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.

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.

Physical valuations are back, but with conditions.

‘Back in Business’, ‘Business as Usual’, ‘When we come out of this’ - all terms I’m sure you’ve heard a lot recently.  I think it is now very clear to say that any form of ‘normality’ will be a different experience from what we have been used to.  Every day includes new learnings and new ways to do things.  Working from home has meant I have seen more of the kids and wider family, watched more TV, and worked longer hours (how has that happened?!).  And we are seeing a lot of positivity in the market and a lot of people talking up the exit from this awful disease, rather than burying their head in the sand and hoping it will all go away. 

The really positive news over the last week is the return of ‘physical valuations’.   Many lenders had taken to using ‘automated’ and computer-generated valuations recently.  Which has been great but meant that the more complex property types (HMOs, Multi Units, Properties with Annexes), could not proceed as they needed someone to visit the property and report back to the lender.  With the lockdown restrictions eased, this has meant that some lenders who were ‘mothballed’ can now begin to lend again.

Customers can now view properties in person, speak to estate agents and, hopefully, now move home.  It is estimated that circa 40,000 property transactions were put on hold due to valuers not being able to visit properties and some 300,000 transactions stalled due to people being unable to move whilst following the government instructions.  The new allowances have very strict social distancing guidelines for all companies involved however, and these need to be followed. 

These are all very small steps on the road to some sort of recovery and the signs are that this will be a long road.   For now, the new norm is online conferencing, visiting friends and family from a distance, maybe a weekly online quiz and binge watching the odd programme here and there.

Everything we do is under review and from a work point of view, do we really need to return to an office when we can discuss mortgages and related finance all day (and evening) via laptops and video conferencing?  Only time will tell.  Processes have had to adapt and change so quickly.

What we cannot afford is for a second spike which would put yet more lives at risk. Health first and any slippage would be very damaging for the financial/property sector.  Stay safe..

Small deposits, LTVs and credit scoring

You may have heard the term LTV a number of times when it comes to mortgages.  This stands for Loan to Value and effectively the definition is the amount you are borrowing compared to the value of the property.   This is especially key when a lender is a assessing your mortgage, as a higher LTV will create more of a perceived risk to the lender.  Mainly due to the fact that if house prices dropped sharply, the lender may not get their full loan amount returned, should they need to repossess the property for whatever reason.  Some lenders will charge a separate insurance for such high borrowing, normally called a Mortgage Indemnity Guarantee or Higher Lending Charge.  As such, you might find that a person who is borrowing 95% LTV and just investing a 5% deposit will attract the higher mortgage rates versus someone investing  a 25% or larger deposit.  Usually these are stepped, so up to 60% LTV, rates will be around 1% cheaper than those borrowing up to 70% LTV.  Then in turn these tend to be 1% cheaper than those borrowing up to 80% LTV,  and this will be cheaper than the next 5% LTV increase, and so on right up to 95% LTV.  So, in short, the more you can save for a deposit, the lower the interest rate you will probably receive from the outset.

This also is the same with credit scoring.  Credit scoring is one of the most widely used means to assess a customers ability to obtain a mortgage.  If you have had a number of recent credit searches for home insurance, car insurance, mobile phones, etc, this may affect your ability to achieve the best rates available to you.  In some cases it might also affect the amount of loan offered to you.  So make sure you have seen you credit report (experian, equifax, noddle), and know what appears on there.  This is your financial history to any lender and should be treated as your CV to a prospective party!  Try and keep payments up to date as anything within the last six years will probably be visible and may affect your ability to borrow.  However, if you do fail a lenders credit score, don't give up.  There are an increasing number of lenders willing to assist (depending on the nature of the decline) and they will also manually assess. A human making the decision, rather than a computer. 

It's all 'go' in the Mortgage market!

There are many changes in the mortgage market to report on this week!  I start with those who have cut rates or launched new products!  These include Halifax (some rates reduced by 0.5%), Barclays (some rates cut by 0.5% across residential and Buy to Let ranges), Aldermore Mortgages (some Buy to Let rates cut by 0.8%) and Precise Mortgages (some rates cut by up to 1%).  Others including HSBC, Tesco Bank and the Post Office have all launched very attractive low fixed rates.  However, always make sure you read the small print as although the rate may be attractive, the attached fees to the product may not be so and the deposit required is probably quite substantial.  Another important point to check is the rate you will revert back to when the product fixed rate ends.  You don’t want to have a ‘payment shock’ at the end of the term if the rate you revert to turns out to be substantially higher than your initial rate.

Saffron Building Society have launched a superb innovative product in to the specialist sector aimed at those who have had a slight blemish or two on their credit history.   Called the ‘Credit Repair Mortgage’, the product, which has no early repayment charges at all, is looking to assist those who have had financial issues in the past obtain a mortgage with a view to repairing their credit score and eventually getting them back on to high street rates.  The product caters for First Time Buyers as well as home movers and is initially for those who are employed.  The real win win on this product is that the longer the customer is with the lender, the lower their rate becomes.  For example, one product tier reduces annually by 0.4% for the first three years.  This is great innovation!  Terms and conditions apply…

Secured loans have also had a positive week as Shawbrook Bank launched a 95% LTV (loan to value) home owner product.  Loan sizes range from between £3,000 and £25,000 and are secured against the property as a second charge.  This is a really great move by the lender and will service a considerable gap currently in the market when mainstream high street lenders won’t allow a high LTV loan to a customer as a first charge.