Short Term Finance

The ‘Short Term Lending’ market continues to grow at a rapid pace.  Specifically geared at fast financial assistance, perhaps to purchase a property at auction or to enable a new purchase prior to sale of an existing property.  This is normally with a monthly interest rate and with a pre-agreed ‘exit’ route.

The term ‘Bridging Finance’ is quickly becoming a household name but most lenders now like to title it under the banner of Short Term Lending.  Many lenders in this sector of the mortgage market will offer loans up to 75% of the property value (sometimes higher with additional security offered). The loan is usually calculated and charged on a monthly basis and, in all fairness, can be quite pricey! Some of the lenders are happy to allow a 'roll up' of interest (no committed monthly payment) with the full debt settled at redemption.  Interest rates start from, circa 0.69% per month and normally are arranged over a period of between 1 to 18 months.  Most will carry a lender fee, an assessment fee, some will include early repayment charges and possibly an exit fee.  However, for the right scenario, these loans provide a superb funding line.

Ideal scenarios include –

1) Chain breaking or not sold your property yet
When the chain breaks or you have not sold your property but found one you have fallen in love with, bridging finance may enable you to complete on the purchase before you have sold your existing home.

2) Refurbishment – allows you to buy and refurbish property quickly
A loan to support with the purchase of a property and then undertake the refurbishment
before it is eventually presented to a mortgage company or bank for long term re-mortgage finance, or sold on at profit.

3) Purchasing properties at auction
Short Term Loans can be arranged very quickly and can be ideal where there are tight deadlines to meet.  A typical 28 day completion from purchasing an auction property is usually easily achievable. A pre-auction valuation is considered a must.

These are just some examples, there are many others.  However, where there are positives, there can be negatives!  Many lenders have set a minimum term for a property to be owned before they will allow a remortgage to occur. This is often six months.  So please ensure this is factored in to any purchase, budget calculations and financial requirements before committing to any Short Term Funding/Bridging Finance.  For more information, or to discuss a specific scenario, please contact us!

Lenders look for opportunities

Interest Only mortgages have been hitting the headlines once again.  This time after our regulator, the Financial Conduct Authority (FCA), have carried out a thematic review on interest only across the market.

The report highlights that 2.6m residential interest only mortgages represented 29.4% of all residential mortgages in December 2011.  It is also estimated that 12% of residential interest only mortgages are currently in negative equity (value of property less than the loan borrowed).  

Most believe that in the height of the 2007/08 market boom, many interest only mortgages were taken out, without a repayment vehicle in place (historically endowments, more recently ISA’s, etc).  But with so many not having plans in place, this is a potentially huge problem on the horizon for the FCA and lenders to deal with over the coming years/decades.  

For a customer to get to the end of their mortgage term and still owe 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 as to why so many lenders have recently moved away from 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.

However, some lenders are seeing this as an opportunity.   One such lender has targeted the over 65s and provided a solution to the ‘lending in retirement’ conundrum.   As long as the loan is below 50% of the property value, affordable within 4 x salary/pension/income with £150k equity in the property, then a long term interest only mortgage may be possible (not equity release).

This may also apply to those who, whilst having no mortgage, have suffered from reduced income and need to review options. Product innovation is providing schemes where equity can be turned into a mortgage and where off-spring may be able to assist with the repayments in order to secure and protect their inheritance whilst also ensuring a comfortable retirement for their parents. This is not right for everyone but it is certainly worth talking to a qualified advisor to review all possibilities.

Halifax help First Time Buyers

A helping hand for First Time Buyers this week as Halifax for Intermediaries launched a promotion where they will pay the Stamp Duty for all properties with a value between £125k and £250k.  With products available to customers with a minimum 10% deposit, this is a nice move by the lender, especially as this is not restricted to just ‘new build’ properties.

Nationwide’s House Price Index suggested that the typical value of a house declined by 0.1% between March and April, with the typical UK home now being worth £165,586.  This is still 0.9% higher than April 2012.

With this in mind, lenders require a valuation to be carried out, by their approved valuers, on every mortgage.  This report is for the lender only and should not be relied upon when purchasing a property, as it does not go far enough.  It only responds to the questions lenders ask relating to the property being suitable security for mortgage purposes and an increasing number of these are now done by a ‘drive by’, so the valuer may not even enter the property!  They have no obligation to tell you what is in the report, or give you a copy!  Therefore you should always consider the benefit of an independent and more in depth survey on the property you are purchasing to ensure all defects are noted before signing contracts.  The extra few hundred pounds cost upfront could save you thousands later on.

Mortgage approvals were up 5 per cent in March, compared to February report the Bank of England.  House purchases rose 3 per cent to £8bn and remortgaging up 9 per cent to £4.1bn.  Positive signs and shows how attractive the current rates are in the market.  We are seeing a huge amount of long term fixed rates being snapped up.  Criteria is also being relaxed slightly as lenders target volume business.  If you don’t think you can get a mortgage, have a chat with a local independent mortgage brokerage as you may just be surprised with how they respond!

Volumes on the up!

The mortgage market is incredibly busy and frantic with activity.  This can only be welcoming news as we all thrive on a competitive market which provides the end consumer with a great choice of products and great mortgage rates!

A huge thank you to all who have let AToM take care of their mortgage requirements over the last few months.  April was our best month for new business and also completions for over four years!  So thank you again, we really do appreciate it.  In fact, levels have been so constant that we are now looking to recruit, so do please review our careers page on our website if this might be of interest.  Plug over!

With the increased volumes of business, we are seeing an increase in the range of property types.  The government are obviously promoting new build properties and you can’t miss the amount of building works taking shape around the Horsham area.  However, on a smaller scale, many run down or derelict houses are being snapped up and converted in to more modern dwellings, or split in to a number of properties.   We are seeing a big demand for mortgages on houses that have been converted in to a number of flats and this is also true for old pubs and offices.  Beware though that some lenders treat these as newbuild and new build flats are of a limited appetite to some lenders in the current climates.

Others are converting outbuildings in to guest or ‘granny flats’ or building annexes on to the side of existing properties.  Both these and the converted flats will be subject to the valuers comments when they visit the property and can be subject to the relevant leaseholds being in place. 

Where two properties are on one title and not split in to separate titles, be advised that these may not be acceptable to many lenders and you will need to seek a specialist lender.

Holiday homes are also on the increase.  Where these are in the UK, lenders will help, but in most cases they must be restriction free.  Some have restrictions such as ‘can only be sold to people living in the area’ or ‘can only be let out 11 months of the year’.   For those looking to purchase properties abroad be aware that although rates are pretty low throughout Europe, deposits required can be quite substantial.

Have you heard of......

A quick test to start this week!  Have you heard of the Mansfield Building Society?  What about the Saffron, Manchester, Buckinghamshire, Furness, Shepshed, or the Stafford Railway Building Society?  Not necessarily household names, but not ones to be ignored either.  We are seeing these names and a lot more like them launching innovative products.  Not necessarily looking for huge volumes, but looking to fill gaps in the market and this should be applauded. 

One such lender has an option available to those in retirement and above the age of 65. They’ve realised there’s a huge gap (unless it’s an equity release mortgage required) and have launched a variable rate mortgage product specifically designed to assist this type of consumer. This can be on an interest only basis and up to any age.  Income must be provable, whether this is from pensions, investments, rental income, even earned income or off-spring support and must fit the lenders affordability criteria.  A max of 50% of the property value can be advanced and there are only redemption penalties in the first year.  This makes it reasonably flexible and an ideal solution for when the normal mortgage is coming to an end and the existing lender has requested their funds are repaid.  Remember, this is a standard mortgage and not a lifetime/equity release type solution.

What this all demonstrates is that there is an appetite to lend in a still very tough market.  However, many consumers are turning to the internet as it’s such a superb tool.  But it can also be a disadvantage as so much information, news, product and detail can make it more confusing than planned.  A good ‘old fashioned’ face to face conversation with your local specialist independent mortgage brokerage might be the answer. They will, in most cases, have a relationship with the lenders (even those you’ve never heard of!), understand their requirements and ensure all the correct information is submitted from day one.  There really is no better time to utilise the expertise and staffing levels they can provide for you in what’s becoming an over informed and more recently, highly competitive market place.

Competition for those with low deposits

Lenders are at last starting to recognise the importance of high loan to value loans for both first time and subsequent mortgage applicants. One such lender has chosen a limited panel of broker companies to distribute their new 95% loan to value product to home movers, first time buyers and those seeking to re-mortgage. We are delighted that AToM has been chosen for this purpose. This product is not restricted to new build properties, like most other 5% deposit products recently launched by some lenders, and it is not subject to credit scoring or early redemption penalties. The only stipulation is that those moving or remortgaging have had a mortgage for at least twelve months and any first time buyers must have been renting for the last twelve months. If this product is of interest, be quick as I suspect the demand will be huge for this products and funds will utilised quickly.

 

The Second Charge Secured Loan market has seen huge growth recently. March saw a 17% increase on February, breaking the £35m barrier for the first time in nearly four years, according to the Secured Loan Index. Many who require a loan to carry out home improvements or for other luxury items, but are currently sitting on very low lenders variable rates are opting to add on a second charge to their current property (sits behind the first charge mortgage). Right for certain people but rates start from around 5.5%, so will need to ensure it’s beneficial in the short to medium term compared with a complete remortgage to another lender/rate.

Finally, recent figures from creditaction show that the actual state of the financial economy is still extremely fragile:

- The average amount owed per UK adult (including mortgages) was £28,981 in February. This was around 118% of average earnings.

- The estimated average outstanding mortgage for the 11.3m households that carry mortgage debt stood at £112,153 in February.

- 277 people are declared insolvent or bankrupt every day (based on Q4 2012 trends). This is equivalent to one person every 5 minutes 12 seconds.

- 84 properties are repossessed every day (Every 17 mins)

- 1,454 people a day reported they had become redundant between November 2012 and January 2013.

- Citizens Advice Bureau in England and Wales dealt with 8,192 debt problems every working day during the year ending December 2012.

Stark figures, but we all need reminding occasionally and always worth reviewing your own finances to ensure you’re paying the best rates and where possible, have plans in place to account for all eventualities.

 

Increased competition in the 95% LTV market for First Time Buyers

We’ve seen another week of market movement and increased competition as lenders lower rates and loosen criteria.  There is a lot more positive activity from the lenders, however we are also seeing an increase in service times and underwriting responses resulting from increased volumes.  A few are even reporting backlogs of over a week just to look at a case!  In addition, if they then need further information in respect of the application, once received, this can then join the back of the queue again to be looked at!  Be aware of these timescales if you are in a hurry to complete.

House prices rose in March by 0.2% compared to February according to the Halifax House Price Index with the average price now sitting just below £164k. 

Our good friends at the Saffron Building Society have launched a superb product aimed at First Time Buyers.  The lender is offering a 95% mortgage with no credit scoring, to those who have never owned a property.  Customers will still be credit searched but cases are reviewed on a manual assessment, rather than a computer making the decision.  There are no early redemption penalties and the arrangement fee is just £495.  This is not just aimed at New Build properties either!  Obviously terms/conditions and other fees may apply, but this kind of innovation is exactly what the mortgage market needs!

Although not household names, specialist lenders like Saffron have money to lend and a desire to create products to assist gaps in the mortgage market.  For instance, the usual requirement on the self employed is 2 or 3 years accounts and possibly the SA302 returns from the Inland Revenue. Some specialist lenders, for the right deposit, will allow just 1 years accounts to prove income, normally with an accountant projection for the second full year and probably up to six months personal and business bank statements.

This is the beauty of using a mortgage broker.  They will have access to many lenders that you have probably never heard of and products that are not usually visible to the public eye. On average, a good mortgage broker will have access to over 6,000 mortgage products, from a huge number of lenders.  As with everything you purchase, it’s always worth shopping around as although you might think you have a great deal with your current provider, there may be better products out there that you are missing out on.