Complex scenarios are common in the mortgage market.

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

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

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

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

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

Buy to Lets and long term fixeds!

Long term fixed rates are currently very popular across the mortgage range as customers look to fix monthly budgets for the coming years.   These rates are attractive across the residential sector, but there have not been many long term fixeds in the Buy to Let mortgage arena.  So it is with open arms that a recent launch by Saffron Building Society, offering five year fixed rates on Buy to Lets, is welcomed to their already popular suite of products.   This lender manually assesses cases, so no credit scoring, and they have the ability to think outside the box on more complex applications.  Hopefully, other lenders will follow suit.

Most second properties that are rented out as Buy to Lets will be valued on their bricks and mortar worth, but more importantly on the rental income achievable.  In nearly all cases, the lenders will calculate the mortgage loan amounts based on the rental income achievable and confirmed by their valuer.  This rental figure will need to be over and above the monthly mortgage payment.  A normal calculation suggests that the rental must be 125% of the mortgage payment, based on an average interest rate of 5%.  Any less and the lender will reduce the mortgage loan according to the reduced rental income.  For example, if you wanted to borrow £100k, a reasonable test would be to multiply this by 5% (a fairly average calculation) and divide by 12 to get the monthly cost. This needs to be multiplied by 125% to determine the required monthly rental!  In this example, £521 per month will need to be confirmed as reasonable by the valuer in order to achieve the full £100k loan from the lender.  Please note that this is an example only and that varying lenders will have alternative calculations.   Also, that in most cases the actual rate paid to the lender will be less than the rental stress test calculation mentioned above.

The moral of the story is to ensure that you do your homework before embarking on an investment property to let out.  Always have a discussion with a local and reputable letting agent who can advise on the probable rental achievable from the outset, do the calculations and make sure the deal works before spending out on valuation / survey fees.

Much has changed since 2007...

Someone said to me this week its five years since Northern Rock crashed the ‘mortgage boom’ party and to be honest, I did ponder on where those years have gone!  Much has changed since 07 and lenders now appear to be run by their credit risk personnel, who in turn report to the Financial Services Authority, our regulators.   Let’s be honest, most feel that the FSA now run the lenders too!  As a directly authorised mortgage intermediary, we have had our fair share of ‘guidance’ by the regulator and with the fees involved just to trade in the mortgage market, it’s no surprise that so many have jumped ship and started new careers.  However, what this has left is huge gaps and I often wonder where the market will be in two or three years time as many more retire and fresh blood seems to be so scarce on the horizon.  What will be will be!  But in the meantime, there’s no substitute for honest, transparent professional advice and recommendation, based on your exact needs and requirements.   Online computer systems just can’t compete with that!

Halifax has launched a 5.89% (APR 6.1%) seven year fixed rate mortgage up to 90 per cent of the property value, exclusively for first time buyers.  There is no product fee and customers are eligible to receive £500 towards their moving costs.  Might be right for some very cautious people who like to fix payments long term.  However, rates are lower on shorter term fixes and with rates predicted to be static for some time, alternative products at the end of the short term are likely to still be more competitive.  But, the principle of trying to help First Time Buyers is to be applauded.

Finally, the 2^nd Charge Secured Loan market showed huge growth in July.  Second charge mortgage lending shot up by 11% according to the latest figures from the Finance & Leasing Association.   Many who require a loan to carry out home improvements or for other luxury items, but are currently sitting on very low lenders variable rates are opting to add on a second charge to their current property (sits behind the first charge mortgage).  Again, right for certain people but rates start from 6.9%, so will need to ensure its beneficial in the short to medium term compared with a complete remortgage to another lender/rate.

The computer can still say 'no'

The Bank of England held the base rate for another month and we all breathed a small sigh of relief as some industry pundits had suggested that a reduction may occur.   Obviously it would be good for the consumer, but not so good for keeping the funds moving around the marketplace.   As it is, many are already enjoying a nice base rate tracker and sitting comfortably with no intention of moving, and why would they?  From the business aspect and funding lines, lenders need to turnover customers, attract new business and collect fees.   More money moving around is good news for the market; static money tends not to be!

With this in mind, and as I have not reported on the monthly “creditaction” figures for a while, here are some stark reminders of the state of the economy:
·         Average household debt in the UK (including mortgages) was £55,448 in June. 
·         The average amount owed per UK adult (including mortgages) was £29,687 in June. This was around 121% of average earnings.
·         105 properties are repossessed every day (based on Q1 2012 trends).
·         1,443 Consumer County Court Judgements (CCJs) are issued every day
·         314 people are declared insolvent or bankrupt every day
·         1,607 people a day reported they had become redundant between March and May 2012.
·         The UK population is growing by an estimated 1,342 people a day

Meanwhile, credit scoring is creating havoc for mortgage applications via high street lenders.  Most lenders credit score applications based upon the amount of credit you have, whether you are on the electoral role and your recent payment profile on any existing credit.  If the computer says ‘no’, you will tend to find all high street lenders doors shut to you.  But fear not, if you have a reasonable deposit and can prove all income, there are lenders who do not credit score, but will manually review and underwrite affordable applications on an individual basis.  AToM has access to a number of these lenders so don’t despair if the high street lender’s computer says no. If you fit the above profile, give us a call to see if we can assist.

All Types of Mortgages....for all types of people!

May was a truly great month for new business with AToM recording our best month for actual new applications received, since October 2009.  However, for all the jubilations this may bring, it’s probably been the toughest month for actually getting cases through to offer via the lenders.  For example, one high street named super giant has decided that on all loans under a certain percentage of the property value, they won’t need a full physical valuation.  So rather than a surveyor going in to the property to view all the details, they just drive past…!  In one recent case, the drive by valuer decided said property was worth £35k less than the owner thought (despite the property next door selling for the same price in Nov 2011).  We were then told in order to challenge the valuers decision, we had to provide two comparable properties that have been sold in the immediate vicinity within the last 120 days!  Nigh on impossible…yet remember the adjacent property had sold for the same amount, just six months ago!  No two days are the same in the mortgage market, but many are very frustrating!  

Then, we are witnessing the demise of interest only as a repayment option.  Virgin Money have now followed most others and reduced their 75% Interest only offering down to 70% with an acceptable repayment vehicle, ISA etc, and only 60% LTV if Sale of Property is to be used.  The days of Interest Only are surely numbered!

Finally, on the up side, we’re seeing a lot of the smaller Building Societies and Mutuals offer products that may not be looking for mass volume, but which do fit gaps in the market or which are looking to assist the more complex scenarios that won’t fit the normal high street mould.  Examples recently placed include, properties in trust, lending to those already in retirement, cross collateral charges (more than one property), lending to those not paying UK tax, guarantors, shared ownership and more.  As our name suggests, All Types of Mortgages for all types of people!

Complex Mortgages are not frowned upon these days!

Some while ago, I mentioned that AToM had re-launched its ‘Complex Prime’ proposition. Complex Prime looks at mortgage applications which, for whatever reason, do not fit the normal high street credit scoring/tick box mentality or need something of a more complex underwriting nature.

A recent example we came across was a young chap at the age of 76. Obviously well into retirement and enjoying a pension of around £75k per annum. Very nice! He wanted to move properties and needed a loan of around £150k to purchase a property valued at £700k. Because of his age many lenders had turned him away. And because he, according to many lenders, had no ‘earned’ income, found most doors shut. However, we were able to offer a mortgage over a 10 year term on a Capital Repayment basis, on the understanding that his wife would receive 60% of his pension income, should the unfortunate happen to the husband. The rates were competitive and fees attractive.

Another example was a gentleman looking to re-mortgage a holiday home that was only allowed to be let out for 11 months of the year. Many lenders prefer second properties to be let out on an Assured Shorthold Tenancy agreement, usually contracted for 6 months at a time and renewable. However, with holiday lets, the agreements tend to be weekly. So, again, the lenders available were restricted, but we managed to place with a small building society offering attractive rates and fees.

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

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

AToM now has seven lenders on its Complex Prime panel already looking exclusively at these scenarios, with other lenders shortly to join. These lenders may not be household names, but you’ll probably find they are extremely helpful and will look at most scenarios, manually, with no credit scoring and have an appetite to lend!

Why am I being declined a mortgage?

So! You have no credit problems: you have a good income: no debts and you are looking to buy a property or maybe remortgage. But then, your bank, with whom you’ve been a loyal customer to for many years, reports back that you have a low credit score and the computer says “no”. They will not offer you a mortgage. This is a dramatically increasing scenario. The world of credit scoring (tick box mentality) has taken over and there’s no arguing with the lender once their technology has made the decisions.

Fear not! There is light at the end of the tunnel. AToM recognised that good clients were being rejected by lenders for no apparent reason and has built up exclusive relationships with five lenders who will assess an application manually and seek to offer assistance to such customers. This is our alternative to ‘the computer says no’ and have found an avenue for the right deals working with lenders that not only manually underwrite cases, but who have an appetite to lend. We call this Complex Prime and it does not just include those turned away by their bank for low credit scores. It could be a case scenario that needs a bit of lateral ‘out of the box’ thinking by an underwriter keen to say ‘yes’. This could include cross collateral security for clients who are asset rich: a sympathetic view for those who have trouble in proving ‘real’ income: customers who need guarantors or maybe just need someone to sit down, review the whole picture and advise on the best route to take.

I have always suggested that you speak to an independent mortgage broker with access to whole of market mortgages. Banks may only advise on their product range. Estate Agents ‘in-house’ mortgage advisers may only be able to offer mortgages from a select panel of lenders. Therefore, in order to get best advice, make sure you do your homework, speak to a whole of market mortgage broker who can advise on the most appropriate mortgage in the market to meet your requirements.

Rates down and Lenders are attractive!

Two weeks into the working year and the mortgage market is looking incredibly positive! Many lenders, including Abbey, Chelsea, Coventry, Halifax and Nationwide have reduced their fixed rates recently. Others have increased the amount you can borrow against the value of the property and another lender has launched an 80% tracker rate with no redemption penalties, meaning you can leave when you like at no extra cost. It appears the active lenders are becoming somewhat nervous at the ‘alleged’ number of applications received by the FSA from prospective new lenders as well as the competitiveness appearing between those already there! As a result, increasing market share has become priority and lower rates and competitive products can only be good for all!

We have also noticed a number of lenders becoming somewhat more relaxed in arranging mortgages that don’t fit the normal credit score mould. Some while ago, I mentioned that AToM had re-launched its ‘Complex Prime’ proposition. Complex Prime looks at applications which, ‘for whatever reason’ do not fit the normal high street mentality or need something of a more complex underwriting nature. A short list of examples include applicants with no credit, too much credit, a desire to pay up front or add additional security in the form of another property increasing their ability to borrow more. We have five lenders on our panel already looking exclusively at this scenario for AToM. One has awarded AToM a £10m tranche of funds, so there is no better time to visit our offices in the Carfax, Horsham, to see how we can assist you.

Finally, why not visit our website at www.atomltd.co.uk and review all of our financial offerings. These range from the ability to apply online for mortgages from the whole of market, secured loans, credit cards, right up to switching your mobile phone, gas and electricity bills or simply to review your current insurances. Give it a try, you’ve got nothing to lose, but a possibly a lot to save!

AToM launch 'Complex Prime'

Despite the decade drawing to a close, there is still time to look at a new mortgage! Many lenders offer ‘product transfers’ or ‘retention products’ to existing customers. These are not generally advertised to the general public or offered unless you ask for them. If your current incentive rate has come to an end and you have been transferred to the lenders standard variable rate, you will often have the option to choose a new product from an internal range available to existing clients. Some lenders have a good range of retention products. Others, particularly in the current climate, may not and expect that you will simply pay the new rate or move lenders. When moving lender, you release the original funds back to the current lender to advance to someone else, probably on a higher rate of interest and with an attractive new arrangement fee. Basically, some will make more money if you switch lenders, than if you remain on their books! Most retention products can be arranged within a matter of days. Speak to an independent mortgage brokerage to see what’s available and see whether this is the right option for you.

I rarely promote AToM product offerings in my column. However, this week is an exception! With most lenders, a mortgage is initially agreed using a tick box computer system. If you tick all the boxes, you normally get offered a mortgage. However, if you are not on the voters roll: have too much credit: have too little credit: require something a little more complex…. you may find it difficult to get past the first hurdle. Don’t give up! AToM have launched ‘complex prime’ to cater for such examples. We have an arrangement with three lenders who will ‘manually’ underwrite your application and, if the deal fits, they will look ‘outside the box’ and lend. This is a superb alternative to the current “computer says no” mentality and is a positive step forward by the lenders we are working with. It is refreshing and harks back to the days of real underwriting! Call AToM now to find out more.

Are you invisible to Financial Institutions?

30/10/09 - When applying for finance, if you don’t appear on the electoral roll or don’t have any credit, some lenders may consider that you don’t exist financially! This has been the bain of our lives over the past few months! In current climates, it seems that lenders only need to find the smallest of excuses to not agree a mortgage request. Historically, lenders were often more amenable if an applicant could not be located on a credit search. Today, if you have no regular credit commitments or do not appear on the electoral roll at your current address, be prepared for a knock-back.

The market has been pretty quiet this week, with only a few lenders making headlines and reducing rates. I suspect the market is still coming to terms with the impact of the FSA’s proposals for the mortgage market, as reported in last weeks column.

AToM is experiencing large numbers of ‘complex prime’ enquiries lately. One example is for an expatriate living abroad and who are working for a non international company seeking to re-mortgage a property which is currently rented out in the UK. Another example - for tax purposes - customers seeking to purchase a number of investment properties in a Limited Company name with their company structure designed purely to hold properties.
These are live examples which certainly can be placed. They just need a bit of extra thought and the location of lenders who don’t fit the normal credit scoring mentality.

Santander’s UK Banking arm, who own Abbey, Alliance & Leicester and Bradford & Bingley has confirmed a profit for the first 9 months of 2009 of £1.16bn, an increase of 58% compared to the same period last year! This is positive news and indicates that the market is turning. I am sure that we will see others reporting huge profits before the year end!