Anyone selling mortgages must be qualified!

After several years of consultations, panic by various areas of the market and the odd debate here and there, the Financial Services Authority (FSA) have issued their final policy rules following their Mortgage Market Review (MMR).

Some might argue this is badly timed with the market still in dire retraction from the crashes of 07/08 and no real recovery since then.  But at the same time these rulings are needed to ensure that the same issues cannot happen again, once we get back to some normality in the lending arena.

With many consultation papers previously issued to the market for responses, the final policy rulings are not of much surprise and we must not forget, are to ensure the best interest of the end consumer.

I thought I would try and highlight a few of the rulings that caught my eye and which must be adhered to (mostly from April 2014):

-          Anyone selling mortgages must hold the relevant mortgage qualifications
-          Firms must act ‘in the customers best interests’
-          Lenders are to be responsible for customer’s affordability and for verifying customer’s income.
-          All ‘interactive sales’, those completed face to face or over the phone, are to be treated as ‘advised sales’.  So, whoever sells the product is deemed responsible, whether it be your bank, broker or other suitably qualified individual. 
-          Stress testing must be carried out for future rate increases.  If you cannot afford an increase in rate, you are unlikely to be given that current product.
-          Interest only survives, but only for customers who present a credible repayment vehicle.
-          Concessionary rates offered by lenders cannot be removed because of payment problems.

These are just a few cherry picked from the 300+ pages of the MMR and I’m glad we have near 18 months to review, digest and act upon the rest!   

With an estimated cost in the region of £70m to implement the changes, this is not a cheap exercise, but the cost of market failures has obviously been substantially more, so anything that will prevent such issues happening again must be welcomed.

Many lenders have already restricted lending policies and reduced exposures to higher risk products, so the real issues will revolve around how Banks and other lenders handle the ‘advised sale’ requirements.  We shall have to wait and see.  In the meantime, this is already in action at your local independent and whole of market mortgage brokerages….! 

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.

Is your adviser qualified?

In October 2004, mortgages fell under the spell of the regulator, The Financial Services Authority. This was not a bad thing as it was becoming very clear at that time that certain areas of the mortgage market were not being patrolled properly and that some of the borrowing public may not, in turn, have been looked after satisfactorily.

Even at that time, many mortgage intermediaries were already professionally qualified, although, not necessarily in the mortgage sector, most being authorised in wider ranging financial services arena. Since 2004, mortgage intermediaries seeking to provide advice and recommendation to their clients have had to be specifically professionally qualified, by examination, and the subsequent denotations that are shown vary in format but mainly incorporate CeMAP (Certificate in Mortgage Advice and Practice).

Therefore, for any mortgage which falls under the regulatory banner you should ensure that the advisor who deals with your mortgage is qualified under this title at the very least and that they are not simply information gatherers for others who will remotely research and advise at arms length. At the moment, Buy to Let mortgages are not regulated although the authorities are looking very closely at this and we fully expect them to fall under the regulatory banner before too long.

So why the need for professional qualification? Simply put, it is in your best interests to be advised by someone who adheres to and works with a high level of principles and who regularly undertakes continuous training to ensure he or she is always abreast of the best market products and practices designed to suit your personal circumstances.

Finally, on this subject, the regulator is now proposing that all advisers take further examinations to ensure that their skill and professionalism is continually upgraded in line with market needs. AToM supports this as we believe in full and dedicated commitment to the profession and we are keen to see the restoration of advice as a welcome requirement of our customers rather than the
less regarded necessity which appears to have become the case in recent years.

Discount to leave your current lender?

The FSA (Financial Services Authority) has published its latest Mortgage Lending Data for the UK covering the second quarter of 2011. The key areas of interest are -
- The proportion of lending for house purchase, which includes buy-to-lets, increased from 54% in Q1 to 59% in Q2,
- Lending to first-time buyers rose from 14% in Q1 to 16% in Q2.
- New lending at fixed rates increased in Q2 to 56%.
- The average rate on new advances rose from 3.65% in Q1 to 3.81% in Q2, which the FSA puts down to the increase in fixed rate lending and a rise in the average fixed rate from 4.24% in Q1 to 4.43% in Q2

Despite the latter, fixed rates are really very competitive in the current climate and well worth a review.

Other figures released this week show that mortgage lending may top £40b which would be £3b more than the last quarterly predicted figures. This is very positive.
However, be aware that we have just seen an increase in the three monthly LIBOR rate (London Interbank Offered Rate) which has increased to 0.90%. This is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London (effectively a measure of confidence between banks). Reports suggest that the European debt crisis is pushing up LIBOR rates as banks start to eye each other with suspicion again. Watch this space!

Finally, I’ve mentioned this before, but its back on the mortgage lending radar. A few dormant lenders are offering customers a discount (some up to 30%) off their mortgage as an encouragement for them to move away. If your current lender is one of these (and is not actively lending) then it’s worth a call to see if you qualify for a discount. Normally, they will give you a deadline in which to complete the transfer of your mortgage but I’m sure it’s a timescale that AToM could meet assuming you meet all of the new lenders criteria requirements!

Fixed rates are on the up!

The mortgage market has been very volatile over the last few days and the cost of fixed rate monies (SWAP Rates) have increased rapidly. This has meant many lenders have withdrawn products with little notice and subsequently increased their rates. The most notable being Nationwide who increased fixed rates by 0.30%. Others are expected to follow suit.

So it begs the question, if fixed rates are on the increase and inflation is on its way to an estimated 5% (was 4% in January), when will the Bank of England increase its base rate? The pressure is certainly on to contain inflation and avoid larger and more damaging rate rises in the future. The pundits had previously predicted a rise in May; however, this could now be bought forward. One member of the MPC (monetary policy committee) has even suggested this week that there should be an immediate small rise. Keep an eye on the press, but if you’re looking to change your mortgage onto a fixed rate, don’t delay!

The Financial Services Authority (FSA) has been flexing their muscles with lenders recently. DB Mortgages, part of the Deutsche Bank Group have been fined £840k for irresponsible lending practices and unfair treatment of those who fell in to arrears. DB Mortgages specialised in the sub prime arena offering mortgages to customers who had CCJ's, Defaults, etc. It is understood that £1.5m has been put aside for customers redress. Despite the sub prime lender crash of 2006/7 (lenders effectively withdrew entirely from assisting those with financial issues), there are lenders today actively lending in this arena assisting those with credit impairments (albeit with stricter lending regulations than in 2007!).

Finally, if you are a Halifax mortgage holder, and took a mortgage between September 2004 and September 2007 via their Bank of Scotland brand, you might be interested to note that Lloyds Banking Group, their parent company, is making a provision of £500m for goodwill payments in relation to an agreement with the FSA over wording that could have caused confusion in mortgage offers sent out during this period. I won’t go in to the specific details but suffice to say you don’t need to do anything as, from April, they will be contacting over 600,000 customers who may have been affected.

Things that gripe..

As we commence our fourth week in the Carfax hub of Horsham, my eyes have been opened to a number of interesting issues. Some which really require comment and others which perhaps I should just let pass me by! That said, and this might perhaps go against my better judgement normally, I want to take the rather risqué route and speak my mind on one particular issue which is of concern to me. One which, in the current climate, is unfortunate and can be detrimental to the house buying public.
I accept that it is a tough market out there and that everyone needs to firstly attract business and then convert what they can. If this is conducted professionally you can retain a customer for life. However, if it is done aggressively you can just as easily lose face and this can be very bad for business! We have lots of long term friends in the house sales sector and find that, in our view, the majority of these do work hard to provide a superb service. But, it appears that one or two may sometimes go a little bit over the top. It is both understandable, and sensible, that when a purchaser puts forward an offer for a property, the selling agent will require evidence that they can afford the transaction and obtain a mortgage. Quite right too! However, when the purchaser is then told that their offer will not be put forward to the vendor unless they place their mortgage through the selling agents own advisers, then this is surely not good or fair practice, in any sense!
Whinge over, and on to more positive matters. Properties appear to be selling and the general level of confidence is increasing in the market almost daily. The Conservatives will dismantle the Financial Services Authority (FSA) if they get into power next year. Not sure if that is a good or bad thing (just in case anyone from the FSA reads this column!). Have a good weekend!

Mortgage lending restricted to 3 times income?

This weeks announcement from the Council of Mortgage Lenders advises that mortgage lending figures for February were down some 60% against the same time last year. Hardly surprising when available products had dropped some 85% in the same period and most lenders criteria has changed dramatically! Due to the continued pressures that lenders are placed under, they are finding many ways to refuse applications, even for those with large deposits and good credit ratings. In addition, some high street lenders have recently reduced their maximum loan amounts to £250k, and others lending above £500k are charging an additional 1% per annum for the increased “risk”!
The US government recently announced plans to buy over $1trillion of toxic mortgages from struggling US banks. Mortgages that should not have been granted in the first place and were always unlikely to be paid consistently by the consumer. No surprise there then! However, this is a positive move forward and is intended to stimulate US lenders in to funding again albeit supported by the public sector!
In contrast, the UK Financial Services Authority (FSA) are expected to announce plans to look at restricting the amount of mortgage loans advanced to consumers by capping income multiples. Only 2 years ago you could obtain a mortgage loan at 6 to 8 times your income, depending on your status. This has already reduced to the 4 to 5 level but is heavily reliant on the computer not saying “no”! The new plans are to restrict lending to just 3 times income….
This is partly justified by recent reports from the FSA that mortgage arrears are up 31% for the last quarter of 2008 compared to the same period in 2007. It’s interesting to note that arrears statistics are only reported when the mortgage account reaches 1.5% of the balance. So, on a £100,000 mortgage, the account needs to be in arrears of £1,500. Therefore, the true picture of mortgage arrears is probably substantially higher.
With an average house price in the south east of £248k (BBC statistics) and borrowing at 75% loan to value on 3 times income, you will need to prove annual income of £62k! The days of mortgage rationing are looking more like reality!
Following the success of our Mortgage Clinic we are holding another on Saturday 4th April, from 9am to 2pm, at our North Street office, Horsham. Please do come along!