67).  With the Mortgage Market Review (MMR) rules now firmly embedded in the day to day calculation of mortgage finance and lenders making decisions based on the customers ability to pay back what they have borrowed, age can now affect affordability. Especially for the more mature applicant or if a customer wants to retire before the end of the mortgage term.  Of course a shorter term means a hike in monthly repayments which affects affordability issues, and so on. 

Despite many high street and household name lenders setting a maximum age at the end of the mortgage term, usually circa 70 years old, there are an increasing number of smaller building societies and other specialist lenders who will consider a much older maximum age of 80+.  This will be subject to affordability, lending criteria and the customer working or having a defined income long after normal retirement ages.

The rules and regulations are there to protect the end consumer, and in the main are working as required.  We will see criteria relaxed over time, and they will need to be as many customers are now working long in to their later years.

So the bottom line is that just because you are aged over 40, does not mean that mortgage finance is unavailable to you.   But be wary that any lender will want a full and detailed explanation on how you will continue to make your monthly mortgage payments if the term of your loan exceeds 'normal’ retirement age – whenever that may be!

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.