Your payment profile is part of your application for finance

The Council of Mortgage Lenders (CML) has released figures reporting that the remortgage market had its best month for five months in April.  Gross lending was boosted by 5% from remortgage finance.  Signs that the low rates are attracting new customers and homeowners are keen to make use of the great deals currently around.

It was also good news for First Time Buyers.  46% of all house purchase loans advance in April were to those purchasing their first property.  The market is still incredibly tough, but these are signs that things are slowly improving.

With this in mind and so many rate changes and reductions, lenders will look closely at an individual’s recent payment profile, how many recent credit searches have been incurred by financial institutions and more.   So don’t give them any excuses not to lend to you!  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.  The best rates will almost definitely go to those with the best credit scores.  If you’ve not checked your credit file before, it is well worth a review.  Experian and Equifax tend to be the main two providers used in our market with both offering free initial trials and you can find links to these on the AToM website.

Finally, so you’ve done all the hard work and gone through the whole mortgage process with the lender providing you with a mortgage offer and you can now sit back and relax.  Wrong!  Although the mortgage offer has been issued, until you have completed on your new mortgage, the lender can still decline to proceed with their offering.   If you take out any finance, have lots of credit searches done or miss any payments before completion, it could be that the lender will re-credit score you before completion and uncover something that might not be to their liking.  If in doubt, seek advice. 

The Buy to Let sector is seeing rate competition.

With the rental market continuing to be buoyant, and with no signs of declining, the mortgage market is active as lenders recognise the huge demand for Buy to Let (investment property) mortgages.   These can be from a first time landlord, right through to the experienced House of Multiple Occupation (HMO) / Student Let portfolio investor.   Whatever the scenario, there will probably be a lender who will look to assist. 

This sector has also recently been through a price war, rates are competitive and may also come with package deals, such as free valuation and free legals.

But with so many lenders now in this sector, rates may not be the main area of competition any longer.  Some lenders are also reviewing criteria in order to attract new business.  Many lenders historically would not allow first time landlords, anyone earning an income less than £25k, or those who have more than ten properties, to give you a few examples. 

However, we have seen recently that criteria is being relaxed and lenders are competing to attract more business.  As such, one of the main Buy To Let lenders, BM Solutions, has recently removed their minimum income requirements.  This now means there are three or four lenders in the market who no longer require a minimum income.  They will still require proof of income to ensure affordability, should a tenant void be incurred.

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% and, after costs such as managing agents this should leave some spare cash to cover repairs, maintenance and landlords insurance. It should also enable a fund to be established to cover the mortgage payment in the event that there is no tenant in situ for a while. Remember that, whatever the deal, lender terms and conditions will always apply.                

Consumer confidence appears to be high!

If you read the national press, the ‘funding for lending’ scheme appears to be under some scrutiny.  In short, the scheme was designed to provide relatively cheap funding from the Bank of England to a number of lenders as long as they maintained or increased their net lending on mortgages (or business loans).  However, recent reports suggest that since its launch in August 2012, the FLS scheme has seen an overall decrease in net lending of 1.8bn and a £300m decrease in Q1 2013 alone. 

Other reports highlight a reduction in house purchases for April 2013.  But if you delve slightly more in to the figures, the house purchase numbers for April were 53,710, representing £8bn.  This was against 53,674 loans approved in March!  So for the sake of 36 deals, the purchase market is not in apparent ‘freefall’….!  This should not make for newsworthy headlines!  Of course the headlines did not cover that the number of approvals for remortgaging were by up by nearly 2,000 compared to the six monthly average of 28,323 to at 30,313, and £4.3bn in volume. 

From dealing on the front line, I would dare to suggest that consumer confidence in financial services appears to be the highest it has been for some years.  People are selling, people are buying and many are remortgaging!  It’s not just set to one geographical area either, although appears to be more southern based than northern, but it really is ‘all types of mortgages’!  From the straight forward, to the complex, to the commercial shop front, to the credit issues, to the first time landlord with their first investment property, we are seeing many different scenarios.  We’re even having lenders come back to us on a Monday, backtracking on their previous decline decision on the Friday, having thought about the case and it’s scenario over a weekend and now wishing to offer terms!  This really does bring a new meaning to the ‘thinking outside the box’ analogy.  

There are also a few new lenders waiting in the wings to launch and create more competition in an already increasingly competitive market.  One that we know of will be filling a current gap in the market place, and that’s all I’m currently allowed to say!  But more lenders competing for business can only be a good thing to the end consumer.

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.