69% of all mortgages written by advisers!

The importance of mortgage advice has never been greater and it is an interesting fact that, according to the Council of Mortgage Lenders, 69% of all mortgages were written through professional advisers during the second quarter of the year. This is a substantial uplift on previous quarters and there are probably a number of reasons for this including long delays we are advised are happening with some lenders both in interview availability and processing times. 

The professional mortgage adviser reviews the whole market for you and can identify the best lending options and then deal directly with the lenders central processing units, speeding up the process from application to offer. That said, even in this area we know of at least one lender that is eleven days behind on post or electronic updates. A good adviser will listen to your specific needs and timescales and ensure that they line you up with a lender who will match both. So, if speed is crucial then you may need to consider working with a lender where the rate may not be the keenest on the market but where you get what you want. Your adviser will discuss this in detail with you before you make any decision.

On a different subject, a number of mortgage lenders are looking ruefully at their performance against target for the current calendar year and casting sideways glances at their competitors. At the start of the year, no one was really sure what the effect of the 2014 Mortgage Market Review would have. A number of lenders are, allegedly, well below target and we will probably see a price war in the next few months as they look to gain ground before the year end

MMR - transitional provisions!

It's been nearly a year since the Mortgage Market Review (MMR) was implemented across the industry, to enhance consumer protection.  Many of these rulings have been embedded nicely and, quite rightly, everyone who speaks with a customer must hold the relevant mortgage qualification.  However, the one ruling that seems to be taking a little longer to implement affects the subject of Transitional Provisions.  So what does this mean?  In short, there are provisions in the MMR that allow lenders to provide a new mortgage or deal to customers with existing loans who may not meet the new MMR requirements for the loan.  The borrowing is not normally able to exceed the amount of their current loan (this decision remains with the lender).  Transitional Provision was designed to help customers who think they have become 'mortgage prisoners' due to a change in lending criteria since MMR. This includes items including strict income multiples, or interest only customers for example.  Each lender should now be offering the ability to assist existing customers, or attract new customers without the requirement to meet all of the new and slightly tighter MMR rules, including waiving affordability checks for customers who have a good payment history and no material changes.  What you are not seeing just yet is lenders advertising this ability.  Always ask!

Nationwide House Price index suggest that UK house prices fell by 0.1% in February, compared to a 0.3% increase in January.  The average house price now sits at £187,964 (up from £177k in 2014).

And finally.....a huge thank you!  In the recent Mortgage Strategy Awards 2015, the mortgage Oscars of our industry, AToM was voted a fantastic 3rd in the Best Specialist Mortgage Broker/Distributor.  For such a small company in a huge national industry, this was a great achievement and credit to the superb team we have at AToM!

People over 40 yrs old should be able to get a mortgage!

It was interesting to see many of the national press last week covering stories on how difficult it now is to get a mortgage if you are aged over 40.  The articles suggested that many first time buyers are now not able to purchase their first home until they are 40 years old, or even up to 50 years old, report some lenders.  However, this can then limit the availability of mortgage finance, as many lenders want loans to be paid off by normal retirement age (67).  With the Mortgage Market Review (MMR) rules now firmly embedded in the day to day calculation of mortgage finance and lenders making decisions based on the customers ability to pay back what they have borrowed, age can now affect affordability. Especially for the more mature applicant or if a customer wants to retire before the end of the mortgage term.  Of course a shorter term means a hike in monthly repayments which affects affordability issues, and so on. 

Despite many high street and household name lenders setting a maximum age at the end of the mortgage term, usually circa 70 years old, there are an increasing number of smaller building societies and other specialist lenders who will consider a much older maximum age of 80+.  This will be subject to affordability, lending criteria and the customer working or having a defined income long after normal retirement ages.

The rules and regulations are there to protect the end consumer, and in the main are working as required.  We will see criteria relaxed over time, and they will need to be as many customers are now working long in to their later years.

So the bottom line is that just because you are aged over 40, does not mean that mortgage finance is unavailable to you.   But be wary that any lender will want a full and detailed explanation on how you will continue to make your monthly mortgage payments if the term of your loan exceeds 'normal’ retirement age – whenever that may be!

It all revolves around affordability

The world of mortgage advisers has taken a seismic turn following the launch of Mortgage Market Review (MMR) on April 26th this year. This date will be forever etched in the memory of all involved in this hugely important sector. As I have mentioned before, the largest impact of MMR has been the need for lenders to consider the affordability of a mortgage. Both for now and also considering potential future rate rises! Where is Mystic Meg when you need her?

This is all well and good, but in truth, no adviser worth his salt would seek to encourage borrowers to take a mortgage they cannot afford and, yes, we are capable of looking out into the future and assessing the impact that rates rises might have.

We have experienced a recent example of how this initiative has caused problems by not allowing a level of common sense to prevail and the brief details are as follows. The client is approaching the end of a five year fixed rate. When it was taken out the rate was 5%. Payments have been made on time, all of the time and the client now wishes to take another five year fixed rate but this time the rate will be 1.3% lower and therefore much cheaper than before. His job is the same as five years ago and his income has increased, albeit marginally. Yet the new lender has decided that the client cannot afford the mortgage despite the fact that he has paid at the higher rate for five years!

This is not an isolated case and it causes me to question the sensibility of those in charge of these decisions as, whilst there is no doubt that affordability is crucial, so is a credible sense check to understand the applicants overall ability to pay. In many cases accurately completed budget planners, mandatory in any climate, will give a picture of the applicants disposable income and most lenders should use this to determine what amount can be  apportioned to the mortgage. This is known as 'Debt to Income Ratio' and is another key factor in the underwriting process. The danger here is that some lenders use the Office of National Statistics figures which are an average and which often bear no relation to reality yet cause declines to happen as they may point to a reduction in perceived affordability.

Budget planning - essential to obtaining mortgage finance.

The Chancellor has recently given the Bank of England new powers to restrict Loan to Incomes and also Loan to Values.  In short, we’ve seen income multiples restricted for loans over £500k recently by a couple of lenders , to a maximum of four x income.  But the BoE now has powers to force lenders to do this.  If the BoE thinks lenders are lending too much or at too much of a risk, they have the powers to restrict the lenders offerings both on loan sizes offered to the customer or loan sizes against the value of the properties.  Personally, with the recent Mortgage Market Review (MMR) implementations across the market, these new powers could be deemed an unnecessary distraction to the lenders, especially as MMR already covers these areas and should naturally stop unaffordable loans being issued.

With MMR in mind, we are still seeing long delays across the market in customers obtaining appointments at local branches, as well as general processing delays.   Some lenders are not taking appointments for three or four weeks, are ten working days behind on processing, and we have experienced recent telephone calls taking over an hour to receive a response!  These are just on the broker side so heaven knows how customers are faring!

With all new mortgages, a budget planner will be required.  So make sure you know and can advise exactly how much you are spending on your lifestyle.  Especially make sure you know your monthly costs on food, household expenses, travel, pension and saving contributions and other likely costs such as hobbies, going to the gym, lottery direct debits and more.  Every lender will review your ability to afford your new mortgage over coming years so all direct debits and most entries on your bank statements or credit report will need to be advised.  This is so the lender can make a viable stress test on future rate rises and ensure that you will still be able to afford your mortgage at that time.  Yes, maybe there is a little guess work, but do make sure you disclose all monthly expenditure as the lender will normally want to review your bank statements and will see it all anyway!

Interviews over 2 hours and keep an eye on your Interest Only mortgage..

So the new MMR (Mortgage Market Review) regulations are now in force and the mortgage market has not ground to a halt, despite what some pundits insinuated it might!  It’s business as usual, albeit a little more intrusive and the process may be taking a little longer than before.  Some customers are reporting that the high street lenders mortgage interviews are taking well over two hours and more than a week to book appointment (no such problem with your local independent mortgage advisers!).  Others are reporting some absurd questions being asked such as how much do you spend on alcohol per month, how much on pet food and have you got a national lottery direct debit?  As with all things, whilst the new rules settle in, there will be some teething problems, but be patient with them as they are here to stay and for everyone’s protection.   Just ensure that you have all your monthly costs laid out accurately from the outset and ready for when requested.  If you spend £500 a month on food, then that’s the figure to advise.  If you don’t and the lender reviews your bank statements and finds discrepancies, this will not be looked upon favourably.

Coincidently, we have seen some rates increase over the last week.  Both NatWest and Santander have increased rates on their Help to Buy Mortgage Guarantee schemes.  NatWest increased some of their 95% loan to value rates by 0.4% on two year fixed deals.  Santander increased their 5% deposit rates by 0.1%.

The British Bankers Association has confirmed that purchase figures for March 2014 were up 45% compared to March 2013.  Gross lending amounted to £6.4bn.  

Remortgaging amounted to £2.9bn for the month, the same as in February, but an increase of 32% compared to the same time in 2013.

Finally, I’ve mentioned this matter a number of times, and make no apology for doing so again!  If you have an Interest Only mortgage, do make sure you keep reviewing the options for repaying it back. Where a customer reaches the end of their mortgage term still owing exactly the same as when they took it out, with no form of repayment apart from selling their property, this creates a major headache for the lender. Especially when they want their money back! This is a major aspect of the new regulations which are now implemented, so be on top of your options, before the lender calls! If in doubt, seek professional advice.

Two days till MMR! Time to use a broker..

I don’t think I can talk about anything else this week apart from the launch of MMR.   The Mortgage Market Review comes in to effect on April 26^th and will fundamentally change the way a lender looks at a mortgage application.   Amongst a number of new rulings, one area being reviewed is affordability, a key element when arranging a mortgage.  The MMR takes this a step further in also requiring a lender to predict affordability into the future.  For example, will any material changes occur in the next five years; how much will you spend on seasonal commitments this year; will you need to consider an increase in property size to meet family requirements?  These are just some of the more intrusive questions that are to be explored when budgeting for a mortgage.

As lenders new systems are released, we are also noticing the phasing out of income multiples and the introduction of affordability models.   So, no more “4 x income” conversations!  The amount you can borrow will depend on your monthly net income against expenditure and living costs and the lender will be the judge of what they think you can afford! 

One thing is for sure in that the time taken up in research and recommendation for a suitable mortgage product might just start to increase as each lender advises their differing requirements!   

As such, we’re hearing that mortgage appointments with local banks or building societies are now taking well in excess of an hour (some up to three hours!).  Sadly, if for whatever reason, that lender cannot not offer the customer what they want, the customer may have to approach another lender and sit through another hour or so possibly to find that they too cannot help, and so on.  This raises the spectre of a large commitment to time for the consumer 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.  Independents, like us, have access to a number of limited distribution lenders and exclusive products not readily available to the wider mortgage market!

The new world of MMR - calculating affordability in to the future

I have mentioned in recent weeks the advent of Mortgage Market Review (MMR) and the impact it will have on lenders approach to submitted applications. At the risk of being boring, I feel strongly that this is a subject  worth continuing as the impact on acceptance of mortgage applications could be considered as seismic.  MMR places far more responsibility on the lender for making fully informed decisions on new applications and with a particular emphasis on affordability. Not just for now but taking into account the foreseeable future too! Lenders will require the applicant and their advisor to assess what may happen financially in the next five to ten years and their underwriting decisions will be based around this. So, the message is ensure that when you start the application process you have a full schedule of income and expenditure to hand. Advisors and lenders worth their salt will require this.

That said, business remains brisk and lenders are keen to move their mortgage funds quickly and have targets to hit in the remainder of the year.  So, if everything about your application makes sense then there should be a lender and product ready to fit your requirements. With this in mind a very important part of the application process is the completion of a Fact Find. No self respecting mortgage broker will be without one! This is a data capture document which examines everything about the applicant in a financial sense ensuring that the advisor has as full a picture about you as possible before  providing formal advice and recommendation. At that time, your advisor will also require a great deal of supporting documentation as part of the process. This will include the need to prove identity and residency, usually by way of a passport and utility bill. Other required documents will include proof of income by way of pay-slips or accounts and three months personal and business statements. The list is not exhaustive and will be determined by individual lender requirements and these can vary quite widely. Don't be surprised as the lenders are entitled to gather sufficient information about you to make a reasoned and sensible lending decision.   

I regularly close with the suggestion that you talk to a qualified advisor before you start the application process. This has never been more important than now given the new world of MMR

Budget could lead to a Buy to Let boom?

Last weeks budget raised a few eyebrows as the Chancellor included a surprise change to pension withdrawal requirements.  From April 2015, there will be no requirements to purchase an annuity (providing ongoing monthly income) from built up pension contributions.  This was an interesting amendment as effectively the Chancellor is allowing and trusting the consumer to invest their life investment wisely!  However, the immediate response is that many will put their funds in to property and this could lead to a Buy to Let boom.  Details are still not confirmed, but customers will need to take professional advice as this could lead to a number of different tax implications if the full funds are withdrawn in one go.  Nevertheless, the move should also create competition across both sectors as the annuity market will need to become a choice compared to a Buy to let, as it will no longer be an obligation.

Gross mortgage lending was up 43% in February compared to the same time in 2013 report the Council of Mortgage Lenders.  Lending in the region of £15.2bn was advanced to customers, although this was slightly down on January’s £16.1bn. 

Finally, we’re just a month away from MMR.  The Mortgage Market Review comes in to effect on April 26^th and will fundamentally change the way a lender looks at a mortgage application.

One area being reviewed is affordability, a key element when arranging a mortgage.  The MMR takes this a step further in also requiring a lender to predict affordability into the future.  Will any material changes occur in the next five years; how much will you spend on seasonal commitments this year; will you need to consider an increase in property size to meet family requirements?  These are just some of the more intrusive questions that are to be explored when budgeting for a mortgage.

But this also means that from April onwards, what was once an affordable mortgage may suddenly become unaffordable due to the perception the lender has on consumer spending habits, both historically and projected for the future.  

We are also noticing the phasing out of income multiples and the introduction of affordability models.   So, no more 4 x income discussions.  The amount you can borrow will depend on your monthly net income against expenditure and living costs. 

Lenders are just starting to release their new systems and income and expenditure calculation models to us.  I will update you on any progress over the coming weeks.  However do be advised that the time in research and recommendation for a suitable mortgage product might just start to increase as each lender advises their differing requirements!    

New regulations from 26th April - MMR

On April 26^th 2014, a new regulation will govern the mortgage market entitled the Mortgage Market Review (MMR).  Those who have recently arranged a mortgage will have seen that there is already a vast amount of regulatory paperwork involved in all aspects of the mortgage process.  This will not change.  But the amount of detail involved will increase somewhat.

Affordability has always been a key element when arranging a mortgage.  The MMR takes this a step further in also requiring a lender to predict affordability into the future.  Will any material changes occur in the next five years, how much will you spend on seasonal commitments this year, are you intending to expand your family?  These are just some of the more intrusive questions that are to be explored when budgeting for a mortgage.

Lenders have always stress tested affordability when arranging mortgage loans.  Now it is projecting to ensure the customer will be able to meet all future commitments over the next five years.  Difficult task!

But this also means that from April onwards, what was once an affordable mortgage may suddenly become unaffordable due to the perception the lender has on consumer spending habits, historically and projected for the future.   

The lender has always endeavoured to protect their investment to ensure they can get their money back should a customer not pay the mortgage.  The new rules mean they also now need to report on this to the regulator and confirm all projections and detailed calculations.

Even if a customer has life cover, income protection cover and any other insurances, these monthly payments are deducted from actual income as a monthly expense!  This could have an adverse affect on affordability and despite a lower risk and having been protected for a number of outcomes the customer may not achieve the mortgage despite their commitment to the cause!

Today, it’s about affordability.  From April, the lender is predicting the next five years affordability, risk assessment, future spending behaviours and more.   Whilst you might think you are superb candidate to raise a mortgage to purchase your dream home, the lender is being forced to think and project your assumed ongoing risk and affordability, amongst other considerations, before making their decision on whether to lend to you, or not.

                                                                                                                                                                                    

Goodbye 2012 - Optimistic for 2013!

I can’t believe this is my last column of 2012!  On the one hand, we could not have had a better year for sport and it makes you proud to be British with the fantastic achievements from our truly inspirational sports men and women.   On the other hand, the retail and financial sectors have had another tough ride…

We have seen the demise of retail giants and household names such as Comet and JJB.  Many others are under extreme pressure to make ends meet.  The Northern Rock brand, the first major public crash of a lender in 07, will also soon just be a name in history, replaced now by Virgin Money .

We were all optimistic and hoping for a hugely more positive year, but the reality is that lending remained pretty static, despite the requests from ‘the powers that be’, and volumes will finish not much different from those in 2011.

Interest only mortgages seem to be on their last legs as more lenders are withdrawing this option.  The ‘Funding for Lending Scheme’ has received good press and appears to have had a positive impact.  It has huge potential for 2013 and I hope this is expanded to help the smaller lenders, not just the high street big six.

Finally, who can forget that we have had MMR (Mortgage Market Review) installed upon us.  Yet more regulation for the mortgage market, due to impact us all in April 2014. Good for mortgage brokers and mortgage advice!  This is a parting gift from the FSA, as they change name to the FCA (Financial Conduct Authority), same people, possibly different location….!  Roll on next year.

Thank you for reading my column.  I really appreciate it and thrive on it being mentioned on a visit to our offices (or whilst in the Pub!) and I’m always happy to discuss a mortgage or the state of the market!   It’s been an interesting challenge this year remaining positive when markets have been so tough.  I’ve always tried to say it as it is and hope that has been beneficial in your decision making, when it comes to finding the right mortgage/company/brokerage!

Please let me know if there are any specific issues or areas you would like me to cover in coming months.  You can email me at dale@atomltd.co.uk, or call me on the above number.  I’d be delighted to discuss with you.

On behalf of everyone at AToM, we wish you and your families a very Happy Christmas and a relaxing and prosperous New Year.  We look forward to being of assistance to you in 2013…

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….! 

Interest Only takes another blow

Over the last few months I’ve mentioned Interest Only quite a bit.  Interest Only is one option to pay your mortgage, but it does exactly as it says, you only pay the interest on the loan.  So at the end of the term, say 25 years, you still owe exactly what you started with.   Normally a savings plan is also set up to build funds over time to match the mortgage amount at the end of the term.

This might be right for certain individuals who have careers that pay out a lump sum after a term, or for someone who gets many bonuses.  But unfortunately, that will no longer be a mortgage option you can get through Nationwide.  They have pulled out of offering Interest Only across their entire range of products.  The country’s biggest Building Society has said that it has taken the decision to remove this option as they were only processing 3% on this type of product.   In the scheme of things, very small and what happened to customer choice? 

The mortgage market is awaiting the imminent final release of the FSAs Mortgage Market Review (MMR) which highlights areas due for change and implementation of stricter rules across the market.  Interest Only was mentioned in the consultation stages, but it does appear that an over-reaction has occurred across the market place with many lenders restricting the amount that could be borrowed on Interest Only and Nationwide’s move could/will lead to others following suit and removing the option entirely.  No one wants to be the last man standing!

There’s no denying that this product has sadly been abused by some across the country in order to keep customers costs down and no suitable repayment vehicle being set up.  However, not all should be tarred with the same brush.  Many customers have reasonably performing endowments and investment returns that will repay any Interest Only mortgages and cause no risk at all, mainly thanks to the advice, recommendation and the brokers ‘knowing their customer’.  

In addition, lenders are consistently writing to all customers on Interest Only to ensure that a suitable repayment plan is in place and those who are no nearer to the end of their term should have sorted alternative arrangements.  Are you one of them?  Act now.

Without doubt this move has sent shockwaves through the industry and if others do follow suit, many customers could simply become mortgage prisoners with nowhere to go.