Mortgage borrower demands are shifting!

In recent months there has been some much-needed attention drawn to customers who have experienced some type of adverse credit. Many specialist lenders and building societies are leading the way both in terms of the education process and through some innovative and highly competitive product ranges.

There is no hiding from the fact, or should there be, that borrowing demands are shifting and many high-street lenders are struggling (or unwilling in some cases) to adapt to them. The fact is that growing levels of credit related issues are emerging. In the vast majority of cases these remain minor, but this doesn't stop concerns being raised over credit histories and consumers future ability to secure a mortgage.

Recent research from specialist lender Pepper Money suggested that the majority of people who have experienced credit problems in the last three years are worried about being declined a mortgage. Its survey found that 69% of those who are seeking a mortgage or remortgage in the next 12 months are concerned about having their application declined due to their credit history.

We have spoken to many clients who, due to their credit history, felt that they couldn’t get a mortgage or remortgage from their current lender. On the back of this, we are forming even stronger alliances with a variety of lenders to help get this message across and ensure that our staff have the knowledge and access to the types of deals which can help such borrowers to achieve their homeownership aspirations.  It's these types of fresh approaches which will enable us to assist more people with the appropriate solutions and help clients put their past credit issues behind them.

Whether it’s a CCJ, Default, IVA, payday loan, missed payments, bankruptcy or even a previous property Repossession, lenders are looking to assist clients who have had these issues.  Yes, depending on the level of adverse credit, the rate maybe slightly higher than a standard high street mortgage, but we use specialist lenders as stepping stones on the road to credit repair (obviously, all subject to terms and conditions), with the ultimate target of returning to the high street lender option as quickly as possible. 

Let’s hope that 2020 is the year that this sector of the mortgage market starts to generate headlines for the right reasons.

A swing between the high street lenders and the more niche market

During the last few weeks, we have seen several lenders who have posted positive half year results.  Many of them stating that they have increased lending against their previous financial year results.  But this is hardly surprising as many didn't really want to lend heavily last year.  However, it is important to run with the positive news and such announcements for half yearly figures show that lenders are keen to lend and are looking at ways to compete in an active market.  What this means is that end consumers should be able to bag a bargain for some time yet whilst rates remain low and competitive.  Some industry pundits are even stating that it will be late 2018 or early 2019 before they expect any rate rises...

These results have also resulted in something of a swing between the high street and niche lenders.  The smaller lenders are stealing market share from the 'super tankers' on the high street as an increasing number of consumers are requiring a manual and human assessment rather than a computer decision making system.  Despite all of the available technologies in the current climate, sometimes a conversation with a human being is just what is needed!  And you’ll be surprised at what some of the smaller lenders can do, including lending into retirement, up to six times income, cross collateral charges on numerous properties and more.

From where we see it, on the front line, I would dare to suggest that consumer confidence appears to be the highest it has been for some considerable time.  People are selling, people are buying and many are remortgaging!  July and August are never normally this busy!  It is not just one geographical area either, although does appears to have a leaning to the south. What does seem to be apparent is that the demand is for ‘all types of mortgages' for all types of people!   From the straight forward, to the complex, to the commercial shop front, to the credit issues, to the first time landlord investing in their first Buy to Let property and so much more, we are seeing many different scenarios.

Arranging a repayment vehicle for an Interest Only loan is not a job for ‘tomorrow’.

There has been increasing commentary recently regarding Interest Only and Repayment mortgages. With an Interest Only mortgage, you only pay interest and no capital and so, at the end of your chosen term, you still owe the lender the same amount as when you began. Normally with this method, it is recommended that you contribute to a savings or investment vehicle to generate funds to repay the mortgage at the end of the term. However, this is usually optional but the lender will maintain contact with you during the term to investigate how you will eventually repay them.

With a Repayment Mortgage, you pay both interest and capital each month. Initially, this appears more expensive, but does mean that you pay back the loan with no debt outstanding at the end of the term on the reasonable assumption that you meet the required payments on time. 

Why the recent attention to these repayment options?  Simply, because many borrowers who stepped onto the property ladder chose the cheaper monthly payment (interest only) promising to review their payment plans at a later date. The problem is that the ‘later date’ never seems to arrive! As we all know, people generally live within their means. Many borrowers on this scheme have no savings or viable plans to pay back the debt and this is worrying! 

For a customer to get to the end of their mortgage term still owing exactly the same as when they took it out, with no form of repaying the loan apart from selling their property, creates a major headache for the lender, especially when they want their money back!  This is also part of the reason why so many lenders have historically moved away from offering interest only all together.

In addition, most high street lenders will only lend until normal retirement age, so those looking to extend their loan beyond normal retirement age, may only find a small number of mortgage lender options.

That said, Interest Only mortgages can be right for certain professions - people entitled to annual bonuses: the fluctuating income of self employed: or employments where lump sums are received after a number of years in service. It is not an exact science however and every case is different.

Arranging a repayment vehicle for an Interest Only loan is not a job for ‘tomorrow’.  As we all know, tomorrow never comes.  So, do it now!  Sort out a plan of action and put it into motion. Speak to your current lender or mortgage broker and review the options available to help you achieve repaying the loan over a specific time period.  But don’t delay…the clock is ticking!

They say no base rate move in 2016. Now, use a broker!

As mentioned in one of my earlier columns, I could not envisage a rate rise for some time and, at the earliest the end of 2016, start of 2017.  This has now also been stated by the Bank of England who suggest that there will be no movement in base rate for the whole of 2016.  If it's correct, then good news indeed!  What this means is that lenders effectively have cheap money to lend.  In the current climate, with minimal property stock for sale, reduced activity across the market and increased targets, we will see a lot of competition and possibly rate decreases as Lenders become more focussed on attracting new business. 

This will also apply to the non high street lenders.  They will have an uphill struggle to compete with the bigger lenders in rate reductions.  Where this breed will succeed is through helping those who are rejected by the high street, for whatever reason.  As the household names usually work on a computer automated credit scoring system, not everyone will fit the mould required.  The smaller lenders have an ability to manually review an application, assess it on its merits and carry out a credit search, rather than a credit score.  Rates are not far different from those on the high street and in most cases, the process will be the same.  But having a human underwrite your application can be a big plus when other avenues may have been closed to you.

What is for sure is that obtaining professional advice from a company who is willing to stand behind their recommendations and build a relationship with you, rather than just treating you as a number, should be a key priority.  Yes it may cost a small fee, but finding the right mortgage for your needs has to be more important in the longer term.  As more and more regulations hit the mortgage industry, dealing with someone who is experienced and who has access to the whole market, rather than just a small panel of lenders, should mean that you get the appropriate advice and less stress to concern you later on.  Remember, this is the biggest debt you're ever likely to have.  It should therefore be treated with the up-most respect.

Credit Scoring - most lenders do it!

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.

Weeks to get an appointment with your Bank?

We have had many mortgage customers approach us who have become frustrated in recent times.  Mainly with two things:  firstly, that some of the local banks or building societies cannot see mortgage customers for a matter of weeks (we heard one was booking four weeks ahead!) and secondly, each appointment often takes well in excess of an hour.  Sadly, for whatever reason, that lender could not offer the customer what they wanted and so they went to another and sat through another hour or so only to find they could also not then offer what was required, and so on.  This is a large consumer commitment to time but without a satisfactory solution.  This is where independent and whole of market brokerages come into their own.  They will be able to offer you access to a number of lenders, including the high street names, if appropriate, and you only need to have one conversation with the same person.  In addition, they should have access to lenders who will manually assess your needs rather than a ‘computer says no’ type scenario, if required.  If I can also ‘plug’ a little, we also have access to a number of limited access lenders and exclusive products not readily available to the wider mortgage market!

With this in mind, we have seen lenders reviewing criteria options over the last few weeks.  For those looking at investing in property to rent out, Buy to Let mortgages are now available with just a 15% deposit.  For those looking to get on the ladder with a small deposit, or even remortgage with little equity in the property, this is now possible right up to 95% of the value of the property.   Some lenders have reviewed options for those wishing to by their council property and Right to Buys seem to be back in fashion.  Shared ownership options (buy part of the property, rent the rest) are also on the increase in both demand and supply, especially on newly built properties.  Finally, the lenders in the specialist sector are catering for many options.  Terms and conditions apply, but whatever the scenario, make sure you review all the options available to you!