Product innovation - Hero Mortgage, 95% Loan, Large income multiples and Help to Buy

Innovation is key in the current climate and we must applaud the lenders who are defining the way of the industry and providing mortgages for certain types of customer.

The main issues currently result around income multiples, loans size compared to the value of the property and catering for those over the age of 55.

Two recent examples come from one of our specialist lenders, Kensington Mortgages.  I don’t normally single out a lender, but these guys are doing a great job.

Firstly, they’ve launched the ‘hero’ mortgage. National and Govt stats suggest that:

·       Over 150,000 people are employed in the Army, Navy and RAF.

·       More than 1.5 million work in the education sector

·       Nearly 300,000 men and women are working as police officers and firefighters.

·       Over 1.7 million people work for the NHS 

They aim to help these ‘heroes’ to own their ideal home.  This can include over 5 x income and thinking outside the box when it comes to complex scenarios.

Secondly, they will cater for those with just a 5% deposit who may have had a blip or two in the past.  This can include CCJs, Defaults, Payday loans and Debt Management Plans.  Terms and conditions apply and some need to be older than twelve months. 

Help to Buy is increasingly in demand and again, it does not matter if there has been a small financial blip.  There are lenders looking to assist and will look at a wide range of customers.

Finally, we have seen a couple of lenders publish that they will consider loans of 6 x income.  The lender has a duty of care to make sure you can afford your mortgage today, as well as when rates rise, and specifically to it being considered affordable over a five year period.   We have seen the introduction of affordability models.  The amount you can borrow will depend on your monthly net income set against expenditure and living costs. 

This works positively for the right loan to value, right affordability and right customer, as lenders are willing to offer a little bit more if you fit their specific affordability model.  Some we’ve seen have been well in excess of 6 x income.  So speak to a specialist who has access to the whole market, can offer such opportunities and make the right impact!

Payday loans won't help your mortgage application.

I have mentioned previously the impact that Payday loans can have on a mortgage application and lenders decisions. It is fair to comment that the incident rate on these went quiet for a while, but over the last few days there has been a marked increase in enquiries from those who might have used a Payday loan in the last twenty four months.  I need to reiterate that these are classed as an ‘adverse entity’ with most lenders (not that some would admit it!).  However, even the lenders who accept customers with historic CCJs, defaults, or missed mortgage payments registered against them, may choose not to accept someone who has taken out a recent payday loan.  So, although these may be right for a customer in certain circumstances, they will almost definitely limit the number of lenders available to you when you come to apply for or change mortgages.   With this in mind, lenders will also look closely at an individual’s payment profile, how many recent credit searches have been incurred by financial institutions and more. The more credit searches you have on your profile, over a recent period of time, the more likely your credit score will be lower as a result.  Every financial institution, including Payday loan lenders, will credit search you, so beware!

The other issue tends to be around lender affordability.  Difficult to detail when I have minimal words, but in the main, lenders will stress test all mortgages against a possible rate rise and underwrite the customers based on their ability to pay at the higher rates.  The regulators want lenders to ensure the customer can afford their mortgage for at least the next five years.  So, for example, a shorter term deal may be stress tested at a pay rate of 3% plus 3 percentage points higher than the prevailing rate at origination, so in this case 6%.  Whereas a five year (or longer) deal may be stress tested against the pay rate, which might only be 3 or 4% in current climates.  This can make quite a difference when it comes to calculating the affordable loan amount over the first five years of the loan, subject to the lenders terms and conditions.

There are however many opportunities, whatever your circumstances and lenders are willing to have a conversation in order to do the right deal.  Of course, rates and terms will vary depending upon the type of mortgage written. Lenders have varying degrees of risk assessment calculations and this will determine the loan to value and charging rate levels.  Finally, remember to always read the small print and understand all fees involved.  The lowest rates on offer may not always be the most cost effective over a period of time for you.

Not many lenders will not look favourably on Payday Loans

We’ve seen an increase in enquiries from those who might have used a Payday loan over the last twenty four months.   I need to reiterate that these are classed as an ‘adverse entity’ with most lenders (not that some would admit it!).  However, even the lenders who accept customers with historic CCJs, defaults, or missed mortgage payments registered against them, MAY NOT accept someone who has taken out a payday loan.  So, although these may be right for a customer in certain circumstances, they will almost definitely limit the number of lenders available to you when you come to apply for or change mortgages.  Seek advice.

With this in mind, lenders will look closely at an individual’s payment profile, how many recent credit searches have been incurred by financial institutions and more. The more credit searches you have on your profile, over a recent amount of time, the more likely your credit score will be lower as a result.  Try and ensure there’s no missed or late payments as these will also decrease your credit score.  In short, your credit search / score are the basis on which most lenders will initially decide whether to lend to you or not.  If you’ve not checked your credit file before, it is well worth a review. Experian, Equifax and Noddle tend to be the main providers used in our market with some offering free initial trials and you can find links to these on the AToM website.

But don’t be put off, there are many opportunities whatever your circumstances and lenders are willing to have a conversation in order to do the right deal. These are not always high street names, so do speak to someone who has whole of market access and not just a limited panel of lenders.  Of course, rates and terms will vary depending upon the type of mortgage written. Lenders have varying degrees of risk assessment calculations and this will determine the loan to value and charging rate levels.  Finally, remember to always read the small print and understand all fees involved.  The lowest rates on offer may not always be the most cost effective over a period of time for you.

Dudley launch - AToM one of the chosen few!

The summer is over, the kids are back to school and the post holiday credit card statements are on their way!  Ok, so a bit negative, but don’t panic when they arrive.  Debt Management Plans and Payday loans look like an attractive solution and they will be right for some people. However, most mortgage lenders are not favourable to these arrangements.  If you are looking to change your mortgage, think twice before committing to such a plan. Consolidating debts into one monthly payment via a secured loan or even a total remortgage may be a better option. Obviously securing short term debt in to a longer term loan will inevitably increase the amount of interest paid and professional advice should be sought before going this route.  But do review your options as rates are low.

The Dudley Building Society has launched their new mortgage lending proposition through seven key mortgage packager/distributors around the country.  We’re delighted that AToM is one of the chosen few!  The Dudley BS specialise in assisting First Time Buyers, Shared Ownership (90% of share on New Build properties), Right to Buys, Buy to Lets and more.   It’s great to see lenders expanding their propositions in to new areas and we look forward to working with them.

Buy to Let mortgages seem to be the flavour of the month.  With the rental market remaining buoyant and showing no signs of declining, lenders are reacting to the huge demand for investment/buy to let properties.  This sector has also experienced the recent mortgage price war and some big criteria changes as lenders seek to attract more of this business type.  Buy to Let properties will often provide a modest monthly return over and above the mortgage payment.  The additional amount can be used to supplement income, or, with flexible mortgages, can be used to “overpay” the mortgage and reduce the term.   Most lenders in this sector will require the rental income to exceed the mortgage payment by up to 125%.  Remember that, whatever the deal, lender terms and conditions will always apply and there are no guarantees of continued rental or capital growth.

August was a superb month for AToM.  Completion numbers, those taking out mortgage loans, were the best for five years!  Thank you to all those who have been using AToM’s services, we really do appreciate it.

Positive activity in the mortgage market

Only a few days into the final quarter of the year and we’re already seeing lenders lowing rates to attract new business.  Woolwich have cut some rates by up to 0.2% and Abbey for Intermediaries have reduced various fixed rates across the range, both following numerous lender changes last week.  Accord Mortgages have also launched eight products aimed at First Time Buyers with a 10% deposit.  Rates are reasonable and some offer free valuations and £250 cash back.  All in all, it seems there is an appetite to lend in the last quarter (to hit bonus targets?!) and this is great news for the end consumer.

Second charge lenders are also in the midst of a price war.  Many have reduced rates, one or two new lenders have entered the market and another has increased their maximum loan size up to £200,000.   Many customers are making use of a second charge, rather than a full remortgage, as their existing first charge mortgage is on a very good rate and it may not prove cost effective to remortgage the whole amount.  Make sure you review all options available to you.

House prices have fallen 0.4% in September, according to the Nationwide House Price index.  The average house price now stands at £164k.  Nationwide go on to suggest that overall house prices should remain “relatively flat” or decline only modestly over the next 12 months.

With a recent Panorama programme highlighting the use of Payday loans around the country, I need to reiterate that these are classed as an ‘adverse entity’ with most lenders (not that some would admit it!).   In short, these lenders will charge a premium interest rate for a mortgage, compared to a high street lender.   However, even these lenders (those who accept customers with historic CCJs, defaults, or missed mortgage payments registered against them) MAY NOT accept someone who has taken out a payday loan.   So, although these may be right for a customer in certain circumstances, they will most definitely limit the number of lenders available to you when you come to apply for or change mortgages.  Seek advice.

Act quickly - once they're gone, they're gone!

The summer is over, the kids are back to school and the post holiday credit card statements are on their way!   Ok, so a bit negative, but don’t panic when they arrive.  Debt Management Plans and Payday loans look like an attractive solution and they will be right for some people, however most mortgage lenders are not favourable to these arrangements.  If you are looking to change your mortgage, think twice before committing to such a plan.   Consolidating debts into one monthly payment via a secured loan or even a total remortgage may be a better option.  Obviously securing short term debt in to a longer term loan will inevitably increase the amount of interest paid and professional advice should be sought before going this route. 

Some lenders have been trying to boost mortgage volumes by launching products for a limited amount of time.  Accord Mortgages launched some superb products for a period of 10 days only.   These included cash back, free valuation, low arrangement fees and great rates.  A number of lenders took this approach around this time last year and maybe this is the start of things to come.  Watch this space and act quickly!  Once they’re gone, they’re gone.

Other lenders have made movements in the mortgage market over the last week or so, including rate reductions by Co-Op Bank, Tesco Bank, Santander, Coventry, Virgin Money and Skipton, to name but a few.  Lenders want your business, so make sure you shop around and do your homework.

August was a superb month for AToM.   Completion numbers, those taking out mortgage loans, were the best for nearly four years!  Thank you to all those who have been using AToM’s services, we really do appreciate it. 

Payday Loans and Mortgages = Limited options

We get many enquiries where the customer has had historic financial issues, missed a payment or two or occasionally, not made a payment at all.  Even so, in the current climates, some specialist lenders will still look to assist, albeit at a premium cost.

However, more recently you can’t pick up a newspaper, or put on daytime TV, without seeing the ever increasing number of ‘payday’ type loans available.   They are everywhere and pretty self explanatory as to why they are being used, normally more month than money…   

But, I want to explore the consequences for those who have taken out a payday type loan (short term loan, high interest rate) and then apply for a mortgage.

Payday loans are being treated, more recently, as an ‘adverse’ entity by some lenders in the market.  Even the lenders that accept customers who have had CCJs, defaults, missed mortgage payments registered against them, MAY NOT accept someone who has taken out a payday loan.

One such lender publicised their views this week - ‘Payday loan data is one of many items included in our review and if a mortgage applicant has a current or had a recent payday loan, it is unlikely that we will consider their mortgage application.’

The credit reference agencies have also buckled under the pressure from lenders to show such information on customer credit checks.  Companies like Experian now show Payday loans as a separate entry and therefore, make it easier for any prospective lender to see any history with regards to these types of loans, before making their decision whether to lend or not.

There are always two sides to every argument - “if they can’t afford to get to the end of the month, should they be looking for a mortgage?” and “the new loan will be cheaper allowing the customer to be in a better position”.     

I’m not against payday loans, they will be right for some people in certain circumstances.  But I will strongly point out that if you do take out such a loan, you will most definitely limit the number of lenders available to you when you come to apply for any type of mortgage finance.