Completing a fact find and be mortgage ready!

First time buyer or home mover?  Either way know the process and be mortgage ready!

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 adviser 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.  We’ve had a few customers contact us for a mortgage recently who have been totally unaware that they have had a number of credit searches carried out having recently searched for competitive renewal quotes on their home or car insurance via comparison sites.  This, in a small amount of time can have a marked affect on your credit score, and as such, affect your ability to obtain finance, so read the small print and be aware! 

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!

Happy New Year! Are you financially prepared for the year ahead?

And so another year begins, have you made any resolutions?  If not, make one to review your mortgage!  Now that the election is out of the way and we have a ‘clearer’ route to Brexit, lenders will look at their strategies for the next few years and I’m sure somewhere in those plans will be reviewing their rates and offerings to maximise profitability. 

In the meantime, one lender has already reduced a 5 year fixed rate to under 1.5% with free valuation, free legals on remortgages (£300 cashback for purchases).  There will be other similar deals available, and terms obviously apply, but the fact that these rates are so low so early in the year is impressive!

Technology will play a huge part in the mortgage market over the coming few years.  I’m sure mortgages will be available through a full ‘comparison type’ model shortly.  But it does not necessarily mean it’s the right option for you.  As with some current comparison sites, some of the options provided are those that pay a referral fee to the site and may not be the most suitable for the end user (although they might pay the highest referral fee to the providing site!).

We understand that a straightforward customer who fits the high street with 2.4 children, lived at their current address for ten years, has consistent employment, no debts and wants to remortgage pound for pound, will be an ideal customer for the technology model.  However, not everyone will fit this model and thus the human touch will be required for some years yet.

And of course, this is all relying on you having a decent credit score.  You can’t turn on the TV without seeing an advert for your free credit score!  This is an assessment on all available financial information and calculates a 'score' for the lender.  It also includes a search on your overall credit history covering, in the main, all of your financial transactions over the last few years.

Most lenders credit score applications to try and assess your ability to repay any loans.  Nearly all financial institutions will register a credit search against you.  So, if you have recently updated your car insurance, home insurance, taken out a mobile contract and just got a new credit/debit card, that’s probably four searches in a short amount of time!  So even before starting the full mortgage process, have a chat with a professional adviser and seek their advice what to do and when, to enable the best chance of getting a mortgage first time.

Be prepared in advance of applying for a mortgage.

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 a hurdle in the finance world for some time, more so now with the evolution of technology.  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 possible knock-back or at least the request for further proof of residency, etc.

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 an unexpectedly buoyant August and preparing their offerings for a good run to the end of the year.  Rates generally are decreasing, and this makes it a good opportunity to review what’s available to you.

We are experiencing a large number of ‘complex prime’ enquiries lately. One example is for a property which is currently converted in to two properties, but where there is only one registered title.  Another example was of a full conversion of a barn into a dwelling.  One further - for tax purposes – where the customers were 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 have a lender home. They just need a bit of extra thought and the location of lenders who don’t fit the normal credit scoring mentality.

Finally, getting a mortgage through lenders in the current climates can still be challenging. One day it’s easy to get a case through, the next, it’s a nightmare!  So whatever you do, try to not give lenders any excuses to decline your application or refuse to lend to you. Try to pay bills on time, don’t miss payments where possible 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 whether to lend to you, or not!

Another lender closes it's doors citing 'cost of funding'. Should we be worried?

I mentioned last week that the mortgage market is buoyant.  And it is.  However, there have been some ‘ripples’ in this with three well known lenders (in the specialist sector) closing their doors, or revisiting their funding options in the first quarter of the year.

Sadly, last week there was another casualty of the uncertainty of funding lines (and Brexit) that is facing us all as Magellan Homeloans shut their doors.  Being a local specialist lender, based in Leatherhead, this is a real shame as they considered mortgages for those with a credit blip, help to buy schemes and specialist buy to let.

The Lender’s CEO stated ‘The competitive landscape has continued to shift, mortgage loan interest rates are reducing when the cost of funding is rising, and some lenders are taking on more credit risk despite the volatile economic backdrop. Magellan has prided itself on maintaining excellent credit standards whilst helping customers who have been disenfranchised by high street lenders. However, we do not wish to compete in a market which we view as unsustainable.”

We obviously wish all their team well for the future.

Is this the start of further lenders pulling out of the market…..who knows?  But we are set for a long period of uncertainty and if you are looking to review your mortgage finances, maybe you shouldn’t hang around. 

Conversely, with some lenders recently reducing rates and chasing completion volumes, we are seeing more people being declined.  Not necessarily due to adverse credit, but because their credit score is not as high as they thought, and they don't meet the lenders requirements as a result.

Credit scoring is one of the most widely used means to assess a customer’s ability to obtain a mortgage.  All credit scores include a credit search – this is a review your financial history, payments to utility suppliers, mobile phones, etc.  The high street lenders, in the main, use credit scoring.  However, do your homework as many smaller lenders will offer just as attractive rates, but they will manually assess your ability to obtain a mortgage and use a human to assess your credit profile, rather than a computer aided credit score decision making system.  And make sure you deal with someone who has access to the whole market, so you get the best possible options for your requirements. 

Be aware of who is credit searching you, and when.

We have had a few customers contact us for a mortgage who have been totally unaware that they have had a number of credit searches carried out following recent searches for competitive renewal quotes on their home or car insurance via Comparison Websites.   I’m sure it will be stated somewhere in the small print, but the customers have researched a number of comparison sites and ended up with a similar number of credit searches on their profile.  This, in a small amount of time can have a marked effect on your credit score, and as such, affect your ability to obtain finance, so always read the small print and be aware!  

With this in mind, lenders will look closely at an individual’s recent payment profile, how many recent credit searches have been incurred by financial institutions and more.  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 are no missed or late payments as these will also decrease your credit score.  In short, your credit search / score is the basis on which most lenders will initially decide whether to lend to you or not.  If you’ve not checked your credit file before, it is well worth a review. Experian, Equifax and Noddle tend to be the main providers used in our market with some offering free initial trials.

Finally, we are seeing a lot of first time buyers turn to the bank of Grandma and Grandad as the bank of Mum and Dad appears to be running a little dry!  There are various ways in which the older generation are helping the first timers.  Some are gifting deposits to help those get on 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 grandparent’s property. This gives a lender more security and maybe a better credit risk rational to the deal, than originally might have been the case.  In some cases, the parents have joined in to provide additional income support and bolster the overall application.  Whichever way required, always explore the options and have a conversation with a professional as there may just be an alternative way to do the deal.

With Open Banking now available, don't give the lenders a reason not to lend.

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.

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, so you’ve done all the hard work and gone through the whole mortgage process with the lender providing you with a mortgage offer and you can now sit back and relax.  Wrong!  Although the ‘binding’ mortgage offer has been issued, until you have completed on your new mortgage, the lender can still decline to proceed with their offering.  If you take out any finance, have lots of credit searches done or miss any payments after the mortgage offer has been issued and before completion, it could be that the lender will re-credit score you before completion, especially with the now easily available open banking access, and uncover something that might not be to their liking or mortgage conditions.  Always seek professional advice.

If the credit score computer says ‘no’, you will tend to find most high street lenders doors shut.

I haven't mentioned it for a while, but it certainly is causing a lot of customers an issue.  Credit scoring!  This is an assessment on all available financial information and calculates a 'score' for the lender.  It also includes a search on your overall credit history covering, in the main, all of your financial transactions over the last six years.

Most lenders credit score applications to try and assess your ability to repay any loans.  This will take in to account many factors including the amount of credit you have, whether you are on the electoral role, your recent payment profile on any existing credit and the number of recent credit searches you have on file.  Nearly all financial institutions will register a credit search against you.  So, if you have recently updated your car insurance, home insurance, taken out a mobile contract and just got a new credit/debit card, that’s probably four searches in a short amount of time! Be wary that some 'comparison sites' may have also searched you just whilst seeking a new insurance quote.

If the lenders computer says ‘no’, you will tend to find most 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. 

I always suggest 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, whether this be with a credit score or just a credit search.

Lenders have to report statistics. Are you one of them?

According to the CML (Council of Mortgage Lenders), gross mortgage lending in January totalled an estimated £18.9bn.  This is an increase of 2% on January 2016, and down 6% from December.  There were 29,743 loans approved for house purchase in January, according to the British Bankers Association (BBA), with the average loan approved for house purchase rising to £182,500.

The Financial Conduct Authority reports that 69.75% of mortgage lending in Q3 2016 was for 75% or less of a property’s value.  Just 5.3% of lending was for mortgages over 90% of a property’s value!

Lenders are restricted on the amount they can lend in many different mortgage categories.  So for example, if a lender offers more than 4.5 x income, the maximum allowed across their business for the year will be a set percentage of business.  If this is, say 15% of business, once this target is hit, the lender will need to withdraw this offering (or dramatically increase other areas to bring the split of business back in line).  This is also the same with lending in loan to value bandings, so a percentage limit will be enforced on lenders offering over 90% loans to the value of the property and so on. 

The Office of National Statistics say that the average house price for first-time buyers was £184,973 in December 2016, which is an annual increase of 7%.

Whereas The Money Charity Statistics confirm that outstanding mortgage lending stood at £1.326 trillion at the end of January.  That means that the estimated average outstanding mortgage for the 11.1m households with mortgage debt was £119,752 in January.

As you can see, everything is a statistic.  With this in mind and with so many rate changes and reductions, lenders will look closely at an individual’s recent payment profile, how many recent credit searches have been incurred by financial institutions, and more.  So 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.  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.  If you’ve not checked your credit file before, it is well worth a review and most are now free.   

Interest rate war in the 'Near Prime' arena

As we enter the final few weeks of the year, a number of lenders have entered into an apparent 'interest rate war' assisting First Time Buyers, Residential mortgages and the Buy to Let sectors.  But this is also happening in the ‘Near Prime’ arena. I’m calling it ‘Near Prime’, but it has many other names including, Credit Repair, Almost Prime, Adverse and so on.  In short, it’s an area of mortgages that cater for those who have had some sort of financial issue in the past.

This is a growing sector and many lenders will now cater for missed mortgage payments in the last 12 months, Defaults, County Court Judgements (CCJs), discharged bankrupts/IVAs and those who are in a debt management plan.

This area of the market took a battering back in 2007 as many lenders who offered these types of mortgages were shut down or mothballed.  Today, the regulatory lending restrictions are more stringent than back then and the new breed (some never really left) have a whole new outlook on the term ‘responsible lending’.  Where there is demand, there will always be supply.

Rates start from the late 1%s and go right up to the early 8%s, depending on individual circumstances. Some lenders will lend up to 90% of the property value in some instances and will cater for both employed and self employed.

Financial issues do adversely affect credit scores (the normal assessment process used by a lender to decide whether to lend or not), and as such, some Near Prime lenders will manually review on a credit search, rather than resort to a credit score.

Of course, a lender will only consider those who have endeavoured to right the financial issues of the past. They will not entertain those who continue to flout good financial management.

Finally, the Near Prime lender is a ‘stepping stone’. Most issues tend to disappear from a credit search after a few years. Therefore, the aim would normally be to cater for current requirements on a short to medium term basis with the longer term outlook being structured to enable the customer to get back onto high street mortgage offerings, as quickly and cost effectively as possible.

Market slowing but rate options on the up!

The market has slowed over the last week or so.  This is surprising as we've seen many lenders reduce rates again, with some being adjusted by a huge 0.7%. The number of products now available is circa 9,000 which is more than it has been for some time.  With many short term fixed rates sub 2%, five year fixeds sub 3%, and even a ten year fixed at sub 4%, the remortgage market should be booming!

However, even with a slight slow down, there are many unusual properties being purchased.  AToM recently assisted with the purchase of a property that had been split in to seven individual flats and where the title has not been split. In essence there was only one title for seven properties.  Normally lenders stipulate a separate title for each unit.  Valued at £1.9m and a loan of £1.4m being required, many of the normal lenders declined their interest.  But, due to the customer being an experienced landlord, we managed to find a specialist lender who would accept the whole scenario. Following an in-depth valuation, confirmation of rental income achievable for each property, and normal underwriting, the lender completed quickly.   This is just one example of many complex and specialist scenarios that pass through our doors each week!

Finally, credit scoring is still creating challenges for mortgage applications to 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. If the computer says ‘no’, you will tend to find all high street lenders doors shut to you. Fear not, if you want a loan to value of 90% or less and you can prove income, there are lenders who do not rely on a credit score. They manually review and underwrite clean and affordable applications on an individual basis. AToM has access to a number of these lenders so don’t despair if the high street lenders say ‘no’, if you fit the above profile, give us a call to see if we can assist.

Your payment profile is part of your application for finance

The Council of Mortgage Lenders (CML) has released figures reporting that the remortgage market had its best month for five months in April.  Gross lending was boosted by 5% from remortgage finance.  Signs that the low rates are attracting new customers and homeowners are keen to make use of the great deals currently around.

It was also good news for First Time Buyers.  46% of all house purchase loans advance in April were to those purchasing their first property.  The market is still incredibly tough, but these are signs that things are slowly improving.

With this in mind and so many rate changes and reductions, lenders will look closely at an individual’s recent payment profile, how many recent credit searches have been incurred by financial institutions and more.   So 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.  If you’ve not checked your credit file before, it is well worth a review.  Experian and Equifax tend to be the main two providers used in our market with both offering free initial trials and you can find links to these on the AToM website.

Finally, so you’ve done all the hard work and gone through the whole mortgage process with the lender providing you with a mortgage offer and you can now sit back and relax.  Wrong!  Although the mortgage offer has been issued, until you have completed on your new mortgage, the lender can still decline to proceed with their offering.   If you take out any finance, have lots of credit searches done or miss any payments before completion, it could be that the lender will re-credit score you before completion and uncover something that might not be to their liking.  If in doubt, seek advice. 

Do your mortgage homework before deciding!

A mortgage is the biggest debt you’re ever likely to take on, so do your homework and shop around, as you would for you weekly shopping!  We are always surprised that someone will announce to the world that they saved £30 off the price of, say, a fridge or cooker, yet fail to apply the same research into their mortgage!   The number of mortgages available is rising on a daily basis and rates are incredibly competitive.  But even whilst shopping around for a new mortgage, be wary that many ‘institutions’ are likely to carry out a credit search on you.  Make sure you stipulate at the outset of any mortgage conversation that you do not authorise any credit searches, until you agree you are happy to proceed with a specific product or lender.  Too many credit searches in a short amount of time could be detrimental to your credit score.  If you have not reviewed your credit search before, get it for free (30day trial period) from Credit Expert (see www.atomltd.co.uk for a link). It’s well worth a review and a good insight on how attractive you may, or may not, look to a lender.

In addition to a large increase in First Time Buyer enquiries recently, we have also seen a vast increase in customers looking to consolidate debt or even look at debt management plans.  Both can sometimes cause issues. If you consolidate unsecured credit in to your mortgage, although your monthly payments may be lower, you may be paying more for your debt over a longer term.

With debt management plans (DMP), or Individual Voluntary Arrangements(IVA), again, the lower monthly payments may help in the short term, but you may well find it hard to gain an approval from a lender to refinance at a later date.  Lenders tend to shy away from DMPs and may not assist anyone who has been in an IVA unless it has been discharged, normally, for more than three to four years.  Advice should always be sort before entering in to these types of arrangements.

Lenders targeting those with small deposits.

According to the Council of Mortgage Lenders (CML), gross mortgage lending fell in January by 9 per cent.  Lenders advanced £10.4bn, compared to £11.4bn in December.  This surprised me as with rates so low, the mortgage market has been buoyant with activity.  AToM reported our third best month, for four years, in January!  February was slightly quieter with a half term and a shorter month making a difference in figures.  However, overall, the continuing price rate war between the high street lenders is putting a huge amount of confidence back in to the mortgage market.

The higher loan to value (LTV) products are making an apparent comeback, especially for First Time Buyers.  We’re also seeing different ways in which a lender is looking to assist.  The most recent is from the Bath Building Society who has launched a 100 per cent home loan.  However, the brief details include the ‘bank of Mum and Dad’ allowing a charge on their own property to the equivalent of 25 per cent of the borrower’s property value.   This is pretty similar to a deal that Aldermore Mortgages recently launched.   Both signs that lenders have an appetite to lend and are being innovative in providing solutions.   Other lenders have lowered rates recently to those with small deposits.  Accord Mortgages recently reduced rates by 0.4% on their 90 per cent products (10% deposit).

With so many rate changes and reductions, lenders will look closely at recent payment profiles, how many recent credit searches you have incurred by financial institutions and more.  So don’t give 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.   If you’ve not checked your credit file before, it is well worth a review.  Experian and Equifax tend to be the main two providers used in our market with both offering free trials and you can find links to these on the AToM website.

'Near Prime' mortgage options on the increase

My articles over the recent weeks have concentrated on the apparent ‘rate war’ raging between lenders in the Buy to Let, First Time Buyer and Residential sectors. We should not ignore that the same is also happening in the ‘Near Prime’ arena. I’m calling it ‘Near Prime’, but it has many other names including, Sub Prime, Credit Repair, Almost Prime, Adverse and so on. In short, it’s the area of mortgages that cater for those who have had some sort of financial issue in the past.

There are many lenders re-lending in this arena and they will cater for a missed mortgage payment in the last 12 months, historic defaults, County Court Judgements (CCJs), discharged bankrupts/IVAs and those who are in a debt management plan.
There’s no denying that this area of the market took a battering back in 2007 as many, many lenders who offered these types of mortgages were shut down or mothballed. However, the regulatory lending restrictions are now more stringent than back then and the new breed (some never really left) have a whole new outlook on the term ‘responsible lending’. But where there is demand, there will always be supply.

Rates start from the early 3%s and go right up to the early 9%s, depending on individual circumstances. Lenders will lend up to 80% of the property value in the main and will cater for both employed and self employed. Some rates are also offered without any redemption penalties.

Financial issues do adversely affect credit scores (the normal assessment process used by a lender to decide whether to lend or not), and as such, some Near Prime lenders will manually review on a credit search, rather than resort to a credit score.

Finally, the Near Prime lender is a ‘stepping stone’. Most issues tend to disappear from a credit search after a few years. Therefore, the aim would normally be to cater for current requirements on a short to medium term basis with the longer term outlook being structured to enable the customer to get back onto high street mortgage offerings, as quickly and cost effectively as possible.