Be prepared at the start of the mortgage process, to save issues later on.

It will not have escaped your attention that lower deposit mortgages are back which is great news, although due to their higher rates and more stringent criteria only a lucky few may be able to successfully apply, at least for now.

For many potential borrowers, especially first-time buyers, these mortgages are out of reach for another reason and that is either because of outstanding credit commitments or minor adverse credit. 

Income and credit-related scrutiny has, quite rightly, been ramped up from a lending perspective in recent times and clients must share all relevant financial commitments.

This sounds obvious but we have experienced instances where missed information has caused major delays further down the line and the need for full transparency upfront is greater than ever.

An area highlighted by one of our top advisers is that clients often overlook student loans as being a credit commitment, as these are automatically deducted from salaries.

However, lenders may include these in their affordability calculations.

As a specialist mortgage broker, we’re also seeing a greater proportion of clients who are not only self-employed but who have a non-traditional income history and a variety of income streams. Lenders may consider such scenarios, and each has different policies in dealing with such cases.

With regards to adverse credit, we’re seeing the next generation of adverse credit coming through and if you delay/miss a payment to a utility or communications company, you could be awarded a default almost immediately. The biggest increase at the moment we’re seeing is car parking fines. People do not want to pay a silly little charge because they went over their time allowance at a superstore, but then they also ignore the private parking charge firms chasing them down.  However, these can escalate into a registered adverse item and ultimately affect their ability to achieve finance.

The more thorough and better prepared we are from the onset with all relevant and transparent details, the less time we will spend firefighting issues further down the line, and less stress will be placed on you, the client, throughout the mortgage process.

New Help to Buy and Shared Ownership schemes for First Time Buyers due in April

 

With changes to both the Help to Buy and Shared Ownership schemes due to come into force at the beginning of April 2021, it’s vital that you remain fully up to speed on how you may be affected by these impending changes.

The latest figures from the Ministry of Housing, Communities & Local Government outlined that a total of 291,903 properties were bought between 1 April 2013 and 30 September 2020 using the Help to Buy equity scheme. The data also showed that 82% of all completions were by first-time buyers. The total value of the equity loans was £17.4bn and the value of the properties sold under the scheme equated to £79.2bn. In addition, between 1 July and 30 September 2020, 13,211 properties were bought with an equity loan.

So, how does the new scheme differ from the old one?

The new Help to Buy scheme, running until 2023, will be restricted to first-time buyers and will operate with regional price caps in place (maximum property price in London £600k and South East £437,600 for example).

You can borrow a minimum of 5% and up to a maximum of 20% (40% in London) of the full purchase price of a new-build home.  You do not pay interest on the equity loan for the first 5 years (interest starts in year 6 on the equity loan amount you borrowed). The equity loan, the deposit you have saved, and your repayment mortgage cover the total cost of buying your newly built home.

Help to Buy is not an all in-compassing solution but it can prove to be a viable option for a variety of first-time buyers, even for those who may have had a credit blip in the past.

Meanwhile, the new Shared Ownership scheme will allow buyers to purchase a minimum share of 10% compared to 25% previously, and will permit staircasing in instalments of 1%, rather than 5% or 10% currently.

In addition, a new 10-year period will be introduced for maintenance and repairs, whereby the landlord or housing association will be required to cover costs rather than homeowners.

Due to the complexity of both schemes, it is vital to seek good, impartial, independent, and professional advice before entering into any agreements.

Even on Furlough, lenders may consider you for a mortgage.

Just because you’re on the Furlough Scheme(or have been on it), does not necessarily mean you cannot get a mortgage.  Several lenders have issued guidelines to accommodate those on Furlough and will offer mortgage products to them.  Especially clients looking to stay with the same lender and do what is called a ‘product transfer’.  As with all instances, you should speak to a professional broker who can review the whole market.  Staying with your current lender might be the easiest option, and a broker can arrange this for you, but it does not necessarily mean it will be the best rate and option available to you.  Always shop around, loyalty to lenders should be the least of your priorities as they may not be loyal to you!

This also relates to mortgage payment holidays.  A number of lenders have advised they will consider clients who have taken a mortgage payment holiday, depending on their circumstances.  However, many have said they will not assist if the client is still in the mortgage payment holiday so check the lenders requirements.  And we’ve been made aware of instances where a client has applied to a lender for a mortgage payment holiday, whilst also applying to purchase a new property for investment!  This was not taken lightly by the lender and the mortgage payment holiday had to be repaid, before the new mortgage could proceed.  Mortgage payment holidays really are for those who are having difficulties in the current climate.

We’ve also had recent updates from lenders who will look in detail at self-employed clients who have taken out Bounce Back Loans and CBILS funding.  Both cannot, in the main, be used as a deposit for purchasing premises and the lender will want to look at the self-employed clients cashflow forecasts, management accounts and really understand the impact of COVID-19 on their businesses, specifically with regards to how income will recover in the short to medium term.

Finally, the higher loan to value market is like the ‘hokey cokey’.  Some lenders are in, some are out, some are back in and so on.  One lender even launched a 90% lending product for just 48 hours.  Another has launched a ‘tranche’ of funds for the month.  Once it has been used up, that is it.   This is the benefit of using a broker as we will know what lender will offer such products and monitor the very strict deadlines to ensure you get the right deal for your circumstances. 

Physical valuations are back, but with conditions.

‘Back in Business’, ‘Business as Usual’, ‘When we come out of this’ - all terms I’m sure you’ve heard a lot recently.  I think it is now very clear to say that any form of ‘normality’ will be a different experience from what we have been used to.  Every day includes new learnings and new ways to do things.  Working from home has meant I have seen more of the kids and wider family, watched more TV, and worked longer hours (how has that happened?!).  And we are seeing a lot of positivity in the market and a lot of people talking up the exit from this awful disease, rather than burying their head in the sand and hoping it will all go away. 

The really positive news over the last week is the return of ‘physical valuations’.   Many lenders had taken to using ‘automated’ and computer-generated valuations recently.  Which has been great but meant that the more complex property types (HMOs, Multi Units, Properties with Annexes), could not proceed as they needed someone to visit the property and report back to the lender.  With the lockdown restrictions eased, this has meant that some lenders who were ‘mothballed’ can now begin to lend again.

Customers can now view properties in person, speak to estate agents and, hopefully, now move home.  It is estimated that circa 40,000 property transactions were put on hold due to valuers not being able to visit properties and some 300,000 transactions stalled due to people being unable to move whilst following the government instructions.  The new allowances have very strict social distancing guidelines for all companies involved however, and these need to be followed. 

These are all very small steps on the road to some sort of recovery and the signs are that this will be a long road.   For now, the new norm is online conferencing, visiting friends and family from a distance, maybe a weekly online quiz and binge watching the odd programme here and there.

Everything we do is under review and from a work point of view, do we really need to return to an office when we can discuss mortgages and related finance all day (and evening) via laptops and video conferencing?  Only time will tell.  Processes have had to adapt and change so quickly.

What we cannot afford is for a second spike which would put yet more lives at risk. Health first and any slippage would be very damaging for the financial/property sector.  Stay safe..

Complex deals are considered depending on the clients scenario

Actually placing a mortgage with a lender is not normally difficult. The hardest part, in the recent climate, is getting the mortgage through to completion!

However, a number of lenders are happy to think outside the box and take a manual approach to lending.  One recent example was with the Harpenden Building Society who helped complete a £1 million interest only deal on a new build flat for a client in their 50’s.

The transaction was for a very upscale 19th floor new build property situated on the South Bank of the River Thames in London. It had a valuation of circa £2 million with some units in the development having restrictions to borrowers over 55’s and was above a commercial property.

As this was also over a twenty year term, this took the clients age in to retirement.  However, as the property was to be let out, the building society took this into consideration, along with their residential property and allowed the deal to proceed.  This was on the basis there was enough equity in the properties to repay the lenders loan if they needed to.

This example highlights the value attached to many building society lending propositions, in terms of their flexibility and approach to more criteria-based lending. 

But as with all funders, try not to give lenders an excuse to decline your application or refuse to lend to you. Try to pay bills on time, don’t miss payments, and especially not mortgage payments!  Any missed (or sometimes late) payments will be registered on your credit file and this is normally used as the basis of a decision to lend to you. Lenders can re-credit search/credit score you right throughout the whole mortgage process.

Finally, we are seeing general processing delays across the market.  Some lenders are up to ten working days behind on processing and we have experienced recent telephone calls taking over an hour to receive any kind of response!  These are just on the broker side so who knows how customers are faring!  So, speak to your local (and long established) independent and whole of market brokerage and let them take the stress away from you.

Your mortgage broker should 'get to know you'...

Arranging a mortgage can take time.  But actually, the process, regardless of whether you are a first time buyer, home mover or simply re-mortgaging, will be roughly the same.  On any new purchase, the selling agent will seek to agree a number of deadlines with you, including the arrangement of mortgage finance. At this point you can shop around and should make sure that you speak to an independent mortgage brokerage who will assess your overall financial position and discuss your mortgage requirements with you.  Advisers are required to provide you with an Initial Disclosure Document detailing who they are; who regulates them; their scope of permissions; whether they are restricted to a small lender panel or ‘whole of market’; any fees and costs involved including any charged for advice or consultation.

A good advisor will complete a financial fact find ensuring that they fully ‘know and understand their client’s financial position and requirements.’  This is necessary before any ‘advice or recommendation’ can be provided.  Be patient as this process can be lengthy.  It is in your best interests however, ensuring that you receive the best possible advice designed to meet your personal mortgage needs and requirements. Once you’ve agreed the best mortgage for you, a decision in principle (DIP) will be completed, usually online with the chosen lender. This involves brief personal details, income disclosure and a credit search. Be wary here as too many credit searches will have a negative effect on your credit score.

DIP decisions are normally instantaneous.  Assuming success, it is then up-graded to a full application. Payment for survey is made (sometimes free) and the valuer confirms to the lender if, in their opinion, the property is suitable security for mortgage purposes. A more detailed in-depth survey (homebuyers report) can be arranged at the same time, but for a slightly higher cost. That said, for older properties it should be considered a worthwhile investment as it could save you thousands in the long run.


The chosen lender will require information on income, identity, proof of residency as part of their due diligence requirements.  Assuming no issues arise, a mortgage offer should be issued. Then, subject to the solicitor’s conveyancing process, you are now on the road to completing your mortgage process.

Don't be pressured to make a mortgage decision.

Some mortgage lenders are sending out letters to those coming to the end of their product term offering them new rates, but giving them a time deadline in which to switch.  We had one customer recently who was four months out from their current rate changing from a fixed rate and moving on to the lenders Standard Variable rate.  They were offered some great new rates to stay with the lender, but the way the letter was worded, suggested that there was a deadline of just two weeks in which to accept, even though their current product wasn’t changing for four months!  This is not acceptable, no one should be pressured to accept a deal.  What if rates decrease in the next three months?  You’d be annoyed.  Read the small print, do not panic and get expert advice. 

We all know life doesn't end at age 65-70 and neither should it on the high street!  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 and there is a saying in our profession that it is not always wise to have everything tied up in bricks and mortar and yet have nothing to spend.  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.

And finally, 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 after Brexit now, but nobody knows when this will happen!  Many people asked 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 further 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.

Buying at Auction, with short term finance

Auction purchases can be a great way of buying properties at a discount and potentially achieving quick equity growth. Typically, a property will be listed via an auction because it may be uninhabitable (think no kitchen or bathroom) or it may be that the vendors need to realise sale funds quickly and are prepared to sell the property at below market value. Buyers typically exchange contracts and pay their deposit at the auction with a requirement to complete within 3-4 weeks. The condition of the property, and the timescales required, often rule out using an ordinary mortgage.

A recent example from one of our lenders, United Trust Bank, revolved around two brothers.  They had received a cash inheritance and had decided to use it to launch careers in property investment. Both were tradesmen and having completed many refurbishments for clients, they were keen to find a property they could refurbish themselves and sell on for a profit.

They visited several auctions to gain an understanding of the process and after some solid research on a particular area, decided to bid for a semi-detached house that had been left empty for a number of years and fallen into minor disrepair. They first went through the legal pack and confirmed there were no serious underlying issues with the property. Then, after running the bridging finance numbers ahead of the auction, they successfully secured the house and paid their 10% deposit with some of their inheritance.

The auction house required the sale to be completed within 4 weeks and after a quick valuation, the brothers were able to draw the bridging facility to complete the purchase well before the deadline. The brothers had the funds to complete the intended refurbishment works.

Although light in nature, the improvement works were designed to bring the property up to an excellent standard. The works were completed quickly and within budget.

The short term bridging finance enabled the brothers to acquire an uninhabitable property within a tight deadline. In addition, the typical 12 month term, gave them time to complete the works and properly market the property to achieve their desired selling price and a successful start to their property investment career.

Such an example is not unusual and is one that can be reviewed by a number of specialist lenders.  But as always, seek professional advice and review all options available to you.

Lenders have seen your scenario before. You'll be surprised how they will help!

You have a default?  A CCJ?  Missed a payment or two here and there?  Yes, the high street lenders will probably say they can’t help, but there’s plenty of others who will.

These days, competition is very strong across the mortgage market and this includes helping those who have had a credit blip or two in the past.  Some lenders may even go right up to 95% of the property value for the right customer.  And, this might be surprising, but rates start in the mid 2%s range on some products.

Don’t despair, there are lenders out there who, subject to terms and conditions, will probably look at your scenario and have seen it all before.

To make the process as smooth as possible, make sure you have all details to hand at the outset.  When was the default / CCJ, is it satisfied, why did it occur, etc?  Disclose absolutely everything upfront.

With all new mortgages, a budget planner will be required.  Make sure you know and can advise exactly how much you are spending on your lifestyle.  Especially make sure you know your monthly costs on food, household expenses, travel, pension and saving contributions and other likely costs such as hobbies, going to the gym, lottery direct debits and more.  Every lender will review your ability to afford your new mortgage both now, and over coming years, so all direct debits and most entries on your bank statements or credit report will need to be advised.  This is so the lender can make a viable stress test on future rate rises and ensure that you will still be able to afford your mortgage at that time.

Finally, despite some of these amazing products being available and lenders looking to attract new business, we are seeing general processing delays across the market.  Some lenders are not taking appointments for two to three weeks, some are up to ten working days behind on processing, and we have experienced recent telephone calls taking over an hour to receive any kind of response!  These are just on the broker side so heaven knows how customers are faring!  With some complex deals, these are not available directly, so speak to your local (and long established) independent and whole of market brokerage and let them take the stress away from you.

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!    

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.