First time buyers are more likely to be rejected for a mortgage than they were a year ago!

 A recent study by Aldermore Bank showed that first time buyers are more likely to be rejected for a mortgage than they were a year ago. Unfortunately, more than two in five said that they had been rejected more than once. This compares with fewer than one in five before the pandemic.

In the survey, the top reason for mortgage applications being rejected was due to having a poor credit history (41%) and over a quarter of prospective first-time buyers said that they were worried about their credit history with over a third currently seeking to improve their credit score. 

In our experience, an often-repeated mistake is for first time buyers with any kind of complexity and/or poor credit to seek to obtain a mortgage via their bank first and this will more often than not result in a rejected application. This can lead to despair, desperation and sometimes shame and embarrassment, but brokers like ourselves are experienced in helping such customers.

Regrettably, the survey also highlighted that more significant credit issues are becoming more prevalent too with nearly a quarter (23%) having an account handled by collection agencies, one in nine (14%) having taken out a payday loan, 12% having a County Court Judgement (CCJs) and 9% having a bankruptcy in their past.  These findings are being echoed in our day-to-day dealings with customers and it’s clear that the pandemic has impacted the finances of many, but that need not mean that they cannot obtain a mortgage.

By enlightening customers to the many options available, no matter what your circumstances, mortgage brokers can remove the supposed stigma and shame of having poor credit and help make your home ownership dreams a reality.

Rates being pulled quickly, have your paperwork ready!

The current climates continue to affect the mortgage market in many ways.  We’ve seen lenders pull rates quickly, decreasing rates one day and increasing them the next.  We’ve seen some lenders remove the higher LTVs (Loan to values) 95%, some removing 90% and others removing 85%.  We have seen some lenders launch limited edition products and others have not re-entered the market at all!  All signs of the times and of the fast-moving pace of the money markets. 

The only certainty seems to be uncertainty and where lenders may have previously considered clients on furlough, or those who have taken bounce back loans within their businesses, this may have changed as lenders look to ensure clients can afford the mortgage for the next six months and onwards.  Some require a letter from the client to confirm this whereas others may require to view bank statements to prove they have the funding. 

Some lenders may have previously taken all of a client’s bonus or commission when working out affordability, but more recently have reduced this to 50% of received monies.  We’ve seen one lender limit the maximum term of the mortgage to 25 years for first time buyers and change their acceptance on where deposits come from, for example - gifted deposits.  

With changes happening quickly, it is vital you get all the documentation required to the lender as quickly as possible to secure your rate and that product availability.  Especially as some lenders are receiving pre-covid volumes of business, but only with 50-70% of normal staffing levels.  This means that some lenders can be weeks behind and if you only provide certain items, you may find that you go to the back of the queue when the outstanding items required are submitted, which extends the delays. 

Most lenders will no longer prioritise the valuation of the security property.  They will assess the whole mortgage application and confirm agreement to proceed before instructing the valuation.  Be aware of this as Estate Agents need the valuation instructed asap.  Depending on the lender you go with, this could take a few weeks.

Finally, expect this to continue for some time.  Not just because of the ongoing pandemic, but also with the stamp duty temporary changes taking effect, a lot of people are trying to move before the end of March deadline.  Good for the property market, but who knows what may happen with processing, criteria and resulting inevitable delays over the coming weeks and months.

A good time for first time buyers?

Recent changes to the stamp duty threshold have attracted a growing number of enquiries from First Time Buyers (FTB) looking to take advantage of this short-term tax break in order to get their foot onto the property ladder.

This is a great time for FTBs to take the leap but as we continue to operate in a transitional lending marketplace, there are still many things to consider.

So, here are some tips for FTBs.

• Let’s start with a simple piece of advice. If you are an FTB considering purchasing a new car and a new house – purchase the house first. Financial commitments such as car finance repayments can quickly limit affordability on FTB applications.

• FTBs should also be aware that they need to declare ALL credit commitments. 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.
  

• An area highlighted by one of our top advisers is that FTBs can often overlook student loans as being a credit commitment, as these are automatically deducted from pay packets. However, most lenders will include this in their affordability calculations.

• It is often not necessary to instruct an independent surveyor for a Home Buyers Report and savings can be made by using the lender’s valuer to complete the report.  There are pros and cons to this, which any good adviser can walk you through.

• When purchasing the biggest asset of your life, invest in the right professionals and undertake some due diligence. Online conveyancers can appear to be a good low-cost option but may not necessary be the best option as this is purely a process driven approach. As opposed to a solicitor which acts in your best interests and provides professional advice. 

• An estate agent’s in-house broker can offer a simple solution to keep the mortgage and purchase with the same company. However, these are rarely independent “whole of market” brokers and tend to work from a restricted panels of lenders. This may limit your mortgage options and you may not get the best deal or most suitable mortgage.

This is a great time for FTBs in the right financial position to take the plunge but the importance of good, professional mortgage advice should not be underestimated in what remains a challenging time for many. If your interested in finding out more, why not speak to one of our advisers about how we can help you on this journey.

Slightly more complicated for the self-employed to get a mortgage

There are many concerns in the current climates relating to job security and especially how lenders look at the self-employed following lockdown with regards to consistency of ongoing income and customer base.

The growth of self-employment, contracting and the gig economy has continued to challenge and change the make-up of the UK workforce over the past few years. Government statistics for 2019 saw the number of self-employed people rise to 4.93 million, some 125,000 more than a year earlier and this is a number which is only expected to grow.

As a specialist mortgage broker, we’re seeing a greater number of clients who are not only self-employed but who have a variety of income streams and different ways in which they generate their income. As the raising of the Stamp Duty threshold is set to encourage more first-time buyers into the housing market, and homemovers to take the next step up the property ladder, it’s vital that mortgage brokers are adept at meeting the ever-changing demands of such borrowers.

Moving forward, an even greater proportion of homebuyers will have a non-traditional income history and many differing forms of current income for lenders to contend with. Despite this sustained shift, it largely remains the case that those with a salaried or traditional source of income are far more likely to be eligible for mainstream mortgage deals than those with complex income scenarios. Having said that, there also remains a misconception that those missing out on the perceived favourable terms of high street lenders are unable to get a mortgage. Thankfully, there are a healthy number of lenders - some on the high street, many more not on the high street - who have competitive product ranges and flexible criteria in place which can service the needs of the self-employed workforce or those with multiple income streams. A large proportion of these products are available through specialist lenders and some can only be accessed via a mortgage broker.

It’s always been slightly more complicated for self-employed people to obtain a mortgage and – especially over the short-term - this may get even tougher when you consider additional Covid-19 complications. The rise of self-employment and the gig economy will undoubtedly continue. And with many underlying lending restrictions still in place, especially at higher loan-to-value levels, this really does magnify the importance of good, professional advice in helping self-employed clients and those with more complex incomes to achieve their homeownership goals. 

Lenders attitudes to risk and operational capacity affect higher LTVs

Loan-to-value (LTV) has always played a huge role in the mortgage market, although borrowers can often be unaware of the activity swings going on behind the lending scenes and the reasons for these.

Getting back to basics for a moment, LTV is essentially the size of mortgage that a lender is prepared to offer borrowers in relation to the value of the property they are looking to purchase or remortgage. It is expressed as a percentage. For example, if a lender offers a mortgage deal which has a maximum 80% LTV, it means they will lend up to 80% of the property value. And the borrower will need a minimum 20% equity if they are remortgaging or a 20% deposit for a purchase.

The well-publicised reintroduction of physical valuations offered a huge lift to the mortgage market generally. This was swiftly followed by a flood of lenders welcoming new business. After a cautious initial approach, LTV levels initially crept up, but the question is – did some lenders open the higher LTV door a little too soon? Were they surprised by the amount of pent-up demand or were they not quite in the right position to make such moves from a logistical and operational sense?

Only individual lenders can answer this question, although many 90% and some 95% LTV products have been launched and pulled in quick fashion as lenders appear to be struggling to service the influx of enquiries. Or lenders are simply offering them for a limited time through limited distribution channels to help control the supply and demand element.

Highlighting products being pulled from the market is certainly no criticism of these lenders. If service levels can’t be maintained, then this is clearly a sensible move to make. Managing risk and operational capacity has always been a challenge for lenders, and this is proving increasingly difficult in the midst of some uncertain economic conditions. This is reflected in product numbers. Recent data from Moneyfacts revealed that the number of products at 90% loan to value has shrunk to less than a tenth of the figure available pre-lockdown. The data outlined that there were 779 residential deals for borrowers with a 10 per cent deposit in March before social distancing rules came into force, shutting down the market. However, at the end of June, there were said to be just 72 products on offer at 90 per cent LTV, a drop of 91 per cent.

The higher LTV lending battle will be an ongoing theme throughout the rest of 2020, and this will be dictated by a number of issues from an internal and external perspective. There’s no getting away from the fact that borrowers are crying out for higher LTVs. However, there remain question marks over house prices, unemployment figures, not to mention if and when a recession may hit – and how long this may last. From a lending perspective, issues remain over attitudes to risk, operational capacity and servicing the valuation backlog and pipeline cases.

We also have to consider how this period is affecting new and existing borrowers. At Impact Specialist Finance, we’re seeing greater numbers of clients coming through our doors with some form of adverse credit, and this number is only likely to grow. When it comes to servicing these needs, fewer options are currently available. Many specialist lenders are tightening criteria and it’s difficult to know if, and when, the near prime product market will experience any significant improvement. Especially in the midst of lingering uncertainty around exactly how payment holidays will affect credit assessments.

These trends will prove interesting stories to follow as lenders continue to get to grips with demand and how best to service ever-changing borrowing circumstances amidst a variety of Covid-19 and wider economic repercussions. What we do know is that mortgage advisers will prove invaluable in quickly determining whether a case is viable or not and advice has never been more vital than it is today.

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.

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.